<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17, 1997
REGISTRATION NO. 333-36027
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE
SECURITIES ACT OF 1933
---------------
AXSYS TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3621 11-1962029
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
645 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212) 593-7900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------
LOUIS D. MATTIELLI
645 MADISON AVENUE
NEW YORK, NEW YORK 10022
(212) 593-7900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE
NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE)
---------------
COPIES TO:
KENNETH R. BLACKMAN, ESQ. DAVID J. SORIN, ESQ.
FRIED, FRANK, HARRIS, SHRIVER & BUCHANAN INGERSOLL
JACOBSON 500 COLLEGE ROAD EAST
ONE NEW YORK PLAZA PRINCETON, NEW JERSEY 08540
NEW YORK, NEW YORK 10004 (609) 987-6800
(212) 859-8000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE PRICE(2) FEE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock par value
$0.01 per share....... 1,757,833 shares $34.31 $60,315,645 $18,277.47
- ---------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
(1) Includes 229,283 shares of Common Stock that may be sold pursuant to the
Underwriters' over-allotment option.
(2) Calculated pursuant to Rule 457(c) under the Securities Act, based on the
average of the high and low prices reported on the Nasdaq National Market
on September 16, 1997.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933, OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATES AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<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 THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED OCTOBER 17, 1997
1,528,550 SHARES
[LOGO]AXSYS
------------
TECHNOLOGIES
COMMON STOCK
Of the 1,528,550 shares of Common Stock offered hereby, 1,064,809 shares are
being sold by Axsys Technologies, Inc. (the "Company") and 463,741 shares are
being sold by the Selling Shareholder. The Company will not receive any of the
proceeds from the sale of shares by the Selling Shareholder. See "Principal and
Selling Shareholders." The Company's Common Stock is traded on the Nasdaq
National Market under the symbol AXYS. On September 25, 1997, the last reported
sale price of the Common Stock on the Nasdaq National Market was $34.00 per
share. See "Price Range of Common Stock."
SEE "RISK FACTORS" BEGINNING ON PAGE 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to Proceeds to
Public Discount(1) Company(2) Selling Shareholder
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................. $ $ $ $
Total(3).................. $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company, estimated at
$ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
229,283 additional shares of Common Stock, solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $ , the Underwriting Discount will total $ , the
Proceeds to Company will total $ , and the Proceeds to Selling
Shareholder will total $ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of NationsBanc Montgomery Securities, Inc. on or about , 1997.
-----------
NATIONSBANC MONTGOMERY SECURITIES, INC.
FURMAN SELZ
OPPENHEIMER & CO., INC.
, 1997
<PAGE>
AXSYS TECHNOLOGIES SUPPLIES HIGH-PERFORMANCE COMPONENTS AND SYSTEMS TO A BROAD
ARRAY OF TECHNOLOGY MARKETS
[COMPANY LOGO]
ELECTRONICS CAPITAL EQUIPMENT
Picture with title description: head stack assembly ("HSA") dynamic test
equipment, accompanied by the following additional language: turnkey
equipment, precision motion control components and subsystems, laser scanners,
laser autofocus
DEFENSE
Picture with title description: infrared scanner used in a night vision system
integrated into advanced turrets for light armored vehicles, accompanied by
the following additional language: high-performance motion control components
and subsystems, precision metal optics, precision machining services
HIGH-END DIGITAL IMAGING
Picture with title description: high speed airbearing scanners used in a
variety of pre-press film recorders, accompanied by the following additional
language: laser scanners and imaging systems, precision metal optics
SPACE
Picture with title description: all-beryllium, visual imaging system used on
the International Solar Terrestrial Physics Polar Satellite Visual Imaging
System, accompanied by the following additional language: high-performance
precision metal optics, motion control components and subsystems, precision
machining services
INDUSTRIAL AUTOMATION
Picture with title description: precision ball bearings and connectors,
accompanied by the following additional language: precision ball bearings,
terminal blocks and connectors
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY OVER-ALLOT OR ENGAGE IN
TRANSACTIONS THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE
COMMON STOCK. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF
COMMON STOCK TO COVER SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. SEE
"UNDERWRITING. "
IN CONNECTION WITH THE OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS, IF ANY, MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 UNDER
REGULATION M. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and consolidated financial
statements and notes thereto, appearing elsewhere in this Prospectus, including
information under "Risk Factors." Unless otherwise indicated, all information
in this Prospectus assumes no exercise of the Underwriters' over-allotment
option. All references to the "Company" in this Prospectus include Axsys
Technologies, Inc. and its consolidated subsidiaries, unless otherwise
expressly stated or the context otherwise requires. All share and per share
amounts appearing in this Prospectus reflect the Company's July 25, 1996 one-
for-five reverse Common Stock split. A glossary of terms appears on page 57.
THE COMPANY
The Company designs, manufactures and sells custom precision optical and
positioning components, subsystems and systems for high-performance markets,
such as defense, space, high-end digital imaging and electronics capital
equipment. The Company also designs, manufactures and sells interconnect
devices and distributes precision ball bearings for use in a variety of
industrial, commercial and consumer applications.
Through its Precision Systems Group ("PSG"), the Company offers its
capabilities in magnetics, electronics, optics, precision machining and systems
integration to high-performance Original Equipment Manufacturers ("OEMs") and
end-users, enabling them to design and utilize systems that meet leading-edge
performance requirements. PSG designs, manufactures and sells high-end
components such as precision sensors, high-performance motors, precision metal
optics and airbearings. These products enable OEMs to improve measurement
precision, positioning performance (speed and power), inspection throughput and
manufacturing yields. PSG also designs, manufactures and sells subsystems which
integrate several of the Company's components. Subsystems include laser
autofocus systems which automatically focus microscopes used for optical
inspection, airbearing laser scanners and laser imaging systems used in the
electronic pre-press market, and direct drive motor and resolver assemblies
used in cluster tool robotics for positioning semiconductor wafers. In
addition, PSG designs, manufactures and sells systems, such as head stack
assembly (HSA) testers used to dynamically test computer disk drive magnetic
heads, electrical probers for advanced flat panel displays, and infrared
microscopes used to locate defects in microprocessors.
Through its Industrial Components Group ("ICG"), the Company designs,
manufactures and sells interconnect products. It also distributes and services
precision ball bearings used by OEMs in a variety of commercial industries. The
interconnect products include safety agency (e.g., U.L.) approved barrier
terminal blocks and power connectors which are primarily used to interface
industrial or process control computers to sensors, motors and other signal
level and power devices. The precision ball bearings distributed by the Company
are acquired from various domestic and international sources and are used in
machine tools, office automation, semiconductor manufacturing and other motion
control applications to provide for smooth and precise rotary motion.
The Company's current business reflects a strategic shift that commenced in
1995. In that year, the Company began to expand its PSG business to include not
only components for defense and military space applications, but also value-
added subsystems and systems for a broad range of industrial and commercial
markets. This shift was timed to take advantage of the increased demand for
high-performance components, subsystems and systems in these markets as
commercial manufacturers began to seek new methods to increase throughput and
yield. The Company believes that the change in these markets was the result of
several factors, including: (i) the demand on manufacturers to produce smaller,
higher-performance products with precise tolerances; (ii) pressures imposed on
manufacturers to enhance productivity and quality, which in turn required
integration of process control technology directly into the manufacturing
process; and (iii) the lowering of costs associated with electronic controls.
3
<PAGE>
In furtherance of its shift in strategy, the Company acquired various
synergistic technologies and assets. In April 1996, the Company acquired
Precision Aerotech, Inc. ("PAI"). PAI's subsidiaries, Speedring, Inc.
("Speedring") and Speedring Systems, Inc. ("Speedring Systems"), are leading
manufacturers and suppliers of high-performance laser scanners and optics, as
well as suppliers of precision-machined specialty materials, such as beryllium
and quartz, for space and other high-technology applications. In October 1996,
the Company acquired substantially all of the assets of Lockheed Martin
Beryllium Corporation ("LMBC"), a supplier of precision-machined beryllium.
Components made of beryllium are significant elements of space telescopes,
weather and direct broadcast satellites, and low-earth-orbit satellites used in
cellular communication. Most recently, in May 1997, the Company acquired
Teletrac, Inc. ("Teletrac") which designs, manufactures and sells laser-based
precision measurement systems as well as precision linear and rotary
positioning systems for use in the electronics capital equipment industry.
The Company's primary goal is to be a leading provider of components,
subsystems and systems that enhance throughput and yield to customers requiring
high-performance devices in their equipment and to end-users in their
manufacturing and quality assurance processes. The Company's strategy is to
leverage its resources and capabilities to develop higher-level subsystems and
systems, employing its precision optical and positioning technologies, while
maintaining and continuing to grow ICG. Key elements of this strategy include:
(i) integrating technologies; (ii) capitalizing on cross-selling opportunities;
(iii) increasing investment in engineering and manufacturing infrastructure;
and (iv) expanding through acquisitions.
The Company was originally incorporated in 1959 in New York under the name
Vernitron Corporation, was reincorporated in Delaware in 1968 and changed its
name to Axsys Technologies, Inc. in December 1996. The Company's principal
executive office is located at 645 Madison Avenue, New York, New York 10022,
and its telephone number is (212) 593-7900.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 1,064,809 shares
Common Stock offered by the Selling Share-
holder...................................... 463,741 shares
Common Stock to be outstanding after the Of-
fering...................................... 4,113,190 shares(1)
Use of Proceeds.............................. Repayment of bank debt, repurchase of warrants,
working capital and other general corporate
purposes, including possible acquisitions.
See "Use of Proceeds."
Nasdaq National Market Symbol................ AXYS
</TABLE>
- --------
(1) Based on the number of outstanding shares of Common Stock as of August 15,
1997. Excludes 400,000 shares of Common Stock reserved for issuance under
the Company's Long-Term Stock Incentive Plan (as amended), under which
options to purchase 48,600 shares of Common Stock were outstanding as of
August 15, 1997, and 100,000 shares of Common Stock issuable in the future
to the minority shareholders of Teletrac (the "Teletrac Minority
Shareholders"). The Company anticipates that, concurrently with the
effectiveness of this Offering, options to purchase shares of Common Stock
will be granted to a number of the Company's employees, including executive
officers, covering a significant part of the shares available for grant
under the Long-Term Stock Incentive Plan. See "Management--Stock Incentive
Plan," "Certain Transactions," "Description of Capital Stock--Warrants" and
"Shares Eligible for Future Sale."
4
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ -----------------
1992 1993 1994 1995 1996(1) 1996(1) 1997(2)
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $62,912 $58,649 $62,132 $65,213 $91,301 $ 40,545 $ 58,849
Gross profit............ 15,831 15,311 17,229 17,240 23,818 10,655 15,738
Income (loss) from con-
tinuing operations be-
fore extraordinary
item................... (1,042) (3,856) 27 884 2,855 1,202 2,366
Net income (loss)....... 102 (4,526) 3,681 884 2,682 1,029 2,366
Preferred stock divi-
dends.................. 158 375 355 574 847 405 102
Net income (loss)
applicable to common
shareholders........... (56) (4,901) 3,326 310 1,835 624 2,264
Net income (loss) per
share from continuing
operations before
extraordinary item..... $ (1.15) $ (4.1) $ (0.20) $ 0.12 $ 0.74 $ 0.34 $ 0.69
Net income (loss) per
share applicable to
common shareholders.... $ (0.05) $ (4.75) $ 1.95 $ 0.12 $ 0.68 $ 0.24 $ 0.69
Weighted average common
shares outstanding..... 1,036 1,037 1,702 2,511 2,691 2,615 3,277
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------
ACTUAL AS ADJUSTED(3)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $23,180 $25,331
Total assets........................................... 74,695 74,695
Long-term debt and capital lease obligations (less cur-
rent portion)......................................... 26,056 3,586
Shareholders' equity................................... 23,594 48,215
</TABLE>
- --------
(1) In April 1996, the Company acquired the stock of PAI and, in October 1996,
purchased substantially all of the assets of LMBC. These acquisitions have
been accounted for under the purchase method of accounting and,
accordingly, the results of the continuing operations of PAI and LMBC have
been included in the Company's Consolidated Statement of Operations since
their respective dates of acquisition. See Note 3 to the Consolidated
Financial Statements.
(2) In May 1997, the Company acquired the stock of Teletrac. This acquisition
was accounted for under the purchase method of accounting and, accordingly,
the results of Teletrac's operations have been included in the Company's
Consolidated Statement of Operations since the date of acquisition. See
Note 3 to the Consolidated Financial Statements.
(3) Adjusted to reflect the sale of 1,064,809 shares of Common Stock offered by
the Company hereby at an assumed offering price of $34.00 per share and the
anticipated application of the estimated net proceeds therefrom, including
the repurchase by the Company of warrants representing 314,809 shares of
Common Stock concurrently with the consummation of this Offering at a price
per share of Common Stock subject to the respective warrant equal to the
excess of the public offering price, less the underwriting discount set
forth on the cover page of this Prospectus, over the exercise price of such
warrant. See "Use of Proceeds," "Capitalization," "Description of Capital
Stock--Warrants" and Note 12 to the Consolidated Financial Statements.
Recent Developments
Third Quarter Charge for Discontinued Operations
In the third quarter of 1997, the Company recorded a charge to discontinued
operations of $244,000, net of taxes (approximately $0.07 per share), relating
to increases in reserves for certain environmental costs associated with a
formerly-owned property. See "Risk Factors--Environmental Regulation" and
"Business --Environmental Regulation."
Fourth Quarter Extraordinary Charge
Upon the consummation of this Offering, the Company will prepay certain
amounts outstanding under its Credit Facility (defined herein) and, as a
result, will incur an extraordinary, non-cash charge of approximately $182,000
to be recognized in the fourth quarter of 1997. See "Use of Proceeds" and Note
12 to the Consolidated Financial Statements.
5
<PAGE>
RISK FACTORS
This Prospectus contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
including, without limitation, statements regarding the increasing performance
demands in the defense, space, high-end digital imaging, electronics capital
equipment and other markets served by the Company, the Company's ability to
integrate its existing technologies and realign its direct sales
organizations, the Company's ability to implement its strategy to develop and
sell value-added systems, the continuation of trends favoring outsourcing of
the design and manufacturing of subsystems and systems by customers, the
receipt and shipment of orders by the Company, the Company's objective to grow
through strategic acquisitions and anticipated expenditures for environmental
remediation. Discussion containing such forward-looking statements is found in
the material set forth under "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business," as well as within the Prospectus
generally. The factors discussed below could cause actual results and
developments to be materially different from those expressed in or implied in
such statements. The Company cautions the reader, however, that this list of
factors may not be exhaustive. The following risk factors should be considered
carefully in addition to the other information contained in this Prospectus
before purchasing the shares of Common Stock offered hereby.
MANAGEMENT OF EXPANDED OPERATIONS; ACQUISITIONS
In recent years, the Company has made several acquisitions of complementary
businesses which the Company is seeking to integrate. This integration
strategy includes the development and sale of value-added systems
incorporating the Company's various technological capabilities. The
development of such systems is in its early stages. There can be no assurance
that the Company will be successful in developing and selling such systems.
In addition, as part of the Company's business development strategy, the
Company plans to pursue further acquisitions in order to expand the Company's
product offerings, add to or enhance its base of technical or sales personnel,
or provide desirable customer relationships. Such growth could result in a
significant strain on the Company's managerial, financial, engineering and
other resources. The rate of the Company's future expansion, if any, in
combination with the complexity of the technologies involved in the Company's
business, may demand an unusually high level of managerial effectiveness in
anticipating, planning, coordinating and meeting the operational needs of the
Company as well as the needs of its customers. Additionally, there can be no
assurance that the Company will be able to acquire complementary businesses on
a cost-effective basis, or integrate acquired operations into its organization
effectively, retain and motivate key personnel, or retain customers of
acquired firms. The Company competes for attractive acquisition candidates
with other companies or investors, and such competition could have the effect
of increasing the cost to the Company of pursuing its acquisition strategy or
reducing the number of attractive candidates to be acquired. Although the
Company reviews and considers possible acquisitions on an on-going basis, no
specific acquisitions are being negotiated or planned as of the date of this
Prospectus. See "Business--Business Strategy."
TECHNOLOGICAL CHANGE AND NEW PRODUCT DEVELOPMENT
The Company's success will continue to depend in substantial part upon its
ability to introduce new products that keep pace with technological
developments and evolving industry standards and to apply appropriate levels
of engineering, research and development resources necessary to keep pace with
such developments. In addition, the Company's success will depend on how well
the Company responds to changes in customer requirements and achieves market
acceptance for its products and capabilities. Any failure by the Company to
anticipate or respond adequately to technological developments and customer
requirements could have a material adverse effect on the Company's business,
financial condition or results of operations. In order to develop new products
successfully, the Company is dependent upon close relationships with its
customers and their willingness to share proprietary information about their
requirements and participate in collaborative efforts with the Company. There
can be no assurance that the Company's customers will continue to provide it
with timely access to such information or that the Company will be successful
in developing and marketing new products and services or their enhancements.
In addition, there can be no assurance that the new products and
6
<PAGE>
services or their enhancements, if any, developed by the Company will achieve
market acceptance. See "Business--Business Strategy" and "Business--
Engineering, Research and Development."
SUBSTANTIAL VARIABILITY OF QUARTERLY RESULTS OF OPERATIONS
Factors such as announcements of technological innovations or new products
by the Company or its competitors, and the cyclical nature of the industries
served by the Company could cause substantial variations in the Company's
operating results. The defense, space, high-end digital imaging, electronics
capital equipment and industrial automation markets, each of which represents
a significant market for the Company's products, have historically been
subject to substantial economic fluctuations due to changing demands for their
products and services, introduction of new products and product obsolescence.
There can be no assurance that such fluctuations will not reoccur and have an
adverse impact on the Company's business, financial condition or results of
operations. The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly and annual operating results due to
a variety of factors, including market acceptance of new and enhanced versions
of the Company's products, timing and shipment of significant orders, mix of
products sold, length of sales cycles, plant openings and closings, the timing
of acquisitions or dispositions by the Company, delays in raw materials
shipments, completion of large projects, other manufacturing delays and
disruptions, the level of backlog of orders, and cyclicality in the markets
the Company serves. To some extent, the Company's net sales and operating
results for a quarter will depend upon the Company generating orders to be
shipped in the same quarter in which the order is received. The failure to
receive anticipated orders or delays in shipments near the end of a particular
quarter, due, for example, to unanticipated reschedulings or cancellations of
shipments by customers or unexpected manufacturing difficulties, may cause net
sales in a particular quarter to fall significantly below the Company's
expectations, which would have a material adverse effect on the Company's
business, financial condition or results of operations for such quarter. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Selected Quarterly Results of Operations" and "Business--Market
Overview."
INDUSTRY CONCENTRATION
A significant portion of the Company's business and business development
efforts are concentrated in the defense and, to a lesser extent, electronics
capital equipment industries. The Company's business depends, in significant
part, upon the U.S. Government's continued demand in the area of defense for
high-end, high-performance components and subsystems of the type manufactured
by the Company. Approximately 27.6% of net sales in 1996 and 29.5% of net
sales in the six months ended June 30, 1997 were derived directly from
contracts with the U.S. Government, or agencies or departments thereof, or
indirectly from subcontracts with U.S. Government contractors. The majority of
these Government contracts are subject to termination and renegotiation. As a
result, the Company's business, financial condition or results of operations
may be materially affected by changes in U.S. Government expenditures for
defense. Additionally, the Company currently intends to continue to develop
the portion of its business dependent upon manufacturers in the electronics
capital equipment industry which provides equipment used in the semiconductor,
mass data storage and flat panel display industries. Such business development
will depend, in part, upon capital expenditures by manufacturers of
electronics capital equipment, which in turn depend upon the current and
anticipated market demand for semiconductor, mass data storage and flat panel
display devices. The semiconductor, mass data storage and flat panel display
industries have been highly volatile and historically have experienced periods
of oversupply, resulting in significantly reduced demand for capital
equipment. There can be no assurance that this volatility will not have a
material adverse effect on the Company's business in the electronics capital
equipment industry. See "Business--Market Overview" and "Business--Customers."
COMPETITION
The markets for the Company's products are competitive. The Company competes
primarily on the basis of its ability to design and engineer its products to
meet performance specifications set by its customers, most of whom are OEMs
who purchase component parts or subsystems for inclusion in their end-
products. Product pricing and quality, customer support, experience,
reputation and financial stability are also important competitive factors.
There is a limited number of competitors in each of the markets for the
various types of
7
<PAGE>
precision optical and positioning components and subsystems and
electrical/electronic interconnect devices manufactured and sold by the
Company. These competitors, especially those in the precision optical and
positioning product lines, are typically focused on a smaller number of
product offerings than the Company, and are often well entrenched. Some of
these competitors have substantially greater resources than the Company. There
can be no assurance that the Company's competitors will not develop
enhancements to or future generations of competitive products that will offer
superior price or performance features, or that new processes or technologies
will not emerge that render the Company's products less competitive or
obsolete. In addition, as a result of the substantial investment required by a
customer to integrate capital equipment into a production line, or to
integrate components and subsystems into a product design, the Company
believes that once a customer has selected certain capital equipment or
certain components or subsystems from a particular vendor, the customer
generally relies upon that vendor to provide equipment for the specific
production line or product application and may seek to rely upon that vendor
to meet other capital equipment or component or subsystem requirements.
Accordingly, the Company may be at a competitive disadvantage with respect to
a prospective customer if that customer utilizes a competitor's manufacturing
equipment or components or subsystems. Further, there are numerous competitors
in markets to which the Company distributes precision ball bearings. These
competitors, who vary in size, include other ball bearing distributors as well
as ball bearing manufacturers. There can be no assurance that the bases of
competition in the industries in which the Company competes will not shift or
that the Company will continue to compete successfully. See "Business--
Competition."
DEPENDENCE ON KEY SUPPLIERS
A significant portion of the Company's precision machining business related
to the commercial space market depends on the adequate supply of specialty
metals, such as beryllium, at competitive prices and on reasonable terms. The
Company currently procures all of its beryllium from Brush Wellman, Inc.
("Brush Wellman"), the sole U.S. supplier, and the Company expects to continue
to rely on Brush Wellman for beryllium for the foreseeable future. Although
the Company has not experienced significant problems with this supplier in the
past, there can be no assurance that such relationship will continue or that
the Company will continue to obtain such supplies at cost levels that would
not adversely affect the Company's gross margins. The partial or complete loss
of Brush Wellman as a supplier of beryllium, or production shortfalls or
interruptions that otherwise impair the supply of beryllium to the Company,
would have a material adverse effect on the Company's business, financial
condition or results of operations. It is uncertain whether alternative
sources of supply could be developed without a material disruption in the
Company's ability to provide beryllium products to its customers.
Although the Company has not experienced significant problems with its other
suppliers in the past, there can be no assurance that such relationships will
continue or that, in the event of a termination of its relationships with such
other suppliers, it would be able to obtain alternative sources of supply
without a material disruption in the Company's ability to provide products to
its customers. In addition, the Company purchases a substantial part of the
ball bearings it distributes from a single foreign supplier. Any material
disruption in the Company's supply of products would have a material adverse
effect on the Company's business, financial condition or results of
operations. See "Business--Raw Materials; Suppliers."
RISKS OF INTERNATIONAL SALES AND PURCHASES
The Company's international sales accounted for approximately 12.0%, 11.4%
and 10.8% of the Company's net sales for 1995, 1996 and the first six months
of 1997, respectively. Also, the Company purchases a substantial portion of
its ball bearings products from a single foreign supplier and certain other
products from other foreign suppliers. The Company's international sales and
purchases are subject to a number of risks generally associated with
international operations, including import and export duties and restrictions,
currency fluctuations, changes in regulatory requirements, tariffs and other
barriers, political and economic instability and potentially adverse tax
consequences. There can be no assurance that any of these factors will not
have a material adverse effect on the Company's business, financial condition
or results of operations.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent on the continued
services of its key executive officers, including its Chairman of the Board
and Chief Executive Officer, and other senior management
8
<PAGE>
personnel. The loss of the services of one or more of these individuals may
have a material adverse effect on the Company's business, financial condition
or results of operations. The Company maintains, and is the beneficiary of, a
life insurance policy on the life of its Chairman of the Board and Chief
Executive Officer. The face amount of such policy is $5.0 million. The Company
does not maintain key man life insurance on its other executive officers. In
addition, since the continued success of the Company is largely dependent upon
its ability to design, manufacture and sell high-performance components and
subsystems for the high-performance technology market, the Company is
particularly dependent upon its ability to identify, attract, motivate and
retain qualified technical personnel, including engineers, with the requisite
educational background and industry experience, as well as skilled precision
machining personnel. The Company's employees may voluntarily terminate their
employment with the Company at any time, and competition for such personnel is
intense. Accordingly, there can be no assurance that the Company will be
successful in retaining its existing personnel. The loss of the services of a
significant number of the Company's technical or skilled personnel, or the
future inability to attract such personnel, could have a material adverse
effect on the Company's business, financial condition or results of
operations. See "Management--Key Man Insurance."
INTELLECTUAL PROPERTY RIGHTS
The Company's ability to compete effectively with other companies will
depend, in part, on its ability to maintain the proprietary nature of its
technology. The Company relies upon a combination of patents, trademarks and
trade secrets, non-disclosure agreements and other forms of intellectual
property protection to safeguard certain of its proprietary technology. The
Company currently holds 14 patents in the United States expiring between
October 27, 1997 and April 18, 2012, and eight international patents expiring
between April 21, 1998 and December 24, 2019, and has patent applications
pending or under evaluation in the United States and various foreign
jurisdictions. There can be no assurance as to the degree of protection
offered by these patents or as to the likelihood that patents will be issued
for pending applications. There also can be no assurance that the Company will
be able to maintain the confidentiality of its trade secrets or that its non-
disclosure agreements will provide meaningful protection of the Company's
trade secrets, know-how or other proprietary information in the event of any
unauthorized use, misappropriation or disclosure of such trade secrets, know-
how or other proprietary information.
Competitors in the United States and foreign countries, many of which have
substantially greater resources and have made substantial investments in
competing technologies, may have applied for or obtained, or may in the future
apply for and obtain, patents that will prevent, limit or interfere with the
Company's ability to make and sell some of its products. Although the Company
believes that its existing products do not infringe on the patents or other
proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company or that such
claims will not be successful. See "Business--Patents and Trademarks."
ENVIRONMENTAL REGULATION
The Company is subject to a variety of federal, state and local laws, rules
and regulations relating to the use, storage, discharge and disposal of
hazardous chemicals used during its engineering, research and development and
manufacturing activities. Failure to comply with applicable environmental
requirements could result in substantial liability to the Company, suspension
or cessation of the Company's operations, restrictions on the Company's
ability to expand its operations or requirements for the acquisition of
additional equipment or other significant expense, any of which could have a
material adverse effect on the Company's business, financial condition or
results of operations. In addition, there can be no assurance (i) that changes
in federal, state or local laws, regulations or regulatory policy, or the
discovery of unknown problems or conditions, will not in the future require
substantial expenditures, or (ii) as to the extent of the Company's
liabilities, if any, for past failures, if any, to comply with applicable
environmental laws, regulations and permits, any of which also could have a
material adverse effect on the Company's business, financial condition or
results of operations.
In the third quarter of 1997, the Company recorded a charge to discontinued
operations of $244,000, net of taxes (approximately $0.07 per share), relating
to increases in reserves for certain environmental costs associated with a
formerly-owned property. The reserve established assumes that certain
approvals will be received from
9
<PAGE>
state regulatory authorities. However, there can be no assurance that such
approvals will be received. If such approvals are not received, costs would
increase substantially. In addition, even if such approvals are received, the
costs actually incurred may exceed the reserves established. See "Business--
Environmental Regulation."
The Company has made and continues to make investments in protective
equipment, process controls, manufacturing procedures and training in order to
minimize the risks to employees, surrounding communities and the environment
due to the presence and handling of hazardous materials. The failure to
properly handle such materials could lead to harmful exposure to employees or
to the discharge of certain hazardous waste materials, and, since the Company
does not carry environmental impairment insurance, to a material adverse
effect on the Company's business, financial condition or results of
operations. There can be no assurance that environmental problems will not
develop in the future which would have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Business--Environmental Regulation."
CONTINUED INVESTMENT REQUIRED TO MAINTAIN MANUFACTURING CAPABILITIES
The Company has invested, and intends to continue to invest, in state-of-
the-art equipment in order to increase, expand, update or relocate its
manufacturing capabilities and facilities. Changes in technology or sales
growth beyond currently established manufacturing capabilities will require
further investment. There can be no assurance that the Company will generate
sufficient funds from operations to finance any required investment or that
other sources of funding will be available on terms acceptable to the Company,
if at all. Furthermore, there can be no assurance that any further expansion
will not negatively impact the Company's business, financial condition or
results of operations. See "Business--Facilities and Manufacturing."
CONTROL OF COMPANY BY EXISTING SHAREHOLDER
Upon completion of this Offering, the Chairman of the Board and Chief
Executive Officer of the Company will own approximately 29.8% of the
outstanding Common Stock. As a result, he will have the ability to exert
significant influence with respect to the election of all of the members of
the Company's Board of Directors and other corporate actions. See "Principal
and Selling Shareholders."
POSSIBLE VOLATILITY OF SHARE PRICE
Historically, the number of shares of Common Stock available for sale in the
public market has been limited, and the price of the Common Stock has been
subject to significant fluctuations. That price volatility may be
attributable, at least in part, to the limited number of shares generally
available for sale in the public market. In addition, factors such as actual
or anticipated quarterly fluctuations in financial results, changes in
recommendations or earnings estimates by securities analysts, announcements of
technological innovations or new commercial products or services and the
timing of announcements of acquisitions or dispositions by the Company or its
competitors, as well as conditions in the Company's markets generally, may
have a significant adverse effect on the market price of the Common Stock.
Furthermore, the stock market historically has experienced volatility which
has particularly affected the market prices of securities of many technology
companies and which sometimes has been unrelated to the operating performances
of such companies. See "Price Range of Common Stock."
POTENTIAL ADVERSE IMPACT OF SHARES AVAILABLE FOR FUTURE SALE ON MARKET PRICE
FOR COMMON STOCK
The future sale of a substantial number of shares of Common Stock by
existing shareholders and by holders of outstanding options to purchase shares
of Common Stock after exercise thereof could have an adverse effect on the
market price of the Common Stock. In addition, approximately 1,268,696 shares
of Common Stock will become eligible for sale in the public market 120 days
after this Offering upon expiration of agreements with the Underwriters not to
sell such shares, subject to compliance with Rule 144 under the Securities Act
or the registration requirements of the Securities Act. See "Principal and
Selling Shareholders," "Description of Capital Stock--Registration Rights" and
"Shares Eligible for Future Sale."
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), the Company's By-Laws (the "By-Laws") and the Delaware
General Corporation Law (the "DGCL") contain
10
<PAGE>
certain provisions which could delay or impede the removal of incumbent
directors and could make more difficult a merger, tender offer or proxy
contest involving the Company, even if such a transaction would be beneficial
to the interests of the shareholders, or could discourage a third party from
attempting to acquire control of the Company. The Company has authorized
4,000,000 shares of its preferred stock (the "Preferred Stock"), none of which
is currently outstanding, and which the Company could issue without further
shareholder approval and upon such terms and conditions, and having such
rights, privileges and preferences, as the Board of Directors may determine.
The Company has no current plans to issue any Preferred Stock. The By-Laws
include provisions establishing advance notice procedures with respect to
shareholder proposals and director nominations, and permitting the calling of
special shareholder meetings only by the written consent of three-quarters of
the Board of Directors or the Chairman of the Board. The Certificate of
Incorporation provides that in lieu of a meeting, action may be taken by
written consent of the Company's shareholders only by unanimous consent. These
provisions could have the effect of delaying, deterring or preventing a change
in control of the Company, and may adversely affect the voting and other
rights of holders of Common Stock. In addition, the Company is subject to
Section 203 of the DGCL which, subject to certain exceptions, restricts
certain transactions and business combinations between a corporation and a
shareholder owning 15% or more of the corporation's outstanding voting stock
(an "interested shareholder") for a period of three years from the date the
shareholder becomes an interested shareholder. These provisions may have the
effect of delaying or preventing a change of control of the Company without
action by the shareholders and, therefore, could adversely affect the price of
the Company's Common Stock. In the event of a change of control of the
Company, the vesting of outstanding options issued under the Stock Incentive
Plan (defined herein) may be accelerated at the discretion of the Committee or
may be required to be accelerated under certain circumstances provided for in
each incentive agreement. See "Management--Stock Incentive Plan" and
"Description of Capital Stock."
ABSENCE OF DIVIDENDS ON COMMON STOCK
The Company does not anticipate paying dividends on its Common Stock in the
foreseeable future. The Company's Credit Facility prohibits it from paying
cash dividends on its Common Stock. See "Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
investment from the offering price. See "Capitalization," "Dilution" and
"Shares Eligible for Future Sale."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,064,809 shares of
Common Stock offered hereby by the Company are estimated to be approximately
$33.6 million (approximately $40.9 million if the Underwriters' over-allotment
option is exercised in full), based on an assumed offering price of $34.00 per
share and after deducting the underwriting discount and the estimated offering
expenses. The Company will not receive any proceeds from the sale of shares of
Common Stock by the Selling Shareholder. See "Principal and Selling
Shareholders."
The Company intends to use approximately $8.9 million of the net proceeds
that it receives from this Offering to repurchase certain warrants (see
"Description of Capital Stock--Warrants") and all or a portion of the
remaining net proceeds to repay up to the outstanding amount of its
indebtedness ($25.6 million at September 16, 1997) under the Company's
existing senior secured credit facility with Banque Paribas, as agent on
behalf of various banks (the "Credit Facility"). The indebtedness to be repaid
consists of a term loan and revolving line of credit maturing on April 25,
2000 and a term loan maturing on April 25, 2002. Borrowings under the Credit
Facility bear interest at a fluctuating rate per annum equal to the prime rate
received by The Chase Manhattan Bank, plus a margin ranging from 1.75% to
2.25%, or the London Interbank Offered Rate, plus a margin ranging from 3.25%
to 3.75%. At June 30, 1997, the interest rate being paid under the Credit
Facility was 9.24% per annum. Amounts outstanding under the Credit Facility
were utilized by the Company for working capital purposes and acquisitions of
complementary businesses.
The balance of the net proceeds, if any, will be used for working capital
and other general corporate purposes, including possible acquisitions of
complementary businesses. Although the Company reviews and considers possible
acquisitions on an on-going basis, no specific acquisitions are being
negotiated or planned as of the date of this Prospectus. Pending any such use,
as described above, the net proceeds to the Company from this Offering will be
invested in short-term, investment-grade, interest-bearing instruments.
12
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock has been trading on the Nasdaq National Market
under the symbol AXYS since December 11, 1996. Prior to that time, it was
traded on the Nasdaq SmallCap Market. The following table sets forth the high
and low prices per share of Common Stock as reported by the Nasdaq SmallCap
Market from January 1, 1995 to December 10, 1996, and as reported on the
Nasdaq National Market from December 11, 1996:
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1995
Quarter ended March 31, 1995................................. $ 5 5/8 $2 1/2
Quarter ended June 30, 1995.................................. 6 1/4 3 3/4
Quarter ended September 30, 1995............................. 9 3/8 5 5/16
Quarter ended December 31, 1995.............................. 6 7/8 5
1996
Quarter ended March 31, 1996................................. $ 5 5/8 $4 3/8
Quarter ended June 30, 1996.................................. 11 7/8 4 3/8
Quarter ended September 30, 1996............................. 11 1/4 6 1/4
Quarter ended December 31, 1996.............................. 11 1/2 9
1997
Quarter ended March 31, 1997................................. $17 1/2 $10
Quarter ended June 30, 1997.................................. 25 1/4 12
Quarter ended September 30, 1997 (through September 25,
1997)....................................................... 36 3/4 22 1/4
</TABLE>
The prices shown above represent quotations among securities dealers, do not
include retail markups, markdowns or commissions and may not represent actual
transactions.
On September 25, 1997, the last sale price of the Common Stock as reported
by the Nasdaq National Market was $34.00 per share. The number of shareholders
of record on August 15, 1997 was 996.
DIVIDEND POLICY
The Company has applied and currently intends to continue to apply its
retained and current earnings toward the development of its business and to
finance the growth of the Company. The Company did not pay dividends on its
Common Stock during the three years ended December 31, 1996 or during the six
months ended June 30, 1997 and does not anticipate paying cash dividends in
the foreseeable future. The Company also currently is restricted by the terms
of the Credit Facility from paying cash dividends on its Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
13
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1997 the actual capitalization
of the Company and the capitalization of the Company as adjusted to reflect
(i) an amendment to the Company's Certificate of Incorporation, effective on
October 15, 1997, to increase the authorized number of shares of Common Stock
to 30,000,000 and (ii) the sale of 1,064,809 shares of Common Stock offered by
the Company hereby at an assumed offering price of $34.00 per share, and the
anticipated application of the estimated net proceeds therefrom:
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Bank debt................................................. $24,758 $ 137
Industrial revenue bond................................... 1,620 1,620
Capital lease obligations................................. 2,735 2,735
------- -------
Long-term debt (including current portion)............... 29,113 4,492
Less current portion.................................... (3,057) (906)
------- -------
Total long-term debt (less current portion)(1)......... 26,056 3,586
------- -------
Shareholders' equity:
Preferred Stock--$0.01 par value; authorized 4,000,000
shares, none outstanding................................. -- --
Common Stock--$0.01 par value; authorized 4,000,000
shares, 3,048,381 shares issued and outstanding, actual;
authorized 30,000,000 shares, 4,113,190 shares issued and
outstanding, as adjusted(2).............................. 30 41
Capital in excess of par.................................. 19,465 44,075
Retained earnings......................................... 4,099 4,099
------- -------
Total shareholders' equity............................... 23,594 48,215
------- -------
Total capitalization (including current portion of long-
term debt)............................................. $52,707 $52,707
======= =======
</TABLE>
- --------
(1) Bank debt at June 30, 1997 is recorded net of an unamortized original
issue discount of approximately $182,000. Upon repayment of the bank debt,
all or a portion of this discount will be charged against the Company's
earnings as a non-cash, extraordinary charge. See Note 12 to the
Consolidated Financial Statements.
(2) Excludes 100,000 shares of Common Stock issuable to the Teletrac Minority
Shareholders and excludes 400,000 shares of Common Stock reserved for
issuance under the Company's Long-Term Stock Incentive Plan (as amended),
under which options to purchase 48,600 shares of Common Stock were
outstanding as of August 15, 1997. The Company anticipates that,
concurrently with the effectiveness of this Offering, options to purchase
shares of Common Stock will be granted to a number of the Company's
employees, including executive officers, covering a significant part of
the shares available for grant under the Long-Term Stock Incentive Plan.
See "Management--Stock Incentive Plan" and "Description of Capital Stock--
Warrants."
14
<PAGE>
DILUTION
The net tangible book value of the Company as of June 30, 1997 was
approximately $9.5 million or $3.10 per share of Common Stock. Net tangible
book value per share is determined by dividing the net tangible book value of
the Company (tangible assets less total liabilities) by the number of shares
of Common Stock outstanding. Dilution per share represents the difference
between the amount per share paid by purchasers of shares of Common Stock in
the Offering made hereby and the net tangible book value per share of Common
Stock immediately after completion of the Offering. Without taking into
account any changes in such net tangible book value after June 30, 1997, other
than to give effect to the (i) sale of 1,064,809 shares of Common Stock by the
Company in this Offering (after deducting the underwriting discounts and
commissions and estimated offering expenses) and the anticipated application
of the estimated net proceeds thereof, and (ii) effect of the extraordinary
charge of approximately $111,000, net of tax, that would result from the early
repayment of amounts outstanding under the Credit Facility with the net
proceeds from this Offering as if this Offering had been consummated on June
30, 1997, the pro forma net tangible book value of the Company as of June 30,
1997 would have been $34.0 million or $8.26 per share of Common Stock. This
represents an immediate increase in net tangible book value of $5.16 per share
to existing shareholders and an immediate dilution in net tangible book value
of $25.74 per share to new investors.
The following table illustrates this dilution on a per share basis:
<TABLE>
<S> <C> <C>
Assumed public offering price per share........................ $34.00
Tangible book value per share before this Offering........... $3.10
Increase per share attributable to new investors............. 5.16
-----
Pro forma net tangible book value per share after this Offer-
ing........................................................... 8.26
------
Dilution per share to new investors............................ $25.74
======
</TABLE>
15
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data for each of the five fiscal years
in the period ended December 31, 1996 presented below is derived from the
audited Consolidated Financial Statements of the Company as adjusted to
reflect the discontinuance of the Electronic Components Group ("ECG"). The
data for the six months ended June 30, 1996 and 1997 are derived from the
unaudited Consolidated Financial Statements of the Company. In the Company's
opinion, such unaudited Consolidated Financial Statements include all
adjustments necessary for a fair presentation of the financial position and
results of operations as of and for such periods. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements and the
Notes related thereto and the other financial data included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ ------------------
1992 1993 1994 1995 1996(1) 1996(1) 1997(2)
------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales:
PSG.................... $32,024 $26,648 $26,052 $24,750 $48,579 $ 18,100 $ 36,418
ICG.................... 30,888 32,001 36,080 40,463 42,722 22,445 22,431
------- ------- ------- ------- ------- -------- --------
62,912 58,649 62,132 65,213 91,301 40,545 58,849
------- ------- ------- ------- ------- -------- --------
Cost of sales:
PSG.................... 25,785 21,572 20,287 19,724 37,919 14,380 27,621
ICG.................... 21,296 21,766 24,616 28,249 29,564 15,510 15,490
------- ------- ------- ------- ------- -------- --------
47,081 43,338 44,903 47,973 67,483 29,890 43,111
------- ------- ------- ------- ------- -------- --------
Gross profit:
PSG.................... 6,239 5,076 5,765 5,026 10,660 3,720 8,797
ICG.................... 9,592 10,235 11,464 12,214 13,158 6,935 6,941
------- ------- ------- ------- ------- -------- --------
15,831 15,311 17,229 17,240 23,818 10,655 15,738
------- ------- ------- ------- ------- -------- --------
Operating expenses:
Selling, general and
administrative ex-
penses................ 14,027 12,950 13,343 13,336 16,501 7,502 10,284
Restructuring/inventory
writedown charges(3).. -- 3,500 1,315 -- -- -- --
Amortization of intan-
gible assets.......... 209 209 209 209 210 102 125
------- ------- ------- ------- ------- -------- --------
Operating income
(loss)................. 1,595 (1,348) 2,362 3,695 7,107 3,051 5,329
Interest expense....... 2,597 2,437 2,264 1,994 2,343 1,042 1,343
Other expense (in-
come)................. 13 71 54 252 18 (13) 26
------- ------- ------- ------- ------- -------- --------
Income (loss) from
continuing operations
before taxes and
extraordinary item..... (1,015) (3,856) 44 1,449 4,746 2,022 3,960
Provision for taxes.... 27 -- 17 565 1,891 820 1,594
------- ------- ------- ------- ------- -------- --------
Income (loss) from
continuing operations
before
extraordinary item..... (1,042) (3,856) 27 884 2,855 1,202 2,366
Discontinued
operations:(4)
Income (loss) from op-
erations.............. 1,144 (670) (143) -- -- -- --
Loss on disposal....... -- -- (2,059) -- -- -- --
------- ------- ------- ------- ------- -------- --------
Income (loss) before
extraordinary item..... 102 (4,526) (2,175) 884 2,855 1,202 2,366
Extraordinary gain
(charge), net of
tax(5)................ -- -- 5,856 -- (173) (173) --
------- ------- ------- ------- ------- -------- --------
Net income (loss)....... 102 (4,526) 3,681 884 2,682 1,029 2,366
Preferred stock divi-
dends(6).............. 158 375 355 574 847 405 102
------- ------- ------- ------- ------- -------- --------
Net income (loss)
applicable to common
shareholders........... $ (56) $(4,901) $ 3,326 $ 310 $ 1,835 $ 624 $ 2,264
======= ======= ======= ======= ======= ======== ========
Net income (loss) per
common share:
Continuing operations.. $ (1.15) $ (4.08) $ (0.20) $ 0.12 $ 0.74 $ 0.31 $ 0.69
Discontinued opera-
tions................. 1.10 (0.65) (1.29) -- -- -- --
Extraordinary item..... -- -- 3.44 -- (0.06) (0.07) --
------- ------- ------- ------- ------- -------- --------
Total.................. $ (0.05) $ (4.73) $ 1.95 $ 0.12 $ 0.68 $ 0.24 $ 0.69
======= ======= ======= ======= ======= ======== ========
Weighted average common
shares outstanding..... 1,036 1,037 1,702 2,511 2,691 2,615 3,277
Operating income:(7)
PSG.................... $ 644 $ 24 $ 913 $ 656 $ 3,941 $ 1,297 $ 3,936
ICG.................... 4,443 5,122 5,930 6,440 7,010 3,799 3,470
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE
--------------------------------------- 30,
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.......................... $ 116 $ 103 $ 27 $ 91 $ 2,691 $ 415
Working capital............... 18,715 15,473 11,538 14,334 24,794 23,180
Total assets.................. 52,247 47,261 42,197 40,485 62,171 74,695
Long-term debt and capital
lease obligations (less
current portion)............. 25,920 25,270 11,921 11,047 23,324 26,056
Shareholders' equity.......... 9,603 5,076 13,269 14,745 19,165 23,594
</TABLE>
- --------
(1) In April 1996, the Company acquired the stock of PAI and, in October 1996,
purchased substantially all of the assets of LMBC. These acquisitions have
been accounted for under the purchase method of accounting and,
accordingly, the results of the continuing operations of PAI and LMBC have
been included in the Company's Consolidated Statement of Operations since
their respective dates of acquisition. See Note 3 to the Consolidated
Financial Statements.
(2) In May 1997, the Company acquired the stock of Teletrac. This acquisition
was accounted for under the purchase method of accounting and,
accordingly, the results of Teletrac's operations have been included in
the Company's Consolidated Statement of Operations since the date of
acquisition. See Note 3 to the Consolidated Financial Statements.
(3) During 1993, in response to declining demand by agencies of the U.S.
Department of Defense for products related to the defense industry, the
Company decided to restructure PSG. In connection with the restructuring,
the Company recorded a $3,500 charge of which $2,300 was for the write-
down of slow moving and excess inventory and $1,200 was for severance,
early retirement, other employee-related benefits and other related
charges. During 1994, the Company recorded an additional $1,315 charge
related to this restructuring, $1,015 of which was to provide additional
inventory reserves to reflect slower turnover of inventory than was
anticipated in the 1993 charge, and $300 to adjust the carrying amount of
other assets held for disposal in connection with the restructuring to
reflect current market values. See Note 10 to the Consolidated Financial
Statements.
(4) Effective September 30, 1994, the Company adopted a plan to dispose of all
of ECG. The disposal was accounted for as a discontinued operation and,
accordingly, ECG's net assets and operating results were reported
separately from continuing operations. In addition, the Company's prior
years Statements of Operations have been restated to reflect continuing
operations. See Note 2 to the Consolidated Financial Statements.
(5) In 1994 and 1996, the Company recorded a gain and a loss on the early
extinguishment of debt, respectively. See Note 5 to the Consolidated
Financial Statements.
(6) In February 1997, the Company commenced an offer to exchange 0.75 shares
of its Common Stock for each outstanding share of its Preferred Stock.
Approximately 538,000 shares of Preferred Stock were exchanged for
approximately 403,500 shares of Common Stock. In June 1997, the Company
redeemed all the remaining approximately 200,900 outstanding shares of
Preferred Stock. See Note 4 to the Consolidated Financial Statements.
(7) Operating income prior to allocation of corporate overhead, amortization
of intangible assets and restructuring/inventory write down charges. See
footnote 3 above.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company designs, manufactures and sells custom precision optical and
positioning components, subsystems and systems for high-performance markets,
such as defense, space, high-end digital imaging and electronics capital
equipment through PSG. The Company also designs, manufactures and markets
interconnect devices and distributes precision ball bearings for use in a
variety of industrial, commercial and consumer applications through ICG.
Historically, the Company has generated a significant portion of its net
sales as a supplier of components for defense applications. During the early
1990's, as U.S. Government defense-related spending declined, the Company's
sales of components for military applications also declined. In 1993, net
sales from contracts directly with the U.S. Government and subcontractors to
the U.S. Government declined by approximately 35.0% compared to 1992. In
response to this declining demand, the Company commenced a restructuring of
PSG and ECG in 1993. As part of the restructuring, the Company reduced fixed
costs of production by, among other things, closing its manufacturing facility
in Deer Park, New York and consolidating certain product lines into other
facilities. In 1994, the Company disposed of ECG which, as a result of
declining demand from the defense market, was incurring operating losses. The
sale of the assets of this business generated approximately $2.1 million which
was used to reduce outstanding borrowings and enabled the Company to focus on
its more technologically advanced product lines within PSG. Also, in 1994, the
Company obtained a $15.0 million, four-year, senior secured credit facility,
and completed a rights offering of Common Stock which provided $2.3 million of
proceeds, net of expenses. The proceeds of the new credit facility, along with
the net proceeds from the rights offering, were used to repurchase the
Company's then existing bank indebtedness at a discount, resulting in a pretax
gain to the Company of approximately $9.6 million.
Beginning in 1995, the Company's planning process identified an increased
demand for high-performance components, subsystems and systems in commercial
and industrial markets. The Company believes that such increased demand
resulted from (i) the demand on manufacturers to produce smaller, higher-
performance products with precise tolerances, (ii) pressures imposed on
manufacturers to enhance productivity and quality, which in turn required
integration of process control technology directly into the manufacturing
process, and (iii) the lowering of costs associated with electronic controls.
In response to this perceived increased demand, the Company commenced a
program to identify opportunities for the expansion of its businesses in the
commercial and industrial markets. In April 1996, the Company acquired PAI,
whose subsidiaries include Speedring and Speedring Systems, for approximately
$16.7 million, including the repayment of $12.0 million of borrowings under
PAI's term loans. The Company sold L&S Machine Company, Inc. ("L&S"), a non-
strategic subsidiary of PAI, in November 1996 for approximately $13.0 million
which provided additional financing capacity to facilitate the Company's
strategy of expansion through acquisitions. In October 1996, the Company
acquired substantially all of the assets of LMBC for approximately $2.9
million, and in May 1997, acquired Teletrac for $9.9 million, including the
issuance of 153,000 shares of Common Stock, of which 53,000 shares were issued
upon consummation of the transaction and 100,000 shares are issuable in the
future. As a result of these acquisitions, the 1996 and 1997 results of
operations and financial statements of the Company are not comparable with one
another or with prior periods.
In February 1997, the Company commenced an offer to exchange 0.75 shares of
Common Stock for each outstanding share of Preferred Stock. Approximately
538,000 shares of Preferred Stock were exchanged for approximately 403,500
shares of Common Stock. In June 1997, the Company redeemed all the remaining
approximately 200,900 outstanding shares of Preferred Stock.
The Company's business strategies include, among others, the expansion of
its direct sales force, increased investments in engineering, manufacturing
infrastructure and customer driven product development, as well as expansion
through acquisitions. It is the nature of the Company's business that the
benefit of such investments in terms of increased net sales and operating
income may not be realized until periods subsequent to when they
18
<PAGE>
are recorded as expenses in the Company's operating results. The Company's
strategy of integrating its existing businesses and their respective
technologies, principally through the Teletrac acquisition, is intended to
increase the sales of electro-optical and electro-mechanical systems.
Implementation of this strategy, however, is in its early stages. Teletrac,
the Company's primary source of systems integration capabilities, was acquired
on May 30, 1997. As a result, during the six months ended June 30, 1997, only
one percent of the Company's net sales were generated from sales of systems.
Prior to 1997, the Company did not generate any sales from systems. There can
be no assurance that these efforts will be successful and lead to increases in
the Company's sales or operating income or that the Company will recover its
additional costs in implementing these strategies. See "Business--Business
Strategy."
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of net
sales for each of the past three years in the period ended December 31, 1996
and for the six months ended June 30, 1996 and 1997.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales:
PSG........................... 41.9% 38.0% 53.2% 44.6% 61.9%
ICG........................... 58.1 62.0 46.8 55.4 38.1
------- ------- ------- -------- --------
100.0 100.0 100.0 100.0 100.0
Cost of sales.................. 72.3 73.6 73.9 73.7 73.3
------- ------- ------- -------- --------
Gross profit................... 27.7 26.4 26.1 26.3 26.7
------- ------- ------- -------- --------
Operating expenses:
Selling, general and adminis-
trative expenses............. 21.5 20.4 18.1 18.5 17.4
Restructuring/inventory
writedown charges............ 2.1 -- -- -- --
Amortization of intangible as-
sets......................... 0.3 0.3 0.2 0.3 0.2
------- ------- ------- -------- --------
23.9 20.7 18.3 18.8 17.6
------- ------- ------- -------- --------
Operating income............... 3.8 5.7 7.8 7.5 9.1
Interest expense.............. 3.6 3.1 2.6 2.5 2.3
Other expense (income)........ 0.1 0.4 -- -- 0.1
------- ------- ------- -------- --------
Income from continuing
operations before taxes and
extraordinary item............ 0.1 2.2 5.2 5.0 6.7
Provision for taxes........... -- 0.8 2.1 2.0 2.7
------- ------- ------- -------- --------
Income from continuing
operations before
extraordinary item............ 0.1 1.4 3.1 3.0 4.0
Discontinued operations:
Loss from operations.......... (0.3) -- -- -- --
Loss on disposal.............. (3.3) -- -- -- --
------- ------- ------- -------- --------
Income (loss) before extraordi-
nary item..................... (3.5) 1.4 3.1 3.0 4.0
Extraordinary gain (charge),
net of tax................... 9.4 -- (0.2) (0.5) --
------- ------- ------- -------- --------
Net income..................... 5.9% 1.4% 2.9% 2.5% 4.0%
======= ======= ======= ======== ========
Gross profit (as a percentage
of related net sales):
PSG........................... 22.1% 20.3% 21.9% 20.5% 24.2%
ICG........................... 31.8 30.2 30.8 30.9 30.9
</TABLE>
19
<PAGE>
Comparison of the Six Months Ended June 30, 1997 and June 30, 1996
Net sales. Net sales increased by 45.2%, or $18.3 million, from $40.5
million in the first six months of 1996 to $58.8 million in the first six
months of 1997. PSG's sales increased by 101.1%, or $18.3 million, from $18.1
million in the first six months of 1996 to $36.4 million in the first six
months of 1997. This increase was primarily due to the acquisitions of
Teletrac, PAI and LMBC and increased business in the space market. ICG's sales
of $22.4 million were the same in both the first six months of 1996 and 1997.
During the six months ended June 30, 1997, modest increased sales by ICG of
interconnect devices, generated primarily from new product introductions, were
offset by lower sales of precision ball bearings.
Gross profit. The Company's cost of sales includes materials, labor and
overhead. Overhead includes engineering and research and development expenses.
The Company's gross profit increased by 48.1%, or $5.1 million, from $10.6
million in the first six months of 1996 to $15.7 million in the first six
months of 1997. Gross profit margin increased from 26.3% of net sales in the
first six months of 1996 to 26.7% in the first six months of 1997. Gross
profit margin attributable to PSG increased from 20.5% of net sales in the
first six months of 1996 to 24.2% in the first six months of 1997. The
increase in PSG's gross profit margin was primarily due to the increase in
sales resulting from the acquisitions of PAI and Teletrac and operating
efficiencies related to higher sales volume, partially offset by increased
engineering and other fixed overhead spending. Gross profit margin
attributable to ICG of 30.9% was the same in both the first six months of 1996
and 1997.
Selling, general and administrative expenses. The Company's selling, general
and administrative ("SG&A") expenses consist primarily of personnel costs,
including salaries and bonuses earned by Company employees, as well as
occupancy costs for its sales, finance, administrative and executive
personnel. In addition, it includes sales commissions earned by manufacturing
representatives. SG&A expenses increased by 37.3%, or $2.8 million, from $7.5
million in the first six months of 1996 to $10.3 million in the first six
months of 1997, but decreased from 18.5% to 17.4% of net sales, respectively.
The increase in SG&A expenses in absolute dollars was primarily due to the
acquisitions of Teletrac, PAI and LMBC, as well as increased employment and
other selling expenses. The decrease in SG&A expenses as a percentage of net
sales was attributable, in part, to the spreading of corporate overhead over a
larger sales base.
Interest expense. Interest expense increased by 28.9%, or $301,000, from
$1.0 million in the first six months of 1996 to $1.3 million in the first six
months of 1997. The increase in interest expense was primarily the result of
higher average borrowings due to the acquisitions of Teletrac, PAI and LMBC.
Preferred stock dividends. Preferred Stock dividends decreased by 74.8%, or
$303,000, from $405,000 in the first six months of 1996 to $102,000 in the
first six months of 1997. The decrease in Preferred Stock dividends was due to
the Company's exchange of Preferred Stock for Common Stock and subsequent
redemption of remaining Preferred Stock. See Note 4 to the Consolidated
Financial Statements. As a result of such redemption, there is no Preferred
Stock outstanding and there are no accrued and unpaid dividends.
Comparison of Years Ended December 31, 1996 and December 31, 1995
Net sales. Net sales increased by 40.0%, or $26.1 million, from $65.2
million in 1995 to $91.3 million in 1996. PSG's sales increased by 96.0%, or
$23.8 million, from $24.8 million in 1995 to $48.6 million in 1996. The
acquisition of PAI accounted for $23.1 million of the increase in PSG's sales.
ICG's sales increased by 5.7%, or $2.3 million, from $40.4 million in 1995 to
$42.7 million in 1996. In 1996, sales of precision ball bearings increased by
9.0% due to increased sales to both OEMs and distributors for use in a variety
of industries.
Gross profit. The Company's gross profit increased by 38.4%, or $6.6
million, from $17.2 million in 1995 to $23.8 million in 1996. Gross profit
margin decreased from 26.4% of net sales in 1995 to 26.1% in 1996. This
decrease was primarily due to the increase in sales by PSG. Historically,
sales by PSG have resulted in lower margins than sales by ICG. PSG's sales
increased primarily as a result of the Company's 1996 acquisition of PAI.
Gross profit margin attributable to PSG increased from 20.3% in 1995 to 21.9%
in 1996. The increase in PSG's gross profit margin was primarily due to the
increase in sales resulting from the acquisition of PAI. The gross profit
margin on the PAI sales, while lower than the consolidated gross profit
margin, was higher
20
<PAGE>
than the gross profit margin on PSG sales prior to the PAI acquisition. Gross
profit margin attributable to ICG increased from 30.2% in 1995 to 30.8% in
1996. The increase in ICG's gross profit margin was primarily due to favorable
overhead spending and material purchase price variances partially offset by an
unfavorable sales mix of lower margin products.
Selling, general and administrative expenses. SG&A expenses increased by
24.1%, or $3.2 million, from $13.3 million in 1995 to $16.5 million in 1996,
but decreased from 20.4% to 18.1% of net sales, respectively. The increase in
SG&A expenses in absolute dollars was primarily due to the acquisitions of PAI
and LMBC. The decrease in SG&A expenses as a percentage of net sales was
attributable, in part, to the spreading of corporate overhead over a larger
sales base.
Interest expense. Interest expense increased by 17.5%, or $349,000, from
$2.0 million in 1995 to $2.3 million in 1996. The increase in interest expense
was primarily due to higher average borrowings resulting from the acquisitions
of PAI and LMBC, substantially offset by the reduction of interest expense
attributable to net assets held for disposal, see Note 3 to the Consolidated
Financial Statements, and the offset of lower interest rates resulting from a
lower prime rate and more favorable terms under the Credit Facility. See Note
5 of the Consolidated Financial Statements.
Preferred stock dividends. Preferred Stock dividends increased by 47.6%, or
$273,000, from $574,000 in 1995 to $847,000 in 1996. The increase in Preferred
Stock dividends was primarily due to the expiration, on February 22, 1996, of
the period during which the Company paid dividends in additional shares of
Preferred Stock at an annual rate of 15% of the average bid and ask price of
the Preferred Stock. Subsequent to that date, the Company accrued dividends at
$1.20 per share. See Note 3 to the Consolidated Financial Statements. The per
share amounts of dividends, including the accumulated but unpaid cash portion,
were $0.79 and $1.11 per share of Preferred Stock in 1995 and 1996,
respectively.
Comparison of Years Ended December 31, 1995 and December 31, 1994
Net sales. Net sales increased by 5.0%, or $3.1 million, from $62.1 million
in 1994 to $65.2 million in 1995. PSG's sales decreased by 5.0%, or $1.3
million, from $26.1 million in 1994 to $24.8 million in 1995. The decrease in
PSG's sales was primarily a result of lower shipments of synchros due to
reduced U.S. Government spending on spare parts. ICG's sales increased by
12.2%, or $4.4 million, from $36.1 million in 1994 to $40.5 million in 1995.
The increase in ICG's sales was primarily due to new and increased activity
with OEMs and the growing acceptance of new and/or enhanced interconnect
products.
Gross profit. The Company's gross profit in 1995 of $17.2 million remained
substantially the same as in 1994. Gross profit margins decreased from 27.7%
of net sales in 1994 to 26.4% in 1995. Gross profit margins attributable to
PSG decreased from 22.1% of net sales in 1994 to 20.3% in 1995. The decrease
in PSG gross profit margin was due to operating inefficiencies related to the
lower sales volume and an unfavorable sales mix of lower margin products,
partially offset by cost reductions resulting from restructuring actions
completed during 1994. Gross profit margins attributable to ICG decreased from
31.8% of net sales in 1994 to 30.2% in 1995. The decrease in ICG's gross
profit margins was primarily due to an unfavorable sales mix of lower margin
products and higher material costs.
Selling, general and administrative expenses. SG&A expenses in 1995 of $13.3
million were substantially the same as in 1994.
Interest expense. Interest expense decreased by 11.9%, or $270,000, from
$2.3 million in 1994 to $2.0 million in 1995. The decrease in interest expense
was primarily due to the repurchase of the Company's bank indebtedness at a
discount, partially offset by higher interest rates. See Note 5 to the
Consolidated Financial Statements.
Preferred stock dividends. Preferred Stock dividends increased by 61.7%, or
$219,000, from $355,000 in 1994 to $574,000 in 1995. The increase in Preferred
Stock dividends was primarily due to the increase in the average bid and ask
price on which the annual dividend rate was based. Such increase was also the
result of the Company's payment of dividends in additional shares of Preferred
Stock, thereby increasing the aggregate annual amount of dividends to be paid.
The per share amounts of dividends, including the accumulated but unpaid cash
portion, were $0.57 and $0.79 per share of Preferred Stock in 1994 and 1995,
respectively.
21
<PAGE>
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table presents certain unaudited quarterly financial
information for each of the ten most recent quarters in the period ended June
30, 1997. This information is derived from unaudited Consolidated Financial
Statements of the Company that include, in the Company's opinion, all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of results of operations for such periods when read in
conjunction with the audited Consolidated Financial Statements of the Company
and notes thereto appearing elsewhere in this Prospectus. The operating
results for any quarter are not necessarily indicative of results for any
future period.
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
PSG...................... $ 6,640 $ 6,407 $ 5,634 $ 6,069 $ 5,775 $12,325 $13,998 $16,481 $16,618 $19,800
ICG...................... 10,256 10,447 9,999 9,761 11,256 11,189 10,235 10,042 10,984 11,447
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
16,896 16,854 15,633 15,830 17,031 23,514 24,233 26,523 27,602 31,247
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Cost of sales:
PSG...................... 5,069 4,880 4,857 4,918 4,825 9,555 10,900 12,639 12,875 14,746
ICG...................... 7,145 7,330 6,949 6,825 7,778 7,732 7,221 6,833 7,527 7,963
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
12,214 12,210 11,806 11,743 12,603 17,287 18,121 19,472 20,402 22,709
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit:
PSG...................... 1,571 1,527 777 1,151 950 2,770 3,098 3,842 3,743 5,054
ICG...................... 3,111 3,117 3,050 2,936 3,478 3,457 3,014 3,209 3,457 3,484
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
4,682 4,644 3,827 4,087 4,428 6,227 6,112 7,051 7,200 8,538
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Selling, general and
administrative expenses.. 3,628 3,497 2,848 3,363 3,265 4,237 4,430 4,569 4,899 5,385
Amortization of
intangible assets....... 52 52 53 52 52 50 55 53 52 73
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Operating income.......... 1,002 1,095 926 672 1,111 1,940 1,627 2,429 2,249 3,080
Interest expense......... 496 541 497 460 444 598 615 686 655 688
Other expense (income)... 8 7 234 3 (7) (6) 9 22 11 15
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before taxes and
extraordinary item....... 498 547 195 209 674 1,348 1,003 1,721 1,583 2,377
Provision for taxes...... 194 214 76 81 284 536 396 675 638 956
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Income before
extraordinary item....... 304 333 119 128 390 812 607 1,046 945 1,421
Extraordinary (charge),
net of tax.............. -- -- -- -- -- (173) -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income................ 304 333 119 128 390 639 607 1,046 945 1,421
Preferred stock
dividends............... 121 137 159 157 184 221 221 221 60 42
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Net income (loss)
applicable to common
shareholders............. $ 183 $ 196 $ (40) $ (29) $ 206 $ 418 $ 386 $ 825 $ 885 $ 1,379
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per
common share:
Continuing operations.... $ 0.07 $ 0.08 $ (0.02) $ (0.01) $ 0.08 $ 0.21 $ 0.14 $ 0.31 $ 0.27 $ 0.41
Extraordinary item....... -- -- -- -- -- (0.06) -- -- -- --
------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Total.................... $ 0.07 $ 0.08 $ (0.02) $ (0.01) $ 0.08 $ 0.15 $ 0.14 $ 0.31 $ 0.27 $ 0.41
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
Weighted average common
shares outstanding....... 2,508 2,508 2,508 2,521 2,529 2,701 2,758 2,770 3,230 3,323
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996 1996 1996 1997 1997
-------- -------- --------- -------- -------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AS A PERCENTAGE
OF NET SALES:
Net sales:
PSG...................... 39.3% 38.0% 36.0% 38.3% 33.9% 52.4% 57.8% 62.1% 60.2% 63.4%
ICG...................... 60.7 62.0 64.0 61.7 66.1 47.6 42.2 37.9 39.8 36.6
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Cost of sales............. 72.3 72.4 75.5 74.2 74.0 73.5 74.8 73.4 73.9 72.7
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Gross profit.............. 27.7 27.6 24.5 25.8 26.0 26.5 25.2 26.6 26.1 27.3
Operating expenses:
Selling, general and
administrative expenses.. 21.5 20.8 18.2 21.3 19.2 18.0 18.3 17.2 17.8 17.3
Amortization of
intangible assets....... 0.3 0.3 0.3 0.3 0.3 0.2 0.2 0.2 0.2 0.2
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
21.8 21.1 18.5 21.6 19.5 18.2 18.5 17.4 18.0 17.5
Operating income.......... 5.9 6.5 6.0 4.2 6.5 8.3 6.7 9.2 8.1 9.8
Interest expense......... 2.9 3.2 3.2 2.9 2.6 2.6 2.5 2.6 2.4 2.2
Other expense (income)... -- -- 1.5 -- -- -- -- 0.1 -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income before taxes and
extraordinary item....... 3.0 3.3 1.3 1.3 3.9 5.7 4.2 6.5 5.7 7.6
Provision for taxes...... 1.2 1.3 0.5 0.5 1.6 2.3 1.7 2.6 2.3 3.1
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Income before
extraordinary item....... 1.8 2.0 0.8 0.8 2.3 3.4 2.5 3.9 3.4 4.5
Extraordinary (charge),
net of tax.............. -- -- -- -- -- (0.7) -- -- -- --
----- ----- ----- ----- ----- ----- ----- ----- ----- -----
Net income................ 1.8% 2.0% 0.8% 0.8% 2.3% 2.7% 2.5% 3.9% 3.4% 4.5%
===== ===== ===== ===== ===== ===== ===== ===== ===== =====
Gross profit (as a percentage
of related net sales):
PSG...................... 23.7% 23.8% 13.8% 19.0% 16.5% 22.5% 22.1% 23.3% 22.5% 25.5%
ICG...................... 30.3 29.8 30.5 30.1 30.9 30.9 29.4 32.0 31.5 30.4
</TABLE>
Factors such as announcements of technological innovations or new products
by the Company or its competitors, and the cyclical nature of the industries
served by the Company could cause substantial variations in the Company's
operating results. The defense, space, high-end digital imaging, electronics
capital equipment and industrial automation markets, each of which represents
a significant market for the Company's products, have historically been
subject to substantial economic fluctuations due to changing demands for their
products and services, introduction of new products and product obsolescence.
There can be no assurance that such fluctuations will not reoccur and have an
adverse impact on the Company's business, financial condition or results of
operations. The Company has experienced and expects to continue to experience
significant fluctuations in its quarterly and annual operating results due to
a variety of factors, including market acceptance of new and enhanced versions
of the Company's products, timing and shipment of significant orders, mix of
products sold, length of sales cycles, plant openings and closings, the timing
of acquisitions or dispositions by the Company, delays in raw materials
shipments, completion of large projects, other manufacturing delays and
disruptions, the level or backlog of orders, and cyclicality in the markets
the Company serves. To some extent, the Company's net sales and operating
results for a quarter will depend upon the Company generating orders to be
shipped in the same quarter in which the order is received. The failure to
receive anticipated orders or delays in shipments near the end of a particular
quarter, due, for example, to unanticipated reschedulings or cancellations of
shipments by customers or unexpected manufacturing difficulties, may cause net
sales in a particular quarter to fall significantly below the Company's
expectations, which would have a material adverse effect on the Company's
operating results for such quarter.
23
<PAGE>
BACKLOG
A substantial portion of the Company's business is of a build-to-order
nature requiring various engineering, manufacturing, testing and other
processes to be performed prior to shipment. In addition, many of the
Company's orders require multiple deliveries over a period of time. As a
result, the Company generally has a significant backlog of orders to be
shipped.
As of June 30, 1997 and December 31, 1996, the Company had a backlog of
orders of $62.3 million and $56.4 million, respectively, an increase of 10.5%,
or $5.9 million. The increase in backlog is primarily attributable to the
acquisition of Teletrac and increased orders from the high-end digital imaging
market.
The Company believes that a substantial portion of the backlog of orders at
June 30, 1997 will be shipped over the next twelve months.
RECENTLY ISSUED ACCOUNTING STANDARDS
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" was issued in February 1997 and replaces Accounting Principles Board
("APB") Opinion No. 15. The new statement simplifies the computations of
earnings per share ("EPS") by replacing the presentation of primary EPS with
basic EPS, which is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS under the new statement is computed similarly to fully
diluted EPS pursuant to APB Opinion 15. SFAS No. 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997. Early application is prohibited. For thesix-month period ended June
30, 1997, the effect of adopting SFAS No. 128 on the Company's reported EPS
would be immaterial.
SFAS No. 123, "Accounting for Stock-Based Compensation" was issued in 1995.
This statement requires companies to measure stock compensation plans based on
the fair value method of accounting or to continue to apply APB Opinion 25,
"Accounting for Stock Issued to Employees" and provide pro forma footnote
disclosure under the fair value method. Effective January 1, 1996, the Company
adopted the disclosure-only provisions of SFAS No. 123 and continues to follow
APB Opinion 25 and related interpretations to account for the Company's stock
compensation plans. In 1996 and 1995, the Company did not issue any stock
options to its employees and, as such, no disclosure related to this
pronouncement was required.
LIQUIDITY AND CAPITAL RESOURCES
The Company funds its operations primarily from cash flow generated by
operations and, to a lesser extent, from borrowings under the Credit Facility
and through capital lease transactions.
Net cash provided by (used in) operations for the six months ended June 30,
1997 and 1996 was $5.7 million and $(666,000), respectively. This improvement
was primarily due to higher cash earnings and lower working capital
requirements. Net cash provided by (used in) operations for the years ended
1996, 1995 and 1994 was $2.0 million, $(1.0) million and $1.4 million,
respectively. The increase in cash provided by operations in 1996, as compared
to 1995, was primarily due to higher income partially offset by reductions in
accounts payable, accrued expenses and other long-term liabilities. At
December 31, 1996, the Company had approximately $10.0 million of net
operating loss carry forwards available to reduce future taxable income.
The Company's working capital was $23.2 million, $24.8 million, $14.3
million and $11.5 million on June 30, 1997 and on December 31, 1996, 1995 and
1994, respectively.
Net cash used in investing activities for the six months ended June 30, 1997
and 1996 was $8.2 million and $5.3 million, respectively, due to an increase
in the use of cash for business acquisitions. During the second quarter of
1997, the Company acquired the stock of Teletrac. The cash portion of the
total purchase price for Teletrac was $7.3 million. During the second quarter
of 1996, the Company acquired all the outstanding shares of PAI for
approximately $4.7 million. See Note 3 of the Consolidated Financial
Statements. Net cash provided by (used in) investing activities for the years
ended 1996, 1995 and 1994 was $2.0 million, $1.9 million and $(192,000),
respectively. The cash provided by investing activities in 1996 was generated
primarily from the sale of L&S, a subsidiary of PAI, for cash consideration of
$11.3 million, partially offset by the acquisitions of PAI and LMBC. See Note
3 to the Consolidated Financial Statements.
24
<PAGE>
The Company had no material commitments for capital expenditures as of
December 31, 1996 or June 30, 1997. It is anticipated that capital
expenditures in 1997 could range from $4.0 million to $4.5 million as compared
to the $2.7 million expended in 1996, including assets acquired under capital
leases of $786,000. The Company also anticipates that it will continue to
finance a substantial portion of these capital expenditures through capital
leases. In June 1997, the Company redeemed approximately 200,900 shares of
Preferred Stock at an aggregate cost of $1.5 million.
As discussed in Note 5 to the Consolidated Financial Statements, the Company
entered into the Credit Facility in connection with its acquisition of PAI. As
of June 30, 1997, the available credit under this facility was $31.7 million
comprised of a $6.8 million term loan payable in installments and maturing in
April 2000, a $6.9 million term loan payable in installments and maturing in
April 2002 and a $18.0 million revolving credit facility expiring in April
2000. Upon the consummation of this Offering, the Company will prepay certain
amounts outstanding under the Credit Facility. See "Use of Proceeds." After
giving effect to such prepayment, the Company expects that the only credit
available under the Credit Facility will amount to approximately $6.0 million
(which amount, if the Underwriters' over-allotment option is exercised, would
be reduced, on a dollar-for-dollar basis, to the extent of the net proceeds
received upon such exercise) of revolving loans. After the consummation of
this Offering, the Company intends to renegotiate the Credit Facility or enter
into alternate borrowing arrangements with other lenders. There can be no
assurance that the Company will be able to renegotiate the Credit Facility or
enter into alternate borrowing arrangements on terms acceptable to the
Company, if at all. The Company believes that cash expected to be generated
from operations and credit facilities expected to be available to the Company
following the consummation of this Offering will be sufficient to meet the
Company's capital expenditure and working capital requirements for at least
the next 12 months.
Borrowings under the Credit Facility are secured by substantially all of the
assets of the Company and its subsidiaries. The Credit Facility contains
restrictive covenants which, among other things, impose limitations with
respect to the incurrence of additional liens and indebtedness, payment of
dividends in cash, mergers, consolidations and specified sale of assets,
transactions with affiliates, creation of subsidiaries and issuance of capital
stock. In addition, other covenants require the Company to meet certain
financial tests including minimum levels of earnings and net worth and various
other financial ratios. The Credit Facility further provides that upon the
occurrence of any Event of Default (as defined), the commitments of the
lenders may be terminated and all outstanding loans may be declared due and
payable. The definition of Event of Default includes various customary events,
such as nonpayment, certain defaults in the performance of covenants,
bankruptcy and related events, as well as the occurrence of a Change of
Control (as defined). The definition of Change of Control includes, among
other things, (i) a person or group acquiring beneficial ownership of 20% or
more of the outstanding Common Stock, (ii) Mr. Bershad failing to control at
least 25% of the then outstanding voting securities and (iii) the Board of
Directors not consisting of a majority of Continuing Directors (as defined).
DOMESTIC AND FOREIGN SALES
The following table sets forth information concerning the Company's domestic
and foreign net sales and operating income from continuing operations and
identifiable assets, for each of the last three years in the period ended
December 31, 1996 and for the six months ended June 30, 1997 (all foreign
sales are denominated in U.S. dollars):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, SIX MONTHS ENDED
---------------------------- JUNE 30,
1994 1995 1996 1997
-------- -------- -------- ----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales:
USA........................... $ 57,752 $ 57,402 $ 80,898 $52,473
Foreign....................... 4,380 7,811 10,403 6,376
-------- -------- -------- -------
$ 62,132 $ 65,213 $ 91,301 $58,849
======== ======== ======== =======
Export sales as a percent of
total net sales................ 7.0% 12.0% 11.4% 10.8%
Operating income:
USA........................... $ 3,363 $ 3,155 $ 6,603 $ 4,775
Foreign....................... 314 540 504 554
Restructuring/inventory
writedown charges (USA)...... (1,315) -- -- --
-------- -------- -------- -------
$ 2,362 $ 3,695 $ 7,107 $ 5,329
======== ======== ======== =======
Identifiable assets:
USA........................... $ 42,197 $ 40,485 $ 62,171 $74,695
</TABLE>
25
<PAGE>
OPERATING RESULTS FOR THE THIRD QUARTER AND THE NINE MONTHS ENDED SEPTEMBER
30, 1997
The Company issued a press release on October 16, 1997 announcing unaudited
operating results for the third quarter and the nine months ended September
30, 1997. Net sales for the third quarter ended September 30, 1997 were $31.7
million, compared to $24.2 million for the same period in 1996, an increase of
31.0%. For the quarter, PSG's net sales were $20.7 million, an increase of
47.7% compared with the same period in 1996, and ICG's net sales were $11.0
million, an increase of 7.4% compared with the same period in 1996. The
increase in PSG's sales was primarily due to business acquisitions and higher
shipments in the defense, space, high-end digital imaging and electronics
capital equipment markets. Net income from continuing operations was $1.5
million for the quarter, compared with $607,000 for the same period in 1996.
Net income from continuing operations applicable to common shareholders was
$1.5 million for the quarter, or $0.42 per share, compared with $386,000, or
$0.14 per share, for the same period in 1996. The Company recorded a loss on
discontinued operations of $244,000, net of taxes (approximately $0.07 per
share), in the quarter. This loss was incurred to increase the Company's
reserve for environmental costs associated with a formerly-owned property. See
"Business--Environmental Regulation." After giving effect to this loss, net
income applicable to common shareholders was $1.2 million for the quarter, or
$0.35 per share, compared with $386,000, or $0.14 per share, for the same
period in 1996.
Net sales for the nine months ended September 30, 1997 were $90.5 million,
compared to $64.8 million for the same period in 1996, an increase of 39.7%.
For the nine month period, PSG's net sales were $57.1 million, an increase of
77.9% over the same period in 1996, and ICG's net sales were $33.4 million, an
increase of 2.3% over the same period in 1996. Net income from continuing
operations was $3.8 million for the nine month period, compared with $1.8
million for the same period in 1996. Net income from continuing operations
applicable to common shareholders was $3.7 million for the nine month period,
or $1.11 per share, compared with $1.2 million, or $0.44 per share, for the
same period in 1996, before extraordinary items. After giving effect to the
loss on discontinued operations recorded in the third quarter of 1997 and the
extraordinary loss on early extinguishment of debt in 1996, net income
applicable to common shareholders was $3.5 million for the nine month period,
or $1.04 per share, compared with $1.0 million, or $0.38 per share, for the
same period in 1996.
26
<PAGE>
BUSINESS
The Company designs, manufactures and sells custom precision optical and
positioning components, subsystems and systems for high-performance markets,
such as defense, space, high-end digital imaging and electronics capital
equipment. The Company also designs, manufactures and sells interconnect
devices and distributes precision ball bearings for use in a variety of
industrial, commercial and consumer applications.
Through PSG, the Company offers its capabilities in magnetics, electronics,
optics, precision machining and systems integration to high-performance OEMs
and end-users, enabling them to design and utilize systems that meet leading-
edge performance requirements. PSG designs, manufactures and sells high-end
components such as precision sensors, high-performance motors, precision metal
optics and airbearings. These products enable OEMs to improve measurement
precision, positioning performance (speed and power), inspection throughput
and manufacturing yields. PSG also designs, manufactures and sells subsystems
which integrate several of the Company's components. For example, a rotary
positioning actuator, which is comprised of a direct drive motor and a
resolver, is a subsystem used in cluster tool robotics for positioning
semiconductor wafers. In addition, PSG designs, manufactures and sells
systems, such as HSA testers used to dynamically test computer disk drive
magnetic heads.
Through ICG, the Company designs, manufactures and sells interconnect
products. It also distributes and services precision ball bearings used by
OEMs in a variety of commercial industries. The interconnect products include
safety agency (e.g., U.L.) approved barrier terminal blocks and power
connectors which are primarily used to interface industrial or process control
computers to sensors, motors and other signal level and power devices. The
precision ball bearings distributed by the Company are acquired from various
domestic and international sources and are used in machine tools, office
automation, semiconductor manufacturing and other motion control applications
to provide for smooth and precise rotary motion.
The Company's current business reflects a strategic shift that commenced in
1995. In that year, the Company began to expand its PSG business to include
not only components for defense and military space applications but also
value-added subsystems and systems for a broad range of industrial and
commercial markets. This shift was timed to take advantage of the increased
demand for high-performance components, subsystems and systems in these
markets as commercial manufacturers began to seek new methods to increase
throughput and yield.
In furtherance of its shift in strategy, the Company acquired various
synergistic technologies and assets. In April 1996, the Company acquired PAI.
PAI's subsidiaries, Speedring and Speedring Systems, are leading manufacturers
and suppliers of high-performance laser scanners and optics as well as
suppliers of precision-machined specialty materials, such as beryllium and
quartz, for space and other high-technology applications. In October 1996, the
Company acquired substantially all of the assets of LMBC, a supplier of
precision-machined beryllium. Components made of beryllium are significant
elements of space telescopes, weather and direct broadcast satellites, and
low-earth-orbit satellites used in cellular communication. Most recently, in
May 1997, the Company acquired Teletrac which designs, manufactures and sells
laser-based precision measurement systems as well as precision linear and
rotary positioning systems for use in the electronics capital equipment
industry.
MARKET OVERVIEW
Historically, the principal markets for precision optical and positioning
components were the defense and military space industries whose performance
requirements justified the high cost of components and associated electronic
controls. In recent years, however, the Company believes that commercial
manufacturers began to increase their requirements for throughput and yield as
a result of (i) the demand on manufacturers to produce smaller, higher-
performance products with precise tolerances, (ii) pressures imposed on
manufacturers to enhance productivity and quality, which in turn required
integration of process control technology directly into the manufacturing
process, and (iii) the lowering of costs associated with electronic controls.
Concurrently, OEMs increasingly began to rely on specialized manufacturers for
fully integrated subsystems and systems. The Company believes that such
reliance was caused by the general desire of OEMs to concentrate on their core
competencies, coupled with the increased complexity of manufacturing processes
and the desire of OEMs and end-users to reduce the number of vendors upon
which they rely.
27
<PAGE>
Today, the Company addresses the following five markets:
Defense. The defense industry has historically been a large consumer of
high-performance components. Over the last several years, cutbacks in defense
spending by the U.S. Government have resulted in reductions in both troop
levels and production of new weapons systems platforms. At the same time,
however, spending has increased and the market has grown for the upgrading of
existing platforms, including the development of "smart" weapons. These
upgrades include state-of-the-art electronics, enhanced night vision systems,
radar and guidance systems, and missile seeker technologies, all of which
incorporate high-performance components such as precision metal optics, high-
performance motors and sensors and precision-machined structures.
Space. As a result of the deployment of communications and navigational
satellite constellations, as well as the increased demand for weather and
scientific monitoring, the commercial space market has exhibited significant
growth in recent years. With that growth, there has been increased demand for
light weight and high-performance components, such as precision metal optics,
high-performance motors, sensors, actuation devices, inertial stabilization
components and beryllium components. These high-performance components are
capable of functioning within the extreme operating environment of space. In
particular, beryllium, the lightest metal, is highly effective at dissipating
heat and is able to maintain its structural stability over wide temperature
ranges.
High-End Digital Imaging. The high-end digital imaging market consists of
film recording systems, including pre-press, medical imaging and printed
circuit board layout film recorders, as well as laser projection systems. In
these products, laser light is modulated (pulsed), reflected off a mirror on a
rotating opto-mechanical scanner, and swept across a media such as film, to
create an image. In recent years, there has been a demand for increased
resolution and throughput capabilities in these high-end systems, requiring
the use of improved optics, higher speed motors, airbearings and more
sophisticated electronic controls. In 1994, the highest speed scanners used in
the high-end digital imaging market were rotating at approximately 20,000
revolutions per minute (RPM) with speed regulation to 10 parts per million
(ppm). Today, speeds approach 60,000 RPM and must be regulated to 2 ppm.
Scanners which operate at these high rotational speeds must be highly
engineered so as to manage the heat generated by the airbearing, minimize
turbulence through the design of an aerodynamic optical deflector, control
optical deformation, and provide a highly efficient electronic speed
controller.
Electronics Capital Equipment. The electronics capital equipment market
consists of equipment used to produce and test semiconductors, mass data
storage drives and flat panel displays. The market has expanded as a result of
growth in the sales of these products, as well as the rapid technological
advances relating to their manufacturing and testing. The Company believes
that increased demand for high-performance components and systems in this
market has resulted from (i) the miniaturization of products, creating the
need for smaller components and precise tolerances, (ii) faster production
cycles to meet product demand, (iii) the need for higher production yields and
(iv) increased outsourcing of the design and manufacture of electro-mechanical
and electro-optical subsystems and systems. High-performance components and
systems provide electronics capital equipment manufacturers with more precise
testing and process control devices which are designed to detect minute
manufacturing deviations, to reduce manufacturing costs, and to increase
throughput and yield in the manufacturing process.
Industrial Automation. The industrial automation market consists of a wide
range of industrial and commercial products, including machine tools, process
controls and heating, ventilation and air conditioning (HVAC) systems, which
the Company primarily serves through ICG. OEMs in these markets typically
purchase commodity-type and standardized products which must be delivered on a
short lead-time basis.
28
<PAGE>
BUSINESS STRATEGY
The Company's primary goal is to be a leading provider of components,
subsystems and systems that enhance throughput and yield to customers
requiring high-performance devices in their equipment and to end-users in
their manufacturing and quality assurance processes. The Company's strategy is
to leverage its resources and capabilities to develop higher-level subsystems
and systems, employing its precision optical and positioning technologies,
while maintaining and continuing to grow ICG. Key elements of this strategy
include:
Integrating Technologies. The Company intends to integrate PSG's recently
acquired technologies to develop new subsystems and systems. While PSG's sales
at the present time consist principally of components and subsystems, the
Company intends to increase the level of product integration it offers,
through the development and sale of electro-optical and electro-mechanical
systems. The Company believes that development of these systems, which build
on the Company's core component technologies, will, if successful, provide
customers with high-performance systems at competitive prices and enhance the
Company's sales opportunities. For example, Teletrac and Speedring Systems
have developed a low-cost HSA tester for the mass data storage industry which
will use Teletrac's X-Y positioning and systems integration capabilities and
Speedring Systems' airbearing technology. In addition, the Company is seeking
to develop a product which integrates the scanning technology of Speedring
Systems with the linear positioning capabilities of Teletrac for use in high-
end digital imaging applications.
Capitalizing on Cross-Selling Opportunities. Historically, PSG has organized
its sales force along product lines, through four product-specific direct
sales organizations as well as through manufacturers' representatives. To
capitalize on existing relationships within these sales organizations, the
Company has begun training its personnel within each sales organization to
identify opportunities to sell all of PSG's products and capabilities in their
respective core markets. The Company believes it can generate additional net
sales by cross-selling existing PSG products to existing customers and has
already identified a number of opportunities to cross-sell among the Company's
target customer base. For example, the direct drive motion control
technologies that the Company has been selling to the defense market are now
also being sold to customers in the electronics capital equipment industry for
use in cluster tool robotics. In addition, Speedring Systems is seeking to
adapt its airbearing technology, which has been used to serve the high-end
digital imaging market, to develop products for the mass data storage segment
of the electronics capital equipment market. The Company anticipates that this
cross-selling effort will result in increased customer awareness of the
Company's capabilities and an increased ability to sell systems integration.
In addition, over the long term, the Company, through use of the "Axsys" name,
intends to develop a corporate identity for its products, as opposed to
stressing the individual identity of the separate corporate entities, thereby
seeking to capitalize on the trend to reduce the number of vendors and
becoming a recognized supplier of subsystems and systems in a wide range of
applications.
Increasing Investment in Engineering and Manufacturing Infrastructure. The
Company offers a set of technologies and capabilities which include precision
metal optics, precision machining, magnetics, electronics and electro-
mechanical and electro-optical systems integration. To maintain and expand on
these technologies and capabilities, the Company invests in optical, magnetic,
mechanical, electronic and software engineering resources. In addition, the
Company continues to invest in sophisticated test equipment and state-of-the-
art manufacturing equipment, such as computer numerically controlled (CNC)
mills and lathes, electrical discharge machines, diamond turning and lapping
machines.
Expanding through Acquisitions. To expand and develop its product offerings,
technologies, sales channels and market presence, and to produce integrated
systems, the Company plans to continue to expand through strategic
acquisitions. For example, the Company acquired PAI for its presence in the
high-end digital imaging market and its optics and airbearing technologies and
Teletrac for its market presence in the electronics capital equipment market
and its systems integration capabilities. Although the Company reviews and
considers possible acquisitions on an ongoing basis, no specific acquisitions
are being negotiated or planned as of the date of this Prospectus.
Expanding the Industrial Components Group. The Company intends to increase
ICG's sales of interconnect devices and precision ball bearings to the
industrial and commercial automation markets through an increased focus on
direct sales to strategic accounts. As part of this focus, ICG attempts to
work with major customers to develop new interconnect products which can be
sold generally in the market place.
29
<PAGE>
TECHNOLOGIES, PRODUCTS AND CAPABILITIES
Precision Systems Group. The key enabling technologies and capabilities
utilized in the custom design, manufacture and sale of PSG's precision optical
and positioning components, subsystems and systems include:
Optics. Precision metal optics are used in applications where performance
requirements cannot be met with glass. The advantages of metal are its lighter
weight and ease of mechanical interface with housings and actuation devices.
The Company's metal optics are fabricated using CNC machines, lathes and
diamond turning and planetary lapping machines to machine and polish metal
substrates, such as beryllium and aluminum, to tolerances as precise as one
millionth of an inch. Precision metal optics sold by PSG include monogon and
polygon mirrors, which the Company uses for high-speed electro-mechanical
scanners, head mirrors used in weapons fire control systems, fold and aspheric
mirrors used in forward looking infrared (FLIR) night vision weapons systems,
and high-performance space-borne instruments used on weather, mapping and
scientific satellites.
Precision Machining. The Company's capabilities, which allow for very
precise and exacting measurements, are applied in the precision machining of
various materials for precision optics applications, airbearings, heat sinks,
housings and gimbals. PSG machines beryllium, quartz, stainless steel and
other metals for various applications in the space, defense and selected
commercial markets. The Company's airbearings provide precise positioning and
high speeds, and are used in high-speed scanners, components for weapons
guidance systems, magnetic media disk test spindles and precision position
stages used in semiconductor processing and test equipment. Its heat sinks are
used to dissipate heat in high-performance avionics and satellite electronics.
Its gimbals are used, among other things, to position optical sensors in FLIR
night vision systems.
Magnetics. The Company designs, manufactures and sells high-performance
motors and precision resolvers using state-of-the-art magnetic materials and
technology. These motors include AC motors, brush and brushless DC motors, and
torque and servo motors. The Company's magnetic products are capable of
rotational positioning to an accuracy as precise as five arc-seconds.
Applications for these high-performance components include precision
semiconductor processing and inspection equipment, missile systems, satellite
actuators and automated industrial systems.
Electronics. The Company's electronics control the speed and position of
electro-mechanical systems, such as precision motors, actuators, X-Y stages,
and laser scanners. The Company designs, manufactures and sells opto-
electronic position sensors, including optical encoders and laser
interferometers, as well as electronic controllers and drives and continues to
invest in its electronic design capability to maintain its expertise. Optical
encoders are used to sense rotary position and speed in a variety of
applications, including laser scanners, industrial robots and defense systems.
Laser interferometers, which are designed to permit precise linear position
sensing, are used principally in the electronics capital equipment market.
Electronic controllers coordinate the positioning and speed of electro-
mechanical systems by interfacing with other motion control components. Drives
provide power to a motor based on input from a controller in order to achieve
a designated position or to achieve a specific speed.
The following table summarizes the Company's component products and services
by the technologies they incorporate:
PSG TECHNOLOGIES
<TABLE>
- -------------------------------------------------------------------------------------
<CAPTION>
OPTICS PRECISION MACHINING MAGNETICS ELECTRONICS
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
. Polygon
Mirrors . Airbearings . AC motors . Optical Encoders
. Monogon
Mirrors . Custom Machining of . Brush and Brushless DC . Laser Interferometers
. Head . Speed Controls for AC
Mirrors Specialty Materials: Motors:
. Fold and DC Motors
Mirrors -Beryllium -Torque Motors
. Aspheric
Mirrors -Beryllium-aluminum -Servo Motors . Position Controllers
. Plane
Mirrors -Quartz -Limited Angle Motors . Motor Drives
-Titanium . Resolvers
. Synchros
</TABLE>
30
<PAGE>
Systems Integration. The Company combines various components and
capabilities to offer subsystems and systems to its customers. PSG's precision
subsystems include X-Y stages and rotary positioning subsystems, including
actuators, opto-mechanical laser scanners and imaging subsystems, as well as
laser tracking autofocus subsystems. These subsystems employ motion control or
optics technology available within PSG. The X-Y positioning subsystems are
used in high-precision or high-performance applications, such as semiconductor
and flat panel display positioning subsystems for use in processing or
testing. The rotary positioning subsystems are used in applications such as
night vision systems for defense contractors and cluster tool robotics in
electronics capital equipment. The laser scanning and imaging subsystems are
used by pre-press equipment manufacturers and semiconductor inspection
equipment manufacturers. The laser autofocus, which is used to automatically
focus a microscope, is sold to OEMs who manufacture automated optical
inspection machines within the electronics capital equipment market.
PSG's systems are electro-mechanical turnkey systems, with application
specific software designed by the Company for the end-user. Historically, the
Company has sold these systems only to the electronics capital equipment
industry, where it sells head gimbal assembly (HGA) and head stack assembly
(HSA) testers for mass data storage manufacturers.
The following table illustrates how PSG's technologies, products and
capabilities are integrated to develop subsystems and systems:
<TABLE>
<CAPTION>
PSG TECHNOLOGIES AND CAPABILITIES
---------------------------------------------------------------------------
SUBSYSTEMS
& PRECISION
SYSTEMS OPTICS MACHINING MAGNETICS ELECTRONICS
<S> <C> <C> <C> <C>
. Polygon or . Airbearing . Brushless DC . Optical Encoder
LASER SCANNER Monogon Mirror Servo Motor . Speed Control
. Motor Drive
. Polygon or . Airbearing . Brushless DC . Optical Encoder
Monogon Mirror Servo Motor . Speed Control
LASER IMAGER . Fold Mirror . Motor Drive
. Aspheric Mirror
LASER AUTOFOCUS . Brushless DC . Position Controller
Servo Motor . Motor Drive
ROTARY POSITIONING . Brushless DC . Position Controller
ACTUATOR Servo Motor . Motor Drive
. Resolver
. Plane Mirror . Airbearing . Linear Motor . Laser Interferometer
X-Y STAGE . Position Controller
. Motor Drive
HGA/HSA . Airbearing . Brushless DC . Laser Interferometer
TESTERS Limited Angle . Position Controller
Motor . Motor Drive
. Airbearing . Brushless DC . Optical Encoder
DISK TEST SPINDLE Servo Motor . Speed Control
. Motor Drive
</TABLE>
- --------
Italicized components are currently purchased from external sources but are in
various stages of development by the Company.
31
<PAGE>
Industrial Components Group. ICG designs, manufactures and sells a full line
of barrier terminal blocks, connectors and interconnect devices, and also
distributes a broad array of precision ball bearings.
Terminal Blocks and Connectors. The terminal blocks and connectors market is
directly related to the use of computer controls in a variety of industrial
and commercial applications, such as machine controllers, motor regulation or
security controls. The terminal blocks provide a simple method for point of
use installation and/or interchangeability of electronic components between
the computer control's printed circuit board and the device that the computer
is sensing (input) or driving (output).
ICG provides a broad array of terminal blocks. The core product line is
based on "U.S.-Style" terminal blocks, which have been the mainstay of
controls made by OEMs in the United States for several decades. ICG has also
developed a broad line of "Euro-Style" terminal blocks. These devices were
introduced by European manufacturers who began to enter the U.S. market in the
mid 1980s. In addition, ICG has applied attributes associated with "Euro-
Style" connectors to the "U.S.-Style" and vice versa.
Precision Ball Bearings. ICG distributes an array of precision ball bearings
varying in size, precision tolerance, lubrication and price. Through its
distribution arrangements with several foreign bearing manufacturers, ICG has
developed a broad product offering. ICG also provides certain value-added
services, such as bearing relubrication, white room handling of products, and
engineering consultation.
COMPETITION
The markets for the Company's products are competitive. In PSG, the Company
competes primarily on the basis of its ability to design and engineer its
products to meet performance specifications set by its customers, most of whom
are OEMs who purchase component parts or subsystems for inclusion in their
end-products. Product pricing and quality, customer support, experience,
reputation and financial stability are also important competitive factors.
There is a limited number of competitors in each of the markets for the
various types of precision optical and positioning components and subsystems,
and electrical/electronic terminal block and connector devices manufactured
and sold by the Company. These competitors, especially those in the precision
optical and positioning product lines, are typically focused on a smaller
number of product offerings than the Company, and are often well entrenched.
Some of these competitors have substantially greater resources than the
Company. The Company believes, however, that the breadth of its technologies
and product offerings provide it with a competitive advantage over certain
manufacturers which supply only discrete components or are not vertically
integrated with enabling technologies.
There are numerous competitors in markets to which the Company distributes
precision ball bearings. These competitors vary in size and include bearing
manufacturers and distributors. In the Company's opinion, ICG's breadth and
product availability, combined with the value-added services it supplies,
provide competitive advantages for ICG.
The Company expects its competitors to continue to improve the design and
performance of their products. There can be no assurance that the Company's
competitors will not develop enhancements to, or future generations of,
competitive products that will offer superior price or performance features or
that new processes or technologies will not emerge that render the Company's
products less competitive or obsolete. Increased competitive pressure could
lead to lower prices for the Company's products, thereby adversely affecting
the Company's business, financial condition or results of operations. There
can be no assurance that the Company will be able to compete successfully in
the future.
CUSTOMERS
The Company's customers include OEMs and end-users who design or utilize
high-precision, performance and throughput equipment. PSG's customers are
primarily in the defense, space, high-end digital imaging and electronics
capital equipment markets. ICG's customers are primarily in the industrial
automation market. The
32
<PAGE>
Company has an extensive customer list which includes many of the major
participants in the market segments listed below:
<TABLE>
<CAPTION>
HIGH-END ELECTRONICS INDUSTRIAL
DEFENSE SPACE DIGITAL IMAGING CAPITAL EQUIPMENT AUTOMATION
- ---------------- ------------------- --------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Allied Signal Allied Signal Agfa Applied Materials Danaher
Boeing Ball Aerospace ECRM Etec Dover Elevator
GEC Marconi Honeywell Fuji IBM Elsag Bailey
Honeywell Hughes Gerber Intel General Electric
Hughes ITT Kodak KLA/Tencor Hewlett-Packard
Litton Lockheed Martin Linotype Maxtor Honeywell
Lockheed Martin Loral Space & Scitex Orbotech Lincoln Electric
Northrop/Grumman Communications Seagate Rockwell
Raytheon Matra Marconi Space Xerox Siemens
United Technolo-
gies Motorola
Thomson
TRW
</TABLE>
There is no customer or group of affiliated customers for which sales during
fiscal 1996 or the six months ended June 30, 1997 were in the aggregate 10% or
more of the Company's consolidated net sales, and, in the Company's opinion,
there is no customer, the loss of which would have a material adverse effect
on the Company's operations taken as a whole.
In 1996 and for the six months ended June 30, 1997, the Company had
aggregate sales, both military and non-military, directly to the U.S.
Government, including its agencies and departments, of approximately $5.1
million and $2.1 million, respectively. These sales accounted for
approximately 5.6% and 3.6% of total net sales in 1996 and for the six months
ended June 30, 1997, respectively, as compared to 4.6% in 1995 and 5.8% in
1994. Approximately 22.0% of net sales in 1996 and 25.9% for the six months
ended June 30, 1997 were derived from subcontracts with U.S. Government
contractors as compared to 13.4% in fiscal 1995 and 18.1% in 1994. The
majority of these contracts may be subject to termination at the convenience
of the U.S. Government, and certain contracts may also be subject to
renegotiation. Currently, the Company is not aware of any termination or
renegotiation of such contracts which would have a material adverse effect on
its business. Because a substantial part of the Company's business is derived
directly from contracts with the U.S. Government, or agencies or departments
thereof, or indirectly through subcontracts with U.S. Government contractors,
the Company's results of operations could be materially affected by changes in
U.S. Government expenditures for products using component parts which the
Company produces. However, the Company believes that its exposure to such risk
may be lessened by the broad number and diversity of its product applications
and the strength of its engineering capabilities.
SALES, MARKETING AND CUSTOMER SUPPORT
As of June 30, 1997, the Company employed 75 sales, marketing and customer
support personnel, of whom 41 were involved with PSG's product offerings and
34 were involved with ICG's product offerings. Historically, the Company's
sales organization has been organized along product lines with four product-
specific direct sales organizations in PSG and two direct sales organizations
in ICG. As part of its integration strategy, the Company is in the process of
increasing its expenditures for sales and customer support and realigning the
sales organizations in PSG along market segments--defense, space, high-end
digital imaging and electronics capital equipment. To date, this realignment
has been limited to training of sales personnel in each of PSG's sales
organizations to identify opportunities to sell all of PSG's capabilities in
its own core market and to making joint sales calls. There can be no assurance
that these efforts will be successful and lead to increases in the Company's
sales or that the Company will recover its additional costs in implementing
this strategy.
33
<PAGE>
Also as of June 30, 1997, PSG's direct sales organization included 14 direct
sales field personnel, most of whom have engineering backgrounds, with the
remainder involved in inside sales, customer service, program management,
contract administration and applications engineering. ICG's direct sales
organization included 11 direct sales field personnel, with the remainder
involved in inside sales, customer service, product management, contract
administration and applications engineering. The Company believes that its
sales effort is enhanced by having engineering-trained sales personnel
available to meet with customers' engineering personnel. In addition, the
Company's application and design engineers are used to enhance the sales
process.
PSG and ICG also sell their products through over 200 manufacturer's sales
representatives and agents. Although the Company believes it has good
relationships with these sales representatives and agents, there can be no
assurance that these relationships will continue to be satisfactory or will
continue at all.
ENGINEERING, RESEARCH AND DEVELOPMENT
The Company seeks to develop new component products, subsystems and systems
and improve existing products in order to keep pace with customers' increasing
performance requirements. The Company devotes significant resources, a portion
of which is reimbursed by customers, to development programs directed at
creating new products and product enhancements, as well as developing new
applications for existing products. Because the Company believes that its
ability to compete effectively depends in part on maintaining and enhancing
its expertise in applying new technologies and developing new products, the
Company dedicates substantial resources to engineering, research and
development. At August 31, 1997, the Company employed 87 individuals in its
engineering, research and development functions. There can be no assurance
that the Company's product development efforts will be successful in producing
products that respond to technological changes or new products introduced by
others.
The Company's costs associated with engineering and research and
development were $2.4 million, $3.4 million, $4.1 million and $2.4 million in
1994, 1995, 1996 and the six months ended June 30, 1997, respectively. During
such periods, $1.2 million, $1.2 million, $2.2 million and $1.3 million,
respectively, were incurred in research and development. Of these amounts, the
Company recovered from customers approximately 40.4%, 38.3%, 17.0% and 10.5%
respectively. The Company intends to direct its research and development
activities to integrating its newly acquired technologies with its existing
capabilities, and continuing to develop subsystems and systems.
RAW MATERIALS; SUPPLIERS
Raw materials and purchased components are generally available from multiple
suppliers. However, beryllium, a material used extensively by PSG, is only
available from Brush Wellman, the sole U.S. supplier. Historically, the
Company and, to the Company's knowledge, its predecessors' beryllium
operations have had an excellent relationship with Brush Wellman and have not
encountered problems in obtaining their requirements. However, the partial or
complete loss of Brush Wellman as a supplier of beryllium, or production
shortfalls or interruptions that otherwise impair the supply of beryllium to
the Company, would have a material adverse effect on the Company's business,
financial condition or results of operations. If such conditions were to
occur, it is uncertain whether alternative sources could be developed. In
addition, the Company purchases a substantial part of the ball bearings it
distributes from a single foreign supplier. While the Company believes that it
could obtain alternate sources of supply, any interruption in the flow of
products from this supplier, or increases in the cost of these products, could
have an adverse effect on the Company's business, financial condition or
results of operations.
PATENTS AND TRADEMARKS
The Company is not dependent upon any single patent or trademark. The
Company has a combination of patents, trademarks and trade secrets, non-
disclosure agreements and other forms of intellectual property protection to
protect certain of its proprietary technology. Although it believes that its
patents and trademarks have value, the Company believes that its future
success will depend primarily on the innovation, technical
34
<PAGE>
expertise, manufacturing and marketing abilities of its personnel. The Company
currently holds 14 patents in the United States expiring between October 27,
1997 and April 18, 2012, and eight international patents expiring between
April 21, 1998 and December 24, 2019, and has patent applications pending or
under evaluation in the United States and various foreign jurisdictions. There
can be no assurance as to the degree of protection offered by these patents or
as to the likelihood that patents will be issued for pending applications.
There also can be no assurance, however, that the Company will be able to
maintain the confidentiality of its trade secrets or that its non-disclosure
agreements will provide meaningful protection of the Company's trade secrets,
know-how or other proprietary information in the event of any unauthorized
use, misappropriation or disclosure of such trade secrets, know-how or other
proprietary information.
Competitors in the United States and foreign countries, many of which have
substantially greater resources, may have applied for or obtained, or may in
the future apply for and obtain, patents that will prevent, limit or interfere
with the Company's ability to make and sell some of its products. Although the
Company believes that its products do not infringe on the patents or other
proprietary rights of third parties, there can be no assurance that other
third parties will not assert infringement claims against the Company or that
such claims will not be successful.
ENVIRONMENTAL REGULATION
The Company believes that it is in compliance with federal, state and local
laws and regulations governing the discharge of materials into the environment
or otherwise relating to the protection of the environment in all material
respects, and that any non-compliance with such laws will not have a material
adverse effect upon its business, financial condition or results of
operations, capital expenditures, earnings or competitive position. There can
be no assurance, however, (i) that changes in federal, state or local laws,
regulations or regulatory policy, or the discovery of unknown problems or
conditions will not in the future require substantial expenditures, or (ii) as
to the extent of the Company's liabilities, if any, for past failures, if any,
to comply with applicable environmental laws, regulations and permits, any of
which also could have a material adverse effect on the Company's business,
financial condition or results of operations.
The Company has been identified as a potentially responsible party ("PRP")
under the Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA") with respect to three third-party waste disposal sites. In 1996,
the Company entered into a settlement agreement and paid approximately $1,000
with respect to one of these sites. Although liability under CERCLA is joint
and several, meaning that liability can exceed a PRP's pro rata share of
cleanup costs, based on currently available information, the Company believes
that costs associated with the two remaining sites will not have a material
adverse effect on the Company.
The Company, pursuant to a remedial plan approved by the Ohio Environmental
Protection Agency ("Ohio EPA") in 1993, is in the process of investigating
soils and groundwater at a site formerly owned by a division of the Company,
and has conducted certain remedial work at this site. Costs to date have not
been material to the Company, and until recently, the Company believed that
future costs similarly would not be material. In September 1997, however, the
Company was advised by its environmental consultants that the costs now
anticipated to carry out the 1993 plan would be substantially greater than
previously expected, but that the Company could pursue alternate plans which
would involve additional costs in the range of approximately $600,000 to $1.5
million. However, any such alternate plans would be subject to the approval of
the Ohio EPA. Based on the advice of its consultants, the Company has
increased its reserves relating to this site to approximately $600,000, with a
resulting charge to discontinued operations in the third quarter of 1997 of
$244,000, net of taxes (approximately $0.07 per share). Based on the advice of
its consultants, the Company believes that the Ohio EPA is likely to allow use
of an alternate plan. There can be no assurance that an alternate remedial
plan will be approved by the Ohio EPA. If such approval is not received, costs
to the Company would increase substantially. In addition, even if approval is
received, the costs actually incurred may exceed the reserves established. The
Company anticipates that actual expenditures will be incurred over a period of
several years.
In addition, the current owner of a site formerly owned by a subsidiary of
PAI has asserted that the subsidiary is responsible for investigation and
remediation costs with respect to this site. No litigation has been
35
<PAGE>
brought against the Company, and the Company has received no correspondence or
other communication for several years with respect to this site. At this time
the Company is unable to assess the extent of its potential liability, if any,
with respect to this site or to form a judgment as to the likelihood of an
unfavorable outcome in the event litigation were to be commenced.
The Company uses or generates certain hazardous substances in its
manufacturing and engineering facilities. The Company believes that its
handling of such substances is in material compliance with applicable local,
state and federal environmental, safety and health regulations at each
operating location. The Company invests in protective equipment, process
controls and specialized training to minimize risks to employees, surrounding
communities and the environment due to the presence and handling of such
hazardous substances. The Company periodically conducts employee physical
examinations and workplace air monitoring regarding such substances. When
exposure problems or potential have been indicated, corrective actions have
been implemented and re-occurrence has been minimal or non-existent. The
Company does not carry environmental impairment insurance.
EMPLOYEES
As of June 30, 1997, the Company employed 932 persons, including 691 in
manufacturing, 75 in sales, 87 in engineering and 79 in administration. All
are employed in the United States, except for one United Kingdom- based
employee engaged in international sales. The Company's approximately 80
employees at the St. Petersburg, Florida facility are subject to a collective
bargaining agreement. The Company considers its relations with its employees
to be satisfactory. There has been no significant interruption of operations
due to labor disputes.
FACILITIES AND MANUFACTURING
The Company leases its executive office, located at 645 Madison Avenue, New
York, New York. The principal plants and other materially important properties
at June 30, 1997 are:
<TABLE>
<CAPTION>
APPROXIMATE
LOCATION TYPE OF FACILITY SQUARE FOOTAGE OWNED/LEASED(1)
- ------------------- -------------------------- -------------- ---------------
<S> <C> <C> <C>
Cullman, AL Manufacturing, Engineering 110,000 Owned
Gilford, NH Manufacturing, Engineering 84,250 Owned
Montville, NJ Distribution 76,200 Leased
San Diego, CA Manufacturing, Engineering 63,100 Leased
St. Petersburg, FL Manufacturing, Engineering 52,500 Owned
Rochester Hills, MI Manufacturing, Engineering 35,000 Leased
Santa Barbara, CA Manufacturing, Engineering 13,800 Leased
Irvine, CA Distribution 7,800 Leased
Dallas, TX Distribution 2,950 Leased
</TABLE>
- --------
(1) Leases expire from 1999 to 2002.
All of the facilities owned by the Company are subject to mortgages or
security interests which secure the Company's obligations under the Credit
Facility or industrial revenue bonds. See Note 5 to the Consolidated Financial
Statements.
Management believes that the Company's manufacturing facilities are
generally sufficient to meet its current and reasonably anticipated
manufacturing, distribution and related requirements. The Company, however,
periodically reviews its space requirements to ascertain whether its
facilities are sufficient to meet its needs.
LEGAL PROCEEDINGS
The Company is a defendant in various lawsuits, none of which is expected to
have a material adverse effect on the Company's business, financial condition
or results of operations. See "--Environmental Regulation."
36
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
Company's executive officers and directors. Executive officers are appointed
by, and serve at the discretion of, the Board of Directors. All directors hold
office until the annual meeting of shareholders of the Company following their
election or until their successors are duly elected and qualified.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Stephen W. Bershad...... 56 Chairman of the Board and Chief Executive Officer
Raymond F. Kunzmann..... 40 Vice President--Finance and Chief Financial Officer
Louis D. Mattielli...... 47 Vice President--General Counsel and Secretary
Kenneth F. Stern........ 37 Vice President--Corporate Development
Richard V. Howitt....... 53 Director; President of Teletrac
Anthony J. Fiorelli,
Jr..................... 67 Director
Eliot M. Fried.......... 64 Director
</TABLE>
Stephen W. Bershad has been Chairman of the Board and Chief Executive
Officer of the Company since he joined the Company in December 1986. Prior to
joining the Company, he was a Managing Director of Lehman Brothers and its
predecessor firms, where he held a series of senior management positions in
merchant banking and mergers and acquisitions. Mr. Bershad is a director of
EMCOR Group, Inc., an electrical and mechanical construction and facilities
services company.
Raymond F. Kunzmann joined the Company in June 1994 and currently serves as
Vice President--Finance and Chief Financial Officer. Prior to joining the
Company, from January 1994 until May 1994, he was Group Controller at
Mannesmann Capital Corporation, a diversified manufacturing company, and, from
January 1987 until December 1993, was Controller and held other positions at
Lear Siegler, Inc., a diversified manufacturing/service company. Prior to
that, Mr. Kunzmann was employed by Deloitte, Haskins & Sells.
Louis D. Mattielli joined the Company in June 1997 as Vice President--
General Counsel and Secretary. Prior to joining the Company, Mr. Mattielli was
a consultant to Liberty Brokerage, Inc. and its affiliated companies,
interdealer bond brokers, from September 1996 to May 1997. From June 1994 to
September 1996, he was Senior Vice President--General Counsel and Secretary of
The Pullman Company, an automotive manufacturing company. From September 1993
to June 1994, he was Senior Vice President--Administration of and then
consultant to Herzog, Heine & Geduld, Inc., a broker-dealer. From May to
September 1993, he served as Vice President and General Counsel of Hat Brands,
Inc., an apparel company. Prior to that, from January 1987 to May 1993, he was
Vice President and General Counsel of and then consultant to Lear Siegler,
Inc.
Kenneth F. Stern joined the Company in October 1994 and currently serves as
Vice President--Corporate Development. Prior to joining the Company, from
December 1992 to October 1994, he was a management consultant specializing in
strategic planning and corporate development for technology companies at
Monitor Company, and, prior to December 1992, at Lorne Weil Inc., both of
which are consulting firms.
Richard V. Howitt has been a director of the Company since June 1997,
following the Company's acquisition of Teletrac. Mr. Howitt is a co-founder of
Teletrac and has been President of Teletrac for 18 years. Prior to his full-
time employment at Teletrac, he was a member of the technical staff and
Section Head of Optical Metrology at Santa Barbara Research Center. See
"Certain Transactions."
Anthony J. Fiorelli has been a director of the Company since February 1988.
Since January 1986, Mr. Fiorelli has been President of Strategic Management
Consulting Services, Inc., a management consulting firm.
37
<PAGE>
Eliot M. Fried has been a director of the Company since 1994. He is a
Managing Director of Lehman Brothers where he has been employed for 21 years
and is a member of its Investment Committee and Investment Banking Commitment
Committee. He is also Vice President of Lehman Electric Inc. Mr. Fried is a
director of Bridgeport Machines, Inc., EVI, Inc., an oil services company, L-3
Communications Corporation, a communications equipment company, and Walter
Industries, Inc., a conglomerate of basic industries.
There are no family relationships among any of the directors and executive
officers of the Company.
COMMITTEES OF THE BOARD
The Audit Committee, the Compensation Committee and the Stock Incentive Plan
Committee are the standing committees of the Board of Directors. The Audit
Committee reviews internal and external audit procedures of the Company.
Messrs. Fiorelli and Fried are members of the Audit Committee. The
Compensation Committee oversees compensation policies of the Company. Its
members are Messrs. Bershad and Fiorelli. The Stock Incentive Plan Committee
administers the Company's Long-Term Stock Incentive Plan and is comprised of
Messrs. Fiorelli and Fried. See "--Stock Incentive Plan."
DIRECTORS' COMPENSATION
The compensation of directors is fixed by the Board of Directors. Directors
who are not employees of the Company receive meeting fees of $2,500 for each
Board meeting attended and $1,000 for each committee meeting attended other
than in connection with a Board meeting. Directors are reimbursed for travel
and other expenses incurred in the performance of their duties. The Board of
Directors met four times during 1996. For information as to certain stock
options granted to Messrs. Fiorelli and Fried, see "--Stock Incentive Plan."
38
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation for
services in all capacities awarded to, earned by or paid to the Company's
Chief Executive Officer and the other executive officers of the Company whose
aggregate cash compensation exceeded $100,000 (collectively, the "Named
Executives") during the years ended December 31, 1994, 1995 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION AWARDS
------------------- ------------
NUMBER OF
SECURITIES
UNDERLYING ALL OTHER
BONUS(1) OPTIONS(2) COMPENSATION(3)
NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($) (#) ($)
- --------------------------- ---- ---------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
Stephen W. Bershad(4)..... 1996 262,500 157,500 -- 7,576
Chairman of the Board and 1995 262,500 100,000 -- 6,258
Chief Executive Officer 1994 262,500 150,000 4,200 10,810
Elliot N. Konopko(5)...... 1996 210,673 82,875 -- 20,555
Vice President--General 1995 175,000 40,000 -- 6,521
Counsel and Secretary 1994 175,000 55,000 3,000 6,318
Raymond F. Kunzmann(6).... 1996 141,385 85,000 -- 10,603
Vice President--Finance 1995 120,635 45,000 -- 7,197
and Chief Financial
Officer 1994 70,000 28,000 4,000 2,721
Kenneth F. Stern(7)....... 1996 130,269 52,500 -- 10,439
Vice President-- 1995 120,000 25,000 -- 4,429
Corporate Development 1994 25,000 5,000 2,000 --
</TABLE>
- --------
(1) Reflects payments under the Company's Annual Incentive Plan, which is
described below.
(2) Reflects awards under the Company's Long-Term Stock Incentive Plan. See
"--Stock Incentive Plan."
(3) Reflects matching contributions under the Company's 401(k) Plans and
payments under the Company's executive health insurance plan and other
miscellaneous amounts. The Company's executive health insurance plan,
which covers only executive officers, provides for the reimbursement of
deductible and coinsurance amounts and certain medical expenses not
covered under the Company's basic medical plans. See "--401(k) Plans."
(4) Mr. Bershad's current annual base salary is $300,000.
(5) Mr. Konopko was Vice President--General Counsel and Secretary of the
Company from March 1990 until his resignation on June 18, 1997. Mr.
Mattielli, his successor, is employed at an annual base salary of
$175,000.
(6) Raymond F. Kunzmann joined the Company in June 1994.
(7) Kenneth F. Stern joined the Company in October 1994.
INCENTIVE PLANS
An Annual Incentive Plan and a Supplemental Revenue Growth Incentive Plan
have been established by the Company to provide additional incentive
compensation which is based on the Company's performance.
Under the Annual Incentive Plan, a payment may be made to many of the
Company's employees based on the achievement of certain consolidated or
individual business unit performance criteria, including, among other things,
operating income, bookings and return on investment. Distributions under this
plan are made in cash annually after the close of each fiscal year.
During 1996, the Board of Directors of the Company adopted a Supplemental
Revenue Growth Incentive Plan under which certain management employees of the
Company became eligible for future payments,
39
<PAGE>
contingent upon the Company achieving certain net sales growth objectives over
the three-year period 1996 to 1998. Awards (which are based on a percentage of
an employee's base salary) will be earned following the conclusion of any
fiscal year where net sales growth, adjusted to take into account structural
changes such as acquisitions and dispositions, over the higher of (i) net
sales for a base period which in general reflects 1995 net sales and (ii) the
highest net sales for any subsequent fiscal year, is at least equal to the
targeted growth percentage established by the Company. If net sales growth
exceeds the targeted growth percentage in any given year within the three-year
period, a participant receives, for that year, a two percentage point increase
in the percentage of salary on which the award is based for each full
percentage point increase in net sales growth for that year over the targeted
growth percentage. Incentive compensation earned for any year under this plan
vests in one-third increments 12 months, 24 months and 36 months after the end
of such year and is payable at each vesting date in shares of Common Stock or,
in certain circumstances, in cash. The number of shares of Common Stock earned
for any year is determined by dividing the dollar value of the award earned in
that year by the price of the Common Stock on the last day of the year for
which the award was earned.
The table below sets forth certain information relating to grants to the
Named Executives under the Supplemental Revenue Growth Incentive Plan.
<TABLE>
<CAPTION>
PERFORMANCE OR ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF OTHER PERIOD NON-STOCK PRICE BASED PLANS
SHARES, UNITS OR UNTIL MATURATION ------------------------------------
NAME OTHER RIGHTS (1) OR PAYOUT THRESHOLD TARGET MAXIMUM(1)
- ---- ---------------- ---------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Stephen W. Bershad...... 1996-1998 $ 90,000 $ 90,000
Raymond F. Kunzmann..... 1996-1998 43,500 43,500
Kenneth F. Stern........ 1996-1998 40,500 40,500
</TABLE>
- --------
(1) See discussion above.
TELETRAC, INC. MANAGEMENT INCENTIVE COMPENSATION PLAN
Under the Teletrac, Inc. Management Incentive Compensation Plan (the
"Teletrac Plan"), Teletrac may make certain cash bonus awards ("Awards") to
employees of Teletrac who are senior officers, members of senior management or
key employees and consultants to Teletrac. The purpose of the Teletrac Plan is
to advance the best interest of Teletrac and the Company by providing eligible
employees with additional incentives to promote the success of Teletrac's
business, to increase their vested interest in the success of Teletrac's
business and to encourage them to remain employees of Teletrac. The Teletrac
Plan was ratified and approved by Teletrac's shareholders on May 30, 1997.
Under the Teletrac Plan, Teletrac must establish incentive compensation pools
("Incentive Compensation Pools") for each of the fiscal years ending December
31, 1997 and December 31, 1998 and the thirteen-month period ending January
31, 2000 (each, an "Incentive Period") and, under certain circumstances,
additional incentive compensation pools ("Additional Incentive Compensation
Pools") for the same periods. The Incentive Compensation Pools and the
Additional Incentive Compensation Pools are determined based on a percentage
of the excess of "gross profits" (as defined in the Teletrac Plan) for each
Incentive Period over a base amount. The aggregate amount of the Incentive
Compensation Pools and the Additional Incentive Compensation Pools shall not
exceed $3.0 million and $1.1 million, respectively. Subject to the next
succeeding sentence, Mr. Howitt, the President of Teletrac and a director of
the Company, is entitled to a percentage of annual payments, not to exceed
43%, from the Incentive Compensation Pool and the Additional Incentive
Compensation Pool, if applicable, as determined by the committee administering
the Teletrac Plan. In addition, in accordance with employment agreements
between Teletrac and Messrs. Barker and Howitt, if such agreements are
terminated for certain reasons, each of them will be entitled to receive an
Award of 40% of all amounts payable to them under the Teletrac Plan after such
termination date. The Teletrac Plan is administered by a committee comprised
solely of Mr. Howitt as long as he is President and a full-time employee of
Teletrac and, in the event Mr. Howitt shall cease to be the President and a
full-time employee of Teletrac, by David Barker as long as he is Vice
President--Research and Development and at least a half-time employee of
Teletrac and thereafter by individuals appointed by the Board of Directors of
Teletrac. Subject to certain exceptions, including exceptions for amendments
that adversely affect a participant's right (without consent) to
40
<PAGE>
receive Awards under the Teletrac Plan, the Board of Directors of Teletrac may
amend the Teletrac Plan from time to time or suspend or terminate it entirely.
In the event Teletrac sells all or substantially all of its assets, the
participants in the Teletrac Plan are entitled to receive an amount equal to
$4.1 million less all amounts previously paid as Incentive Compensation Pools
and Additional Incentive Compensation Pools unless certain conditions are
satisfied. See "Certain Transactions."
STOCK INCENTIVE PLAN
The Company's Long-Term Stock Incentive Plan was approved by shareholders in
August 1991; it was then amended and restated by the Board of Directors on
September 18, 1997. Such amendment and restatement was approved by the
shareholders at a special meeting held on October 14, 1997 (the "Stock
Incentive Plan"). The amendments, among other things, increase the number of
shares of Common Stock authorized for grant from 79,400 to 400,000 and make
certain awards under the Stock Incentive Plan qualify for favorable treatment
under Section 162(m) of the Internal Revenue Code of 1986. The Stock Incentive
Plan is administered by the Stock Incentive Plan Committee (the "Committee").
The Committee selects participants from among those executives and other
employees of the Company and its subsidiaries who materially contribute to the
success of the Company and determines the amounts, times, forms, terms and
conditions of grants.
Grants may be in the form of options to purchase shares of Common Stock,
stock appreciation rights, restricted stock and performance units
(collectively, "Stock Incentives"). Stock appreciation rights may be granted
on a "free-standing" basis or in conjunction with all or a portion of the
shares covered by an option. Stock Incentives are subject to such provisions
as the Committee determines and may be exercised at one time or in such
installments and at such prices over the balance of the exercise period as
determined by the Committee. The number of shares of Common Stock underlying
Stock Incentives granted per calendar year cannot exceed (i) for any executive
officer 60,000 shares of Common Stock and (ii) for any other eligible
participant 60,000 shares of Common Stock.
Each Stock Incentive is exercisable, upon vesting, in whole or in part,
prior to its cancellation or termination, by written notice to the Company. If
any option is being exercised, such notice must be accompanied by payment in
full of the purchase price in cash or, if acceptable to the Committee, shares
of Common Stock or a combination thereof. Stock Incentives are not
transferable except by will or by laws of descent and distribution.
In general, each Stock Incentive will terminate upon the earlier of (i) the
date fixed by the Committee when the Stock Incentive is granted or (ii) unless
determined otherwise by the Committee, 90 days after the participant's
termination of employment other than for cause, to the extent the Stock
Incentive was then exercisable. In the event of termination due to death or
disability, the Stock Incentive may be exercised to the extent then
exercisable for a period of one year from such termination. If a participant's
employment is terminated for cause, his or her ability to exercise any Stock
Incentive is immediately terminated.
The Company may make loans to such participants as the Committee, in its
discretion, may determine in connection with the exercise of options in an
amount up to the exercise price of the option plus any applicable withholding
taxes. In no event may any such loan exceed the fair market value, at the date
of exercise, of the shares covered by the option exercised.
Upon a change of control, the Stock Incentives which are outstanding on the
date of such change of control and are not then exercisable may become
immediately exercisable. With respect to the Stock Incentives intended to
qualify as performance-based compensation under Section 162(m) of the Internal
Revenue Code, the Committee must set forth and define in each Stock Incentive
agreement the terms or events upon which the vesting or exercisability of the
Stock Incentives will accelerate. With respect to Stock Incentives not
intended to so qualify and with respect to options outstanding prior to the
amendment of the Stock Incentive Plan, the Committee may exercise sole
discretion to accelerate vesting or exercisability upon the occurrence of a
change of control as defined by the Committee.
41
<PAGE>
1996 Fiscal Year-End Option Values
The following table sets forth certain information regarding the year-end
number and value of unexercised stock options granted pursuant to the Stock
Incentive Plan as of December 31, 1996 held by the Named Executives. No
options were granted to or exercised by such Named Executives during 1996:
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION VALUES
---------------------------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS AT FISCAL
AT FISCAL YEAR-END (#) YEAR-END ($)(1)
------------------------- ------------------------- -------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stephen W. Bershad...... 2,940 1,260 20,874 8,946
Raymond F. Kunzmann..... 2,800 1,200 21,000 9,000
Elliot N. Konopko(2).... 8,100 900 60,750 6,750
Kenneth F. Stern........ 1,400 600 10,500 4,500
</TABLE>
- --------
(1) Market value of underlying securities at December 31, 1996 based on a per
share value of $11.25 less the aggregate exercise price.
(2) Mr. Konopko was Vice President--General Counsel and Secretary of the
Company from March 1990 until his resignation on June 18, 1997. On June 2,
1997, Mr. Konopko exercised all his 9,000 options for an aggregate
exercise amount of $33,750.
Stock Option Grants in 1997
The following table sets forth certain information concerning individual
grants of stock options granted pursuant to the Stock Incentive Plan during
1997 (through June 30) to the Named Executives and to Mr. Mattielli. Except as
set forth in the footnote to the foregoing table, no options were exercised in
that period by such executive officers.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED
UNDERLYING TO EMPLOYEES EXERCISE OR
OPTIONS (THROUGH BASE PRICE
NAME GRANTED (#)(1) JUNE 30, 1997) ($/SH) EXPIRATION DATE
- ---- -------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C>
Stephen W. Bershad...... 8,400(2) 22.6 4.15 2/11/2002
2,000 9.5 16.50 2/11/2002
Raymond F. Kunzmann..... 2,000 9.5 15.00 2/11/2007
Elliot N. Konopko(3).... 2,000 9.5 15.00 2/11/2007
Louis D. Mattielli...... 4,000 19.0 17.75 6/8/2007
Kenneth F. Stern........ 2,000 9.5 15.00 2/11/2007
</TABLE>
- --------
(1) These options are exercisable to the extent of 40% thereof after one year
from the date of grant and an additional 30% at the end of each year
thereafter.
(2) Represents the extension of options which were originally granted in
September 1991.
(3) These options were forfeited as a result of Mr. Konopko's resignation on
June 18, 1997.
In 1997, each of Messrs. Fried and Fiorelli also were granted options to
purchase 2,000 shares of Common Stock at an exercise price of $15.00 per share
with an expiration date of February 11, 2007, which were fully vested at the
date of grant.
The Company anticipates that, concurrently with the effectiveness of this
Offering, options to purchase shares of Common Stock will be granted to a
number of the Company's employees, including executive officers, covering a
significant part of the shares available for grant under the Stock Incentive
Plan.
42
<PAGE>
401(K) PLANS
The Company currently maintains several 401(k) salary reduction plans (the
"401(k) Plans") which are intended to qualify under Sections 401(a) and 401(k)
of the Internal Revenue Code of 1986. Generally, all employees who are not
members of collective bargaining groups and who are 21 years of age or older
are eligible to participate in a 401(k) Plan after they complete 1,000 hours
or six months of service. All eligible executive officers have elected to
participate in a 401(k) Plan.
Eligible employees electing to participate in a 401(k) Plan may defer a
portion of their compensation on a pre-tax basis, by contributing a percentage
thereof to the 401(k) Plan. The minimum contribution ranges from one to three
percent of annual gross pay. The maximum is prescribed in Section 401(k) of
the Internal Revenue Code of 1986. The limit for 1996 was $9,500 and will be
$9,500 in 1997. The Company made matching contributions ranging from up to
four percent of the employee's gross earnings in 1996. Eligible employees who
elect to participate in a 401(k) Plan are generally vested in the Company's
matching contribution, which may be in shares of Common Stock, according to
the following schedule: less than one year of service-0%; one year of service-
20%; two years of service,-40%; three years of service-60%; four years of
service-80%; and five years of service-100%.
TERMINATED PENSION PLAN
The Company has a defined benefit pension plan which was terminated on July
31, 1989. The estimated annual benefits payable upon retirement to Mr.
Bershad, the only executive officer participating in such plan, are $22,121,
assuming retirement at age 65.
INDEMNIFICATION AGREEMENTS
The Company has entered into indemnification agreements with its directors
and certain officers in order to induce them to continue to serve as directors
and officers of the Company, indemnifying them for any and all liabilities
incurred by them arising out of their service as directors or officers, other
than liabilities arising out of conduct which has been determined in a final
adjudication to constitute bad faith or a knowing violation of law or receipt
by such person of an improper personal benefit. The rights to indemnification
under such agreements are in addition to any rights to indemnification
contained in the Company's Certificate of Incorporation or By-Laws, which
provide for indemnification under certain circumstances.
SEVERANCE AGREEMENTS
The Company has entered into severance agreements with each of Messrs.
Kunzmann and Stern dated June 10, 1996. Under each of these agreements, the
Company has agreed to pay each of Messrs. Kunzmann and Stern up to one year's
base compensation, in accordance with its customary payroll practices, and
certain other benefits in the event of their respective termination by the
Company other than for cause. However, such amounts would be reduced by any
salary received from another employer, if any, in the period concerned.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee is comprised of Messrs. Bershad, the Company's
Chairman of the Board and Chief Executive Officer, and Fiorelli. The Stock
Incentive Plan Committee is comprised of Messrs. Fiorelli and Fried. There are
no Compensation Committee interlocks between the Company and any other
entities involving the Company's executive officers and directors who serve as
executive officers of such entities.
KEY MAN INSURANCE
The Chairman of the Board and Chief Executive Officer is a key employee of
the Company and his contribution to the Company has been and will continue to
be a significant factor in the Company's success. The loss of his services
could adversely affect the Company's business, financial condition or results
of operations. The Company maintains, and is the beneficiary of, a life
insurance policy on his life. The face amount of such policy is $5.0 million.
43
<PAGE>
CERTAIN TRANSACTIONS
On May 30, 1997, the Company, Teletrac and Richard Howitt and the other
Teletrac Minority Shareholders (collectively, the "Sellers") entered into a
Stock Purchase Agreement pursuant to which the Sellers sold 177,935 Teletrac
shares to the Company for a purchase price of approximately $7.7 million and
the issuance of 53,000 shares of Common Stock. The Company was granted the
right to acquire the remaining 29,880 shares of Teletrac's capital stock
retained by the Sellers in exchange for 100,000 shares of Common Stock
issuable pursuant to the Stockholder Agreement described below. Mr. Howitt,
who was elected director of the Company following the closing of the
transaction, sold 82,053 Teletrac shares to the Company and retained 5,229
shares. The 53,000 shares of Common Stock issued at closing are subject to
registration rights. See "Description of Capital Stock--Registration Rights."
On May 30, 1997, the Company, on the one hand, and Richard Howitt and
certain other Teletrac Minority Shareholders on the other hand, entered into a
stockholder agreement (the "Stockholder Agreement") relating to the 29,880
Teletrac shares retained by the Teletrac Minority Shareholders. Pursuant to
the Stockholder Agreement, the Teletrac Minority Shareholders have the option,
exercisable on written notice to the Company, to elect to sell any remaining
Teletrac shares to the Company in exchange for an aggregate of 100,000 shares
of the Company's Common Stock (3.3467 shares of the Company's Common Stock for
each Teletrac share) for a period of three years from the date of the
Stockholder Agreement. In addition, pursuant to the terms of the Stockholder
Agreement, the Company has the option, exercisable on written notice to each
Teletrac Minority Shareholder, to elect to purchase the Teletrac Minority
Shareholders' Teletrac shares, in exchange for an aggregate of 100,000 shares
of the Company's Common Stock (3.3467 shares of the Company's Common Stock for
each Teletrac share) at any time after three years from the date of the
Stockholder Agreement or, on a prior date, upon certain other circumstances.
Such shares of Common Stock, when issued, will be entitled to certain
registration rights. Mr. Howitt's retained shares are exchangeable for 17,500
shares of Common Stock. Under the Stockholder Agreement, the Company was
appointed as proxy to vote the Teletrac shares retained by the Teletrac
Minority Shareholders until May 30, 2007. See "Description of Capital Stock--
Registration Rights" and "Shares Eligible for Future Sale."
In connection with the purchase of Teletrac, Teletrac entered into an
employment agreement with Mr. Howitt dated May 30, 1997 (the "Employment
Agreement") and Mr. Howitt executed a Non-Competition Agreement in favor of
the Company dated as of the same date. Pursuant to the terms of such Non-
Competition Agreement, Mr. Howitt has agreed not to compete with or solicit
customers or employees from the Company for a period of six years expiring in
June 2003.
Pursuant to the terms of the Employment Agreement, Mr. Howitt is entitled to
receive an annual salary of $225,000 and a bonus for the next three fiscal
years in accordance with the terms of the Teletrac Plan as determined by the
committee administering the Teletrac Plan. Mr. Howitt's employment is for a
period of three years expiring June 1, 2000. Mr. Howitt's Employment Agreement
will terminate upon his death. In addition, Teletrac may terminate Mr.
Howitt's employment upon his "disability" or for "cause," and Mr. Howitt may
terminate his employment with Teletrac at any time without Teletrac's consent
or for "good reason" (as such terms are defined in the Employment Agreement).
If the Employment Agreement is terminated by death, or by Teletrac for
"disability" or "cause" or by Mr. Howitt without "good reason," Teletrac is
obligated to pay Mr. Howitt (or his estate) all amounts earned but not paid to
such termination date and certain other benefits accrued to such termination
date pursuant to Teletrac's benefit plans. If the Employment Agreement is
terminated by the Company other than for "disability" or "cause" or by Mr.
Howitt with "good reason," Mr. Howitt will be entitled to receive all amounts
earned and not paid to such termination date, the salary payable after such
termination date for the balance of the term of the Employment Agreement,
40.0% of any amounts payable after such termination date pursuant to the
Teletrac Plan and certain medical, dental and insurance benefits during the
balance of the term of the Employment Agreement. Throughout his employment,
Mr. Howitt is bound by a covenant not to compete with Teletrac and not to
disclose "confidential information" (as defined in the Employment Agreement).
See "Management--Teletrac's Management Incentive Compensation Plan."
44
<PAGE>
The Company maintains a banking relationship with Banque Paribas ("Paribas")
and certain of its affiliates. In addition, Paribas and Paribas Principal,
Inc. ("PPI") hold warrants to purchase shares of the Company's Common Stock
which are anticipated to be repurchased by the Company in connection with this
Offering. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity," "Principal and
Selling Shareholders" and "Description of Capital Stock--Warrants."
Lehman Electric Inc., as Selling Shareholder in this Offering, has agreed to
bear approximately 30% of the Company's expenses of this Offering. See
"Principal and Selling Shareholders."
45
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of August 15, 1997 and as adjusted to
reflect the sale of the shares of Common Stock offered hereby, certain
information with respect to the beneficial ownership of the Common Stock of
the Company by (i) each person known to the Company to beneficially own 5.0%
or more of the outstanding shares of Common Stock, (ii) each of the Company's
directors, (iii) each of the Named Executives, (iv) all of the directors and
executive officers as a group, and (v) the Selling Shareholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING(1) NUMBER AFTER THE OFFERING(1)
------------------------------ OF SHARES ------------------------------
NAME NUMBER PERCENT(2) BEING OFFERED NUMBER PERCENT(2)
- ---- --------------- -------------- ------------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Stephen W. Bershad(3)....... 1,256,371 39.8% -- 1,256,371 29.8%
Raymond F. Kunzmann(4)...... 4,000 * -- 4,000 *
Elliot N. Konopko(5)........ 9,000 * -- 9,000 *
Louis D. Mattielli.......... -- -- -- -- --
Kenneth F. Stern(6)......... 8,000 * -- 8,000 *
Richard V. Howitt(7)........ 39,760 1.3 -- 39,760 *
Anthony J. Fiorelli,
Jr.(8)..................... 15,885 * -- 15,885 *
Eliot M. Fried(9)........... 2,000 * -- 2,000 *
All officers and directors
as a
group (7
persons)(3)(4)(6)(7)(8)(9).. 1,326,016 41.9 -- 1,326,016 31.3
Lehman Electric Inc.(10).... 463,741 14.7 463,741 -- --
World Financial Center
200 Vesey Street
New York, NY 10285
Paribas Principal, Inc. and
Banque Paribas(11)......... 288,540 8.4 -- -- --
787 Seventh Avenue
New York, NY 10019
John W. Gildea(12).......... 154,500 4.9 -- 154,500 3.7
c/o Gildea Management Co.
115 East Putnam Avenue
Greenwich, CT 06830
Axsys Technologies, Inc.
401(k) Plan(13)............ 244,995 7.8 -- 244,995 5.8
Axsys Technologies, Inc.
645 Madison Avenue
New York, NY 10022
</TABLE>
- --------
* Less than 1%.
(1) Except as set forth in the footnotes to this table and subject to
applicable community property law, the persons named in the table have
sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by such shareholder.
(2) Applicable ownership percentage is based on 3,148,381 shares of Common
Stock, consisting of 3,048,381 shares outstanding on August 15, 1997 and
4,113,190 shares of Common Stock outstanding after the completion of this
Offering plus, in each case, 100,000 shares issuable to the Teletrac
Minority Shareholders.
46
<PAGE>
(3) Includes 7,560 shares of Common Stock underlying options which are
exercisable as of August 15, 1997 or within 60 days after such date. Also
includes 590,764 shares of Common Stock owned directly by SWB Holding
Corporation. Mr. Bershad is the sole shareholder and Chairman of SWB
Holding Corporation. Accordingly, Mr. Bershad is the beneficial owner of
such shares. Also includes 658,047 shares of Common Stock owned by Mr.
Bershad directly. Mr. Bershad's address is 645 Madison Avenue, New York,
NY 10022. Excludes 5,511 shares representing his interest in the
Company's 401(k) Plan.
(4) Represents 4,000 shares of Common Stock underlying options which are
exercisable as of August 15, 1997 or within 60 days after such date.
Excludes 1,973 shares representing his interest in the 401(k) Plan.
(5) Excludes 5,839 shares representing his interest in the 401(k) Plan.
(6) Includes 2,000 shares of Common Stock underlying options which are
exercisable as of August 15, 1997 or within 60 days after such date.
Excludes 1,182 shares representing his interest in the 401(k) Plan.
(7) Represents 22,260 shares of Common Stock received by Mr. Howitt in the
Teletrac acquisition and 17,500 representing Mr. Howitt's proportional
interest in the 100,000 shares issuable to the Teletrac Minority
Shareholders.
(8) Includes 2,000 shares of Common Stock underlying options which are
exercisable as of August 15, 1997 or within 60 days after such date.
(9) Represents 2,000 shares of Common Stock underlying options which are
exercisable as of August 15, 1997 or within 60 days after such date.
(10) Lehman Electric Inc., a Delaware corporation ("Lehman Electric"), is an
investment vehicle. Lehman Brothers Inc., a Delaware corporation ("Lehman
Brothers"), is a registered broker-dealer. Lehman Brothers Group Inc., a
Delaware corporation ("Group"), is a holding company and parent of Lehman
Electric. Lehman Brothers Holdings Inc., a Delaware corporation
("Holdings"), through its domestic and foreign subsidiaries, is a full-
line securities firm. It is the immediate parent of Lehman Brothers and
Group. The foregoing entities (other than Lehman Brothers) may be deemed
to beneficially own the 463,741 shares of Common Stock directly owned by
Lehman Electric. In the ordinary course of its business on behalf of its
customers, Lehman Brothers may purchase and sell shares of Common Stock.
(11) Consists of a warrant to purchase 133,262 shares of Common Stock,
exercisable at $0.05 per share, granted to Paribas and a warrant to
purchase 155,278 shares of Common Stock, exercisable at $6.25 per share,
granted to PPI. PPI is a New York corporation and Paribas is a banking
corporation organized under the laws of the Republic of France which
maintains branches in a number of jurisdictions, and which is acting
through its Grand Cayman Branch in connection with its investment in the
Company. The principal business of PPI, a wholly-owned subsidiary of
Paribas and a small business investment company licensed by the Small
Business Administration pursuant to the Small Business Investment Act of
1958, as amended, is that of making debt and equity investments in "small
concerns" (as defined under the regulations of the Small Business
Administration). Paribas is a subsidiary of Compagnie Financiere de
Paribas ("Compagnie Financiere"), a diversified holding company organized
under the laws of the Republic of France. The operating subsidiaries of
Compagnie Financiere engage in a wide variety of banking, financial
services, manufacturing, trading, development and related activities.
Through its Grand Cayman Branch, which is licensed under the laws of the
jurisdiction to engage in banking activities, Paribas engages in lending
activities, acceptance of deposits, international trade financing and
trading activities and serves as agent for various banks under the Credit
Facility. Each of Paribas and PPI may be deemed to beneficially own the
shares held by the other. These warrants are anticipated to be
repurchased by the Company with a portion of the net proceeds from this
Offering. See "Use of Proceeds" and "Description of Capital Stock--
Warrants."
(12) Includes 139,500 shares of Common Stock beneficially owned by Net Fund
III as to which shares Gildea Management Co., a Delaware corporation, has
dispositive power by virtue of an investment advisory agreement. Mr.
Gildea is the Chairman of the Board of Directors, Chief Executive
Officer, President and sole shareholder of Gildea Management Co., and as
such may be deemed beneficial owner of the shares owned by Gildea
Management Co. Mr. Gildea also owns 15,000 shares of Common Stock in his
individual capacity.
(13) Messrs. Kunzmann and Mattielli are the sole trustees of the Company's
401(k) Plan and may be deemed to beneficially own such shares, although
each of them disclaims beneficial ownership thereof, except to the extent
of his interest therein.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 30,000,000 shares of
Common Stock, par value $0.01 per share, and 4,000,000 shares of undesignated
Preferred Stock, $0.01 par value per share. At August 15, 1997, there were
3,048,381 shares of Common Stock issued and outstanding and held of record by
996 shareholders. There are no shares of Preferred Stock designated or issued.
See "Capitalization."
The following statements are brief summaries of certain provisions with
respect to the Company's capital stock contained in its Certificate of
Incorporation and By-Laws, copies of which are incorporated by reference as
exhibits to the Registration Statement. The following summary is qualified in
its entirety by reference thereto.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote for each share
held of record on matters to be voted on by the shareholders of the Company.
Subject to the rights of preferred shareholders, if any, holders of shares of
Common Stock will be entitled to receive dividends when, as and if declared by
the Board of Directors and to share ratably in the assets of the Company
legally available for distribution to its shareholders in the event of the
liquidation, dissolution or winding-up of the Company. Holders of Common Stock
have no preemptive, subscription, redemption or conversion rights. All of the
issued and outstanding shares of Common Stock are, and all shares of Common
Stock to be sold in this Offering will be, duly authorized, validly issued,
fully paid and nonassessable.
PREFERRED STOCK
The Company's Board of Directors may without further action by the Company's
shareholders, from time to time, direct the issuance of any authorized, but
unissued or unreserved shares of Preferred Stock in series and may, at the
time of issuance, determine the rights, preferences and limitations of each
series. The holders of Preferred Stock may be entitled to receive a preference
payment in the event of any liquidation, dissolution or winding-up of the
Company before any payment is made to the holders of the Common Stock. The
Board of Directors could issue Preferred Stock with voting and other rights
that could adversely affect the voting power of the holders of Common Stock
and could have certain anti-takeover effects. The Company has no present plans
to issue any shares of Preferred Stock.
WARRANTS
The Company currently has issued and outstanding four warrants to purchase
shares of Common Stock as follows:
<TABLE>
<CAPTION>
NAME OF HOLDER ISSUANCE DATE EXPIRATION DATE EXERCISE PRICE ISSUABLE COMMON STOCK
- -------------- ------------- --------------- -------------- ---------------------
<S> <C> <C> <C> <C>
Paribas Principal,
Inc.(1)................ 4/25/96 4/25/06 $6.25 155,278
Banque Paribas(1)....... 4/25/96 4/25/06 0.05 133,262
DLJ First ESC L.L.C..... 4/25/96 4/25/06 6.25 20,000
The CIT Group/CrF
Securities Investment,
Inc.(2)................ 7/20/94 7/20/04 1.70 6,269
</TABLE>
- --------
(1) Warrants issued pursuant to a Warrant Purchase Agreement dated as of April
25, 1996 among the Company, PPI and Paribas.
(2) The CIT Group/Credit Finance, Inc. assigned this warrant to the CIT
Group/CrF Securities Investment, Inc., its wholly-owned subsidiary, on
October 15, 1997.
In connection with this Offering, it is anticipated that these warrants will
be repurchased by the Company at a price per share of Common Stock subject to
the respective warrant equal to the excess of the public offering price, less
the underwriting discount set forth on the cover page of this Prospectus, over
the exercise price of such warrant. Upon such repurchase, the Company will
cancel the warrants. See "Use of Proceeds" and "Principal and Selling
Shareholders."
48
<PAGE>
The Warrant Purchase Agreement dated as of April 25, 1996 among the Company,
PPI and Paribas, provides that, in the event the Company issues Common Stock,
rights, options, or warrants to subscribe for, or purchase, or other
securities exchangeable for or convertible into (the "rights"), shares of
Common Stock other than if made as a distribution or dividend to all holders
of Common Stock, Paribas and PPI have the right to purchase on a pro rata
basis such Common Stock or rights. Such right was waived in connection with
this Offering. The aforementioned right does not apply to issuances of Common
Stock or rights (i) for consideration other than cash, (ii) in connection with
certain debt financings, or (iii) subject to certain limitations, upon the
exercise of options granted to directors and employees of the Company. Paribas
and PPI are also entitled to have up to two representatives attend all
meetings of the Board of Directors. The rights described in this paragraph
will terminate upon the anticipated repurchase of the warrants by the Company
in connection with this Offering.
REGISTRATION RIGHTS
Pursuant to the Stock Purchase Agreement relating to Teletrac, until May 17,
1998, Messrs. Howitt and Barker may request that the Company file a
registration statement covering the resale of the 53,000 shares of Common
Stock issued upon consummation of the Teletrac acquisition. Pursuant to the
Stockholder Agreement, the holders of shares of Teletrac, except the Company,
have the right, upon request of Mr. Howitt and another Teletrac Minority
Shareholder, to require the Company to register under the Securities Act
shares of Common Stock which they may receive pursuant to the put or call
rights contained therein. In general, all fees, costs and expenses of any such
registration will be borne by the Company. See "Shares Eligible for Future
Sale."
LIMITATION OF DIRECTOR LIABILITY
The Certificate of Incorporation of the Company limits the liability of
directors of the Company to the Company and its shareholders to the fullest
extent permitted by Delaware law. Specifically, directors of the Company will
not be personally liable for money damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Company or its shareholders, (ii) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the DGCL, which concerns unlawful payments of
dividends, stock purchases or redemptions, or (iv) for any transaction from
which the director derived an improper personal benefit.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
Delaware Law
The Company is subject to the provisions of Section 203 ("Section 203") of
the DGCL. In general, Section 203 prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an "interested stockholder", unless the business
combination is approved in a prescribed manner. A "business combination" is
defined generally to include mergers or consolidations between a Delaware
corporation and an "interested stockholder," transactions with an "interested
stockholder" involving the assets or stock of the corporation or its majority-
owned subsidiaries and transactions which increase an "interested
stockholder's" percentage ownership of stock. An "interested stockholder" is a
person who, together with affiliates and associates, owns (or, in certain
cases, within three years prior, did own) 15% or more of the corporation's
outstanding voting stock. Under Section 203, a business combination between
the Company and an "interested stockholder" is prohibited unless it satisfies
one of the following conditions: (i) the Company's Board of Directors must
have previously approved either the business combination or the transaction
that resulted in the stockholder becoming an "interested stockholder"; or (ii)
upon consummation of the transaction that resulted in the stockholder becoming
an "interested stockholder", the "interested stockholder" owned at least 85%
of the voting stock of the Company outstanding at the time the transaction
commenced (excluding, for purposes of determining the number of shares
outstanding, shares owned by (a) persons who are directors and also officers
and (b) employee stock plans, in certain instances); or (iii) the business
combination is approved by the Board of Directors and authorized at an annual
or special meeting of the shareholders by the affirmative vote of at least 66
2/3% of the outstanding voting stock which is not owned by the "interested
stockholder".
49
<PAGE>
Special Meetings
The By-Laws provide that special meetings of shareholders for any purpose or
purposes can be called only upon the request of the Chairman of the Board or
the written consent of three-quarters of the entire Board.
Number of Directors; Removal; Filling Vacancies
Subject to any rights of holders of Preferred Stock to elect additional
directors under specified circumstances, the By-Laws provide that the number
of directors shall be not less than two nor more than 12; provided, however,
that no decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. Any vacancy occurring in the
Board caused by death, resignation, removal or otherwise, and any newly
created directorship resulting from an increase in the number of directors,
may be filled only by the affirmative vote of at least a majority of the
directors then in office, although such directors are less than a quorum, or
by the sole remaining director. Furthermore, the By-Laws provide that any one
or more of the directors of the Company may be removed from office only for
cause and only by the affirmative vote of three-quarters of the entire Board
of Directors or by the affirmative vote of two-thirds of the votes represented
by the issued and outstanding shares of the Company entitled to vote at a
meeting called for such purpose.
The provisions of the By-Laws governing removal may have the effect of
discouraging a third party from initiating a proxy contest, making a tender
offer or otherwise attempting to gain control of the Company, or of attempting
to change the composition or policies of the Board of Directors, even though
such attempt might be beneficial to the Company or its shareholders. These
provisions of the By-Laws could thus increase the likelihood that incumbent
directors will retain their positions.
Amendment of Company By-Laws
In order to adopt, repeal, alter or amend the provisions set forth therein,
the By-Laws require the unanimous written consent of all directors or the
affirmative vote of a majority of the entire Board of Directors acting at a
regular or special meeting called by written notice, which written notice
shall include notice of the proposed action to amend the By-Laws, or by the
affirmative vote of a majority of votes represented by the issued and
outstanding shares of the Company entitled to vote at a meeting called for
such purpose.
Advance Notice Provisions for Shareholder Nominations and Proposals
The By-Laws establish an advance notice procedure for shareholders to make
nominations of candidates for election as director, or to bring other business
before an annual or special meeting of shareholders of the Company. The By-
Laws provide that only persons nominated by, or at the direction of, a
majority of the Board of Directors, or by a shareholder who has given timely
written notice to the Secretary of the Company prior to the meeting at which
directors are to be elected, will be eligible for election as directors of the
Company. Furthermore, the By-Laws provide that at an annual meeting, only such
business may be conducted as has been brought before the meeting by, or at the
direction of, a majority of the Board of Directors or by a shareholder who has
given timely written notice to the Secretary of the Company of such
shareholder's intention to bring such business before such meeting. Under the
By-Laws, to be timely, notice of shareholder nominations or proposals to be
made at an annual meeting must be received by the Company not less than 60
days nor more than 90 days prior to the scheduled annual meeting (or, if less
than 70 days' notice or prior public disclosure of the date of the scheduled
annual meeting is given, not later than the close of business on the 10th day
following the earlier of (i) the day such notice was mailed or (ii) the day
such public disclosure was made).
Under the By-Laws, a shareholder's notice to the Company proposing to
nominate a person for election as a director must contain certain information
about the nominating shareholder and the proposed nominee. Similarly, a
shareholder's notice relating to the conduct of business other than the
nomination of directors must contain certain information about such business
and about the proposing shareholder. If a majority of the directors determine
that a person was not nominated, or if the Chairman of the Board or other
presiding officer of the annual meeting determines that other business was not
brought before the meeting, in accordance with the By-Laws, such person will
not be eligible for election as a director, or such business will not be
conducted at such meeting, as the case may be.
50
<PAGE>
By requiring advance notice of nominations by shareholders, the By-Laws
afford the Board an opportunity to consider the qualifications of the proposed
nominee and, to the extent deemed necessary or desirable by the Board, to
inform shareholders about such qualifications. By requiring advance notice of
other proposed business, the By-Laws also provide an orderly procedure for
conducting annual meetings of shareholders and, to the extent deemed necessary
or desirable by the Board, provides the Board with an opportunity to inform
shareholders, prior to such meetings, of any business proposed to be conducted
at such meetings, together with any recommendations as to the Board's position
regarding action to be taken with respect to such business, so that
shareholders can better decide whether to attend such a meeting or to grant a
proxy regarding the disposition of any such business.
Although the Certificate of Incorporation does not give the Board any power
to approve or disapprove shareholder nominations of the election of directors
or proposals for action, the foregoing provisions may have the effect of
precluding a contest for the election of directors or the consideration of
shareholder proposals if the proper procedures are not followed, and of
discouraging or deterring a third party from conducting a solicitation of
proxies to elect its own slate of directors or to approve its own proposal,
without regard to whether consideration of such nominees or proposals might be
harmful or beneficial to the Company and its shareholders.
Unanimous Written Consent Provisions
The Certificate of Incorporation provides that any action required or
permitted to be taken by the holders of Common Stock at any meeting of
shareholders of the Company may be taken without a meeting only by unanimous
written consent signed by the holders of all the outstanding shares of Common
Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services.
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Immediately following the consummation of this Offering and based on shares
outstanding as of August 15, 1997, there will be 4,113,190 shares of Common
Stock issued and outstanding, excluding the 100,000 shares issuable in
connection with the Teletrac acquisition. Of these, the 1,528,550 shares of
Common Stock sold in this Offering and 1,017,949 shares of Common Stock will
be freely transferable and tradeable in the United States (except for shares
held by affiliates of the Company) without restriction or further registration
under the Securities Act and 244,995 shares will be held by the Company's
401(k) Plan. The remaining 1,321,696 shares of Common Stock outstanding may
not be sold in the absence of registration under the Securities Act unless an
exemption from registration is available, including the exemption afforded by
Rule 144. These 1,321,696 shares consist of 1,248,811 shares of Common Stock
owned, directly or indirectly, by Mr. Bershad, an aggregate of 19,885 shares
held by officers and directors of the Company, other than Messrs. Bershad and
Howitt, and 53,000 shares issued in connection with the Teletrac acquisition
(the "Teletrac Acquisition Shares"). The holders of 1,290,956 of such shares
are subject to certain "lock-up" arrangements pursuant to which each has
agreed not to sell or otherwise dispose of any of such Common Stock for a
period of 120 days following the date of this Prospectus without the prior
written consent of NationsBanc Montgomery Securities, Inc. After such period,
1,268,696 of such shares of Common Stock will be eligible for resale in the
public market without registration, subject to certain volume and other
limitations, pursuant to Rule 144. The Teletrac Acquisition Shares will become
eligible for resale in the public market pursuant to Rule 144 on June 1, 1998.
In addition, the 100,000 shares issuable in the future under the Teletrac
acquisition, as described below, to the Teletrac Minority Shareholders will,
upon issuance be "restricted securities" under Rule 144.
Rule 144, as currently in effect, provides that an affiliate of the Company
or a person (or persons whose sales are aggregated) who has beneficially owned
restricted securities for at least one year but less than two years is
entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of one percent of the then outstanding shares of Common
Stock (41,131 shares immediately after this Offering) or the average weekly
trading volume in the Common Stock during the four calendar weeks preceding
such sale. Sales under Rule 144 also are subject to certain manner-of-sale
provisions, notice requirements and the availability of current public
information about the Company. However, a person who is not an "affiliate" of
the Company at any time during the three months preceding a sale, and who has
beneficially owned restricted securities for at least two years, is entitled
to sell such shares under Rule 144 without regard to the limitations described
above.
Pursuant to the terms of the Stockholder Agreement, the Teletrac Minority
Shareholders have the right, under certain circumstances and subject to
certain conditions, to require the Company to register under the Securities
Act shares of Common Stock issuable to them. Pursuant to the terms of the
Stockholder Agreement, the Teletrac Minority Shareholders have the option,
exercisable on written notice to the Company, to elect to sell any remaining
Teletrac shares to the Company in exchange for an aggregate of 100,000 shares
of the Company's Common Stock (3.3467 shares of the Company's Common Stock for
each Teletrac share) for a period of three years from the date of the
Stockholder Agreement (the "Put Rights"). In addition, pursuant to the terms
of the Stockholder Agreement, the Company has the option, exercisable on
written notice to each Teletrac Minority Shareholder, to elect to purchase the
Teletrac Minority Shareholders' Teletrac shares, in exchange for an aggregate
of 100,000 shares of the Company's Common Stock (3.3467 shares of the
Company's Common Stock for each Teletrac share) at any time after three years
from the date of the Stockholder Agreement or, on a prior date, upon certain
other circumstances (the "Call Rights"). If the Put or Call Rights are
exercised, the Company will pay all expenses in connection with the
registration under the Securities Act of such shares made at the request of
both Messrs. Richard Howitt and David Barker, jointly, on behalf of themselves
and the other Teletrac Minority Shareholders. The exercise by the Teletrac
Minority Shareholders of their registration rights could adversely affect the
market price of the Common Stock.
A total of 400,000 shares of Common Stock is reserved for issuance under the
Company's Long-Term Stock Incentive Plan under which options to purchase an
aggregate of 48,600 shares of Common Stock are outstanding.
52
<PAGE>
The holders of options to purchase 17,560 of such shares have agreed not to
sell or otherwise dispose of such shares for a period of 120 days from the
date of this Prospectus.
No predictions can be made as to the effect, if any, that sales of
securities or the availability of securities for sale will have on the market
price prevailing from time to time. Nevertheless, sales of substantial amounts
of the Common Stock in the public market, or the perception that such sales
could occur, could adversely affect the market price of the Common Stock and
could impair the Company's future ability to raise capital through an offering
of its equity securities. See "Risk Factors--Potential Adverse Impact of
Shares Available for Future Sale on Market Price for Common Stock."
53
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters") have severally agreed,
subject to the terms and conditions of the Underwriting Agreement (the
"Underwriting Agreement") by and among the Company, the Selling Shareholder
and the Underwriters, to purchase from the Company and the Selling Shareholder
the number of shares of Common Stock indicated below opposite their respective
names, at the public offering price less the underwriting discount set forth
on the cover page of this Prospectus. The Underwriting Agreement provides that
the obligations of the Underwriters are subject to certain conditions
precedent and that the Underwriters are committed to purchase all of the
shares of Common Stock, if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
NationsBanc Montgomery Securities, Inc. .........................
Furman Selz LLC..................................................
Oppenheimer & Co., Inc. .........................................
---------
Total.......................................................... 1,528,550
=========
</TABLE>
The Underwriters have advised the Company and the Selling Shareholder that
they initially propose to offer the Common Stock to the public on the terms
set forth on the cover page of this Prospectus. The Underwriters may allow
selected dealers a concession of not more than $ per share; and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the public offering, the
public offering price and other selling terms may be changed by the
Underwriters. The Common Stock is offered subject to receipt and acceptance by
the Underwriters, and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 229,283 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial shares to be purchased by
the Underwriters. To the extent that the Underwriters exercise such over-
allotment option, the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this Offering.
The Underwriting Agreement provides that the Company and the Selling
Shareholder will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The directors and officers of the Company have agreed that for a period of
120 days after the date of this Prospectus they will not, without the prior
written consent of NationsBanc Montgomery Securities, Inc., directly or
indirectly, sell, offer, contract or grant an option to sell (including,
without limitation, any short sale), pledge, transfer, establish an open put
equivalent position or otherwise dispose of any shares of Common Stock,
options or warrants to acquire shares of Common Stock or securities
exchangeable or exercisable or convertible into shares of Common Stock held by
them. The Company also has agreed not to issue, offer, sell, grant options to
purchase or otherwise dispose of any of the Company's equity securities or any
other securities convertible into or exchangeable for its equity securities,
for a period of 120 days after the effective date of this Offering without the
prior written consent of NationsBanc Montgomery Securities, Inc., subject to
certain exceptions, including grants and exercises of stock options and,
subject to certain conditions, issuances of securities in connection with
acquisitions. In evaluating any request for a waiver of the lock-up periods,
NationsBanc Montgomery Securities, Inc. will consider, in accordance with its
customary practice, all relevant facts and circumstances at the time of the
request, including, without limitation, the recent trading market for the
Common Stock, the size of the request and, with respect to a request by the
Company to issue additional equity securities, the purpose of such an
issuance. See "Shares Eligible for Future Sale."
54
<PAGE>
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters
and certain selling group members to bid for and purchase the Common Stock. As
an exception to these rules, the Underwriters are permitted to engage in
certain transactions that stabilize the price of the Common Stock. Such
transactions consist of bids or purchases for the purpose of pegging, fixing
or maintaining the price of the Common Stock. If the Underwriters create a
short position in the Common Stock in connection with this Offering, i.e., if
they sell more shares of Common Stock than are set forth on the cover page of
this Prospectus, the Underwriters may reduce that short position by purchasing
Common Stock in the open market. The Underwriters may also elect to reduce any
short position by exercising all or part of the over-allotment option
described above.
The Underwriters may also impose a penalty bid on certain selling group
members. This means that if the Underwriters purchase shares of Common Stock
in the open market to reduce the Underwriters' short position or to stabilize
the price of the Common Stock, they may reclaim the amount of the selling
concession from the selling group members who sold those shares as part of
this Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher
than it might be in the absence of such purchases. The imposition of a penalty
bid might also have an effect on the price of a security to the extent that it
were to discourage resales of the security. Neither the Company nor any of the
Underwriters makes any representation or predictions as to the direction or
magnitude of any effect that the transactions described above may have on the
price of the Common Stock. In addition, neither the Company nor any of the
Underwriters makes any representation that the Underwriters will engage in
such transactions or that such transactions, once commenced, will not be
discontinued without notice.
The public offering price of the Common Stock will be determined by
negotiations among the Underwriters and the Company, and will be based largely
upon the market price for the Common Stock as reported on the Nasdaq National
Market.
The Common Stock is traded on the Nasdaq National Market under the symbol
AXYS.
LEGAL MATTERS
The validity of the issuance of the Common Stock offered hereby will be
passed upon for the Company by Fried, Frank, Harris, Shriver & Jacobson, a
partnership including professional corporations, New York, New York. Certain
legal matters in connection with this Offering will be passed upon for the
Underwriters by Buchanan Ingersoll, Princeton, New Jersey.
EXPERTS
The consolidated audited financial statements for Axsys Technologies, Inc.
as of December 31, 1995 and 1996 and for each of the three years in the period
ended December 31, 1996 and the financial statements for Teletrac as of
January 31, 1997 and for the year then ended included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in auditing and accounting. The consolidated audited
financial statements for PAI as of April 30, 1994 and 1995 and for each of the
three years in the period ended April 30, 1995 included in this Prospectus
have been so included in reliance on the report of McGladrey & Pullen, LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
55
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and, in accordance therewith, files reports,
proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). This Prospectus, which constitutes a part of a
registration statement on Form S-1 (the "Registration Statement") filed by the
Company with the Commission under the Securities Act, omits certain
information set forth in the Registration Statement. Reference is hereby made
to the Registration Statement and to the exhibits thereto for further
information with respect to the Company. Statements contained herein
concerning the provisions of such documents are necessarily summaries of such
documents, and each statement is qualified in its entirety by reference to the
copy of the applicable document filed with the Commission. The Registration
Statement, including exhibits and schedules filed therewith, and the reports,
proxy statements and other information filed by the Company with the
Commission may be inspected without charge at the public reference facilities
maintained by the Commission at its principal office at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at regional offices
of the Commission located at Citibank Center, Suite 1400, 500 Madison Street,
Chicago, Illinois 60661 and Seven World Trade Center, 13th Floor, New York,
New York 10048. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and its public reference facilities in
Chicago, Illinois and New York, New York, at prescribed rates. In addition,
registration statements and certain other filings made with the Commission
through its Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system
are publicly available through the Commission's site on the Internet's World
Wide Web, located at http://www.sec.gov. The Registration Statement, including
all exhibits thereto and amendments thereof, has been filed with the
Commission through EDGAR. The Company's Common Stock is traded on The Nasdaq
Stock Market, as reported by the National Association of Securities Dealers,
Inc., 1735 K Street, Washington, D.C. 20006, and copies of the reports, proxy
statements and other information filed by the Company can be inspected at such
location.
56
<PAGE>
GLOSSARY OF TERMS
TERM DEFINITION
Actuator............................. A device that converts electrical
signals into controlled mechanical
motion. Actuators incorporate a
motor, position feedback device and
a rotary or linear drive mechanism.
Arc Second........................... An arc degree, which is a unit of
angular measurement equal to 1/360th
of the circumference of a circle, is
comprised of 60 arc minutes. Each
arc degree is comprised of 60 arc
seconds. An arc second is therefore
1/360 arc degree or 0.0028 arc
degree.
Airbearing........................... An airbearing is a rotary or linear
mechanism that consists of two
closely machined surfaces which move
against one another, separated by a
cushion of moving air or gas.
Because the two surfaces do not
touch one another, the airbearing
exhibits no friction, and can be
moved at extremely high speeds with
exceptional positional accuracy.
Aspheric Mirror...................... An optical element having one or
more surfaces that are not
rotationally symmetric about all
axes.
Cluster Tool Robotic................. A material handling robot that
distributes product among various
pieces of equipment which surround
the robot.
Deflector............................ The reflective surface of a mirror.
Digital Servo Control Component...... A motion or position feedback device
that provides a digital output
representation of the motion or
position (e.g., encoder, laser
interferometer).
Direct Drive Motor................... Motor designed to be coupled
directly to the device to be driven.
There are no mechanical gearing
interfaces or belt drives.
Electrical Prober.................... A system that tests electronic
devices such as integrated circuits
or flat panel displays by
positioning the electronic device
under a series of probes, raising
the device to make contact with the
probes, and then taking electrical
readings.
Encoder.............................. A device that converts rotary
position into numerical digital
codes through the use of opto-
electronics and glass "shutters".
Fold Mirror.......................... A flat optical surface that is used
to reflect a laser beam, infrared or
optical image at an angle different
from its source.
Gimbal...............................
A mechanical device that allows an
object to be moved around multiple
axes.
Heat Sink............................ A thermal conductive device that is
used to rapidly dissipate the heat
generated by electronic components.
It is attached to one or both
surfaces of a printed circuit board
or electronic component.
57
<PAGE>
Interconnection Devices.............. Mechanisms for joining two
electrical conductors to create a
reliable transmission of electrical
power or electronic signals.
Interferometer....................... An optical device employing the use
of a laser beam of very precisely
known wavelength. The beam is split
and recombined by means of semi-
transparent mirrors and reflectors
that result in the laser beam
interfering with itself in a
constructive (bright spot) or
destructive (dark spot) output at a
detector. By knowing the wavelength
and using electronic counters, the
relative displacement of the
interferometer device and its
reflector optic can be resolved to
one ten-millionth of an inch.
Optical Substrate.................... A finely machined or polished
material used to create an optical
element.
Micron............................... One millionth of a meter.
Resolver............................. A device that converts rotary
position into an electronic signal
through the use of magnetic
transformation.
Servo System......................... A control system that provides a
closed loop feedback whereby the
actual position or motion is
compared to a desired position, and
automatically adjusted until the
desired position is achieved.
Terminal Block....................... An interconnection device mating two
wires or a wire and a printed
circuit board trace path. The
wire(s) are electrically and
mechanically clamped via a screw,
enabling repeated mating and
unmating at installation or point of
use.
Torque Motor......................... See "Direct Drive Motor."
White Room Handling.................. The cleaning and relubrication of
miniature bearings in a controlled
"clean room" environment.
X-Y Positioning Stage................ Any two axis positioning subsystem
that moves a tool or the work piece
in a Cartesian (rectangular)
coordinate system.
58
<PAGE>
AXSYS TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Axsys Technologies, Inc.
Report of Independent Public Accountants................................ F-2
Consolidated Balance Sheets--December 31, 1995 and 1996 and June 30,
1997 (unaudited)....................................................... F-3
Consolidated Statement of Operations--For the years ended December 31,
1994, 1995 and 1996 and for the six months ended June 30, 1996 and 1997
(unaudited)............................................................ F-4
Consolidated Statement of Cash Flows--For the years ended December 31,
1994, 1995 and 1996 and for the six months ended June 30, 1996 and 1997
(unaudited)............................................................ F-5
Consolidated Statement of Shareholders' Equity--For the years ended
December 31, 1994, 1995 and 1996 and for the six months ended June 30,
1997 (unaudited)....................................................... F-6
Notes to consolidated financial statements.............................. F-7
Pro Forma Condensed Statement of Operations (unaudited)--For the year
ended December 31, 1996 and for the six months ended June 30, 1997..... F-17
Teletrac, Inc.
Report of Independent Public Accountants................................ F-21
Balance Sheet--January 31, 1997 and April 30, 1997 (unaudited).......... F-22
Statement of Operations--For the year ended January 31, 1997 and the
three months ended April 30, 1997 (unaudited).......................... F-23
Statement of Cash Flows--For the year ended January 31, 1997 and the
three months ended April 30, 1997 (unaudited).......................... F-24
Statement of Shareholders' Equity--For the year ended January 31, 1997
and the three months ended April 30, 1997 (unaudited).................. F-25
Notes to financial statements........................................... F-26
Precision Aerotech, Inc.
Report of Independent Auditors.......................................... F-29
Consolidated Balance Sheets--April 30, 1994 and 1995.................... F-30
Consolidated Statement of Operations--For the years ended April 30,
1993, 1994 and 1995.................................................... F-31
Consolidated Statement of Cash Flows--For the years ended April 30,
1993, 1994 and 1995.................................................... F-32
Consolidated Statement of Shareholders' Equity (Deficit)--For the years
ended April 30, 1993, 1994 and 1995.................................... F-33
Notes to consolidated financial statements.............................. F-35
Unaudited:
Consolidated Condensed Balance Sheets--April 30, 1995 and January 31,
1996................................................................... F-47
Consolidated Condensed Statements of Operations--For the nine months
ended January 31, 1995 and 1996........................................ F-48
Consolidated Statements of Cash Flow--For the nine months ended January
31, 1995 and 1996...................................................... F-49
Notes to consolidated condensed financial statements.................... F-50
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of Axsys Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Axsys
Technologies, Inc., a Delaware corporation, and its subsidiary as of December
31, 1995 and 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Axsys Technologies, Inc.
and subsidiary, as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1996 in conformity with generally accepted accounting
principles.
Arthur Andersen LLP
New York, New York
March 21, 1997
F-2
<PAGE>
AXSYS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash............................................. $ 91 $ 2,691 $ 415
Accounts receivable, net of allowance of $233 and
$385 at December 31, 1995 and 1996, and $432 at
June 30, 1997 (unaudited)....................... 8,525 13,801 17,994
Inventories, net................................. 16,544 24,454 26,270
Other current assets............................. 651 850 1,161
------- ------- -------
TOTAL CURRENT ASSETS........................... 25,811 41,796 45,840
NET PROPERTY, PLANT AND EQUIPMENT.................. 7,603 13,456 14,272
EXCESS COST OVER NET ASSETS ACQUIRED, net of
accumulated amortization of $836 and $1,045 at
December 31, 1995 and 1996, and $1,171 at June 30,
1997 (unaudited).................................. 6,624 6,415 14,141
OTHER ASSETS....................................... 447 504 442
------- ------- -------
TOTAL ASSETS................................... $40,485 $62,171 $74,695
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable................................. $ 5,315 $ 6,881 $ 8,862
Accrued expenses and other liabilities........... 5,696 7,290 10,741
Current portion of long-term debt and capital
lease obligations............................... 466 2,831 3,057
------- ------- -------
TOTAL CURRENT LIABILITIES...................... 11,477 17,002 22,660
LONG-TERM DEBT AND CAPITAL LEASES, less current
portion........................................... 11,047 23,324 26,056
OTHER LONG-TERM LIABILITIES........................ 2,697 2,293 2,064
DEFERRED INCOME.................................... 519 387 321
SHAREHOLDERS' EQUITY:
$1.20 CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED
STOCK, $.01 PAR VALUE: authorized 4,000,000
shares; issued and outstanding 781,642 and 738,881
shares at December 31, 1995 and 1996, none at June
30, 1997 (unaudited).............................. 8 7 --
COMMON STOCK, $.01 PAR VALUE: authorized 4,000,000
shares, issued and outstanding 2,520,821 and
2,568,940 shares at December 31, 1995 and 1996,
and 3,048,381 shares at June 30, 1997
(unaudited)....................................... 25 26 30
CAPITAL IN EXCESS OF PAR........................... 14,712 17,297 19,465
RETAINED EARNINGS.................................. -- 1,835 4,099
------- ------- -------
TOTAL SHAREHOLDERS' EQUITY..................... 14,745 19,165 23,594
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... $40,485 $62,171 $74,695
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
AXSYS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------ --------------------
1994 1995 1996 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES................ $ 62,132 $ 65,213 $ 91,301 $ 40,545 $ 58,849
Cost of sales............ 44,903 47,973 67,483 29,890 43,111
Selling, general and
administrative
expenses................ 13,343 13,336 16,501 7,502 10,284
Restructuring/inventory
writedown charges....... 1,315 -- -- -- --
Amortization of
intangible assets....... 209 209 210 102 125
--------- --------- --------- --------- ---------
OPERATING INCOME......... 2,362 3,695 7,107 3,051 5,329
Interest expense......... 2,264 1,994 2,343 1,042 1,343
Other expense............ 54 252 18 (13) 26
--------- --------- --------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS BEFORE TAXES
AND EXTRAORDINARY ITEM.. 44 1,449 4,746 2,022 3,960
Provision for income
taxes................... 17 565 1,891 820 1,594
--------- --------- --------- --------- ---------
INCOME FROM CONTINUING
OPERATIONS BEFORE
EXTRAORDINARY ITEM...... 27 884 2,855 1,202 2,366
DISCONTINUED OPERATIONS:
Loss from operations,
net of tax benefit of
$92................... (143) -- -- -- --
Loss on disposal, net
of tax benefit of
$1,317................ (2,059) -- -- -- --
--------- --------- --------- --------- ---------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM...... (2,175) 884 2,855 1,202 2,366
Extraordinary gain
(charge), net of taxes.. 5,856 -- (173) (173) --
--------- --------- --------- --------- ---------
NET INCOME............... 3,681 884 2,682 1,029 2,366
Preferred stock
dividends............... 355 574 847 405 102
--------- --------- --------- --------- ---------
NET INCOME APPLICABLE TO
COMMON SHAREHOLDERS..... $ 3,326 $ 310 $ 1,835 $ 624 $ 2,264
========= ========= ========= ========= =========
NET INCOME (LOSS) PER
COMMON SHARE:
Continuing operations.. $ (0.20) $ 0.12 $ 0.74 $ 0.31 $ 0.69
Discontinued
operations............ (1.29) -- -- -- --
Extraordinary item..... 3.44 -- (0.06) (0.07) --
--------- --------- --------- --------- ---------
Total................ $ 1.95 $ 0.12 $ 0.68 $ 0.24 $ 0.69
========= ========= ========= ========= =========
Weighted average common
shares outstanding...... 1,701,801 2,511,074 2,690,843 2,615,102 3,276,586
========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
AXSYS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income.................... $ 3,681 $ 884 $ 2,682 $ 1,029 $ 2,366
Adjustments to reconcile net
income to cash provided by
(used in) operating
activities:
Extraordinary item, net of
taxes...................... (5,856) -- 173 173 --
Loss on disposal of
discontinued operations,
net of taxes............... 2,059 -- -- -- --
Realization of net operating
loss carryforward.......... 16 519 1,435 653 1,355
Depreciation and
amortization............... 1,742 1,622 2,722 1,099 1,563
(Increase) decrease in
accounts receivable........ (970) 768 13 (1,182) (2,751)
(Increase) decrease in
inventories................ 682 (2,017) (831) (771) (577)
(Increase) decrease in other
current assets............. 498 (183) 166 21 8
Increase (decrease) in
accounts payable, accrued
expenses and other
liabilities................ 349 (1,324) (2,564) (1,355) 3,875
Decrease in other long-term
liabilities................ (461) (882) (404) (229) (295)
Other--net.................. (349) (343) (1,411) (104) 174
------- ------- ------- -------- --------
NET CASH PROVIDED BY (USED
IN) OPERATING
ACTIVITIES............... 1,391 (956) 1,981 (666) 5,718
------- ------- ------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Capital expenditures.......... (797) (1,026) (1,878) (580) (851)
Proceeds from sale of assets.. 605 2,896 11,532 -- --
Acquisition of businesses, net
of cash acquired............. -- -- (7,611) (4,728) (7,335)
------- ------- ------- -------- --------
NET CASH PROVIDED BY (USED
IN) INVESTING
ACTIVITIES............... (192) 1,870 2,043 (5,308) (8,186)
------- ------- ------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from borrowings...... 45,665 69,614 75,891 54,061 23,500
Repayment of borrowings....... (49,272) (70,464) (76,895) (47,529) (21,726)
Net proceeds from common stock
rights offering.............. 2,332 -- -- -- --
Other......................... -- -- (420) (420) (1,582)
------- ------- ------- -------- --------
NET CASH (USED IN)
PROVIDED BY FINANCING
ACTIVITIES............... (1,275) (850) (1,424) 6,112 192
------- ------- ------- -------- --------
NET INCREASE (DECREASE) IN
CASH..................... (76) 64 2,600 138 (2,276)
CASH AT BEGINNING OF PERIOD..... 103 27 91 91 2,691
------- ------- ------- -------- --------
CASH AT END OF PERIOD........... $ 27 $ 91 $ 2,691 $ 229 $ 415
======= ======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
AXSYS TECHNOLOGIES, INC,
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK CAPITAL RETAINED
---------------- ---------------- IN EXCESS EARNINGS
SHARES AMOUNT SHARES AMOUNT OF PAR (DEFICIT)
-------- ------ --------- ------ --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1994.................... 577,946 $ 6 1,037,014 $10 $ 9,586 $(4,526)
Net Income.............. -- -- -- -- -- 3,681
Dividends(a)............ 94,398 1 -- -- 354 (355)
Transfer to Capital in
Excess of Par(b)....... -- -- -- -- (355) 355
Common stock rights
offering............... -- -- 1,470,588 15 2,317 --
Amount realized from
utilization of pre
quasi-reorganization
tax benefits........... -- -- -- -- 2,182 --
Other................... -- -- -- -- (2) --
-------- ---- --------- --- ------- -------
Balance at December 31,
1994.................... 672,344 7 2,507,602 25 14,082 (845)
-------- ---- --------- --- ------- -------
Net Income.............. -- -- -- -- -- 884
Dividends(a)............ 109,298 1 -- -- 573 (574)
Transfer to Capital in
Excess of Par(b)....... -- -- -- -- (535) 535
Contribution to 401(k)
plan................... -- -- 11,619 -- 67 --
Amount realized from
utilization of pre
quasi-reorganization
tax benefits........... -- -- -- -- 519 --
Other................... -- -- 1,600 -- 6 --
-------- ---- --------- --- ------- -------
Balance at December 31,
1995.................... 781,642 8 2,520,821 25 14,712 --
-------- ---- --------- --- ------- -------
Net Income.............. -- -- -- -- -- 2,682
Dividends(a)............ 27,611 -- -- -- 847 (847)
Contribution to 401(k)
plan................... -- -- 47,671 1 311 --
Amount realized from
utilization of pre
quasi-reorganization
tax benefits........... -- -- -- -- 1,345 --
Odd-lot redemption...... (70,372) (1) -- -- (420) --
Issuance of warrants to
purchase common stock.. -- -- -- -- 500 --
Other................... -- -- 448 -- 2 --
-------- ---- --------- --- ------- -------
Balance at December 31,
1996.................... 738,881 7 2,568,940 26 17,297 1,835
-------- ---- --------- --- ------- -------
(Unaudited)
Net Income.............. -- -- -- -- -- 2,366
Dividends(a)............ -- -- -- -- 102 (102)
Contribution to 401(k)
plan................... -- -- 13,981 -- 150 --
Preferred stock
exchange............... (538,008) (5) 403,460 4 (66) --
Preferred stock
redemption............. (200,873) (2) -- -- (1,573) --
Amount realized from
utilization of pre
quasi-reorganization
tax benefits........... -- -- -- -- 1,355 --
Common stock issued for
acquisition............ -- -- 53,000 -- 2,166 --
Other................... -- -- 9,000 -- 34 --
-------- ---- --------- --- ------- -------
Balance at June 30,
1997.................... -- $-- 3,048,381 $30 $19,465 $ 4,099
======== ==== ========= === ======= =======
</TABLE>
- --------
(a) Prior to February 22, 1996, represents a 15% dividend paid in additional
shares and valued at the average of the closing bid and ask price as of
the dividend record date. The Company's right to pay dividends in
additional shares of Preferred Stock instead of cash expired on February
22, 1996, although cash dividends continued to accumulate. From February
22, 1996 to June 4, 1997, the Company did not declare or pay any dividends
on the Preferred Stock. The per share amounts of dividends, including the
accumulated but unpaid cash portion, were $0.57, $0.79, $1.11 and $0.52,
per share of Preferred Stock in 1994, 1995, 1996 and the period from
January 1, 1997 through June 4, 1997 (unaudited), respectively. The amount
of unpaid but accumulated dividends at December 31, 1996 was $1.02 per
share. On June 4, 1997, the Company redeemed all remaining outstanding
shares of its Preferred Stock for $7.70 per share, which included accrued
and unpaid dividends of $1.54 per share.
(b) Represents transfer of the excess of Preferred Stock dividends over
Retained Earnings.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
AXSYS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements include the accounts of
Axsys Technologies, Inc., and its wholly-owned subsidiaries (collectively the
"Company"). All material intercompany transactions and balances have been
eliminated in consolidation.
Revenue is recognized upon the shipment of product or when services are
rendered.
Inventories are priced at the lower of cost (principally first-in, first-
out, or average) or market.
Deferred financing costs are amortized ratably over the life of the
corresponding debt or commitment.
The excess of cost over net assets acquired is being amortized over periods
ranging from 30 to 35 years using the straight-line method. The Company
continually reviews goodwill to assess recoverability from future operations
using undiscounted cash flows. Impairments would be recognized in operating
results if a permanent diminution in value occurred.
Property, plant and equipment are stated at cost, less accumulated
depreciation. Depreciation is provided primarily by the straight-line method
using estimated lives for buildings and improvements of 20 years and for
machinery and equipment using estimated useful lives ranging from 3 to 8
years.
Certain items in the 1995 and 1994 financial statements have been
reclassified to conform to the 1996 presentation.
Earnings per share data for each period was computed by dividing net income
applicable to common shareholders by the weighted average number of shares of
common stock outstanding during each period. The calculation of weighted
average number of shares assumes the conversion of those common stock
equivalents which have a dilutive effect on earnings for the period presented.
Common stock equivalents consist of warrants and employee stock options.
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share" was issued in February 1997 and replaces Accounting Principle Board
("APB") Opinion No. 15. The new statement simplifies the computations of
earnings per share ("EPS") by replacing the presentation of primary EPS with
basic EPS, which is computed by dividing income available to common
shareholders by the weighted-average number of common shares outstanding for
the period. Diluted EPS under the new statement is computed similarly to fully
diluted EPS pursuant to APB Opinion No. 15. SFAS No. 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997. Early application is prohibited. For the six months ended June 30,
1997, the effect of adopting SFAS No. 128 on the Company's reported EPS would
be immaterial.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The information presented for June 30, 1997 and for the six months ended
June 30, 1996 and 1997 is unaudited and has been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Operating
results for the six months ended June 30, 1997 are not indicative of the
results that may be expected for the year ending December 31, 1997.
F-7
<PAGE>
AXSYS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2--DISCONTINUED OPERATIONS
In September 1994, the Company disposed of all of its Electronic Components
business which was comprised of the trimmer, transformer and microwave
component product lines. The disposal was accounted for as a discontinued
operation and, accordingly, the related net assets and operating results are
reported separately from continuing operations. The loss on disposal of the
Electronic Components business for the year ended December 31, 1994 is
comprised of the loss on disposal of the net assets of the business and
operating losses until disposal. During 1994, the Company sold a portion of
the assets of its Electronic Components business for $605. During 1995, the
Company sold the remaining discontinued business assets for $1,500.
Revenues applicable to the discontinued business for the years ended
December 31, 1995 and 1994 were $290 and $6,897, respectively. The losses from
operations of the discontinued Electronic Components business from September
30, 1994 to December 31, 1994 and through the date of disposal in 1995, were
$326 and $40, respectively, net of related tax benefits. These losses were
charged to a reserve established in 1994 as part of the loss on disposal.
NOTE 3--ACQUISITIONS AND DIVESTITURE
On May 30, 1997, the Company acquired Teletrac, Inc. ("Teletrac") for
$9,926, including the issuance of 153,000 shares of Axsys common stock, 53,000
of which shares were issued at the closing, and 100,000 of which shares will
be issued pursuant to a Stockholder Agreement entered into as of May 30, 1997
with certain selling shareholders and employees of Teletrac. Teletrac designs
and manufactures laser-based precision measurement systems and state-of-the-
art precision linear and rotary positioning servo systems for use in the
electronics capital equipment market.
On April 25, 1996, the Company acquired all of the outstanding shares of
Precision Aerotech, Inc., ("PAI") for $4,728, net of cash acquired. In
addition, the Company repaid $12,000 of borrowings under PAI term loans.
Precision Aerotech designs, manufactures and markets laser scanners, precision
metal optics, high-performance airbearings and precision machined parts sold
predominantly in commercial markets.
The acquisitions of Teletrac and PAI were accounted for under the purchase
method of accounting and, accordingly, the results of operations of Teletrac
and PAI have been included in the accompanying consolidated financial
statements since the date of their respective acquisition. The cost of the
acquisitions was allocated on the basis of the estimated fair market value of
the assets acquired and liabilities assumed. The purchase price allocations
for Teletrac have been completed on a preliminary basis, and management does
not believe that changes in the allocations will be material. During the PAI
acquisition process, the Company determined that L&S Machine Company, Inc.
("L&S"), a wholly-owned subsidiary of PAI which manufactures structural
components for the aerospace industry, did not fit its long-term strategy and
would be subsequently sold. As a result, L&S was accounted for as a net asset
held for disposal as of the PAI acquisition date. The portion of the PAI
acquisition cost allocated to this asset represented the net proceeds realized
upon sale. In December 1996, the Company completed the sale of L&S for an
aggregate purchase price of approximately $13,000. The price included the
assumption of approximately $1,800 in long-term capitalized leases.
F-8
<PAGE>
AXSYS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Summarized below are the unaudited pro forma results of operations of the
Company. The pro forma results for the years ended December 31, 1995 and 1996
have been prepared as if Teletrac and PAI had been acquired on January 1,
1995. The pro forma results for the six months ended June 30, 1996 and 1997
have been prepared as if Teletrac and PAI had been acquired on January 1,
1996.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
---------------- -----------------
1995 1996 1996 1997
------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net Sales................................... $96,898 $108,759 $ 53,703 $ 63,160
Income before extraordinary item.......... 933 3,322 1,252 2,455
Net income................................ 933 3,149 1,079 2,455
Earnings per share:
Income before extraordinary item.......... $ 0.13 $ 0.87 $ 0.31 $ 0.69
Net income................................ $ 0.13 $ 0.81 $ 0.24 $ 0.69
</TABLE>
The pro forma financial information presented is not necessarily indicative
of either the results of operations that would have occurred had the
acquisitions of Teletrac and PAI taken place as of the dates indicated or the
future operating results of the combined companies. Pro forma income before
extraordinary item and net income for the year ended December 31, 1996 and the
six months ended June 30, 1996 include certain special charges totaling
approximately $400. No such charges have been recorded for the year ended
December 31, 1995 or the six months ended June 30, 1997.
On October 2, 1996, the Company acquired substantially all of the assets of
Lockheed Martin Beryllium Corporation ("LMBC") for $2,883 subject to post-
closing adjustments. LMBC's operations consist primarily of precision
machining of beryllium. This acquisition has also been accounted for under the
purchase method of accounting and, accordingly, the results of operations of
LMBC have been included in the accompanying consolidated financial statements
since the date of acquisition. The cost of the acquisition has been allocated
on the basis of the estimated fair market value of the assets acquired and
liabilities assumed. The purchase price allocation has been completed on a
preliminary basis. Management does not believe that changes in the purchase
price allocation will be material.
NOTE 4--SHAREHOLDERS' EQUITY
Common Stock
In July 1994, the Company completed a rights offering of common stock in
which 1,470,588 shares were issued for gross proceeds of $2,500 ($2,332, net
of expenses).
On July 25, 1996, the Company completed a one-for-five reverse stock split
of its $0.01 par value common stock following approval by the Company's
shareholders at the Company's 1996 Annual Meeting of Shareholders. In
conjunction with the split, the Company's Certificate of Incorporation has
been amended to reduce the number of shares of common stock authorized for
issuance to 4,000,000. The stated par value of each share was not changed from
$0.01. All share and per share data presented in this report has been restated
to reflect the reverse stock split.
Preferred Stock
The certificate of designation setting forth the amended terms of the
Company's $1.20 Cumulative Exchangeable Redeemable Preferred Stock ("Preferred
Stock") provides for, among other things, (i) a liquidation preference of $8
per share, (ii) an annual dividend of $1.20 per share, and (iii) the ability
to pay dividends thereon in additional shares instead of cash up to February
22, 1996. Under the certificate of
F-9
<PAGE>
AXSYS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
designation, the right to receive cash dividends is expressly subject to,
among other things, any provision contained from time to time in the Company's
financing agreements prohibiting the payment of cash dividends. The Company's
Credit Facility prohibits the payment of cash dividends (see Note 5).
From August 1991 through February 22, 1996, the Company paid quarterly
dividends on the Preferred Stock in additional shares at an annual rate of 15%
based on the shares outstanding. On February 22, 1996, the Company's right to
pay dividends in additional shares of Preferred Stock expired. From February
22, 1996 to June 4, 1997, the Company did not declare or pay any dividends on
the Preferred Stock, although they continued to accumulate. The amount of
unpaid but accumulated dividends at December 31, 1996 was $757 or, $1.02 per
share.
On February 14, 1997, the Company commenced an offer to exchange 0.75 shares
of its common stock for each outstanding share of its Preferred Stock. On
March 17, 1997, the Exchange Offer terminated and the Company accepted for
exchange all shares of Preferred Stock validly tendered as of that time.
Approximately 538,000 shares of Preferred Stock were exchanged for 403,500
shares of common stock. Holders of shares of Preferred Stock accepted for
exchange will not receive any separate payment in respect of dividends not
paid subsequent to February 22, 1996, the last date on which dividends were
paid on the Preferred Stock.
On June 4, 1997, the Company redeemed all the remaining approximately
200,900 outstanding shares of its Preferred Stock. The redemption price was
$7.70 per share, including accrued and unpaid dividends of $1.54 per share
through the redemption date.
For the year ended December 31, 1996 and the six months ended June 30, 1997,
on a pro forma basis, assuming the Exchange Offer and subsequent redemption of
Preferred Stock had been consummated on January 1, 1996, earnings per share
data would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
1996 1997
------------ ----------------
(UNAUDITED)
<S> <C> <C>
Net income (loss) per common share:
Continuing operations....................... $ 0.90 $ 0.68
Extraordinary item.......................... (0.06) --
--------- ---------
Total..................................... $ 0.84 $ 0.68
========= =========
Weighted average common shares outstanding.... 3,094,303 3,276,586
========= =========
</TABLE>
NOTE 5--LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Credit Facility.................................. $ 9,643 $22,285 $24,758
Industrial Revenue Bond.......................... 1,870 1,870 1,620
Capital Lease Obligations........................ -- 2,000 2,735
------- ------- -------
11,513 26,155 29,113
Less current portion............................. 466 2,831 3,057
------- ------- -------
$11,047 $23,324 $26,056
======= ======= =======
</TABLE>
F-10
<PAGE>
AXSYS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
In order to obtain the funds necessary to finance the Company's acquisition
of PAI (see Note 3), to refinance PAI's and the Company's existing debt and
pay the fees and expenses related to the acquisition and refinancing, Axsys
entered into a Credit Agreement, dated April 25, 1996 (and subsequently
amended as of September 25, 1996), between the Company, the various banks
named therein and Banque Paribas, as agent, providing for borrowings under a
$37,000 senior secured credit facility (the "Credit Facility"). During 1996,
the total facility was reduced by $10,500 as a result of a prepayment of term
debt using proceeds from the sale of L&S (see Note 3) and by $1.3 million as a
result of scheduled term payments. The remaining Credit Facility of $25,200 as
of December 31, 1996 is comprised of (i) a term loan in the principal amount
of $7,300 payable in installments and maturing on April 25, 2000, (ii) a term
loan in the principal amount of $6,900 payable in installments and maturing on
April 25, 2002 and (iii) a revolving credit line in an aggregate principal
amount of up to the lesser of $11,000 or the borrowing base in effect from
time to time, maturing on April 25, 2000.
On April 10, 1997, in connection with the acquisition of Teletrac, the
Company amended its Credit Agreement to increase the revolving credit portion
of its Credit Facility from $11,000 to $18,000.
Borrowings under the Credit Facility bear interest at a fluctuating rate per
annum equal to the rate of interest publicly announced by Chase Manhattan
Bank, N.A. as its prime rate (the prime rate was 8.50% at June 30, 1997), plus
a margin ranging from 1.75% to 2.25%, or the London Interbank Offered Rate
(LIBOR), plus a margin ranging from 3.25% to 3.75%. A commitment fee of 0.5%
is payable on any unused amount of the Credit Facility. The Credit Facility
contains certain restrictive covenants which, among other things, impose
limitations with respect to the incurrence of additional liens and
indebtedness, mergers, consolidations and specified sale of assets and
requires the Company to meet certain financial tests including minimum levels
of earnings and net worth and various other financial ratios. In addition, the
Credit Facility prohibits the payment of cash dividends. Borrowings under the
Credit Facility are secured by substantially all of the assets of the Company
and its subsidiary.
The Company had outstanding at December 31, 1996 and at June 30, 1997,
industrial development revenue bonds (the "Bonds") in the amount of $1,870 and
$1,620 (unaudited), respectively, secured by its Gilford, NH manufacturing
facility which has a net carrying amount of approximately $2,000. The Bonds,
which bear interest at a fixed rate of 13%, are payable in 2005. The Company,
however, may make optional prepayments of $250 annually.
As of December 31, 1996, scheduled debt maturities during the next five
years, which are comprised of payments under the Company's Credit Facility and
capital lease obligations, are $2,831 (1997), $3,023 (1998), $3,105 (1999),
$11,428 (2000) and $3,277 (2001).
In 1994, the Company recorded an extraordinary gain of $5,856, net of a
charge in lieu of taxes of $3,744, in connection with the repurchase of bank
indebtedness.
F-11
<PAGE>
AXSYS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 6--BALANCE SHEET INFORMATION
The details of certain balance sheet accounts are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Inventories:
Raw materials..................................... $ 7,203 $ 8,033 $ 9,030
Work-in-process................................... 5,293 12,942 12,717
Finished goods.................................... 9,255 10,118 10,576
------- ------- -------
21,751 31,093 32,323
Less reserves..................................... 5,207 6,639 6,053
------- ------- -------
$16,544 $24,454 $26,270
======= ======= =======
Work-in-process inventory at December 31, 1996 and June 30, 1997 is recorded
net of $1,576 and $1,110 (unaudited) of progress payments received from
customers on uncompleted contracts, respectively.
<CAPTION>
DECEMBER 31,
--------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Net property, plant and equipment:
Land.............................................. $ 600 $ 891 $ 891
Buildings and improvements........................ 3,923 5,994 6,214
Machinery and equipment........................... 8,155 14,029 16,119
------- ------- -------
12,678 20,914 23,224
Less accumulated depreciation and amortization.... 5,075 7,458 8,952
------- ------- -------
$ 7,603 $13,456 $14,272
======= ======= =======
Accrued expenses and other liabilities:
Compensation and related benefits................. $ 2,180 $ 3,741 $ 4,844
Other............................................. 3,516 3,549 5,897
------- ------- -------
$ 5,696 $ 7,290 $10,741
======= ======= =======
</TABLE>
NOTE 7--INCOME TAXES
At December 31, 1996, the Company has net operating loss carryforwards of
approximately $10,000 which expire in the years 2005 through 2009 and
alternative minimum tax credit carryforwards of approximately $340. In
addition, the Company has approximately $7,600 of previously unrecognized tax
benefits, principally related to inventories. As the portion of the loss
carryforwards and deferred tax benefits originating prior to the 1991 quasi-
reorganization are realized, the corresponding tax effect will be credited to
Capital in Excess of Par under quasi-reorganization accounting principles
rather than reducing the Provision for Taxes. During the year ended December
31, 1996 and the six months ended June 30, 1997 (unaudited), $1,435 and $1,355
were credited to Capital in Excess of Par, respectively, representing the
utilization of such pre quasi-reorganization tax benefits to offset current
year tax expense. As of December 31, 1996, $3,181 of the pre quasi-
reorganization tax effected benefits remain unutilized. The utilization and
realization of the carryforwards and future tax benefits will substantially
reduce the amount of cash taxes payable on taxable income in the future.
The Company utilizes the liability method (SFAS No. 109) in accounting for
income taxes. Income from continuing operations before taxes is from domestic
sources only for all periods presented.
F-12
<PAGE>
AXSYS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The provision for taxes on income from continuing operations consists of:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- ------------------
1994 1995 1996 1996 1997
------ ------ ------ ------------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current taxes--charge in lieu of taxes
and taxes:
U.S. Federal........................ $14 $454 $1,579 $ 672 $ 1,283
State and local..................... 3 111 312 148 311
--- ---- ------ ------- ---------
17 565 1,891 820 1,594
--- ---- ------ ------- ---------
Deferred taxes:
U.S. Federal........................ -- -- -- -- --
--- ---- ------ ------- ---------
$17 $565 $1,891 $ 820 $ 1,594
=== ==== ====== ======= =========
</TABLE>
The reasons for the difference between the provision for taxes and the
amount computed by applying the statutory federal income tax rate to income
before taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
-------------------- -------------------
1994 1995 1996 1996 1997
------ ------ ------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
U.S. federal statutory rate......... 34% 34% 34% 34% 34%
Computed expected tax provision..... $15 $493 $1,614 $687 $ 1,346
Increase (decrease) in taxes
resulting from:
State and local taxes, net of
federal tax benefit.............. 2 72 206 98 205
Amortization of goodwill.......... 71 71 71 35 43
Other............................. (71) (71) -- -- --
--- ---- ------ ------- ---------
Actual tax provision................ $17 $565 $1,891 $820 $ 1,594
=== ==== ====== ======= =========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Tax net operating loss carryforwards.............. $ 4,794 $ 3,740 $ 2,471
Inventory valuation differences................... 2,070 2,002 1,959
Other, net........................................ 389 606 635
------- ------- -------
Sub-Total......................................... 7,253 6,348 5,065
Valuation allowance............................... (7,253) (6,348) (5,065)
------- ------- -------
Total deferred taxes.............................. $ -- $ -- $ --
======= ======= =======
</TABLE>
The net change in the valuation allowance in 1996 and 1995 was a decrease of
$905 and an increase of $330, respectively. The net change in the valuation
allowance for the six months ended June 30, 1997 was a decrease of $1,283.
F-13
<PAGE>
AXSYS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 8--PENSION ARRANGEMENTS
The Company has two pension plans for which benefits and participation have
been frozen. Pension benefits under these plans are generally based upon years
of service and compensation. The Company's funding policy is to contribute
amounts to these plans sufficient to meet the minimum funding requirements set
forth in the Employee Retirement Income Security Act of 1974, plus such
additional amounts as the Company may determine to be appropriate from time to
time.
Multi-employer plans covering certain union members generally provided
benefits of stated amounts for each year of service. During 1994, in
connection with the restructuring of the Precision Systems group, the
employment of the union members participating in these multi-employer plans
ended and, as a result, contributions to these plans ceased. As of December
31, 1996, there were no unpaid contributions to multi-employer plans.
A summary of components of net periodic pension cost for the defined benefit
plans and the total contribution charged to pension expense for the multi-
employer plans follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31, JUNE 30,
---------------- ------------
1994 1995 1996 1996 1997
---- ---- ---- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Defined benefit plans:
Service cost-benefits earned during the peri-
od........................................... $-- $-- $-- $ -- $ --
Interest cost on projected benefit obliga-
tion......................................... 73 74 71 35 37
Actual return on plan assets.................. 1 (25) (46) (9) (15)
Net amortization and deferral................. (5) 17 26 (1)
---- ---- ---- ----- -----
Net pension cost of defined benefit plans..... 69 66 51 26 21
---- ---- ---- ----- -----
Multi-employer plans.......................... 59 -- -- -- --
---- ---- ---- ----- -----
Total pension expense....................... $128 $ 66 $ 51 $ 26 $ 21
==== ==== ==== ===== =====
</TABLE>
Assumptions used in accounting for the defined benefit plans as of the
plans' measurement dates were:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
DECEMBER 31, JUNE 30,
---------------- -------------
1994 1995 1996 1996 1997
---- ---- ---- ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Weighted-average discount rate............... 7.5% 7.5% 7.5% 7.5% 7.5%
Expected long-term rate of return on assets.. 6.0 6.0 6.0 6.0 6.0
</TABLE>
F-14
<PAGE>
AXSYS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The following table sets forth the funded status and amount recognized in
the consolidated balance sheets for the Company's defined benefit pension
plans:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- JUNE 30,
1994 1995 1996 1997
------ ------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Actuarial present value of benefit
obligations:
Vested benefit obligation.................... $1,026 $1,116 $1,053 $1,079
====== ====== ====== ======
Accumulated benefit obligation............... $1,026 $1,116 $1,053 $1,079
====== ====== ====== ======
Projected benefit obligations................ $1,026 $1,116 $1,053 $1,079
Less plan assets at fair market value........ 32 231 451 635
------ ------ ------ ------
Projected benefit obligation in excess of
plan assets................................. 994 885 602 444
Unrecognized net gain........................ 83 98 151 194
------ ------ ------ ------
Net pension liability recognized in the
balance sheet............................... $1,077 $ 983 $ 753 $ 638
====== ====== ====== ======
</TABLE>
Unrecognized net gains and losses are amortized over the average future
service lives of participants. Plan assets are invested in a managed portfolio
consisting primarily of equity securities.
The Company also sponsors 401(k) plans under which eligible employees may
elect to contribute a percentage of their earnings. The Company has matched
employee contributions to these plans in amounts ranging from up to 3% to 5%
of the employees' gross earnings over the three years ended December 31, 1996.
Company matching contributions were $363 in 1994, $325 in 1995 and $709 in
1996.
NOTE 9--SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------ -----------
1994 1995 1996 1996 1997
------- ------- ------- ---- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash paid during the year for:
Interest................................ $ 1,883 $ 1,989 $ 2,586 $669 $1,162
Income tax payments (refunds)........... (9) 52 441 373 37
Noncash investing activities:
Equipment acquired under capital
leases................................. $ -- $ -- $ 786 $464 $1,158
Capital Stock issued for acquisition.... -- -- -- -- 2,166
</TABLE>
NOTE 10--OTHER INFORMATION
Restructuring Plan
In connection with a restructuring of the Precision Systems Group initiated
in 1993, the Company recorded a $1,300 charge in 1994, of which $1,000 related
to the write-down of slow moving and excess inventory to net realizable value
and $300 to adjust the carrying value of an idle Deer Park, New York facility.
In September 1995, the Company sold the idle Deer Park, New York facility for
net proceeds of $1,401. Included in other expense in 1995 is a loss on the
sale of this facility of $233.
F-15
<PAGE>
AXSYS TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Stock Options and Warrants
As of December 31, 1996, options to purchase up to 38,600 shares of Axsys
common stock, with exercise prices of $3.75-$4.15 per share, have been granted
to certain key employees of the Company. Of that amount, 32,840 options are
vested, with the balance becoming vested in 1997. These options are
exercisable for up to seven years from the date of grant. As of December 31,
1996, there were 49,800 shares available for future grant. There were no stock
options granted to employees in 1996 or 1995.
During the six months ended June 30, 1997 (unaudited), 21,000 additional
stock options, net of forfeitures, were granted to certain employees and
directors of the Company. In addition, 9,000 options were exercised and 2,000
previously issued options were forfeited. The newly granted options, which
have exercise prices of $15.00-$17.75 per share, are exercisable for up to ten
years from the date of grant and vest as follows: 4,000 (1997), 6,800 (1998),
5,100 (1999) and 5,100 (2000). As of June 30, 1997, a total of 48,600 options
have been granted, and options to purchase up to 30,800 additional shares are
available for grant.
During 1996, a warrant to acquire up to 133,263 shares of Common Stock at an
exercise price of $.05 per share and warrants to acquire up to 175,278 shares
of Common Stock at an exercise price of $6.25 per share, were issued.
NOTE 11--COMMITMENTS AND CONTINGENCIES
Future minimum payments under noncancellable operating leases (exclusive of
property expenses and net of sublease rental income), as of December 31, 1996,
are as follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
---- ------
<S> <C>
1997.................................. $1,604
1998.................................. 1,361
1999.................................. 1,243
2000.................................. 162
2001.................................. 38
2002 and thereafter................... 206
------
$4,614
======
</TABLE>
Rent expense under such leases, net of sublease rental income, amounted to
$1,379, $1,539 and $1,589 during the years ended December 31, 1994, 1995 and
1996, respectively, and was $955 for the six months ended June 30, 1997
(unaudited).
In February 1990, the Company sold and leased back its San Diego, California
facility under an operating lease. The Company has a deferred gain as of
December 31, 1996 on this transaction of $387, which is being amortized to
income over the ten year lease term as a reduction of annual rent expense.
The Company has various lawsuits, claims, commitments and contingent
liabilities arising from the ordinary conduct of its business; however, they
are not expected to have a material adverse effect on the Company's financial
position or results of operations.
NOTE 12--SUBSEQUENT EVENT (UNAUDITED)
In September 1997, the Board of Directors approved the filing of a
registration statement on Form S-1 with the Securities and Exchange Commission
to register 1,757,833 shares of Common Stock, of which up to 1,294,092 shares
will be issued and sold by the Company and 463,741 shares will be sold by the
Selling Shareholder. The Board of Directors also approved the repurchase and
cancellation of outstanding warrants upon consummation of this Offering.
In September 1997, the Company was advised by its environmental consultants
that the costs associated with the remediation of a previously discontinued
operation site are now estimated to be higher than originally anticipated. The
current estimates to remediate this site now range from approximately $600 to
$1,500. Actual costs may be different than the current estimates. Based on
this information, the Company intends to increase its reserve relating to this
site to approximately $600 by recording an after-tax discontinued operation
charge of $244 in the third quarter of 1997.
F-16
<PAGE>
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
The unaudited pro forma condensed statements of operations of the Company
for the six months ended June 30, 1997 and the year ended December 31, 1996,
present results for the Company as if the Company's acquisition of Precision
Aerotech, Inc. ("PAI") and Teletrac, Inc. ("Teletrac") had occurred as of
January 1, 1996. Teletrac's fiscal year does not coincide with a calendar
year. The pro forma condensed statements of operations for the six months
ended June 30, 1997 and the year ended December 31, 1996, include Teletrac's
historical results for the six months ended June 30, 1997 and the year ended
January 31, 1997, respectively. The unaudited pro forma financial information
does not purport to represent what the Company's results of operations
actually would have been had the acquisitions occurred on the dates indicated,
or to project the Company's results of operations for any future date or
period. The pro forma adjustments are based on available information and
certain assumptions that the Company currently believes are reasonable in the
circumstances. The unaudited financial information should be read in
conjunction with the accompanying notes thereto, the separate historical
condensed financial statements of the Company as of and for the six month
period ended June 30, 1997 which are contained in the Company's Quarterly
Report on Form 10-Q for such period; and the historical financial statements
of the Company as of and for the year ended December 31, 1996 which are
contained in the Company's Annual Report on Form 10-K for such period.
The pro forma adjustments and pro forma combined amounts are provided for
informational purposes only. The Company's financial statements reflect the
effects of the acquisition and related financing transaction from the date the
events occurred. The pro forma adjustments are applied to the historical
financial statements to, among other things, account for the acquisition as a
purchase. Under purchase accounting, the total purchase cost was allocated to
the PAI and Teletrac assets and liabilities based on their fair values. The
purchase price allocations for Teletrac had been completed on a preliminary
basis. Accordingly, the final allocations will be different from the amounts
reflected herein. Although the final allocations will differ, the unaudited
pro forma financial information reflects management's best estimate based on
currently available information.
F-17
<PAGE>
AXSYS TECHNOLOGIES, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED--DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(JANUARY 1, 1996-
APRIL 25, 1996) PRO FORMA
AXSYS PRECISION AXSYS
TECHNOLOGIES, INC. AEROTECH, INC.(G) TELETRAC, INC. ADJUSTMENTS TECHNOLOGIES, INC.
------------------ ----------------- -------------- ----------- ------------------
<S> <C> <C> <C> <C> <C>
NET SALES............... $ 91,301 $9,657 $7,995 $ (194)(a) $ 108,759
Cost of sales........... 67,483 7,495 4,938 (194)(a) 79,722
Selling, general and
administrative
expenses............... 16,501 2,042 1,472 (394)(b) 19,621
Amortization of
intangible assets...... 210 -- -- 272 (c) 482
--------- ------ ------ ------- ---------
OPERATING INCOME........ 7,107 120 1,585 122 8,934
Interest expense........ 2,343 446 12 399 (d) 3,200
Other (income) expense.. 18 (3) 15
--------- ------ ------ ------- ---------
INCOME BEFORE TAXES AND
EXTRAORDINARY ITEM..... 4,746 (323) 1,573 (277) 5,719
Provision (benefit) for
income taxes........... 1,891 (126) 634 (2)(e) 2,397
--------- ------ ------ ------- ---------
INCOME BEFORE
EXTRAORDINARY LOSS..... 2,855 (197) 939 (275) 3,322
Extraordinary loss on
early extinguishment of
debt, net
of tax benefit......... (173) -- -- -- (173)
--------- ------ ------ ------- ---------
NET INCOME.............. 2,682 (197) 939 (275) 3,149
Preferred dividends .... 847 -- -- -- 847
--------- ------ ------ ------- ---------
NET INCOME APPLICABLE TO
COMMON SHAREHOLDERS.... $ 1,835 $ (197) $ 939 $ (275) $ 2,302
========= ====== ====== ======= =========
NET INCOME (LOSS) PER
COMMON SHARE:
Net income before
extraordinary item..... $ 0.74 $ 0.87
Extraordinary item...... (0.06) (0.06)
--------- ---------
Total................. $ 0.68 $ 0.81
========= =========
Weighted average number
of common shares
outstanding............ 2,690,843 153,000(f) 2,843,843
========= ======= =========
</TABLE>
See accompanying notes to unaudited pro forma condensed statement of
operations.
F-18
<PAGE>
AXSYS TECHNOLOGIES, INC.
PRO FORMA CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(UNAUDITED--DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
(JANUARY 1, 1997- PRO FORMA
AXSYS MAY 30, 1997) AXSYS
TECHNOLOGIES, INC. TELETRAC, INC. ADJUSTMENTS TECHNOLOGIES, INC.
------------------ ----------------- ----------- ------------------
<S> <C> <C> <C> <C>
NET SALES............... $ 58,849 $4,311 $ -- $ 63,160
Cost of sales........... 43,111 2,407 -- 45,518
Selling, general and
administrative
expenses............... 10,284 1,284 -- 11,568
Amortization of
intangible assets...... 125 -- 113 (c) 238
--------- ------ ------- ---------
OPERATING INCOME........ 5,329 620 (113) 5,836
Interest expense........ 1,343 -- 275 (d) 1,618
Other (income) expense.. 26 -- -- 26
--------- ------ ------- ---------
INCOME BEFORE TAXES..... 3,960 620 (388) 4,192
Provision (benefit) for
income taxes........... 1,594 250 (107)(e) 1,737
--------- ------ ------- ---------
NET INCOME.............. 2,366 370 (281) 2,455
Preferred stock
dividends.............. 102 -- -- 102
--------- ------ ------- ---------
NET INCOME APPLICABLE TO
COMMON SHAREHOLDERS.... $ 2,264 $ 370 $ (281) $ 2,353
========= ====== ======= =========
NET INCOME PER COMMON
SHARE.................. $ 0.69 $ 0.69
========= =========
Weighted average number
of common shares
outstanding............ 3,276,586 127,500(f) 3,404,086
========= ======= =========
</TABLE>
See accompanying notes to unaudited pro forma condensed statement of
operations.
F-19
<PAGE>
AXSYS TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF OPERATIONS
(a) To eliminate intercompany sales.
(b) To reflect reductions in overhead expenses as a result of the integration
of Axsys Technologies, Inc. and Precision Aerotech, Inc. ("PAI").
(c) To amortize the incremental Excess of Cost over Net Assets Acquired,
created as a result of the acquisition of Teletrac, Inc., over 30 years.
(d) To adjust interest expense for: (i) interest on incremental borrowings
required to fund the acquisitions, (ii) interest savings from lower rates
on the new credit facility entered into in connection with the PAI
acquisition, (iii) amortization of deferred financing fees, and (iv)
interest attributed to net assets held for disposal.
(e) To reflect the tax effect of the pro forma adjustments.
(f) To fully reflect the 153,000 shares of Axsys stock issued or to be issued
as part of the purchase price for Teletrac, Inc.
(g) Historical PAI amounts exclude the results of L&S Machine Company, Inc., a
wholly-owned subsidiary of PAI, which was accounted for as a net asset
held for sale as of the PAI acquisition date.
F-20
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Teletrac, Inc.:
We have audited the accompanying balance sheet of Teletrac, Inc. (a
California corporation) as of January 31, 1997, and the related statements of
operations, shareholders' equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Teletrac, Inc. as of
January 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Los Angeles, California
March 28, 1997
F-21
<PAGE>
TELETRAC, INC.
BALANCE SHEET
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1997 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................. $ 372 $ 147
Short-term investments............................... 201 --
Accounts receivable.................................. 891 1,964
Inventories.......................................... 1,175 1,190
Prepaid expenses and other........................... 20 16
Deferred income tax asset............................ 42 42
------ ------
TOTAL CURRENT ASSETS............................... 2,701 3,359
------ ------
PROPERTY AND EQUIPMENT, at cost:
Machinery and equipment.............................. 205 221
Computer hardware and software....................... 265 256
Furniture and fixtures............................... 8 8
Leasehold improvements............................... 85 85
------ ------
563 570
Less: Accumulated depreciation and amortization...... (334) (353)
------ ------
229 217
------ ------
OTHER ASSETS:
Shareholder loan..................................... 19 17
Other assets......................................... 19 13
------ ------
TOTAL ASSETS....................................... 38 30
------ ------
$2,968 $3,606
====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of bank debt and note payable........ $ 20 $ 120
Accounts payable..................................... 258 465
Accrued liabilities.................................. 158 531
Deferred revenue..................................... 46 47
Customer advances.................................... 39 86
Income taxes payable................................. 494 165
------ ------
TOTAL CURRENT LIABILITIES.......................... 1,015 1,414
------ ------
NOTE PAYABLE, net of current portion................... 44 39
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY:
COMMON STOCK, NO PAR VALUE:
authorized--10,000,000 shares; issued and
outstanding--207,815 shares......................... 51 51
RETAINED EARNINGS...................................... 1,858 2,102
------ ------
TOTAL SHAREHOLDERS' EQUITY......................... 1,909 2,153
------ ------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY......... $2,968 $3,606
====== ======
</TABLE>
See accompanying notes to financial statements.
F-22
<PAGE>
TELETRAC, INC.
STATEMENT OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JANUARY 31, 1997 APRIL 30, 1997
---------------- ------------------
(UNAUDITED)
<S> <C> <C>
NET SALES.................................. $7,995 $2,593
Cost of Goods Sold......................... 4,548 1,408
------ ------
GROSS PROFIT............................... 3,447 1,185
------ ------
OPERATING EXPENSES:
General and administrative expenses........ 1,004 491
Selling and marketing expenses............. 467 185
Research and development expenses.......... 390 101
------ ------
1,861 777
------ ------
OPERATING INCOME........................... 1,586 408
Interest expense........................... (14) (2)
Interest income............................ 2 4
------ ------
(12) 2
------ ------
INCOME BEFORE PROVISION FOR INCOME TAXES... 1,574 410
Provision for Income Taxes................. 634 165
------ ------
NET INCOME................................. $ 940 $ 245
====== ======
</TABLE>
See accompanying notes to financial statements.
F-23
<PAGE>
TELETRAC, INC.
STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JANUARY 31, 1997 APRIL 30, 1997
---------------- ------------------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 939 $ 245
Adjustments to reconcile net income to
net cash provided by
(used in) operating activities:
Depreciation and amortization.......... 85 19
Decrease (increase) in accounts
receivable............................ (133) (1,073)
Decrease (increase) in inventories..... (547) (15)
Decrease (increase) in prepaid expenses
and other............................. (41) 4
Decrease (increase) in deferred income
tax asset............................. (11) --
Decrease (increase) in other Assets.... -- 8
Increase (decrease) in accounts
payable............................... (76) 207
Increase (decrease) in accrued
liabilities........................... (13) 373
Increase (decrease) in customer
advances.............................. (35) --
Increase (decrease) in deferred
revenue............................... 46 47
Increase (decrease) in income taxes
payable............................... 418 (329)
----- -------
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES................. 632 (514)
----- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...... (134) (6)
Purchases of investments................. (201) --
Proceeds from investments................ -- 201
----- -------
NET CASH USED IN (PROVIDED BY)
INVESTING ACTIVITIES................. (335) 195
----- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable............... 81 --
Proceeds from line of credit............. -- 100
Principal payments on notes payable...... (82) (5)
Repayment of line of credit.............. (110) --
----- -------
NET CASH USED IN (PROVIDED BY)
FINANCING ACTIVITIES................. (109) 95
----- -------
NET INCREASE/(DECREASE) IN CASH............ 188 (224)
CASH AT BEGINNING OF YEAR.................. 185 372
----- -------
CASH AT END OF YEAR........................ $ 373 $ 148
===== =======
</TABLE>
See accompanying notes to financial statements.
F-24
<PAGE>
TELETRAC, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
-------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------- ------ -------- ------
<S> <C> <C> <C> <C>
Balance at January 31, 1996..................... 207,815 $51 $ 918 $ 969
Net income.................................... -- -- 939 939
------- --- ------ ------
Balance at January 31, 1997..................... 207,815 51 1,857 1,908
Net Income.................................... -- -- 245 245
------- --- ------ ------
Balance at April 30, 1997 (unaudited)........... 207,815 $51 $2,102 $2,153
======= === ====== ======
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
TELETRAC, INC.
NOTES TO FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1--BACKGROUND AND OPERATIONS
Teletrac, Inc. (the "Company") was incorporated in the state of California
in October 1980. The Company designs, markets, manufactures and sells
equipment for the testing of computer disk drives.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues are recognized at the time of shipment, except for revenues on
long-term contracts which are recorded on the percentage of completion method.
In fiscal 1996, the Company entered into a long-term contract with a
customer to manufacture a specific product for the customer. At January 31,
1997 and April 30, 1997 (unaudited), the entire amount of the contract had
been billed to the customer and $46 of deferred revenue was recorded relating
to the contract. The Company has completed its obligations under the contract
during the second quarter of fiscal 1998.
Significant Customer
In fiscal 1997, sales to one customer accounted for approximately ten
percent of the Company's net sales. This customer accounted for approximately
25 percent and 11 percent (unaudited) of the Company's accounts receivable
balance as of January 31, 1997 and April 30, 1997, respectively. Substantially
all of this customer's balance has been collected during the second quarter of
fiscal 1998.
Short-Term Investments
The Company accounts for its investments under the provisions of Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities."
At January 31, 1997, short-term investments consisted of two certificates of
deposit. As defined by the standard, the Company has classified its
investments as "held-to-maturity" investments. Both investments mature in
fiscal 1998.
Inventories
Inventories include material, labor and overhead, are valued at the lower of
cost (first-in, first-out) or market and consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1997 1997
----------- -----------
(UNAUDITED)
<S> <C> <C>
Raw material......................................... $ 678 $ 778
Work in progress..................................... 497 412
------ ------
$1,175 $1,190
====== ======
</TABLE>
F-26
<PAGE>
TELETRAC, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Property and Equipment
Property and equipment is stated at acquisition cost, net of accumulated
depreciation and amortization, which is computed using straight-line and
accelerated methods over five to seven years.
Costs of normal maintenance and repairs are charged to expense as incurred.
Major replacements or betterments of property and equipment are capitalized.
When items are sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
included in operations.
Supplemental Cash Flow Information
Cash paid for income taxes was approximately $181 and $495 (unaudited) in
fiscal 1997 and during the three months ended April 30, 1997, respectively.
Cash paid for interest was approximately $14 and $2 (unaudited) in fiscal 1997
and the three months ended April 30, 1997, respectively.
NOTE 3--LINE OF CREDIT
The Company has entered into a line of credit agreement with a bank under
which the Company may borrow up to $300. At January 31, 1997 and April 30,
1997, no amount and $100 were outstanding under the agreement, respectively.
The agreement expires on May 15, 1997. Borrowings under the agreement bear
interest at the bank's reference rate (8.25 percent at January 31, 1997) plus
.75 percent. The line of credit is secured by essentially all assets of the
Company.
NOTE 4--NOTE PAYABLE TO A BANK
In March 1996, the Company entered into a note payable agreement with a bank
under which the Company borrowed $81 for the purchase of equipment. The note
is repayable in 48 monthly principal payments of approximately $2 through
March 2000. At January 31, 1997 and April 30, 1997, $64 and $59 (unaudited)
were outstanding under the agreement, respectively. Borrowings under the
agreement bear interest at the bank's reference rate (8.25 percent at January
31, 1997) plus .75 percent. The note is secured by the related equipment.
NOTE 5--INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109.
The deferred income tax asset at January 31, 1997 and April 30, 1997
primarily relates to an accrued liability.
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JANUARY 31, APRIL 30,
1997 1997
----------- ------------------
(UNAUDITED)
<S> <C> <C>
Current Taxes
U.S. Federal................................ $495 $126
State and Local............................. 150 39
---- ----
645 165
==== ====
Deferred Taxes
U.S. Federal................................ (9) --
State and Local............................. (2) --
---- ----
(11) --
---- ----
$634 $165
==== ====
</TABLE>
F-27
<PAGE>
TELETRAC, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Differences between the provision for income taxes and income taxes at the
statutory federal income tax rate are as follows:
<TABLE>
<CAPTION>
YEAR ENDED THREE MONTHS ENDED
JANUARY 31, APRIL 30,
1997 1997
----------- -------------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Income tax provision at the statutory fed-
eral rate.................................. $ 535 34.0% $ 139 34.0%
State and local income taxes, net of federal
benefit.................................... 96 6.1 26 6.3
Other....................................... 3 .2 -- --
----- ----- --------- ---------
$ 634 40.3% $ 165 40.3%
===== ===== ========= =========
</TABLE>
NOTE 6--COMMITMENTS AND CONTINGENCIES
Lease Commitment
The Company leases its facility under an operating lease agreement that
expires in July 1999. Future minimum payments relating to this operating lease
as of January 31, 1997 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
JANUARY 31, AMOUNT
----------- ------
<S> <C>
1998.............................................................. $121
1999.............................................................. 121
2000.............................................................. 61
----
$303
====
</TABLE>
Rental expense relating to the lease for the year ended January 31, 1997 was
approximately $108.
Litigation
The Company is subject to lawsuits in the normal course of business. In the
opinion of management, pending litigation will not result in any material
losses to the Company.
NOTE 7--SUBSEQUENT EVENT
On May 30, 1997, Axsys Technologies, Inc. purchased approximately 85.6
percent of the outstanding common shares of the Company and entered into
arrangements where under certain conditions it would acquire the remainder of
the Company.
F-28
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders Precision Aerotech, Inc. La Jolla,
California
We have audited the accompanying consolidated balance sheets of Precision
Aerotech, Inc. and subsidiaries as of April 30, 1995 and 1994 and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for each of the three years in the period ended April 30, 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 financial position of Precision
Aerotech, Inc. and subsidiaries as of April 30, 1995 and 1994 and the results
of their operations and their cash flows for each of the three years in the
period ended April 30, 1995, in conformity with generally accepted accounting
principles.
McGladrey & Pullen, LLP
San Diego, California
July 19, 1995
F-29
<PAGE>
PRECISION AEROTECH, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30,
---------------
1994 1995
------- -------
<S> <C> <C>
ASSETS (NOTE 6)
CURRENT ASSETS
Cash......................................................... $ 711 $ 240
Accounts receivable, net (Notes 2 and 12).................... 3,967 4,664
Inventories (Note 3)......................................... 6,852 7,700
Prepaid expenses and other current assets.................... 84 103
Deferred tax assets (Note 10)................................ -- 961
------- -------
TOTAL CURRENT ASSETS....................................... 11,614 13,668
------- -------
NET PROPERTY, PLANT AND EQUIPMENT (Notes 4 and 8).............. 9,709 9,535
------- -------
OTHER ASSETS................................................... 29 75
------- -------
TOTAL ASSETS............................................... $21,352 $23,278
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable............................................. $ 1,208 $ 3,130
Income taxes payable......................................... -- 235
Accrued expenses and other current liabilities (Note 9)...... 2,698 3,370
Current portion of long-term debt and capital lease
obligations (Notes 6 and 8)................................. 1,276 1,227
------- -------
TOTAL CURRENT LIABILITIES.................................. 5,182 7,962
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less current
portion (Notes 6 and 8)....................................... 15,427 13,690
DEFERRED TAX LIABILITIES (Note 10)............................. -- 820
COMMITMENTS AND CONTINGENCIES (Notes 8 and 15)
SHAREHOLDERS' EQUITY (Notes 6, 7 and 11)
COMMON STOCK, $.01 par value authorized 15,000,000 shares,
issued and outstanding 789,250 shares......................... 8 8
ADDITIONAL PAID-IN CAPITAL..................................... 735 735
RETAINED EARNINGS since May 1, 1994 ($15,927 accumulated
deficit eliminated in quasi-reorganization on April 30,
1994)......................................................... -- 63
------- -------
TOTAL SHAREHOLDERS' EQUITY................................. 743 806
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................. $21,352 $23,278
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-30
<PAGE>
PRECISION AEROTECH, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
---------------------------
1993 1994 1995
-------- -------- -------
<S> <C> <C> <C>
NET SALES (Note 12).............................. $ 47,602 $ 36,528 $35,806
Cost of sales.................................... 37,746 28,305 27,007
-------- -------- -------
GROSS PROFIT..................................... 9,856 8,223 8,799
-------- -------- -------
Selling, general, and administrative expenses.... 8,628 6,353 7,098
Amortization (Note 5)............................ 9,477 527 1
Debt restructuring expenses...................... 2,529 -- --
(Income) loss on disposal of subsidiaries (Note
14)............................................. 2,165 (378) (97)
-------- -------- -------
22,799 6,502 7,002
-------- -------- -------
OPERATING INCOME (LOSS) FROM CONTINUING
OPERATIONS...................................... (12,943) 1,721 1,797
Interest income (expense), net................... (4,978) (5,794) (1,686)
Other income (expense), net...................... (48) 31 45
-------- -------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE
INCOME TAXES.................................... (17,969) (4,042) 156
Income taxes (Note 10)........................... 149 43 93
-------- -------- -------
INCOME (LOSS) FROM CONTINUING OPERATIONS......... (18,118) (4,085) 63
-------- -------- -------
DISCONTINUED OPERATIONS (Note 14):
Gain (loss) from Aero operations............... (75) 175 --
-------- -------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM.......... (18,193) (3,910) 63
Extraordinary item, gain on troubled debt
restructuring (Note 6).......................... -- 23,669 --
-------- -------- -------
NET INCOME (LOSS)................................ $(18,193) $ 19,759 $ 63
======== ======== =======
EARNINGS PER SHARE:
Income (loss) from continuing operations....... $(532.44) $(106.33) $ 0.08
Gain (loss) from discontinued operations....... (2.17) 4.56 --
Extraordinary item, gain on troubled debt
restructuring................................. -- 616.05 --
-------- -------- -------
Net income (loss)............................ $(534.61) $ 514.28 $ 0.08
======== ======== =======
Weighted average number of shares outstanding
(Note 11)....................................... 34,483 38,419 789,250
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-31
<PAGE>
PRECISION AEROTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
--------------------------
1993 1994 1995
-------- -------- ------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss)................................. $(18,193) $ 19,759 $ 63
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization of property, plant
and equipment................................... 2,538 2,265 2,370
Other amortization............................... 9,972 527 1
Gain on troubled debt restructuring.............. -- (23,669) --
Provision for losses on accounts receivable...... 51 35 --
Provision for losses on inventory................ 32 (330) 222
(Gain) loss on sale of assets.................... (78) 3 --
Deferred income taxes............................ -- -- (141)
Noncash (income) loss on disposal of subsidiaries
or discontinued operations...................... 1,986 (553) --
Accrued interest added to long-term debt......... 1,441 3,522 --
(Increase) decrease in Accounts receivable....... 1,345 593 (697)
(Increase) decrease in Inventories............... 1,142 3,789 (1,070)
(Increase) decrease in Prepaid expenses and other
current assets.................................. 187 (3) (19)
(Increase) decrease in Other noncurrent assets... 90 25 (45)
Increase (decrease) in Accounts payable.......... (1,648) (1,221) 1,922
Increase (decrease) in Income taxes payable...... -- -- 235
Increase (decrease) in Accrued expenses and other
current liabilities............................. 2,750 (3,412) 672
-------- -------- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES.... 1,615 1,330 3,513
-------- -------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.............................. (1,144) (451) (1,000)
Proceeds from disposal of assets.................. 139 490 42
-------- -------- ------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES.................................. (1,005) 39 (958)
-------- -------- ------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt...................... 40,042 -- 6,060
Principal payments on long-term debt and capital
lease obligations................................ (38,452) (2,858) (9,086)
-------- -------- ------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES.................................. 1,590 (2,858) (3,026)
-------- -------- ------
NET INCREASE (DECREASE) IN CASH.............. 2,200 (1,489) (471)
CASH AT BEGINNING................................. -- 2,200 711
-------- -------- ------
CASH AT ENDING.................................... $ 2,200 $ 711 $ 240
======== ======== ======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid for:
Interest......................................... $ 2,423 $ 2,155 $1,575
Income tax payments.............................. 139 284 --
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Equipment acquired under capital leases........... $ 794 $ 246 $1,239
Accrued interest added to long-term debt.......... 1,441 3,522 --
</TABLE>
See accompanying notes to consolidated financial statements.
F-32
<PAGE>
PRECISION AEROTECH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A SERIES B SERIES C
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
----------------- ------------------ ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance at April 30, 1992.... 4,980 $ 1 45,188 $ 4 79,080 $ 8
Net (loss)................. -- -- -- -- -- --
-------- ------ --------- ------ --------- ------
Balance at April 30, 1993.... 4,980 1 45,188 4 79,080 8
Reclassification/conversion
of stock in troubled debt
restructuring (Notes 6 and
11)....................... (4,980) (1) (45,188) (4) (79,080) (8)
Reverse stock split common
stock (Note 11)........... -- -- -- -- -- --
Change in common stock par
value..................... -- -- -- -- -- --
Net income................. -- -- -- -- -- --
Adjustment for quasi-
reorganization as of
April 30, 1994 (Note 7)... -- -- -- -- -- --
-------- ------ --------- ------ --------- ------
Balance at April 30, 1994.... -- -- -- -- -- --
Net income................. -- -- -- -- -- --
-------- ------ --------- ------ --------- ------
Balance at April 30, 1995.... -- $ -- -- $ -- -- $ --
======== ====== ========= ====== ========= ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-33
<PAGE>
PRECISION AEROTECH, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL RETAINED
------------------ PAID-IN EARNINGS
SHARES AMOUNT CAPITAL (DEFICIT) TOTAL
---------- ------ ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Balance at April 30, 1992.... 3,448,253 $ 345 $ 14,064 $(17,493) $(3,071)
Net (loss)................. -- -- -- (18,193) (18,193)
---------- ----- -------- -------- -------
Balance at April 30, 1993.... 3,448,253 345 14,064 (35,686) (21,264)
Reclassification/conversion
of stock in troubled debt
restructuring (Notes 6 and
11)....................... 754,968 8 2,253 -- 2,248
Reverse stock split common
stock (Note 11)........... (3,413,971) -- -- -- --
Change in common stock par
value..................... -- (345) 345 -- --
Net income................. -- -- -- 19,759 19,759
Adjustment for quasi-
reorganization as of
April 30, 1994 (Note 7)... -- -- (15,927) 15,927 --
---------- ----- -------- -------- -------
Balance at April 30, 1994.... 789,250 8 735 -- 743
Net income................. -- -- -- 63 63
---------- ----- -------- -------- -------
Balance at April 30, 1995.... 789,250 $ 8 $ 735 $ 63 $ 806
========== ===== ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-34
<PAGE>
PRECISION AEROTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
The Company manufactures precision assemblies and components used primarily
in the aerospace, defense, communication and reprographics industries
generally under long-term contracts, which are typically less than three years
in duration. The Company's accounts receivable are due primarily from
companies in these industries located throughout the United States. Credit is
extended based on an evaluation of the customer's financial condition and
collateral is not required.
A summary of the Company's significant accounting policies follows:
Principles of Consolidation
The consolidated financial statements include the accounts of Precision
Aerotech, Inc. and its subsidiaries (the Company). All significant
intercompany accounts and transactions have been eliminated.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market,
net of progress payments received. Under the contractual arrangements by which
progress payments are received, the customer has a security interest in the
inventory identified with related contracts.
Revenue Recognition
Revenue is generally recognized on the units-of-delivery method. Sales and
costs of sales are generally recognized when inventory manufactured pursuant
to a contract is shipped. Provisions are made on a current basis to fully
recognize any anticipated losses on contracts.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, less accumulated
depreciation and amortization. Leasehold improvements are amortized on the
straight-line method over the shorter of the term of the related lease or the
estimated useful life of the improvement. Depreciation of plant and equipment
is provided over the estimated useful lives of the respective assets using the
straight-line method, typically five to eight years. Amortization of equipment
acquired under capital leases is included in depreciation of plant and
equipment.
Excess of Cost Over Fair Value of Purchased Subsidiaries
Prior to the implementation of the quasi-reorganization, the excess of cost
over fair value of purchased subsidiaries was amortized over 20 years using
the straight-line method. Annually, management reviewed the unamortized value
of the intangibles using a discounted cash flow method of valuation using a
rate of 13.5% for each subsidiary having a material balance and reduced their
balances if the values were permanently impaired. Due to the elimination of
the unamortized balance of the excess of cost over fair value of purchased
subsidiaries effective April 28, 1994, there is no remaining balance reflected
on the accompanying consolidated balance sheets (see Notes 5 and 7).
Income taxes
Deferred taxes are provided on a liability method whereby deferred tax
assets are recognized for deductible temporary differences and deferred tax
liabilities are recognized for taxable temporary differences. Temporary
differences are the differences between the reported amounts of assets and
liabilities and their tax bases. Deferred tax assets are reduced by a
valuation allowance when it is determined to be more likely than not that some
portion or all of the deferred tax assets will not be realized. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment.
F-35
<PAGE>
PRECISION AEROTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Research and Development Expense
The Company incurred and expensed $305, $426 and $553 for research and
development during the years ended April 30, 1993, 1994 and 1995,
respectively.
Earnings Per Share
Earnings per share is computed on the basis of the weighted average number
of shares outstanding as restated for the effect of the reverse stock split
(see Note 11) after adjusting for dividend requirements of Preferred Stock in
1993 and 1994.
NOTE 2--ACCOUNTS RECEIVABLE
Following are the components of accounts receivable, substantially all from
long-term contracts:
<TABLE>
<CAPTION>
APRIL 30,
-------------
1994 1995
------ ------
<S> <C> <C>
Amounts billed................................................ $4,142 $4,748
Less allowance for doubtful accounts.......................... 175 84
------ ------
$3,967 $4,664
====== ======
</TABLE>
NOTE 3--INVENTORIES
The components of inventories, substantially all of which relate to long-
term contracts:
<TABLE>
<CAPTION>
APRIL 30,
-------------
1994 1995
------ ------
<S> <C> <C>
Work-in-process and finished components...................... $6,839 $7,528
Raw materials................................................ 233 345
Less amounts representing progress payments received on
uncompleted contracts....................................... 220 173
------ ------
$6,852 $7,700
====== ======
</TABLE>
Inventories are net of reserves of $583 and $805 at April 30, 1994 and 1995,
respectively.
NOTE 4--PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
-------------
1994 1995
------ ------
<S> <C> <C>
Land.......................................................... $ 465 $ 465
Building and leasehold improvements........................... 2,313 2,417
Machinery and equipment....................................... 3,369 4,571
Machinery and equipment under capital leases.................. 2,962 3,510
Furniture and fixtures........................................ 600 926
------ ------
9,709 11,889
Less accumulated depreciation and amortization................ -- 2,354
------ ------
$9,709 $9,535
====== ======
</TABLE>
Included in accumulated depreciation and amortization are amounts related to
assets acquired under capital leases of $0 and $607 at April 30, 1994 and
1995, respectively (see Note 7).
F-36
<PAGE>
PRECISION AEROTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 5--EXCESS OF COST OVER FAIR VALUE
In its annual evaluation of the unamortized value of the excess of cost over
fair value of purchased subsidiaries at April 30, 1993, management determined
there was an impairment of the value recorded in connection with subsidiaries
purchased in 1988. Based upon changes in the national political and economic
environment it was felt that this impairment was permanent. Loss from
continuing operations reflects a charge of approximately $8,995 for the year
ended April 30, 1993 for additional amortization as a result of recording this
impairment. In addition, management reevaluated its estimate of the useful
life of the excess of cost related to this 1988 acquisition from 40 to 20
years.
In connection with the comprehensive restructuring accomplished in 1994, the
Company implemented a quasi-reorganization and as a result recorded a charge
of approximately $7,378 to accumulated deficit to eliminate the remaining
unamortized value of the excess of cost over fair value of purchased
subsidiaries (see Note 7). The reduction in the intangible asset was a result
of the implementation of the quasi-reorganization and was not based on an
indication of further impairment using the evaluation method described above.
NOTE 6--DEBT AND CAPITAL LEASE OBLIGATIONS
Following is a summary of long-term debt and capital lease obligations:
<TABLE>
<CAPTION>
APRIL 30,
---------------
1994 1995
------- -------
<S> <C> <C>
$10,500 term loan bearing interest at 10%, interest payable
monthly, quarterly principal payments of $101 through
September 30, 1998 and the unpaid balance due December 31,
1998(a)(b)................................................... $10,500 $10,096
$2,500 term loan bearing interest at 10% interest payable
monthly, quarterly principal payments of $24,038 through
September 30, 1998 and the unpaid balance due December 31,
1998(a)(b)................................................... 2,500 2,404
$4,000 revolving credit agreement bearing interest at 10%
interest payable monthly and principal due December 31,
1998(a)(b)(c)................................................ 2,000 360
Obligations under capital leases with interest at 6.7% to
13.4%, due in monthly installments through December 1998,
collateralized by certain equipment.......................... 1,703 2,057
------- -------
16,703 14,917
Less current portion.......................................... 1,276 1,227
------- -------
$15,427 $13,690
======= =======
</TABLE>
- --------
(a) On April 28, 1994 the Company entered into a capital Restructuring
agreement with its two primary lending institutions. The Company issued
532,744 shares of common stock to Foothill Capital Corporation (Foothill)
and 217,044 shares of common stock to Teachers Insurance and Annuity
Association (TIAA) in exchange for amendment of the Company's Senior
Credit Agreement to reduce the principal and accrued interest outstanding
from $49,767 to $17,000 including a $2,500 note to TIAA in exchange for
all of its outstanding 14.5% Guaranteed Senior Subordinated Notes and all
of its outstanding Convertible Exchangeable Preferred Stock (Series B) and
Convertible Participating Preferred Stock (Series C). Additionally, the
holders of the Reincorporation Preferred Stock (Series A) agreed to
reclassify their shares into shares of common stock of the Company.
Concurrent with the closing of the Restructuring agreement, all series of
preferred stock were canceled and the Company is now authorized to only
issue shares of common stock. The value assigned to the common shares
issued to the lending institutions was $2,249 as of April 28, 1994 based
on a "bid" price provided by the NASDAQ in the month prior to the
restructuring. There was no significant trading
F-37
<PAGE>
PRECISION AEROTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
activity between the date of the proxy and the date of the restructuring.
The restructuring required four representatives of the creditors serve on
the Company's five person Board of Directors. The gain was measured by
reducing the recorded obligation prior to restructuring by the value of the
common shares issued to the lenders, then comparing this amount to the
total future principal and interest payments required under the
restructured agreements. The restructuring with TIAA resulted in an
extraordinary gain of $23,669 or $616.05 per share. There was no tax effect
of the extraordinary gain because a portion of the gain was nontaxable and
the remaining portion was offset by utilization of net operating loss
carryforwards. This transaction was accounted for in accordance with the
Financial Accounting Standards Board Statement No. 15 "Accounting by
Debtors and Creditors for Troubled Debt Restructurings."
In connection with implementation of the quasi-reorganization (see Note 7),
the Company recorded a credit of approximately $6,849 to accumulated
deficit to eliminate the prospective restructuring interest to reduce the
debt to approximate fair market value.
(b) The term loans and revolving credit agreement contain certain restrictive
covenants which included, among other things, restrictions on the payments
of dividends and the incurrence of additional indebtedness. Substantially
all assets of the Company, with the exception of assets acquired and
collateralized pursuant to capital lease obligations and amounts
representing progress payments received on uncompleted contracts, are
pledged as collateral under the term notes and revolving credit agreement.
Under the term loan and revolving credit agreement, the Company is required
to pay the creditor a quarterly commitment fee as long as any amounts are
outstanding.
(c) The revolving credit agreement provides for an amount not to exceed the
Borrowing Base (as defined). Under the terms of the agreement, amounts
borrowed may be repaid and reborrowed at any time prior to the termination
date, December 31, 1998. At April 30, 1995, borrowings of $3,640 are
available under the agreement.
Scheduled maturities of long-term debt and capital lease obligations are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING
APRIL 30, AMOUNT
----------- -------
<S> <C>
1996............................. $ 1,227
1997............................. 1,091
1998............................. 821
1999............................. 11,714
2000............................. 64
-------
$14,917
=======
</TABLE>
The Company had issued warrants prior to the fiscal year ended April 30,
1994 to the senior creditor and senior subordinated note holder, for a total
of 457,310 shares (prior to effect of reverse stock split) of its common
stock, in consideration for the terms and conditions in the term loan,
revolving note and senior subordinated note agreements. The warrants were
canceled as part of the debt restructuring.
Foothill, the holder of the $10,500 term note and the $4,000 revolving
credit agreement, became the holder of the majority of the Company's common
stock on April 28, 1994. Interest expense on indebtedness to Foothill was
$403, $1,500 and $1,205 for the years ending April 30, 1993, 1994 and 1995,
respectively.
TIAA, the holder of the $2,500 term note and former holder of the senior
subordinated notes and preferred stock, also became a holder of common stock
on April 28, 1994. Interest expense on indebtedness to TIAA amounted to
$3,185, $2,887 and $247 for the years ended April 30, 1993, 1994 and 1995,
respectively.
F-38
<PAGE>
PRECISION AEROTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 7--QUASI-REORGANIZATION
After the debt restructuring accomplished on April 28, 1994, the Company
implemented, for accounting purposes, a "quasi-reorganization", an elective
accounting procedure that permits a company which has emerged from previous
financial difficulty to restate its accounts and establish a fresh start in an
accounting sense. After implementation of the accounting quasi-reorganization,
the Company's assets and liabilities were adjusted to fair value, however
these adjustments were limited so as to not increase net assets. The deficit
balance in retained earnings was charged to additional paid-in capital. The
Company effected the accounting quasi-reorganization as of April 30, 1994.
The following represents the effects of the reorganization at April 30,
1994:
<TABLE>
<CAPTION>
PRIOR TO AFTER
REORGANIZATION REORGANIZATION
-------------- --------------
<S> <C> <C>
CURRENT ASSETS............................... $ 11,614 $11,614
Property, plant and equipment................ 9,180 9,709
Excess of costs over fair value of purchased
subsidiaries................................ 7,378 --
Other assets................................. 29 29
-------- -------
TOTAL ASSETS............................. $ 28,201 $21,352
======== =======
CURRENT LIABILITIES.......................... $ 5,182 $ 5,182
Long-term obligations:
Principal.................................. 15,427 15,427
Interest................................... 6,849 --
-------- -------
TOTAL LIABILITIES........................ 27,458 20,609
-------- -------
COMMON STOCK................................. 8 8
Additional paid-in capital................... 16,662 735
RETAINED EARNINGS (deficit).................. (15,927) --
-------- -------
TOTAL SHAREHOLDERS' EQUITY............... 743 743
-------- -------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY.................................. $ 28,201 $21,352
======== =======
</TABLE>
NOTE 8--LEASES
The Company leases a facility in Rochester Hills, Michigan at $216 annually
through 1996 and $250 annually through 1999. The lease contains four five-year
renewal options with increases in the annual rent of 20% per renewal term. The
Company accrues rent expense on a straight-line basis and at April 30, 1994
and 1995, deferred rent was approximately $102 and $105, respectively.
F-39
<PAGE>
PRECISION AEROTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Future minimum payments under the capital leases and noncancellable
operating leases with terms of one year or more consist of the following:
<TABLE>
<CAPTION>
YEAR ENDING CAPITAL OPERATING
APRIL 30, LEASES LEASES
----------- ------- ---------
<S> <C> <C>
1996...................... $ 912 $ 301
1997...................... 703 277
1998...................... 389 251
1999...................... 385 251
2000...................... 64 125
Thereafter................ -- --
------ ------
2,453 $1,205
======
Less portion relating to
interest................. 396
------
$2,057
======
</TABLE>
Total rent expense charged to operations, exclusive of property tax,
insurance and maintenance, was $641, $393 and $308 during the years ended
April 30, 1993, 1994 and 1995, respectively.
In May 1995, the Company entered into a capital lease agreement for
equipment. The lease agreement provides for sixty monthly payments of $11
which have not been included in the future minimum capital lease payments
above. The initial present value of the future rental payments calculated at
an implied rate of 14.1% is $515.
NOTE 9--ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
APRIL 30,
-------------
1994 1995
------ ------
<S> <C> <C>
Accrued compensation.......................................... $1,332 $2,149
Customer advances............................................. 528 213
State income taxes payable.................................... 75 103
Accrued expenses in connection with disposal of Coast......... 33 --
Other......................................................... 730 905
------ ------
$2,698 $3,370
====== ======
</TABLE>
NOTE 10. INCOME TAXES
Effective May 1, 1993, the Company adopted FASB Statement No. 109,
Accounting for Income Taxes. The adoption of Statement 109 changes the
Company's method of accounting for income taxes from the deferred method to a
liability method. Under the deferred method, the Company deferred the past tax
effects of timing differences between financial reporting and taxable income.
As explained in Note 1, the liability method requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences
of temporary differences between the reported amounts of assets and
liabilities and their tax bases.
The adoption of Statement 109 had no effect on the May 1, 1993 balance
sheet.
F-40
<PAGE>
PRECISION AEROTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The components giving rise to deferred taxes described above consist of:
<TABLE>
<CAPTION>
APRIL 30,
----------------
1994 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Accounts receivable allowances.............................. $ 66 $ 64
Inventory allowances........................................ 246 313
Long-term contracts......................................... 1,053 1,051
Contribution to employee benefit plan....................... 107 --
State income tax............................................ -- 38
Loan restructuring costs.................................... 488 320
Deferred rent............................................... 37 36
Accrued vacation............................................ 173 234
Other....................................................... 196 120
------- -------
2,366 2,176
Less valuation allowance...................................... 1,006 1,026
------- -------
1,360 1,150
------- -------
Deferred tax liabilities:
Property and equipment...................................... (1,360) (1,009)
------- -------
$ -- $ 141
======= =======
</TABLE>
The components giving rise to the net deferred tax assets described above
have been included in the accompanying consolidated balance sheet as follows:
<TABLE>
<CAPTION>
APRIL 30,
1995
---------
<S> <C>
Current assets..................................................... $ 961
Noncurrent (liabilities)........................................... (820)
-----
$ 141
=====
</TABLE>
A valuation allowance was established for the net deferred tax assets for
which the ultimate realization depends on the Company's ability to generate
sufficient taxable income in the future. The Company has undergone substantial
restructuring (see Note 6), however, due to the nature of the deferred tax
assets and historical results of operations, a valuation allowance of $1,026
and $1,006 was recorded as of April 30, 1995 and 1994, respectively. If the
Company is able to generate sufficient taxable income in the future through
operating results or tax planning opportunities, reductions in the valuation
allowance established as of April 30, 1994 will be recorded by a charge
directly to additional paid-in capital as required after implementation of the
quasi-reorganization (see Note 7).
Because of limitations imposed by the tax laws on the Company due to the
occurrence of an ownership change (see Note 6), all unused net operating loss
carryforwards generated prior to 1994 were eliminated as of April 30, 1994.
F-41
<PAGE>
PRECISION AEROTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate to pretax income from continuing
operations for the years ended April 30, 1995, 1994 and 1993 due to the
following:
<TABLE>
<CAPTION>
APRIL 30,
----------------------
1993(A) 1994 1995
------- ------- ----
<S> <C> <C> <C>
Computed "expected" tax expense (credit)................. $(2,953) $(1,757) $ 54
Increase (decrease) in income taxes resulting from:
Losses for which no current benefit is available....... 2,953 1,757 --
State taxes, net of federal tax benefits, if any....... 149 43 19
Change in valuation allowance.......................... -- -- 20
------- ------- ----
$ 149 $ 43 $ 93
======= ======= ====
</TABLE>
- --------
(a) As computed in accordance with APB Opinion No. 11.
The provision for income taxes charged to operations for the year ended
April 30, 1995 consist of $234 of currently payable income taxes and a
deferred tax benefit of $141. The income taxes in the consolidated statements
of operations consist of current state income taxes for the years ended April
30, 1993 and 1994.
An examination of the Company's Alabama Franchise Tax returns by the Alabama
Department of Revenue for the years 1989 through 1994 has been completed.
Notices for the years 1989 through 1994 assess additional taxes. The Company
is contesting the proposed additional taxes, which relate primarily to the
inclusion of various liability and equity accounts in the tax base of Alabama
and amount to approximately $388 (plus penalties and interest) for the years
1989 through 1994 combined, after giving effect to offsetting adjustments
available to the Company. Management intends to contest the Department of
Revenue's position and believes that the contested additional taxes will be
substantially reduced from those proposed by the agents.
No accrual has been made in the financial statements for the contested
adjustments since the ultimate liability, if any, cannot be reasonably
estimated. Any ultimate liability is not expected to be material in relation
to the consolidated financial position of the Company, but could be material
in relation to the earnings of the period in which a determination occurs.
NOTE 11--STOCK TRANSACTIONS
On April 28, 1994 the Board of Directors authorized, and the Company
executed, a 1-for-100 reverse stock split with respect to the Company's common
stock, thereby decreasing the number of issued and outstanding shares to
789,250. Additionally, the par value of each share was decreased to $0.01.
Certain references in the accompanying consolidated financial statements to
the number of common shares for 1993 have been restated to reflect the reverse
stock-split. Weighted average number of shares outstanding for calculation of
earnings per share have been restated for the year ended April 30, 1993 to
reflect the reverse stock split.
In connection with the Company's capital restructuring agreement, the
holders of Series A preferred stock agreed to reclassify their shares into
shares of common stock of the Company. The Series B and Series C holder
exchanged those shares for debt (see Note 6).
In May 1989, the Company registered 850,000 shares (prior to effect of
reverse stock split) of common stock with the Securities and Exchange
Commission pursuant to the Amended and Restated 1986 Stock Option
F-42
<PAGE>
PRECISION AEROTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Plan of Precision Aerotech, Inc. (the Stock Option Plan) and the Stock Bonus
Plan for Key Employees of Precision Aerotech, Inc. (the Stock Bonus Plan).
The Stock Option Plan provides for the granting of options for up to 350,000
shares (prior to effect of reverse stock split) of its common stock to
employees for a price not less than the fair market value of the stock at the
date of grant. The term of the options cannot exceed ten years and no option
may be exercised during the first year after such option is granted.
The following table summarizes stock option activity for the three years
ended April 30, 1995:
<TABLE>
<CAPTION>
NUMBER OF PRICE
SHARES PER SHARE
--------- ------------------
<S> <C> <C>
Outstanding at April 30, 1992.................... 344,550 $1.00 to $7.25
Expired or forfeited........................... (16,450) $1.00
-------- ------------------
Outstanding at April 30, 1993.................... 328,100 $1.00 to $7.25
Expired or forfeited........................... (23,350) $1.00 to $7.25
Effects of reverse stock split................. (301,702) --
-------- ------------------
Outstanding at April 30, 1994.................... 3,048 $100.00 to $725.00
Expired or forfeited........................... (1,902) $100.00 to $725.00
-------- ------------------
Outstanding at April 30, 1995.................... 1,146 $100.00 to $725.00
======== ==================
</TABLE>
At April 30, 1995, 1,146 options (after effect of reverse stock split) were
exercisable. Options to purchase 2,354 shares were available for grant at
April 30, 1995.
The Stock Bonus Plan provides that any key employee of the Company is
eligible to be granted a stock bonus. The stock bonus will be determined by
the stock bonus committee in its sole discretion. The plan covers 50 shares
(after effect of reverse stock split) of the Company's unissued common stock.
The former Chairman of the Board has a stock appreciation right with respect
to 500 shares (after effect of reverse stock split) of common stock under
which he could receive cash equal to the difference between the market value
of the stock on the date of grant ($62.50, as adjusted for effect of reverse
stock split) and on the date the right is exercised. The right became vested
in February 1992 and is exercisable for four years thereafter.
Following is a summary of common stock reserved for future issuance:
<TABLE>
<CAPTION>
APRIL 30,
-----------
1994 1995
----- -----
<S> <C> <C>
The Amended and Restated 1989 Stock Option Plan..................... 3,500 3,500
The Stock Bonus Plan for Key Employees.............................. 3,747 3,747
----- -----
7,247 7,247
===== =====
</TABLE>
NOTE 12--OPERATIONS
Major customers
Sales to a major customer in the Precision Machining and Assembly segment
aggregated 22%, 15% and 17% for the years ended April 30, 1993, 1994 and 1995.
In addition, sales to another customer in the optical systems segment
aggregated 15% in 1995. Accounts receivable from these two customers were $623
and $538, respectively at April 30, 1995.
F-43
<PAGE>
PRECISION AEROTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Termination payments
During the year ended April 30, 1994, the Company recognized $3,540 in
settlement revenue including gross profit of $1,989 on contracts terminated by
customers for convenience.
NOTE 13. EMPLOYEE BENEFIT PLANS
The Company's subsidiaries maintain various defined contribution employee
benefit plans covering substantially all employees. These plans include
primarily a salary deferred plan under Section 401(k). There are no minimum
funding requirements for any plans and contributions to the plans are
discretionary. Amounts charged to operations pursuant to such plans were $298,
$358 and $214, during the years ended April 30, 1993, 1994 and 1995,
respectively.
NOTE 14--DISPOSAL OF SUBSIDIARIES
The Company decided to terminate operations at its Coast Aerotech, Inc.
(Coast) subsidiary effective as of February 1, 1993. Coast was included in the
Precision Machining and Assembly segment and was an assembler of welded tube
and duct assemblies, hose and bellows components and dip brazing. Coast's
sales for the year ended April 30, 1993 were $5,784. At April 30, 1993, the
Company recorded a provision for disposition in the amount of $2,165 for costs
estimated to be incurred prior to Coast's disposition. During the year ended
April 30, 1994 it was determined that the provision for disposition recorded
April 30, 1994 was in excess of the costs to discontinue the operations of
Coast. As a result, $378 is included as income on disposal of subsidiaries for
the year ended April 30, 1994. During 1995 Coast collected an additional $97
from a customer for payment for intellectual property. This amount is shown as
income on disposal of subsidiaries for the year ended April 30, 1995.
During 1991, the Company decided to liquidate its Aero Technologies, Inc.
(Aero) subsidiary and all of its machinery and equipment was auctioned with
the proceeds used to pay off existing obligations. The land and building were
offered for sale and a provision for anticipated losses was recorded which
included an amount to reduce the carrying value to an expected net realizable
value of $200. During the year ended April 30, 1994, the Company decided to
utilize the Aero land and buildings as a manufacturing facility and,
therefore, were reclassified at April 30, 1994 to property, plant and
equipment of the Precision Machining and Assembly segment. The facility has
been revalued at an economic use amount rather than the net realizable value
used at April 30, 1994. This change in value along with completion of the
other phase-out costs resulted in a gain from discontinued operations in the
amount of $175 for the year ended April 30, 1994.
NOTE 15--CONTINGENCIES
The Company has been identified as one of many potentially responsible
parties (PRP's) for cleanup at a Government licensed, third party waste
disposal site and, separately at a plant site sold by one of the subsidiaries
12 years prior to Precision Aerotech, Inc.'s ownership.
In the first matter, the Environmental Protection Agency (EPA) has notified
the Company, along with many other parties, that it is potentially liable for
costs related to removal of materials and remediation of damage that may have
been caused by hazardous substances at a licensed third-party waste disposal
site. Management intends to respond by cooperating with all EPA requests. The
EPA has notified the Company that it has completed the cleanup of the site at
a cost of $4,721 and has made a demand seeking payment. The EPA is currently
negotiating a potential global settlement agreement with the PRP's. However,
if a global settlement is not achieved, the EPA reserves the right to
determine an allocation formula and tender prorated settlement offers on a
take-it or leave-it basis. Based on information provided by the EPA,
management has estimated the future liability for the
F-44
<PAGE>
PRECISION AEROTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Company's portion of the cleanup to be no more than approximately $75. The
estimate is based on the current EPA calculation of the Company's proportional
share of responsibility based on the ratio of the Company's gallonage at the
site compared to the total gallonage of all PRP's. Joint and several
liabilities among the PRP's can be imposed. Joint and several liability means
that any one party could theoretically be liable for the entire cleanup. In
light of the large number of PRP's, the Company believes this is highly
unlikely. However, the large number of PRP's does not change the maximum
theoretical exposure of joint and several liabilities. It was also hoped that
the site insurance carrier would be obligated to contribute to the cleanup
costs. To date, there has been no contribution by the insurance carrier and it
is unlikely that any such contribution will occur. Management's estimate of
the future liability does not include any assumed amounts to be recovered from
the insurance carrier.
In the second matter, during the process of selling the property, the
current owner of the plant site has made various assertions regarding
environmental contamination at the site and the potential it may incur
significant remediation costs. No litigation has been brought against the
Company. Management denies that it is liable for any potential contamination
at the site, which was never occupied or used during Precision Aerotech, Inc.
ownership, and intends to vigorously contest any claims related thereto. The
Company's legal counsel is unable to assess the extent of the Company's
exposure or form a judgment as to the likelihood of an unfavorable outcome in
this matter, if any, until further documentation and more complete factual
allegations are provided.
The Company is also subject to lawsuits and claims which arise out of the
normal course of business. In the opinion of management, based upon the
opinions of legal counsel, the disposition of such actions of which it is
aware will not have a material effect on the consolidated financial position,
results of operations or liquidity of the Company.
NOTE 16--BUSINESS SEGMENTS
Precision Aerotech, Inc. currently consists of two operating segments. The
Precision Machining and Assembly segment include the following areas of
activity: (i) precision machining, assembly, bending, metal forming, spinning
and joining of military and commercial aircraft parts, integration of parts
into complex mechanical and electrical assemblies for aircraft; and (ii) ultra
precision machining and the machining of exotic and difficult materials used
in static and dynamic structures in airborne vehicle space systems. The
Optical Systems segment designs, assembles, manufactures and services optical
systems which are used in reprographics, communications and defense
applications.
F-45
<PAGE>
PRECISION AEROTECH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
A summary of information about the Company's operations by segment are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
--------------------------
1993 1994 1995
-------- ------- -------
<S> <C> <C> <C>
NET SALES:
Precision Machining and Assembly
Unaffiliated Customers............................ $ 38,244 $27,488 $24,459
Intersegment...................................... 624 1,092 1,213
Optical Systems
Unaffiliated Customers............................ 9,358 9,040 11,347
Intersegment...................................... 417 384 408
Less Intersegment Sales............................. (1,041) (1,476) (1,621)
-------- ------- -------
TOTAL NET SALES................................. $ 47,602 $36,528 $35,806
======== ======= =======
OPERATING INCOME (LOSS)(a):
Precision Machining and Assembly(b)
Unaffiliated Customers............................ $(13,273) $ 1,399 $ 650
Intersegment...................................... 28 -- (21)
Optical Systems..................................... --
Unaffiliated Customers............................ 226 290 1,144
Intersegment...................................... 76 32 24
-------- ------- -------
TOTAL OPERATING INCOME.......................... $(12,943) $ 1,721 $ 1,797
======== ======= =======
ASSETS(c):
Precision Machining and Assembly(b)................. $ 24,494 $15,417 $17,249
Optical Systems..................................... 7,861 4,484 4,465
Corporate Assets.................................... 3,584 1,451 1,564
Assets of Discontinued Operations................... 265 -- --
-------- ------- -------
TOTAL ASSETS.................................... $ 36,204 $21,352 $23,278
======== ======= =======
DEPRECIATION AND AMORTIZATION:
Precision Machining and Assembly(b)................. $ 11,552 $ 2,168 $ 1,903
Optical Systems..................................... 433 634 458
-------- ------- -------
TOTAL DEPRECIATION AND AMORTIZATION............. $ 11,985 $ 2,802 $ 2,361
======== ======= =======
CAPITAL EXPENDITURES:
Precision Machining and Assembly.................... $ 1,397 $ 528 $ 1,847
Optical Systems..................................... 531 164 392
-------- ------- -------
TOTAL CAPITAL EXPENDITURES...................... $ 1,928 $ 692 $ 2,239
======== ======= =======
</TABLE>
- --------
(a) Reflected in operating loss for the year ended April 30, 1993 are costs
associated with the Corporate debt restructuring activities. These costs
as allocated amounted to $1,500 to the Precision Machining and Assembly
Segment and $400 to the Optical Systems Segment.
(b) During the year ended April 30, 1993, an impairment in excess of cost over
fair value of purchased subsidiaries, in the amount of $8,995 was charged
to operations (see Note 5).
(c) In connection with the comprehensive restructuring accomplished in 1994,
the Company implemented a quasi-reorganization and as a result recorded a
charge of approximately $7,378 to accumulated deficit to eliminate the
remaining unamortized value of the excess of cost over fair value of
purchased subsidiaries (see Note 7).
F-46
<PAGE>
PRECISION AEROTECH, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
1995 1996
--------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash.................................................. $ 240 $ --
Accounts receivable, net.............................. 4,664 5,500
Inventories........................................... 7,700 9,057
Deferred tax assets................................... 961 1,003
Prepaid expenses and other current assets............. 103 127
------- -------
TOTAL CURRENT ASSETS................................ 13,668 15,687
NET PROPERTY, PLANT & EQUIPMENT......................... 9,535 9,576
OTHER NON-CURRENT ASSETS................................ 75 39
------- -------
TOTAL ASSETS........................................ $23,278 $25,302
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable...................................... $ 3,130 $ 4,272
Income taxes payable.................................. 235 654
Current portion of long-term debt and capital lease
obligation 1,227 1,455
Accrued expenses...................................... 3,370 3,013
------- -------
TOTAL CURRENT LIABILITIES........................... 7,962 9,394
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS, less
current portion........................................ 13,690 13,506
DEFERRED TAX LIABILITIES................................ 820 659
SHAREHOLDERS' EQUITY:
COMMON STOCK............................................ 8 8
ADDITIONAL PAID-IN CAPITAL.............................. 735 735
RETAINED EARNINGS since May 1, 1994 ($15,927 accumulated
deficit eliminated in quasi-reorganization)............ 63 1,000
------- -------
TOTAL SHAREHOLDERS' EQUITY.......................... 806 1,743
------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.......... $23,278 $25,302
======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-47
<PAGE>
PRECISION AEROTECH, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS--(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
NET SALES................................................... $ 25,134 $ 32,819
Cost of sales............................................... 19,582 24,484
-------- --------
GROSS PROFIT................................................ 5,552 8,335
Selling, general and administrative expenses................ 4,970 5,587
(Income) on disposal of subsidiary.......................... (97) --
-------- --------
OPERATING INCOME............................................ 679 2,748
Interest expense............................................ (1,288) (1,201)
Other income (expense), net................................. 27 16
-------- --------
TOTAL OTHER EXPENSE......................................... (1,261) (1,185)
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES........................... (582) 1,563
INCOME TAX EXPENSE.......................................... 19 626
-------- --------
NET INCOME (LOSS)........................................... $ (601) $ 937
======== ========
EARNINGS (LOSS) PER SHARE................................... $ (.76) $ 1.19
======== ========
Weighted average number of common shares outstanding........ 789,250 789,250
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-48
<PAGE>
PRECISION AEROTECH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOW--(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
JANUARY 31,
------------------
1995 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)......................................... $ (601) $ 937
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization of property, plant and
equipment............................................. 1,781 1,802
Deferred income taxes.................................. -- (203)
Provision for losses on inventory...................... 27 (104)
Loss on disposal of assets............................. 2 --
Decrease (increase) in accounts receivable............. (54) (836)
Decrease (increase) in inventories..................... (434) (1,253)
Decrease (increase) in prepaid expenses and other
current assets........................................ (75) (24)
Decrease (increase) in non-current assets.............. (45) 36
Increases (decrease) in accounts payable............... 1,235 796
Increases (decrease) in accrued expenses............... 219 (357)
Increases (decrease) in income taxes payable........... -- 419
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 2,055 1,213
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures................................... (584) (554)
Proceeds from disposal of assets....................... 1 --
-------- --------
NET CASH (USED IN) INVESTING ACTIVITIES.............. (583) (554)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on long-term debt........................... 3,828 6,300
Principal payments on long-term debt and capital lease
obligations........................................... (5,794) (7,545)
Outstanding checks in excess of available cash
balances.............................................. -- 346
-------- --------
NET CASH (USED IN) FINANCING ACTIVITIES.............. (1,966) (899)
-------- --------
NET (DECREASE) IN CASH............................... (494) (240)
CASH AT BEGINNING OF PERIOD................................ 711 240
-------- --------
CASH AT END OF PERIOD...................................... $ 217 $ --
======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for:
Interest................................................ $ 1,288 $ 1,201
Income taxes............................................ -- 423
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Capital equipment acquired under capital leases............ 1,222 1,289
</TABLE>
See accompanying notes to consolidated condensed financial statements.
F-49
<PAGE>
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
JANUARY 31, 1996
(DOLLARS IN THOUSANDS)
NOTE A--INTERIM FINANCIAL STATEMENTS
The preceding interim consolidated condensed financial statements
("statements") should be read in conjunction with the Registrant's audited
financial statements for the year ended April 30, 1995.
The preceding statements reflect all adjustments which are, in the opinion
of management, necessary for a fair statement of financial position at January
31, 1996 and the results of operations for the period then ended. All
adjustments are of a normal recurring nature. The financial statements have
not been audited or reviewed.
NOTE B--BACKLOG
Backlog of unfilled orders for which contractual commitments have been
received as of January 31, 1996 was $32,600.
F-50
<PAGE>
PRODUCTS AND CAPABILITIES
OPTICS
Pictures with title description: the reflective front surface and the light-
weighted back of a beryllium mirror used for an electro-optic sensor system,
accompanied by the following additional language: designs and manufactures
precision metal optics, fabricated from either beryllium or aluminum, for use
as rotary monogons and polygons, as well as fold, head and aspheric mirrors,
using sophisticated processing equipment
PRECISION MACHINING SERVICES
Picture with title description: a machinist measuring a product that has just
been machined described as microprecision machining of an inertial measurement
unit, accompanied by the following additional language: machines large and
complex structures from specialty materials such as beryllium and quartz, to a
tolerance of 0.025 microns in multiple axes
ELECTRONICS
Picture with title description: laser interferometers and optical encoder,
accompanied by the following additional language: designs and manufactures
opto-electronic sensors such as encoders and laser interferometers, as well as
high-performance motor drives, speed and position controllers
MAGNETICS
Picture with title description: assortment of high-performance motors,
accompanied by the following additional language: designs and manufactures
high-performance AC, brush and brushless DC motors and precision resolvers
using state-of-the-art magnetic designs and technologies
SYSTEMS INTEGRATION
Picture with title description: a large area flat panel electrical prober,
accompanied by the following additional language: integrates motion control
components and subsystems into higher-level systems, which incorporate machine
vision, robotic material handling and precision linear and rotary actuation
BEARINGS & CONNECTORS
Picture with title description: precision ball bearings and connectors,
accompanied by the following additional language: designs and manufactures
terminal blocks and connectors and distributes precision ball bearings and
value-added services [Company Logo here]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this of-
fering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been au-
thorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securities
other than the shares of Common Stock to which it relates or an offer to, or a
solicitation of, any person in any jurisdiction where such an offer or solici-
tation would be unlawful. Neither the delivery of this Prospectus nor any sale
made hereunder shall, under any circumstances, create any implication that
there has been no change in the affairs of the Company or that information
herein is correct as of any time subsequent to the date hereof.
-----------------
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 12
Price Range of Common Stock.............................................. 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Consolidated Financial Data..................................... 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 27
Management............................................................... 37
Certain Transactions..................................................... 44
Principal and Selling Shareholders....................................... 46
Description of Capital Stock............................................. 48
Shares Eligible for Future Sale.......................................... 52
Underwriting............................................................. 54
Legal Matters............................................................ 55
Experts.................................................................. 55
Available Information.................................................... 56
Glossary of Terms........................................................ 57
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,528,550 SHARES
[LOGO]AXSYS
COMMON STOCK
---------------
PROSPECTUS
---------------
NationsBanc Montgomery Securities, Inc.
Furman Selz
Oppenheimer & Co., Inc.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The Company estimates that expenses in connection with the issuance and
distribution of the securities being registered hereby will be as follows:
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 18,277.47
Nasdaq National Market Additional Listing Fee............... 17,500.00
NASD Filing Fee............................................. 6,531.57
Transfer Agent and Registrar Fee and Expenses............... 5,000.00
Legal Fees and Expenses..................................... 400,000.00
Accounting Fees and Expenses................................ 115,000.00
Blue Sky Fees and Expenses.................................. 8,000.00
Printing Expenses........................................... 80,000.00
Miscellaneous............................................... 9,690.96
-----------
Total................................................... $660,000.00*
===========
</TABLE>
--------
* Of this amount approximately $200,000.00 is anticipated to be
reimbursed by the Selling Shareholder, with the remainder to be
paid by the Company.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company, as a Delaware corporation, is empowered by Section 145 of the
DGCL, subject to the procedures and limitations stated therein, to indemnify
any person against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with any threatened, pending or completed action, suit or
proceeding in which such person is made or threatened to be made a party by
reason of his being or having been a director, officer, employee or agent of
the Company. The DGCL provides that indemnification pursuant to its provisions
is not exclusive of other rights of indemnification to which a person may be
entitled under any by-law, agreement, vote of shareholders or disinterested
directors, or otherwise.
Section 7 of the Certificate of Incorporation, provides that a director will
not be personally liable to the Company or its shareholders for monetary
damages for breach of fiduciary duty as a director, except for liability (i)
for any breach of the director's duty of loyalty to the Company or its
shareholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Section 174
of the DGCL, which concerns unlawful payments of dividends, stock purchases or
redemptions, or (iv) for any transaction from which the director derived an
improper personal benefit. If the DGCL is subsequently amended to permit
further elimination or limitation of the personal liability of directors, the
liability of a director of the Company will be eliminated or limited to the
fullest extent permitted by the DGCL as amended.
The Certificate of Incorporation provides that each person who is involved
in any actual or threatened action, suit or proceeding, whether civil,
criminal, administrative or investigative (whether or not by or in the right
of the Company) by reason of the fact that he or she is or was a director,
officer, incorporator, employee or agent of the Company or is or was serving
at the request of the Company as a director, officer, incorporator, employee,
or agent of another corporation or of a partnership, joint venture, trust or
other enterprise, including service with respect to an employee benefit plan,
will be indemnified by the Company to the full extent permitted by the DGCL,
against expenses (including attorneys' fees), judgments, fines (including
excise taxes assessed on a person with respect to an employee benefit plan),
and amounts paid in settlement incurred by him in connection with such action,
suit, or proceeding. Such right of indemnification shall continue as to a
person who has ceased to be a director, officer, incorporator, employee, or
agent and shall inure to the benefit of the heirs and personal representatives
of such a person. The indemnification rights conferred by the Certificate of
Incorporation are not exclusive of any other right to which a person seeking
indemnification may be entitled under any law, by-law, agreement, vote of
shareholders or disinterested directors or otherwise. The Company is
authorized to purchase and maintain (and the Company expects to maintain)
insurance on behalf of its directors or officers.
II-1
<PAGE>
In addition, the Company has entered into indemnification agreements (the
"Indemnification Agreements") with each of its directors and officers. The
Indemnification Agreements (i) confirm to officers and directors the
indemnification provided to them in the Certificate of Incorporation, (ii)
provide officers and directors with procedural protections in the event that
they are sued in their capacity as director or officer and (iii) provide
additional indemnification rights.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Act"), may be permitted to directors, officers and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the registrant of expenses incurred or paid by a director, officer
or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication
of such issue.
The Registrant maintains a directors' and officers' insurance policy. Such
policy provides for coverage of up to $10,000,000.
Reference is made to Section 8 of the Underwriting Agreement, the form of
which is filed as Exhibit 1(1), in which the Underwriters agree to indemnify
the directors and officers of the registrant and certain other persons,
against civil liabilities, including certain liabilities under the Act.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since September 1, 1994, the Registrant issued and sold unregistered
securities in the following transactions:
Until February 22, 1996, the Company had been paying dividends on its then
outstanding $1.20 Cumulative Exchangeable Redeemable Preferred Stock (the
"Preferred Stock") through the issuance of additional shares of Preferred
Stock. Such issuances were exempt from registration under the Act as they did
not involve a "sale" or "offer to sell" within the meaning of Section 2(a)(3)
of the Act.
On April 25, 1996, the Company issued three warrants to purchase an
aggregate of 1,542,700 shares of Common Stock. After giving effect to the
Company's one-for-five reverse stock split, the number of shares of Common
Stock issuable upon exercise of such warrants is 308,540. The issuance was
exempt from registration under the Act pursuant to Section 4(2) thereof. Each
recipient represented that its warrant was acquired for its own account for
investment without any intent to make a public distribution thereof in
violation of the securities laws. See "Description of Capital Stock--
Warrants."
In March 1997, the Company completed an offer to exchange 0.75 shares of
Common Stock for each outstanding share of Preferred Stock. The Company issued
403,460 shares of Common Stock in exchange for 538,008 shares of Preferred
Stock. Such issuance of Common Stock was exempt from registration under the
Act pursuant to Section 3(a)(9) thereof.
On May 30, 1997, the Company completed the acquisition of Teletrac for a
purchase price of approximately $9.9 million, including the issuance of
153,000 shares of Common Stock, 53,000 of which were issued at the closing,
and 100,000 of which are issuable pursuant to the terms of the Stockholder
Agreement. The issuance was exempt from registration under the Act pursuant to
Section 4(2) thereof. Each recipient represented that it was an "accredited
investor" as such term is defined in Regulation D under the Act.
Since January 1, 1995, the Company has issued an aggregate of 73,271 shares
of Common Stock under its 401(k) Plan as the Company's matching contribution.
Such issuances were exempt from registration under the Act as they did not
involve a "sale" or "offer to sell" within the meaning of Section 2(a)(3) of
the Act.
No underwriter was employed by the Registrant in connection with the
issuance and sale of the securities described above.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
*1(1) Form of Underwriting Agreement.
3(1) Certificate of Incorporation of the Company (filed as Exhibit 1 to
the Company's Form 8-A, dated August 8, 1991 (the "Form 8-A") and
incorporated herein by reference).
3(2) Amendment to Certificate of Incorporation (filed as Exhibit 3 to the
Company's Form 10-QA-1 for the fiscal quarter ended September 30,
1996 (the "September 30, 1996 Form 10-Q") and incorporated herein
by reference).
3(3) Amendment to Certificate of Incorporation (filed as Exhibit 3(i) to
the Company's Form 8-K dated December 23, 1996 (the "December 23,
1996 Form 8-K") and incorporated herein by reference).
*3(4) Restated Certificate of Incorporation of the Company.
3(5) By-Laws of the Company (filed as Exhibit 2 to the Form 8-A and
incorporated herein by reference).
4(1) Warrant, dated as of July 20, 1994, granted by the Company in favor
of The CIT Group/Credit Finance, Inc. (filed as Exhibit 10(9) to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1994 and incorporated herein by reference)
(superseded by Exhibit 4(7)).
4(2) Warrant, dated April 25, 1996, granted by the Company in favor of
Banque Paribas (filed as Exhibit 4.1 to the May 7, 1996 Form 8-K
and incorporated herein by reference).
4(3) Warrant, dated April 25, 1996, granted by the Company in favor of
Paribas Principal, Inc. (filed as Exhibit 4.2 to the May 7, 1996
Form 8-K and incorporated herein by reference).
4(4) Warrant, dated April 25, 1996, granted by the Company in favor of
DLJ First ESC L.L.C. (filed as Exhibit 4(8) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1996 and
incorporated herein by reference).
4(5) Warrant Purchase Agreement, dated April 25, 1996, between the
Company, Paribas Principal, Inc. and Banque Paribas (filed as
Exhibit 4.3 to the May 7, 1996 Form 8-K and incorporated herein by
reference).
4(6) Stockholder Agreement, dated as of May 30, 1997, by and between the
Company and David Barker, Richard Howitt, William Hurst, William
Kingsbury and Barton Norton.
*4(7) Warrant, dated as of October 15, 1997, granted by the Company in
favor of The CIT Group/CrF Securities Investment, Inc.
*5(1) Opinion of Fried, Frank, Harris, Shriver & Jacobson as to legality
of the securities registered hereunder.
10(1) Indenture of Trust by and between the Industrial Development
Authority of the State of New Hampshire and Laconia Peoples
National Bank and Trust Company for $3,000,000 principal amount of
Industrial Development Authority of the State of New Hampshire
Floating Rate Monthly Demand Industry Facility Bonds (filed as
Exhibit 10(18) to the Company's Annual Report on Form 10-K for the
fiscal year ended December 28, 1985 (the "1985 Form 10-K") and
incorporated herein by reference).
10(2) Loan Agreement by and among the Industrial Development Authority of
the State of New Hampshire, the Company and V Land Corporation for
$3,000,000 principal amount of Industrial Development Authority of
the State of New Hampshire Floating Rate Monthly Demand Industry
Facility Bonds (filed as Exhibit 10(19) to the 1985 Form 10-K and
incorporated herein by reference).
10(3) Credit Agreement, dated April 25, 1996, between the Company, various
banks named therein and Banque Paribas, as Agent (filed as Exhibit
10.1 to the Company's Form 8-K, dated May 7, 1996 (the "May 7, 1996
Form 8-K") and incorporated herein by reference).
10(4) Security Agreement, dated April 25, 1996, between the Company,
various subsidiaries of the Company and Banque Paribas, as
Collateral Agent (filed as Exhibit 10.2 to the May 7, 1996 Form 8-K
and incorporated herein by reference).
10(5) Pledge Agreement, dated April 25, 1996, between the Company, various
subsidiaries of the Company and Banque Paribas as Collateral Agent
(filed as Exhibit 10.3 to the May 7, 1996 Form 8-K and incorporated
herein by reference).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
10(6) Subsidiaries Guaranty, dated April 25, 1996, by various
subsidiaries of the Company (filed as Exhibit 10.4 to the May 7,
1996 Form 8-K and incorporated herein by reference).
10(7) First Amendment to Credit Agreement (filed as Exhibit 10 to the
September 30, 1996 Form 10-Q and incorporated herein by
reference).
10(8) Second Amendment to Credit Agreement (filed as Exhibit 10 to the
Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended June 30, 1997 (the "June 30, 1997 Form 10-Q") and
incorporated herein by reference).
10(9) Third Amendment to Credit Agreement (filed as Exhibit 10 to the
June 30, 1997 Form 10-Q and incorporated herein by reference).
*10(10) Fourth Amendment to Credit Agreement.
10(11) Stock Purchase Agreement by and between the Company, Teletrac, Inc.
and David Barker, Richard Howitt, William Hurst, William
Kingsbury, Barton Norton, John Van Dyke and Mary Erdahl (filed as
Exhibit 2 to the Company's Form 8-K, dated May 30, 1997 and
incorporated herein by reference).
10(12) Agreement and Plan of Merger, dated as of February 16, 1996,
between the Company, PA Acquisition Corporation and Precision
Aerotech, Inc. (filed as Exhibit 10(40) to Company's Form 10-K for
the fiscal year-ended December 31, 1995 and incorporated herein by
reference).
10(13) Stock Purchase Agreement, dated as of November 26, 1996, as amended
December 11, 1996, between the Company, Precision Aerotech, Inc.,
Tru-Circle Corporation and Tru-Circle Manufacturing, Inc. (filed
as Exhibit 2 to the December 23, 1996 Form 8-K and incorporated
herein by reference).
10(14) Form of Indemnification Agreement (filed as Exhibit 10(16) to the
Company's Form 10-K for the fiscal year ended December 30, 1990
(the "1990 Form 10-K") and incorporated herein by reference).
10(15) Severance Agreement between the Company and Mr. Kunzmann dated as
of June 10, 1996.
10(16) Severance Agreement between the Company and Mr. Stern dated as of
June 10, 1996.
10(17) Vernitron Corporation Long-Term Stock Incentive Plan (superseded by
Exhibit 10(29)).
10(18) Employment Agreement between Richard Howitt and Teletrac, dated as
of May 30, 1997.
10(19) Non-Competition Agreement between Richard Howitt and the Company,
dated as of May 30, 1997.
10(20) Form of Stock Option Agreement, dated as of September 30, 1991
(filed as Exhibit 10(17) to the Company's Annual Report on Form
10-K for the fiscal year ended December 30, 1991 and incorporated
herein by reference).
10(21) Teletrac, Inc. Management Incentive Compensation Plan.
10(22) Summary of Annual Incentive Plan.
*10(23) Supplemental Revenue Growth Incentive Plan.
10(24) Assumption Agreement, dated as of May 30, 1997, made by Teletrac,
Inc.
*10(25) Fifth Amendment to Credit Agreement.
*10(26) Form of Warrant Repurchase Agreement with The CIT Group/CrF
Securities Investment, Inc.
*10(27) Form of Warrant Repurchase Agreement with Banque Paribas and
Paribas Principal, Inc.
*10(28) Form of Warrant Repurchase Agreement with DLJ First ESC L.L.C.
10(29) Axsys Technologies, Inc. Long-Term Stock Incentive Plan (filed as
Exhibit C to the Company's Proxy Statement dated September 23,
1997 and incorporated herein by reference).
*10(30) Letter Agreement by and between the Company and Lehman Electric
Inc. relating to the payment of expenses.
21(1) Subsidiaries of the Registrant.
*23(1) Consent of Arthur Andersen LLP.
*23(2) Consent of Arthur Andersen LLP.
*23(3) Consent of McGladrey & Pullen, LLP.
*23(4) Consent of Fried, Frank, Harris, Shriver & Jacobson (included in
Exhibit 5(1) hereto).
24(1) Power of Attorney (included on signature page in original filing).
</TABLE>
- --------
*Filed herewith (all other Exhibits were previously filed).
II-4
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES.
All the schedules are omitted because they are not required, are not
applicable or the information is included in the consolidated financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
See Item 14 for the undertaking with respect to indemnification.
II-5
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED, THE
REGISTRANT HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE
SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN NEW
YORK, NEW YORK ON THIS 17TH DAY OF OCTOBER, 1997.
Axsys Technologies, Inc.
/s/ Stephen W. Bershad
By: _________________________________
STEPHEN W. BERSHAD,
CHAIRMAN OF THE BOARD AND CHIEF
EXECUTIVE OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
SIGNATURE TITLE DATE
/s/ Stephen W. Bershad Chairman of the
- ------------------------------------- Board, Chief October 17,
STEPHEN W. BERSHAD Executive Officer 1997
and Director
(Principal
Executive Officer)
/s/ Raymond F. Kunzmann Vice President--
- ------------------------------------- Finance and Chief October 17,
RAYMOND F. KUNZMANN Financial Officer 1997
(Principal
Financial and
Accounting Officer)
* Director
- ------------------------------------- October 17,
ANTHONY J. FIORELLI, JR. 1997
* Director
- ------------------------------------- October 17,
ELIOT M. FRIED 1997
* Director
- ------------------------------------- October 17,
RICHARD V. HOWITT 1997
/s/ Raymond F. Kunzmann
*By: ________________________________
RAYMOND F. KUNZMANN
ATTORNEY-IN-FACT
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
NUMBER DESCRIPTION NO.
------ ----------- ----
<C> <S> <C>
*1(1) Form of Underwriting Agreement.
3(1) Certificate of Incorporation of the Company (filed as Exhibit
1 to the Company's Form
8-A, dated August 8, 1991 (the "Form 8-A") and incorporated
herein by reference).
3(2) Amendment to Certificate of Incorporation (filed as Exhibit 3
to the Company's Form
10-QA-1 for the fiscal quarter ended September 30, 1996 (the
"September 30, 1996 Form 10-Q") and incorporated herein by
reference).
3(3) Amendment to Certificate of Incorporation (filed as Exhibit
3(i) to the Company's Form
8-K dated December 23, 1996 (the "December 23, 1996 Form 8-
K") and incorporated herein by reference).
*3(4) Restated Certificate of Incorporation of the Company.
3(5) By-Laws of the Company (filed as Exhibit 2 to the Form 8-A and
incorporated herein by reference).
4(1) Warrant, dated as of July 20, 1994, granted by the Company in
favor of The CIT Group/Credit Finance, Inc. (filed as Exhibit
10(9) to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1994 and incorporated herein by
reference) (superseded by Exhibit 4(7)).
4(2) Warrant, dated April 25, 1996, granted by the Company in favor
of Banque Paribas (filed as Exhibit 4.1 to the May 7, 1996
Form 8-K and incorporated herein by reference).
4(3) Warrant, dated April 25, 1996, granted by the Company in favor
of Paribas Principal, Inc. (filed as Exhibit 4.2 to the May
7, 1996 Form 8-K and incorporated herein by reference).
4(4) Warrant, dated April 25, 1996, granted by the Company in favor
of DLJ First ESC L.L.C. (filed as Exhibit 4(8) to the
Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996 and incorporated herein by
reference).
4(5) Warrant Purchase Agreement, dated April 25, 1996, between the
Company, Paribas Principal, Inc. and Banque Paribas (filed as
Exhibit 4.3 to the May 7, 1996 Form 8-K and incorporated
herein by reference).
4(6) Stockholder Agreement, dated as of May 30, 1997, by and
between the Company and David Barker, Richard Howitt, William
Hurst, William Kingsbury and Barton Norton.
*4(7) Warrant, dated as of October 15, 1997, granted by the Company
in favor of The CIT Group/CrF Securities Investment, Inc.
*5(1) Opinion of Fried, Frank, Harris, Shriver & Jacobson as to
legality of the securities registered hereunder.
10(1) Indenture of Trust by and between the Industrial Development
Authority of the State of New Hampshire and Laconia Peoples
National Bank and Trust Company for $3,000,000 principal
amount of Industrial Development Authority of the State of
New Hampshire Floating Rate Monthly Demand Industry Facility
Bonds (filed as Exhibit 10(18) to the Company's Annual Report
on Form 10-K for the fiscal year ended December 28, 1985 (the
"1985 Form 10-K") and incorporated herein by reference).
10(2) Loan Agreement by and among the Industrial Development
Authority of the State of New Hampshire, the Company and V
Land Corporation for $3,000,000 principal amount of
Industrial Development Authority of the State of New
Hampshire Floating Rate Monthly Demand Industry Facility
Bonds (filed as Exhibit 10(19) to the 1985 Form 10-K and
incorporated herein by reference).
10(3) Credit Agreement, dated April 25, 1996, between the Company,
various banks named therein and Banque Paribas, as Agent
(filed as Exhibit 10.1 to the Company's Form
8-K, dated May 7, 1996 (the "May 7, 1996 Form 8-K") and
incorporated herein by reference).
10(4) Security Agreement, dated April 25, 1996, between the Company,
various subsidiaries of the Company and Banque Paribas, as
Collateral Agent (filed as Exhibit 10.2 to the May 7, 1996
Form 8-K and incorporated herein by reference).
10(5) Pledge Agreement, dated April 25, 1996, between the Company,
various subsidiaries of the Company and Banque Paribas as
Collateral Agent (filed as Exhibit 10.3 to the May 7, 1996
Form 8-K and incorporated herein by reference).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PAGE
NUMBER DESCRIPTION NO.
------ ----------- ----
<C> <S> <C>
10(6) Subsidiaries Guaranty, dated April 25, 1996, by various
subsidiaries of the Company (filed as Exhibit 10.4 to the
May 7, 1996 Form 8-K and incorporated herein by reference).
10(7) First Amendment to Credit Agreement (filed as Exhibit 10 to
the September 30, 1996 Form 10-Q and incorporated herein by
reference).
10(8) Second Amendment to Credit Agreement (filed as Exhibit 10 to
the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1997 (the "June 30, 1997 Form 10-Q")
and incorporated herein by reference).
10(9) Third Amendment to Credit Agreement (filed as Exhibit 10 to
the June 30, 1997 Form 10-Q and incorporated herein by
reference).
*10(10) Fourth Amendment to Credit Agreement.
10(11) Stock Purchase Agreement by and between the Company,
Teletrac, Inc. and David Barker, Richard Howitt, William
Hurst, William Kingsbury, Barton Norton, John Van Dyke and
Mary Erdahl (filed as Exhibit 2 to the Company's Form 8-K,
dated May 30, 1997 and incorporated herein by reference).
10(12) Agreement and Plan of Merger, dated as of February 16, 1996,
between the Company, PA Acquisition Corporation and
Precision Aerotech, Inc. (filed as Exhibit 10(40) to
Company's Form 10-K for the fiscal year-ended December 31,
1995 and incorporated herein by reference).
10(13) Stock Purchase Agreement, dated as of November 26, 1996, as
amended December 11, 1996, between the Company, Precision
Aerotech, Inc., Tru-Circle Corporation and Tru-Circle
Manufacturing, Inc. (filed as Exhibit 2 to the December 23,
1996 Form 8-K and incorporated herein by reference).
10(14) Form of Indemnification Agreement (filed as Exhibit 10(16)
to the Company's Form 10-K for the fiscal year ended
December 30, 1990 (the "1990 Form 10-K") and incorporated
herein by reference).
10(15) Severance Agreement between the Company and Mr. Kunzmann
dated as of June 10, 1996.
10(16) Severance Agreement between the Company and Mr. Stern dated
as of June 10, 1996.
10(17) Vernitron Corporation Long-Term Stock Incentive Plan
(superseded by Exhibit 10(29)).
10(18) Employment Agreement between Richard Howitt and Teletrac,
dated as of May 30, 1997.
10(19) Non-Competition Agreement between Richard Howitt and the
Company, dated as of May 30, 1997.
10(20) Form of Stock Option Agreement, dated as of September 30,
1991 (filed as Exhibit 10(17) to the Company's Annual
Report on Form 10-K for the fiscal year ended December 30,
1991 and incorporated herein by reference).
10(21) Teletrac, Inc. Management Incentive Compensation Plan.
10(22) Summary of Annual Incentive Plan.
*10(23) Supplemental Revenue Growth Incentive Plan.
10(24) Assumption Agreement, dated as of May 30, 1997, made by
Teletrac, Inc.
*10(25) Fifth Amendment to Credit Agreement.
*10(26) Form of Warrant Repurchase Agreement with The CIT Group/CrF
Securities Investment, Inc.
*10(27) Form of Warrant Repurchase Agreement with Banque Paribas and
Paribas Principal, Inc.
*10(28) Form of Warrant Repurchase Agreement with DLJ First ESC
L.L.C.
10(29) Axsys Technologies, Inc. Long-Term Stock Incentive Plan
(filed as Exhibit C to the Company's Proxy Statement dated
September 23, 1997 and incorporated herein by reference).
*10(30) Letter Agreement by and between the Company and Lehman
Electric Inc. relating to the payment of expenses.
21(1) Subsidiaries of the Registrant.
*23(1) Consent of Arthur Andersen LLP.
*23(2) Consent of Arthur Andersen LLP.
*23(3) Consent of McGladrey & Pullen, LLP.
*23(4) Consent of Fried, Frank, Harris, Shriver & Jacobson
(included in Exhibit 5(1) hereto).
24(1) Power of Attorney (included on signature page in original
filing).
</TABLE>
- --------
*Filed herewith (all other Exhibits were previously filed).
<PAGE>
1,528,550 SHARES
AXSYS TECHNOLOGIES, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
DATED OCTOBER [___], 1997
<PAGE>
UNDERWRITING AGREEMENT
October [___], 1997
NATIONSBANC MONTGOMERY SECURITIES, INC.
FURMAN SELZ LLC
OPPENHEIMER & CO., INC.
c/o NATIONSBANC MONTGOMERY SECURITIES, INC.
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Axsys Technologies, Inc., a Delaware corporation
(the "Company"), proposes to issue and sell to the several underwriters named in
Schedule A (the "Underwriters") an aggregate of 1,064,809 shares of its Common
Stock, par value $0.01 per share (the "Common Stock"); and Lehman Electric Inc.
(the "Selling Stockholder") proposes to sell to the Underwriters an aggregate of
463,741 shares of Common Stock. The 1,064,809 shares of Common Stock to be
issued and sold by the Company and the 463,741 shares of Common Stock to be sold
by the Selling Stockholder are collectively called the "Firm Common Shares". In
addition, the Company has granted to the Underwriters an option to purchase up
to an additional 229,283 shares of Common Stock (the "Optional Common Shares").
The Firm Common Shares and, if and to the extent such option is exercised, the
Optional Common Shares are collectively called the "Common Shares".
The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement on Form S-1
(File No. 333-36027), which contains a form of prospectus to be used in
connection with the public offering and sale of the Common Shares. Such
registration statement, as amended, including the financial statements, exhibits
and schedules thereto, in the form in which it was declared effective by the
Commission under the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder (collectively, the "Securities Act"),
including any information deemed to be a part thereof at the time of
effectiveness pursuant to Rule 430A or Rule 434 under the Securities Act, is
called the "Registration Statement". Any registration statement filed by the
Company pursuant to Rule 462(b) under the Securities Act is called the "Rule
462(b) Registration Statement", and from and after the date and time of filing
of the Rule 462(b) Registration Statement the term "Registration Statement"
shall include the Rule 462(b) Registration Statement. Such prospectus, in the
form first used by the Underwriters to confirm sales of the Common Shares, is
called the "Prospectus"; provided, however, if the Company has,
<PAGE>
with the consent of NationsBanc Montgomery Securities, Inc., elected to rely
upon Rule 434 under the Securities Act, the term "Prospectus" shall mean the
Company's prospectus subject to completion (each, a "preliminary prospectus")
dated September 29, 1997 (such preliminary prospectus is called the "Rule 434
preliminary prospectus"), together with the applicable term sheet (the "Term
Sheet") prepared and filed by the Company with the Commission under Rules 434
and 424(b) under the Securities Act and all references in this Agreement to the
date of the Prospectus shall mean the date of the Term Sheet. All references in
this Agreement to the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System ("EDGAR").
The Company and the Selling Stockholder hereby confirm their
respective agreements with the Underwriters as follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES.
A. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration Statement
and any Rule 462(b) Registration Statement have been declared effective
by the Commission under the Securities Act. The Company has complied to
the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b)
Registration Statement is in effect and no proceedings for such purpose
have been instituted or are pending or, to the best knowledge of the
Company, are contemplated or threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed
complied in all material respects with the Securities Act and, if filed
by electronic transmission pursuant to EDGAR (except as may be
permitted by Regulation S-T under the Securities Act), was identical to
the copy thereof delivered to the Underwriters for use in connection
with the offer and sale of the Common Shares. Each of the Registration
Statement, any Rule 462(b) Registration Statement and any
post-effective amendment thereto, at the time it became effective and
at all subsequent times, complied and will comply in all material
respects with the Securities Act and did not and will not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements
therein not misleading. The Prospectus, as amended or supplemented, as
of its date and at all subsequent times, did not and will not contain
any untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately
preceding sentences do not apply to statements in or omissions from the
-2-
<PAGE>
Registration Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment thereto, or the Prospectus, or any amendments
or supplements thereto, made in reliance upon and in conformity with
information relating to any Underwriter furnished to the Company in
writing by the Underwriters expressly for use therein. There are no
contracts or other documents required to be described in the Prospectus
or to be filed as exhibits to the Registration Statement which have not
been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has delivered
to each Underwriter one complete manually signed copy of the
Registration Statement and of each consent and certificate of experts
filed as a part thereof, and conformed copies of the Registration
Statement (without exhibits) and preliminary prospectuses and the
Prospectus, as amended or supplemented, in such quantities and at such
places as each Underwriter has reasonably requested.
(c) Distribution of Offering Materials By the Company. The Company has not
distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection
with the offering and sale of the Common Shares other than a
preliminary prospectus, the Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except
as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles.
(e) Authorization of the Common Shares. The Common Shares to be purchased
by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and
delivered by the Company pursuant to this Agreement, will be validly
issued, fully paid and nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or
debt securities registered for sale under the Registration Statement or
included in the offering contemplated by this Agreement, except for
such rights as have been duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information
is given in the Prospectus: (i) there has been no material adverse
change, or any development that could reasonably be expected to result
in a material adverse change in the business, financial condition or
results of operations, whether or not arising from transactions in the
ordinary course of business, of the Company and its subsidiaries,
considered as one entity (any such change is called a "Material Adverse
Change"); (ii) the Company and its subsidiaries, considered as one
entity, have not incurred any material liability or
-3-
<PAGE>
obligation, indirect, direct or contingent, not in the ordinary course
of business nor entered into any material transaction or agreement not
in the ordinary course of business; and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the
Company or, except for dividends paid to the Company or other
subsidiaries, any of its subsidiaries on any class of capital stock or
repurchase or redemption by the Company or any of its subsidiaries of
any class of capital stock.
(h) Independent Accountants. Each of Arthur Andersen LLP and McGladrey &
Pullen, LLP, has expressed its opinions with respect to the financial
statements (which term as used in this Agreement includes the related
notes thereto) filed with the Commission as a part of the Registration
Statement and included in the Prospectus, are independent public or
certified public accountants as required by the Securities Act and the
Securities Exchange Act of 1934, as amended, and the rules and
regulations promulgated thereunder (collectively, the "Exchange Act").
(i) Preparation of the Financial Statements. The financial statements of
the Company filed with the Commission as a part of the Registration
Statement and included in the Prospectus present fairly the
consolidated financial position of the Company and its subsidiaries as
of and at the dates indicated and the results of their operations and
cash flows for the periods specified. To the best of the Company's
knowledge, the consolidated financial statements of each of Precision
Aerotech, Inc. ("PAI") and Teletrac, Inc. ("Teletrac") filed with the
Commission as a part of the Registration Statement and included in the
Prospectus present fairly the consolidated financial position of each
of such entities and their subsidiaries as of and at the dates
indicated and the results of their operations and cash flows for the
periods specified. Such financial statements and supporting schedules
have been prepared in conformity with generally accepted accounting
principles applied on a consistent basis throughout the periods
involved, except as may be expressly stated in the related notes
thereto. No other financial statements or supporting schedules are
required to be included in the Registration Statement. The financial
data set forth in the Prospectus under the captions "Prospectus
Summary--Summary Consolidated Selected Financial Data", "Selected
Consolidated Financial Data" and "Capitalization" fairly present the
information set forth therein on a basis consistent with that of the
audited financial statements contained in the Registration Statement.
The pro forma Condensed Statement of Operations of the Company and its
subsidiaries and the related notes thereto included in the Prospectus
and in the Registration Statement present fairly the information
contained therein, have been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements and have been properly presented on the bases described
therein, and the assumptions used in the preparation thereof are
reasonable and the adjustments used therein are appropriate to give
effect to the transactions and circumstances referred to therein.
(j) Incorporation and Good Standing of the Company and its Material
Subsidiaries. Each of (i) the Company and (ii) Teletrac, PAI,
Speedring, Inc. and
-4-
<PAGE>
Speedring Systems, Inc. (each, a "Material Subsidiary") has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation and has
corporate power and authority to own, lease and operate its properties
and to conduct its business as described in the Prospectus and, in the
case of the Company, to enter into and perform its obligations under
this Agreement. Each of the Company and each Material Subsidiary is
duly qualified as a foreign corporation to transact business and is in
good standing in each jurisdiction in which such qualification is
required, whether by reason of the ownership or leasing of property or
the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually
or in the aggregate, result in a Material Adverse Change. All of the
issued and outstanding capital stock of each Material Subsidiary has
been duly authorized and validly issued, and is fully paid and
nonassessable. The Company owns, directly or through subsidiaries, 100%
of the issued and outstanding capital stock of each subsidiary, except
for Teletrac, of which the Company owns 85.6% of the issued and
outstanding capital stock, in each instance free and clear of any
security interest, mortgage, pledge, lien, encumbrance or claim, except
for such security interest granted to Banque Paribas ("BP"), as agent
on behalf of various banks pursuant to that certain Credit Agreement
dated as of April 25, 1996, as amended. The Company has binding and
enforceable rights to acquire all of the remaining outstanding shares
of Teletrac in exchange for an aggregate of 100,000 shares of Common
Stock of the Company. The Company does not own or control, directly or
indirectly, any corporation, association or other entity other than the
subsidiaries listed in Exhibit 21 to the Registration Statement and
subsidiaries that are inactive or immaterial to the Company's business,
financial condition or results of operations.
(k) Capitalization and Other Capital Stock Matters. The authorized, issued
and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption "Capitalization" (other than for
subsequent issuances, if any, pursuant to employee benefit plans
described in the Prospectus or upon exercise of outstanding options or
warrants or other rights granted to the minority stockholders of
Teletrac described in the Prospectus). The Common Stock (including the
Common Shares) conforms in all material respects to the description
thereof contained in the Prospectus. All of the issued and outstanding
shares of Common Stock (including the shares of Common Stock owned by
the Selling Stockholder) have been duly authorized and validly issued,
are fully paid and nonassessable and have been issued in compliance
with federal and state securities laws. None of the outstanding shares
of Common Stock were issued in violation of any preemptive rights,
rights of first refusal or other similar rights to subscribe for or
purchase securities of the Company. There are no authorized or
outstanding options, warrants, preemptive rights, rights of first
refusal or other rights to purchase, or equity or debt securities
convertible into or exchangeable or exercisable for, any capital stock
of the Company or any of its subsidiaries other than those accurately
described in the Prospectus; and, with respect to preemptive rights,
rights of first refusal or other rights to purchase any capital stock
of the Company, there are no rights which have not been duly waived.
The description of the Company's stock option, stock bonus
-5-
<PAGE>
and other stock plans or arrangements, and the options or other rights
granted thereunder, set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to such
plans, arrangements, options and rights.
(l) Stock Exchange Listing. The Common Stock (including the Common Shares)
is registered pursuant to Section 12(g) of the Exchange Act and is
listed on the Nasdaq National Market, and the Company has taken no
action designed to terminate, or likely to have the effect of
terminating, the registration of the Common Stock under the Exchange
Act or delisting the Common Stock from the Nasdaq National Market, nor
has the Company received any notification that the Commission or the
National Association of Securities Dealers, Inc. (the "NASD") is
contemplating terminating such registration or listing.
(m) Non-Contravention of Existing Instruments; No Further Authorizations or
Approvals Required. Neither the Company nor any of its subsidiaries is
in violation of its charter or by-laws or is in default (or, with the
giving of notice or lapse of time, would be in default) ("Default")
under any indenture, mortgage, loan or credit agreement, note,
contract, franchise, lease or other instrument to which the Company or
any of its subsidiaries is a party or by which it or any of them may be
bound (including, without limitation, the Company's (i) Senior Secured
Credit Facility, as amended, and term loan with BP, as agent for the
several banks thereunder, and (ii) the industrial development revenue
bonds issued by The Industrial Development Authority of the State of
New Hampshire or any related indentures), or to which any of the
property or assets of the Company or any of its subsidiaries is subject
(each, an "Existing Instrument"), except for such Defaults as would
not, individually or in the aggregate, result in a Material Adverse
Change. The Company's execution, delivery and performance of this
Agreement and consummation of the transactions contemplated hereby and
by the Prospectus (i) have been duly authorized by all necessary
corporate action and will not result in any violation of the provisions
of the charter or by-laws of the Company or any subsidiary, (ii) will
not conflict with or constitute a breach of, or Default or a Debt
Repayment Triggering Event (as defined below) under, or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or any of its subsidiaries pursuant
to, or require the consent of any other party to, any Existing
Instrument, except for such conflicts, breaches, Defaults, liens,
charges or encumbrances as would not, individually or in the aggregate,
result in a Material Adverse Change and (iii) will not result in any
violation of any law, administrative regulation or administrative or
court decree applicable to the Company or any subsidiary. No consent,
approval, authorization or other order of, or registration or filing
with, any court or other governmental or regulatory authority or
agency, is required for the Company's execution, delivery and
performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been
obtained or made by the Company and are in full force and effect under
the Securities Act, applicable state securities or blue sky laws and
from the NASD. As used herein, a "Debt Repayment Triggering Event"
means any event or condition which gives, or with the giving of notice
-6-
<PAGE>
or lapse of time would give, the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or
a portion of such indebtedness by the Company or any of its
subsidiaries.
(n) No Material Actions or Proceedings. Except as otherwise disclosed in
the Prospectus, there are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge,
threatened (i) against or affecting the Company or any of its
subsidiaries, (ii) which has as the subject thereof any officer or
director of, or property owned or leased by, the Company or any of its
subsidiaries or (iii) relating to environmental or discrimination
matters, where in any such case (A) there is a reasonable possibility
that such action, suit or proceeding might be determined adversely to
the Company or such subsidiary and (B) any such action, suit or
proceeding, if so determined adversely, would reasonably be expected to
result in a Material Adverse Change or adversely affect the
consummation of the transactions contemplated by this Agreement. No
material labor dispute with the employees of the Company or any of its
subsidiaries exists or, to the best of the Company's knowledge, is
threatened or imminent. To the best of the Company's knowledge, no
material labor dispute exists, or is threatened or imminent, between
any principal supplier of the Company and such supplier's employees.
(o) Intellectual Property Rights. The Company and its subsidiaries own or
possess sufficient trademarks, trade names, patent rights, copyrights,
licenses, approvals, trade secrets and other similar rights
(collectively, "Intellectual Property Rights") reasonably necessary to
conduct their businesses as now conducted; and the expected expiration
of any of such Intellectual Property Rights would not result in a
Material Adverse Change. Neither the Company nor any of its
subsidiaries has received any notice of infringement or conflict with
asserted Intellectual Property Rights of others, which infringement or
conflict, if the subject of an unfavorable decision, would result in a
Material Adverse Change.
(p) All Necessary Permits, etc. The Company and each subsidiary possess
such valid and current certificates, authorizations or permits issued
by the appropriate state, federal or foreign regulatory agencies or
bodies necessary to conduct their respective businesses, except where
the failure to possess any such certificates, authorizations or permits
would not result in a Material Adverse Change, and neither the Company
nor any subsidiary has received any notice of proceedings relating to
the revocation or modification of, or non-compliance with, any such
certificate, authorization or permit which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, could
result in a Material Adverse Change.
(q) Title to Properties. The Company and each of its subsidiaries has good
and marketable title to all the properties and assets reflected as
owned in the financial statements referred to in Section 1 (A) (i)
above (or elsewhere in the Prospectus), in each case free and clear of
any security interests, mortgages, liens, encumbrances, equities,
-7-
<PAGE>
claims and other defects, except such as do not materially interfere
with the use made or proposed to be made of such property by the
Company or such subsidiary. The real property, improvements, equipment
and personal property held under lease by the Company or any subsidiary
are held under valid and enforceable leases, with such exceptions as do
not materially interfere with the use made or proposed to be made of
such real property, improvements, equipment or personal property by the
Company or such subsidiary.
(r) Tax Law Compliance. The Company and its subsidiaries have filed all
necessary federal, state and foreign income and franchise tax returns
and have paid all taxes required to be paid by any of them and, if due
and payable, any related or similar assessment, fine or penalty levied
against any of them, except for taxes, assessments, fines or penalties
that are the subject of good faith disputes provided that such
disputes, which, if determined against the Company, would not result in
a Material Adverse Change. The Company has made adequate charges,
accruals and reserves in the applicable financial statements referred
to in Section 1 (A) (i) above in respect of all federal, state and
foreign income and franchise taxes for all periods as to which the tax
liability of the Company or any of its subsidiaries has not been
finally determined.
(s) Company Not an "Investment Company". The Company is not, and after
receipt of payment for the Common Shares will not be, an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended (the "Investment Company Act").
(t) Insurance. Each of the Company and its subsidiaries are insured by
recognized, financially sound and reputable institutions with policies
in such amounts and with such deductibles and covering such risks as
are deemed adequate for their businesses by the Company's management in
the exercise of their reasonable commercial judgment including, but not
limited to, policies covering (i) workers' compensation claims and (ii)
real and personal property owned or leased by the Company and its
subsidiaries against theft, damage, destruction, acts of vandalism and
earthquakes. The Company has no reason to believe that it or any
subsidiary will not be able (i) to renew its existing insurance
coverage as and when such policies expire or (ii) to obtain comparable
coverage from similar institutions as may be necessary or appropriate
to conduct its business as now conducted and at a cost that would not
result in a Material Adverse Change. Neither the Company nor any
subsidiary has been denied any insurance coverage which it has sought
or for which it has applied.
(u) No Price Stabilization or Manipulation. The Company has not taken and
will not take, directly or indirectly, any action designed to or that
might be reasonably expected to cause or result in stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Common Shares.
-8-
<PAGE>
(v) Related Party Transactions. There are no business relationships or
related-party transactions involving the Company or any subsidiary or
any other person required to be described in the Prospectus which have
not been described therein as required.
(w) No Unlawful Contributions or Other Payments. Neither the Company nor
any of its subsidiaries nor, to the best of the Company's knowledge,
any employee or agent of the Company or any subsidiary, has made any
contribution or other payment to any official of, or candidate for, any
federal, state or foreign office in violation of any law or of the
character required to be disclosed in the Prospectus.
(x) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that
(i) transactions are executed in accordance with management's general
or specific authorization; (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with
generally accepted accounting principles and to maintain accountability
for assets; (iii) access to assets is permitted only in accordance with
management's general or specific authorization; and (iv) the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(y) Compliance with Environmental Laws. Except as disclosed in the
Prospectus or as would not, individually or in the aggregate, result in
a Material Adverse Change (i) neither the Company nor any of its
subsidiaries is in violation of any federal, state, local or foreign
law or regulation relating to pollution or protection of human health
or the environment (including, without limitation, ambient air, surface
water, groundwater, land surface or subsurface strata) or wildlife,
including without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of chemicals,
pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum and petroleum products (collectively, "Materials
of Environmental Concern"), or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Materials of Environment Concern (collectively,
"Environmental Laws"), which violation includes, but is not limited to,
noncompliance with any permits or other governmental authorizations
required for the operation of the business of the Company or its
subsidiaries under applicable Environmental Laws, or noncompliance with
the terms and conditions thereof, nor has the Company or any of its
subsidiaries received any written communication, whether from a
governmental authority, citizens group, employee or otherwise, that
alleges that the Company or any of its subsidiaries is in violation of
any Environmental Law; (ii) there is no claim, action or cause of
action filed with a court or governmental authority, no investigation
with respect to which the Company has received written notice, and no
written notice by any person or entity alleging potential liability for
investigatory costs, cleanup costs, governmental responses costs,
natural resources damages, property damages, personal injuries,
attorneys' fees or penalties arising out of, based on or resulting from
the presence, or
-9-
<PAGE>
release into the environment, of any Material of Environmental Concern
at any location owned, leased or operated by the Company or any of its
subsidiaries, now or in the past (collectively, "Environmental
Claims"), pending or, to the best of the Company's knowledge,
threatened against the Company or any of its subsidiaries or any person
or entity whose liability for any Environmental Claim the Company or
any of its subsidiaries has retained or assumed either contractually or
by operation of law; and (iii) to the best of the Company's knowledge,
there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the
release, emission, discharge, presence or disposal of any Material of
Environmental Concern, that reasonably could result in a violation of
any Environmental Law or form the basis of a potential Environmental
Claim against the Company or any of its subsidiaries or against any
person or entity whose liability for any Environmental Claim the
Company or any of its subsidiaries has retained or assumed either
contractually or by operation of law.
(z) Review of Costs and Liabilities of Environmental Compliance. In the
ordinary course of its business, the Company reviews the effect of
Environmental Laws on the business, operations and properties of the
Company and its subsidiaries, in the course of which it identifies and
evaluates associated costs and liabilities (including, without
limitation, any capital or operating expenditures required for clean-
up, closure of properties or compliance with Environmental Laws or any
permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties). Except as
disclosed in the Prospectus, on the basis of such review and the amount
of its established reserves, the Company has reasonably concluded that
such associated costs and liabilities would not, individually or in the
aggregate, result in a Material Adverse Change.
(aa) ERISA Compliance. The Company and its subsidiaries and any "employee
benefit plan" (as defined under the Employee Retirement Income Security
Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, "ERISA")) established or
maintained by the Company, its subsidiaries or their "ERISA Affiliates"
(as defined below) are in compliance in all material respects with
ERISA. "ERISA Affiliate" means, with respect to the Company or a
subsidiary, any member of any group of organizations described in
Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of 1986, as
amended, and the regulations and published interpretations thereunder
(the "Code") of which the Company or such subsidiary is a member. No
"reportable event" (as defined under ERISA) has occurred or is
reasonably expected to occur with respect to any "employee benefit
plan" established or maintained by the Company, its subsidiaries or any
of their ERISA Affiliates. No "employee benefit plan" established or
maintained by the Company, its subsidiaries or any of their ERISA
Affiliates, if such "employee benefit plan" were terminated, would have
any "amount of unfunded benefit liabilities" (as defined under ERISA).
Neither the Company, its subsidiaries nor any of their ERISA Affiliates
has incurred or reasonably expects to incur any material liability
under (i) Title IV of ERISA with respect to termination of, or
-10-
<PAGE>
withdrawal from, any "employee benefit plan" or (ii) Sections 412,
4971, 4975 or 4980B of the Code. Each "employee benefit plan"
established or maintained by the Company, its subsidiaries or any of
their ERISA Affiliates that is intended to be qualified under Section
401(a) of the Code is so qualified and nothing has occurred, whether by
action or failure to act, which would cause the loss of such
qualification.
(bb) No Brokers or Finders. Other than as contemplated by this Agreement,
there is no broker, finder or other party that is entitled to receive
from the Company any brokerage or finder's fee or other fee or
commission as a result of any of the transactions contemplated by this
Agreement.
(cc) Compliance with Florida Law. The Company confirms as of the date hereof
that it is in material compliance with all provisions of Section 1 of
Laws of Florida, Chapter 92-198, An Act Relating to Disclosure of doing
Business with Cuba, and the Company further agrees that if it commences
engaging in business with the government of Cuba or with any person or
affiliate located in Cuba after the date the Registration Statement
becomes or has become effective with the Commission or with the Florida
Department of Banking and Finance (the "Department"), whichever date is
later, the Company will provide the Department notice of such business
in a form acceptable to the Department.
(dd) Teletrac Stockholder Agreement. The stockholder agreement (the
"Stockholder Agreement") by and between the Company and David Barker,
Richard Howitt, William Hurst, William Kingsbury and Barton Norton (the
"Teletrac Stockholders") was duly executed and delivered on May 30,
1997, and created valid and binding obligations of each of the Teletrac
Stockholders to surrender all of their retained shares of Teletrac to
the Company in exchange for an aggregate of 100,000 shares of Common
Stock of the Company; the Stockholder Agreement remains in full force
and effect and the parties thereto are in full compliance with all
material obligations thereunder and such Stockholder Agreement is
enforceable against the Teletrac Stockholders in accordance with its
terms.
(ee) Bonus Plans. The Annual Incentive Plan and the Supplemental Revenue
Growth Incentive Plan are accurately described in the Prospectus and
each of such plans has been duly adopted by all necessary corporate
action. There are no other bonus plans which are required to be
disclosed in the Prospectus.
(ff) Proxy Solicitation. The proxy statement relating to certain amendments
to the Company's Certificate of Incorporation and certain amendments to
the Long-Term Stock Incentive Plan, each as described in the
Prospectus, has been duly filed with the Commission; the related proxy
solicitation of holders of Common Stock was conducted in accordance
with the rules and regulations of the Commission and the Nasdaq Stock
Market, Inc.; the requisite vote of holders of Common Stock to approve
each such
-11-
<PAGE>
corporate action has been obtained; and the amendment to the Company's
Certificate of Incorporation has been duly filed with the Secretary of
State of the State of Delaware.
(gg) Repurchase of Warrants. Each of CIT Group/Credit Finance, Inc., BP,
Paribas Principal, Inc. and DLJ First ESC L.L.C. (collectively, the
"Warrantholders") and the Company have agreed that, prior to, or
concurrently with, the delivery of the Firm Common Shares on the First
Closing Date, as hereinafter defined, the Company will repurchase all
of the warrants representing an aggregate of 314,809 shares of Common
Stock at a price per share subject to the respective warrant equal to
the excess of the purchase price per Firm Common Share (as set forth in
Section 2(a)) less the exercise price of such warrant. Upon such
repurchase, the Company will cancel all of the warrants previously held
by the Warrantholders. Each Letter Agreement dated October [ ], 1997 by
and between the Company and each of the respective Warrantholders
relating to the repurchase of the warrants by the Company has been duly
authorized, executed and delivered and is enforceable in accordance
with its terms.
(hh) Amendment to Credit Agreement. The Fourth Amendment to the Credit
Agreement among the Company and various financial institutions set
forth therein (the "Banks") for which BP serves as agent, which, among
other things, sets forth the Banks' consent to the amendment to the
Long-Term Stock Incentive Plan, and the amendment to the definition of
"Change of Control" has been duly authorized, executed and delivered
and is enforceable in accordance with its terms.
(ii) Compliance with Collective Bargaining Agreement. The Company is in
compliance in all material respects with the collective bargaining
agreement between the Company and the International Brotherhood of
Electrical Workers, AFL-CIO and its Local Union No. 108 (the "Union")
and the Company has no knowledge of any material dispute, either
pending, threatened, or imminent between the Company and the Union. The
Company and its subsidiaries are not subject to any other collective
bargaining agreement or similar contract with any other labor union or
organization.
(jj) Compliance with Federal Acquisition Regulations. The Company and its
subsidiaries are in compliance in all material respects with all rules
and regulations applicable to all solicitations, sales and purchases
under U.S. government contracts including, but not limited to, the
Federal Acquisition Regulations and supplements thereto.
Any certificate signed by an officer of the Company and
delivered to the Underwriters or to counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company to each Underwriter as to the
matters set forth therein.
B. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDER. The Selling
Stockholder hereby represents, warrants and covenants to each
Underwriter as follows:
-12-
<PAGE>
(a) The Underwriting Agreement. This Agreement has been duly authorized,
executed and delivered by or on behalf of the Selling Stockholder and
is a valid and binding agreement of the Selling Stockholder,
enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except
as the enforcement hereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to or
affecting the rights and remedies of creditors or by general equitable
principles.
(b) Title to Common Shares to be Sold; All Authorizations Obtained. The
Selling Stockholder has, and on the First Closing Date (as defined
below) will have, good and valid title to all of the Common Shares
which may be sold by the Selling Stockholder pursuant to this Agreement
on such date and the legal right and power, and all authorizations and
approvals required by law and under its charter or by-laws, partnership
agreement, or other governing or organizational documents, to enter
into this Agreement, to sell, transfer and deliver all of the Common
Shares which may be sold by the Selling Stockholder pursuant to this
Agreement and to comply with its other obligations hereunder and
thereunder.
(c) Delivery of the Common Shares to be Sold. Delivery of the Common Shares
which are sold by the Selling Stockholder pursuant to this Agreement
will pass good and valid title to such Common Shares, free and clear of
any security interest, mortgage, pledge, lien, encumbrance or other
claim.
(d) Non-Contravention; No Further Authorizations or Approvals Required. The
execution and delivery by the Selling Stockholder of, and the
performance by the Selling Stockholder of its obligations under, this
Agreement will not contravene or conflict with, result in a breach of,
or constitute a Default under, or require the consent of any other
party to, the charter or by-laws, partnership agreement, or other
governing or organizational documents of the Selling Stockholder or any
other agreement or instrument to which the Selling Stockholder is a
party or by which it is bound or under which it is entitled to any
right or benefit, any provision of applicable law or any judgment,
order, decree or regulation applicable to the Selling Stockholder of
any court, regulatory body, administrative agency, governmental body or
arbitrator having jurisdiction over the Selling Stockholder. No
consent, approval, authorization or other order of, or registration or
filing with, any court or other governmental authority or agency, is
required for the consummation by the Selling Stockholder of the
transactions contemplated in this Agreement, except such as have been
obtained or made and are in full force and effect under the Securities
Act, applicable state securities or blue sky laws and from the NASD.
(e) Disclosure Made by The Selling Stockholder in the Prospectus. All
information furnished by or on behalf of the Selling Stockholder in
writing expressly for use in the Registration Statement and Prospectus
is, and on the First Closing Date and the Second Closing Date will be,
true, correct, and complete in all material respects, and does
-13-
<PAGE>
not, and on the First Closing Date and the Second Closing Date will
not, contain any untrue statement of a material fact or omit to state
any material fact necessary to make such information not misleading.
The Selling Stockholder confirms as accurate the number of shares of
Common Stock set forth opposite the Selling Stockholder's name and
related footnote disclosure in the Prospectus under the caption
"Principal and Selling Shareholders" (both prior to and after giving
effect to the sale of the Common Shares). The Selling Stockholder is
not prompted to sell shares of Common Stock by any information
concerning the Company which is not set forth in the Registration
Statement and the Prospectus.
(f) No Price Stabilization or Manipulation. The Selling Stockholder has not
taken and will not take, directly or indirectly, any action designed to
or that might be reasonably expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Common Shares.
Any certificate signed by or on behalf of the Selling
Stockholder and delivered to the Underwriters or to counsel for the Underwriters
shall be deemed to be a representation and warranty by the Selling Stockholder
to each Underwriter as to the matters covered thereby.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
(a) The Firm Common Shares. Upon the terms herein set forth, (i) the
Company agrees to issue and sell to the several Underwriters an
aggregate of 1,064,809 Firm Common Shares and (ii) the Selling
Stockholder agrees to sell to the several Underwriters an aggregate of
463,741 Firm Common Shares. On the basis of the representations,
warranties and agreements herein contained, and upon the terms but
subject to the conditions herein set forth, the Underwriters agree,
severally and not jointly, to purchase from the Company and the Selling
Stockholder the respective number of Firm Common Shares set forth
opposite their names on Schedule A. The purchase price per Firm Common
----------
Share to be paid by the several Underwriters to the Company and the
Selling Stockholder shall be $[___] per share.
(b) The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall
be made at the offices of NationsBanc Montgomery Securities, Inc., 600
Montgomery Street, San Francisco, California (or such other place as
may be agreed to by the Company and the Underwriters) at 6:00 a.m. San
Francisco time, on [___],or such other time and date not later than
10:30 a.m. San Francisco time, on [___] as the Underwriters shall
designate by notice to the Company (the time and date of such closing
are called the "First Closing Date"). The Company and the Selling
Stockholder hereby acknowledge that circumstances under which the
Underwriters may provide notice to postpone the First Closing Date as
originally scheduled include, but are in no way limited to, any
determination by the Company, the Selling Stockholder or the
Underwriters to recirculate
-14-
<PAGE>
to the public copies of an amended or supplemented Prospectus or a
delay as contemplated by the provisions of Section 10.
(c) The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein
contained, and upon the terms but subject to the conditions herein set
forth, the Company hereby grants an option to the several Underwriters
to purchase, severally and not jointly, up to an aggregate of 229,283
Optional Common Shares from the Company at the purchase price per share
to be paid by the Underwriters for the Firm Common Shares. The option
granted hereunder is for use by the Underwriters solely in covering any
over-allotments in connection with the sale and distribution of the
Firm Common Shares. The option granted hereunder may be exercised at
any time (but not more than once) upon notice by the Underwriters to
the Company, which notice may be given at any time within 30 days from
the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters
are exercising the option, (ii) the names and denominations in which
the certificates for the Optional Common Shares are to be registered
and (iii) the time, date and place at which such certificates will be
delivered (which time and date may be simultaneous with, but not
earlier than, the First Closing Date; and in such case the term "First
Closing Date" shall refer to the time and date of delivery of
certificates for the Firm Common Shares and the Optional Common
Shares). Such time and date of delivery, if subsequent to the First
Closing Date, is called the "Second Closing Date" and shall be
determined by the Underwriters and shall not be earlier than three nor
later than five full business days after delivery of such notice of
exercise. If any Optional Common Shares are to be purchased, (a) each
Underwriter agrees, severally and not jointly, to purchase the number
of Optional Common Shares (subject to such adjustments to eliminate
fractional shares as the Underwriters may determine) that bears the
same proportion to the total number of Optional Common Shares to be
purchased as the number of Firm Common Shares set forth on Schedule A
----------
opposite the name of such Underwriter bears to the total number of Firm
Common Shares and (b) the Company agrees to issue and sell such number
of Optional Common Shares as provided in the aforementioned notice from
the Underwriters. The Underwriters may cancel the option at any time
prior to its expiration by giving written notice of such cancellation
to the Company.
(d) Public Offering of the Common Shares. The Underwriters hereby advise
the Company and the Selling Stockholder that the Underwriters intend to
offer for sale to the public, as described in the Prospectus, their
respective portions of the Common Shares as soon after this Agreement
has been executed and the Registration Statement has been declared
effective as the Underwriters, in their sole judgment, have determined
is advisable and practicable.
(e) Payment for the Common Shares. Payment for the Common Shares to be sold
by the Company shall be made at the First Closing Date (and, if
applicable, at the Second Closing Date) by wire transfer of immediately
available funds to the order of the
-15-
<PAGE>
Company. Payment for the Common Shares to be sold by the Selling
Stockholder shall be made at the First Closing by wire transfer of
immediately available funds to the order of the Selling Stockholder.
It is understood that each Underwriter has been authorized,
for its own account, to accept delivery of and receipt for, and make
payment of the purchase price for, the Firm Common Shares and any
Optional Common Shares the Underwriters have agreed to purchase.
NationsBanc Montgomery Securities, Inc., individually and not as a
representative of the Underwriters, may (but shall not be obligated to)
make payment for any Common Shares to be purchased by any Underwriter
whose funds shall not have been received by NationsBanc Montgomery
Securities, Inc. by the First Closing Date or the Second Closing Date,
as the case may be, for the account of such Underwriter, but any such
payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
The Selling Stockholder hereby agrees that (i) it will pay all
stock transfer taxes, stamp duties and other similar taxes, if any,
payable upon the sale or delivery of the Common Shares to be sold by
the Selling Stockholder to the several Underwriters, or otherwise in
connection with the performance of the Selling Stockholder's
obligations hereunder and (ii) the Underwriters are authorized to
deduct for such payment any such amounts from the proceeds to the
Selling Stockholder hereunder and to hold such amounts for the account
of the Selling Stockholder.
(f) Delivery of the Common Shares. The Company and the Selling Stockholder
shall deliver, or cause to be delivered, to the Underwriters
certificates for the Firm Common Shares to be sold by them at the First
Closing Date, against the irrevocable release of a wire transfer of
immediately available funds for the amount of the purchase price
therefor. The Company shall also deliver, or cause to be delivered, to
the Underwriters, certificates for the Optional Common Shares the
Underwriters have agreed to purchase from the Company at the First
Closing Date or the Second Closing Date, as the case may be, against
the irrevocable release of a wire transfer of immediately available
funds for the amount of the purchase price therefor. The certificates
for the Common Shares shall be in definitive form and registered in
such names and denominations as the Underwriters shall have requested
at least two full business days prior to the First Closing Date (or the
Second Closing Date, as the case may be) and shall be made available
for inspection on the business day preceding the First Closing Date (or
the Second Closing Date, as the case may be) at a location in New York
City as the Underwriters may designate. Time shall be of the essence,
and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
(g) Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m.
on the second business day following the date the Common Shares are
released by the Underwriters for sale to the public, the Company shall
deliver or cause to be delivered
-16-
<PAGE>
copies of the Prospectus in such quantities and at such places as the
Underwriters shall request.
SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY AND THE SELLING STOCKHOLDER.
A. COVENANTS OF THE COMPANY. The Company further covenants and agrees with
each Underwriter as follows:
(a) Underwriters' Review of Proposed Amendments and Supplements. During
such period beginning on the date hereof and ending on the later of the
First Closing Date or such date, as in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be
delivered in connection with sales by an Underwriter or dealer (the
"Prospectus Delivery Period"), prior to amending or supplementing the
Registration Statement (including any registration statement filed
under Rule 462(b) under the Securities Act) or the Prospectus, the
Company shall furnish to the Underwriters for review a copy of each
such proposed amendment or supplement, and the Company shall not file
any such proposed amendment or supplement to which the Underwriters
reasonably object.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Underwriters in writing (i) of the
receipt of any comments of, or requests for additional or supplemental
information from, the Commission, (ii) of the time and date of any
filing of any post-effective amendment to the Registration Statement or
any amendment or supplement to any preliminary prospectus or the
Prospectus, (iii) of the time and date that any post-effective
amendment to the Registration Statement becomes effective and (iv) of
the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective
amendment thereto or of any order preventing or suspending the use of
any preliminary prospectus or the Prospectus, or of any proceedings to
remove, suspend or terminate from listing or quotation the Common Stock
from any securities exchange upon which it is listed for trading or
included or designated for quotation, or of the threatening or
initiation of any proceedings for any of such purposes. If the
Commission shall enter any such stop order at any time, the Company
will use its best efforts to obtain the lifting of such order at the
earliest possible moment. Additionally, the Company agrees that it
shall comply with the provisions of Rules 424(b), 430A and 434, as
applicable, under the Securities Act and will use its reasonable
efforts to confirm that any filings made by the Company under such Rule
424(b) were received in a timely manner by the Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities Act
Matters. If, during the Prospectus Delivery Period, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if in the opinion of the Underwriters or
-17-
<PAGE>
counsel for the Underwriters it is otherwise necessary to amend or
supplement the Prospectus to comply with law, the Company agrees to
promptly prepare (subject to Section 3(A)(a) hereof), file with the
Commission and furnish at its own expense to the Underwriters and to
dealers, amendments or supplements to the Prospectus so that the
statements in the Prospectus as so amended or supplemented will not, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, be misleading or so that the Prospectus, as amended or
supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The Company
agrees to furnish the Underwriters, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any
amendments and supplements thereto as the Underwriters may reasonably
request.
(e) Blue Sky Compliance. The Company shall cooperate with the Underwriters
and counsel for the Underwriters to qualify or register the Common
Shares for sale under (or obtain exemptions from the application of)
the state securities or Blue Sky laws or Canadian provincial securities
laws of those jurisdictions designated by the Underwriters, shall
comply with such laws and shall continue such qualifications,
registrations and exemptions in effect so long as required for the
distribution of the Common Shares. The Company shall not be required to
qualify as a foreign corporation or to take any action that would
subject it to general service of process in any such jurisdiction where
it is not presently qualified or where it would be subject to taxation
as a foreign corporation. The Company will advise the Underwriters
promptly of the suspension of the qualification or registration of (or
any such exemption relating to) the Common Shares for offering, sale or
trading in any jurisdiction or any initiation or threat of any
proceeding for any such purpose, and in the event of the issuance of
any order suspending such qualification, registration or exemption, the
Company shall use its best efforts to obtain the withdrawal thereof at
the earliest possible moment.
(f) Use of Proceeds. The Company shall apply the net proceeds from the sale
of the Common Shares sold by it in the manner described under the
caption "Use of Proceeds" in the Prospectus.
(g) Transfer Agent. The Company shall maintain, at its expense, a registrar
and transfer agent for the Common Stock.
(h) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Underwriters an
earnings statement (which need not be audited) covering the
twelve-month period ending at the end of the Company's first fiscal
quarter that ends more than one year after the effectiveness of the
Registration Statement and satisfying the provisions of Section 11(a)
of the Securities Act.
-18-
<PAGE>
(i) Periodic Reporting Obligations. During the Prospectus Delivery Period
the Company shall file, on a timely basis, with the Commission all
reports and documents required to be filed under the Exchange Act.
(j) Agreement Not To Offer or Sell Additional Securities. During the period
of 120 days following the date of the Prospectus, the Company will not,
without the prior written consent of NationsBanc Montgomery Securities,
Inc. (which consent may be withheld at the sole discretion of
NationsBanc Montgomery Securities, Inc.), directly or indirectly, sell,
offer, contract or grant any option to sell, pledge, transfer or
establish an open "put equivalent position" within the meaning of Rule
16a-1(h) under the Exchange Act, or otherwise dispose of or transfer,
or announce the public offering of, or file any registration statement
under the Securities Act in respect of, any shares of Common Stock,
options or warrants to acquire shares of the Common Stock or securities
exchangeable or exercisable for or convertible into shares of Common
Stock (other than as contemplated by this Agreement with respect to the
Common Shares); provided, however, that the Company may register under
the Securities Act and applicable state securities laws and issue (i)
shares of its Common Stock or options to purchase its Common Stock, or
Common Stock upon exercise of options, pursuant to any stock option,
stock bonus or other stock plan or arrangement described in the
Prospectus, (ii) shares of its Common Stock or securities exchangeable
or exercisable for or convertible into shares of Common Stock pursuant
to an agreement by the Company to acquire the capital stock or assets
of another entity, but only if the holders of such shares, securities,
options, or shares issued upon the exercise of such options, or the
exchange, exercise or conversion of such securities agree in writing
not to sell, offer, dispose of or otherwise transfer any of such
securities during such 120-day period without the prior written consent
of NationsBanc Montgomery Securities, Inc. (which consent may be
withheld at the sole discretion of NationsBanc Montgomery Securities,
Inc.) or such shares, securities, options or shares issued upon
exchange, exercise or conversion are not transferable by their terms
within such 120-day period and (iii) shares of its Common Stock or
securities exchanged or exercisable for or convertible into shares of
Common Stock in connection with a merger, consolidation or other
business combination with any other person, or the acquisition of any
other person or its business, but in the case of a merger,
consolidation or business combination with any other person, where such
person does not have a class of equity securities registered under the
Exchange Act, only if the holders of such shares or securities agree in
writing not to sell, offer, dispose of or otherwise transfer any of
such securities during such 120-day period without the prior written
consent of NationsBanc Montgomery Securities, Inc. (which consent may
be withheld at the sole discretion of NationsBanc Montgomery
Securities, Inc.), or if such shares or securities issued upon
exchange, exercise or conversion are not transferable by their terms
within such 120-day period.
(k) Future Reports to the Underwriters. During the period of five years
hereafter the Company will furnish to the Underwriters at 600
Montgomery Street, San Francisco, CA 94111, Attention: David DeRuff (i)
as soon as practicable after the end of
-19-
<PAGE>
each fiscal year, copies of the Annual Report of the Company containing
the balance sheet of the Company as of the close of such fiscal year
and statements of income, stockholders' equity and cash flows for the
year then ended and the opinion thereon of the Company's independent
public or certified public accountants; (ii) as soon as practicable
after the filing thereof, copies of each proxy statement, Annual Report
on Form 10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K
or other report filed by the Company with the Commission, the NASD or
any securities exchange; and (iii) as soon as available, copies of any
report or communication of the Company mailed generally to holders of
its capital stock.
B. COVENANTS OF THE SELLING STOCKHOLDER. The Selling Stockholder further
covenants and agrees with each Underwriter:
(a) Agreement Not to Offer or Sell Additional Securities. The Selling
Stockholder will not, without the prior written consent of NationsBanc
Montgomery Securities, Inc. (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any
option to sell (including without limitation any short sale), pledge,
transfer, establish an open "put equivalent position" within the
meaning of Rule 16a-1(h) under the Exchange Act, or otherwise dispose
of any shares of Common Stock (other than the shares of Common Stock
offered hereby), options or warrants to acquire shares of Common Stock,
or securities exchangeable or exercisable for or convertible into
shares of Common Stock currently or hereafter owned either of record or
beneficially (as defined in Rule 13d-3 under Securities Exchange Act of
1934, as amended) by the undersigned, or publicly announce the
undersigned's intention to do any of the foregoing, for a period
commencing on the date hereof and continuing through the close of
trading on the date 120 days after the date of the Prospectus.
(b) Delivery of Forms W-8 and W-9. To deliver to the Underwriters prior to
the First Closing Date a properly completed and executed United States
Treasury Department Form W-8 (if the Selling Stockholder is a
non-United States person) or Form W-9 (if the Selling Stockholder is a
United States Person).
NationsBanc Montgomery Securities, Inc., on behalf of the
several Underwriters, may, in its sole discretion, waive in writing the
performance by the Company or the Selling Stockholder of any one or
more of the foregoing covenants.
SECTION 4. PAYMENT OF EXPENSES. The Company and the Selling Stockholder
severally agree to pay, in such proportions as they may agree upon among
themselves, all costs, fees and expenses incurred in connection with the
performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limitation (i) all expenses
incident to the issuance and delivery of the Common Shares (including all
printing and engraving costs), (ii) all fees and expenses of the registrar and
transfer agent of the Common Stock, (iii) all necessary issue, transfer and
other stamp taxes in connection with the issuance and sale of the Common Shares
to the Underwriters, (iv) all fees and expenses of the Company's
-20-
<PAGE>
counsel, independent public or certified public accountants and other advisors,
(v) all costs and expenses incurred in connection with the preparation,
printing, filing, shipping and distribution of the Registration Statement
(including financial statements, exhibits, schedules, consents and certificates
of experts), each preliminary prospectus and the Prospectus, and all amendments
and supplements thereto, and this Agreement, (vi) all filing fees, attorneys'
fees and expenses incurred by the Company or the Underwriters in connection with
qualifying or registering (or obtaining exemptions from the qualification or
registration of) all or any part of the Common Shares for offer and sale under
the state securities or Blue Sky laws or the provincial securities laws of
Canada, and, if requested by the Underwriters, preparing and printing a "Blue
Sky Survey" or memorandum, and any supplements thereto, advising the
Underwriters of such qualifications, registrations and exemptions, (vii) the
filing fees incident to, and the reasonable fees and expenses of counsel for the
Underwriters in connection with, the NASD's review and approval of the
Underwriters' participation in the offering and distribution of the Common
Shares, (viii) the fees and expenses associated with including the Common Shares
on the Nasdaq National Market, and (ix) all other fees, costs and expenses
referred to in Item 13 of Part II of the Registration Statement. Except as
provided in this Section 4, Section 6, Section 8 and Section 9 hereof, the
Underwriters shall pay their own expenses, including the fees and disbursements
of their counsel.
The Selling Stockholder further agrees with each Underwriter
to pay (directly or by reimbursement) all fees and expenses incident to the
performance of its obligations under this Agreement which are not otherwise
specifically provided for herein, including but not limited to (i) fees and
expenses of counsel and other advisors for the Selling Stockholder, and (ii)
expenses and taxes incident to the sale and delivery of the Common Shares to be
sold by the Selling Stockholder to the Underwriters hereunder.
This Section 4 shall not affect or modify any separate, valid
agreement relating to the allocation of payment of expenses between the Company,
on the one hand, and the Selling Stockholder, on the other hand.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company and
the Selling Stockholder set forth in Sections 1(A) and 1(B) hereof as of the
date hereof and as of the First Closing Date as though then made and, with
respect to the Optional Common Shares, as of the Second Closing Date as though
then made, to the timely performance by the Company and the Selling Stockholder
of their respective covenants and other obligations hereunder, and to each of
the following additional conditions:
(a) Accountants' Comfort Letters. On the date hereof, the Underwriters
shall have received from (i) Arthur Andersen LLP, independent public or
certified public accountants for the Company and Teletrac and (ii)
either Arthur Andersen LLP or McGladrey & Pullen, LLP (independent
public or certified public accountants for PAI) a
-21-
<PAGE>
letter dated the date hereof addressed to the Underwriters, in form and
substance satisfactory to the Underwriters, containing statements and
information of the type ordinarily included in accountant's "comfort
letters" to underwriters, delivered according to Statement of Auditing
Standards No. 72 (or any successor bulletin), with respect to the
audited and unaudited financial statements and certain financial
information contained in the Registration Statement and the Prospectus
(and the Underwriters shall have received an additional five (5)
conformed copies of each such accountants' letter).
(b) Compliance with Registration Requirements; No Stop Order; No Objection
from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the
Commission (including the information required by Rule 430A
under the Securities Act) in the manner and within the time
period required by Rule 424(b) under the Securities Act; or
the Company shall have filed a post-effective amendment to the
Registration Statement containing the information required by
such Rule 430A, and such post-effective amendment shall have
become effective; or, if the Company elected to rely upon Rule
434 under the Securities Act and obtained the Underwriters'
consent thereto, the Company shall have filed a Term Sheet
with the Commission in the manner and within the time period
required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the Registration
Statement, any Rule 462(b) Registration Statement, or any
post-effective amendment to the Registration Statement, shall
be in effect and no proceedings for such purpose shall have
been instituted or threatened by the Commission; and
(iii) the NASD shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change. For the period from and after the date of
this Agreement and prior to the First Closing Date and, with respect to
the Optional Common Shares, the Second Closing Date, in the judgment of
the Underwriters there shall not have occurred any Material Adverse
Change.
(d) Opinion of Counsel for the Company. On each of the First Closing Date
and the Second Closing Date the Underwriters shall have received the
favorable opinion of Fried, Frank, Harris, Shriver & Jacobson, counsel
for the Company, dated as of such Closing Date, the form of which is
attached as Exhibit A (and the Underwriters shall have received an
additional five (5) conformed copies of such counsel's legal opinion).
(e) Opinion of Counsel for the Underwriters. On each of the First Closing
Date and the Second Closing Date the Underwriters shall have received
the favorable
-22-
<PAGE>
opinion of Buchanan Ingersoll, counsel for the Underwriters, dated as
of such Closing Date, the form of which is attached as Exhibit AA (and
the Underwriters shall have received an additional five (5) conformed
copies of such counsel's legal opinion).
(f) Officers' Certificate. On each of the First Closing Date and the Second
Closing Date the Underwriters shall have received a written certificate
executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief
Accounting Officer of the Company, dated as of such Closing Date, to
the effect set forth in subsection (b)(ii) of this Section 5, and
further to the effect that:
(i) for the period from and after the date of this Agreement and
prior to such Closing Date, there has not occurred any
Material Adverse Change;
(ii) the representations, warranties and covenants of the Company
set forth in Section 1 (A) of this Agreement are true and
correct with the same force and effect as though expressly
made on and as of such Closing Date; and
(iii) the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at
or prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date and the
Second Closing Date, the Underwriters shall have received from (i)
Arthur Andersen LLP, independent public or certified public accountants
for the Company and Teletrac and (ii) either Arthur Andersen LLP or
McGladrey & Pullen, LLP (independent public or certified public
accountants for PAI) a letter dated such date, in form and substance
satisfactory to the Underwriters, to the effect that they reaffirm the
statements made in the letter furnished by each of them pursuant to
subsection (a) of this Section 5, except that the specified date
referred to therein for the carrying out of procedures shall be no more
than three business days prior to the First Closing Date or Second
Closing Date, as the case may be (and the Underwriters shall have
received an additional five (5) conformed copies of each such
accountants' letter).
(h) Opinion of Counsel for the Selling Stockholder. On the First Closing
Date the Underwriters shall have received the favorable opinion of
counsel for the Selling Stockholder (Fried, Frank, Harris, Shriver &
Jacobson or such other counsel acceptable to the Underwriters), dated
as of the First Closing Date, the form of which is attached as Exhibit
B (and the Underwriters shall have received an additional five (5)
conformed copies of each of such counsel's legal opinion).
(i) Selling Stockholder's Certificate. On the First Closing Date the
Underwriters shall have received a written certificate executed by the
Selling Stockholder, dated as of such Closing Date, to the effect that:
-23-
<PAGE>
(i) the representations, warranties and covenants of the Selling
Stockholder set forth in Section 1(B) of this Agreement are
true and correct with the same force and effect as though
expressly made by the Selling Stockholder on and as of such
Closing Date; and
(ii) the Selling Stockholder has complied with all the agreements
and satisfied all the conditions on its part to be performed
or satisfied at or prior to such Closing Date.
(j) Selling Stockholder's Documents. On the date hereof, the Company and
the Selling Stockholder shall have furnished for review by the
Underwriters such information, certificates and documents as the
Underwriters may reasonably request.
(k) Lock-Up Agreements. On the date hereof, the Company shall have
furnished to the Underwriters an agreement in the form of Exhibit C
hereto from each director and executive officer of the Company, and
each such agreement shall be in full force and effect on each of the
First Closing Date and the Second Closing Date.
(l) Warrantholders' Certificate. On the First Closing Date, the Company
shall have furnished to the Underwriters a certificate executed by each
of the Warrantholders (i) representing that each Warrantholder has
received payment in full from the Company for the repurchase by the
Company of all of the warrants held by such Warrantholder and (ii)
acknowledging that such Warrantholder has no further rights, and the
Company has no further obligations, with respect to such warrants.
(m) Additional Documents. On or before each of the First Closing Date and
the Second Closing Date, the Underwriters and counsel for the
Underwriters shall have received such information, documents and
opinions as they may reasonably require for the purposes of enabling
them to pass upon the issuance and sale of the Common Shares as
contemplated herein, or in order to evidence the accuracy of any of the
representations and warranties, or the satisfaction of any of the
conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied
when and as required to be satisfied, this Agreement may be terminated by the
Underwriters by notice to the Company and the Selling Stockholder at any time on
or prior to the First Closing Date and, with respect to the Optional Common
Shares by notice to the Company at any time prior to the Second Closing Date,
which termination shall be without liability on the part of any party to any
other party, except that Section 4, Section 6, Section 8 and Section 9 shall at
all times be effective and shall survive such termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
terminated by the Underwriters pursuant to Section 5, Section 7, Section 10,
Section 11 or Section 17, or if the sale to the Underwriters of the Common
Shares on the First Closing Date is not consummated because of any refusal,
inability or failure on the part of the Company or the
-24-
<PAGE>
Selling Stockholder to perform any agreement herein or to comply with any
provision hereof, the Company agrees to reimburse the Underwriters (or such
Underwriters as have terminated this Agreement with respect to themselves),
severally, upon demand for all out-of-pocket expenses that shall have been
reasonably incurred by the Underwriters in connection with the proposed purchase
and the offering and sale of the Common Shares, including but not limited to
fees and disbursements of counsel, printing expenses, travel expenses, postage,
facsimile and telephone charges; provided that the Selling Stockholder shall
contribute only to the extent otherwise agreed as between the Company and the
Selling Stockholder.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall not
become effective until the later of (i) the execution of this Agreement by the
parties hereto and (ii) notification by the Commission to the Company and the
Underwriters of the effectiveness of the Registration Statement under the
Securities Act.
Prior to such effectiveness, this Agreement may be terminated
by any party by notice to each of the other parties hereto, and any such
termination shall be without liability on the part of (a) the Company or the
Selling Stockholder to any Underwriter, except that the Company shall be
obligated to reimburse the expenses of the Underwriters pursuant to Sections 4
and 6 hereof, (b) of any Underwriter to the Company or the Selling Stockholder,
or (c) of any party hereto to any other party except that the provisions of
Section 8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters.
(I) Indemnification by the Company. The Company
agrees to indemnify and hold harmless each Underwriter, its officers
and employees, and each person, if any, who controls any Underwriter
within the meaning of the Securities Act and the Exchange Act against
any loss, claim, damage, liability or expense, as incurred, to which
such Underwriter or such controlling person may become subject, under
the Securities Act, the Exchange Act or other federal or state
statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with
the written consent of the Company), insofar as such loss, claim,
damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based (i) upon any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement, or any amendment thereto, including any
information deemed to be a part thereof pursuant to Rule 430A or Rule
434 under the Securities Act, or the omission or alleged omission
therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading; or
-25-
<PAGE>
(ii) upon any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading; or (iii) in whole or in part upon any
inaccuracy in the representations and warranties of the Company
contained herein; or (iv) in whole or in part upon any failure of the
Company to perform its obligations hereunder or under law; or (v) any
act or failure to act or any alleged act or failure to act by any
Underwriter in connection with, or relating in any manner to, the
Common Stock or the offering contemplated hereby, and which is included
as part of or referred to in any loss, claim, damage, liability or
action arising out of or based upon any matter covered by clause (i) or
(ii) above, provided that the Company shall not be liable under this
clause (v) to the extent that a court of competent jurisdiction shall
have determined by a final judgment that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to
act undertaken or omitted to be taken by such Underwriter through its
gross negligence or willful misconduct; and to reimburse each
Underwriter and each such controlling person for any and all expenses
(including the fees and disbursements of counsel chosen by NationsBanc
Montgomery Securities, Inc.) as such expenses are reasonably incurred
by such Underwriter or such controlling person in connection with
investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or action; provided, however,
that the foregoing indemnity agreement shall not apply to any loss,
claim, damage, liability or expense to the extent, but only to the
extent, arising out of or based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon
and in conformity with written information furnished to the Company by
the Underwriters expressly for use in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or
supplement thereto); and provided, further, that with respect to any
preliminary prospectus, the foregoing indemnity agreement shall not
inure to the benefit of any Underwriter from whom the person asserting
any loss, claim, damage, liability or expense purchased Common Shares,
or any person controlling such Underwriter, if copies of the Prospectus
were timely delivered to the Underwriter pursuant to Section 2 and a
copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not
sent or given by or on behalf of such Underwriter to such person, if
required by law so to have been delivered, at or prior to the written
confirmation of the sale of the Common Shares to such person, and if
the Prospectus (as so amended or supplemented) would have cured the
defect giving rise to such loss, claim, damage, liability or expense.
The indemnity agreement set forth in this Section 8(a)(I) shall be in
addition to any liabilities that the Company may otherwise have.
(II) Indemnification by the Selling Stockholder. The
Selling Stockholder agrees to indemnify and hold harmless each
Underwriter, its officers and employees, and each person, if any, who
controls any Underwriter within the meaning of the Securities Act and
the Exchange Act against any loss, claim, damage, liability or expense,
as incurred, to which such Underwriter or such controlling person may
become subject, under the Securities Act, the Exchange Act or other
federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company) insofar
as such loss, claim, damage, liability or expense (or actions in
respect thereof) arises out of or is based
-26-
<PAGE>
(i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule
430A or Rule 434 under the Securities Act, or the omission or alleged
omission therefrom of a material fact required to be stated therein or
necessary to make the statements therein not misleading; or (ii) upon
any untrue statement or alleged untrue statement of a material fact
contained in any preliminary prospectus or the Prospectus (or any
amendment or supplement thereto), or the omission or alleged omission
therefrom of a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made,
not misleading; and to reimburse each Underwriter and each such
controlling person for any and all expenses (including the fees and
disbursements of counsel chosen by NationsBanc Montgomery Securities,
Inc.) as such expenses are reasonably incurred by such Underwriter or
such controlling person in connection with investigating, defending,
settling, compromising or paying any such loss, claim, damage,
liability, expense or action; provided, however, that such
indemnification or reimbursement shall be available in each such case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information concerning the
Selling Stockholder furnished to the Company or such Underwriter by or
on behalf of the Selling Stockholder specifically for use in the
preparation thereof; provided, further, that the Selling Stockholder
shall not be liable pursuant to this Section 8(a)(II) with respect to
any untrue statement or alleged untrue statement or omission or alleged
omission in any Preliminary Prospectus which is corrected in a
Prospectus if the person asserting such loss, claim, damage or
liability purchased Shares from an Underwriter but was not sent or
given a copy of a Prospectus at or prior to the written confirmation of
the sale of such Shares to such person; and provided, further, that the
aggregate amount of all such indemnification or reimbursement payable
by the Selling Stockholder pursuant to this Section 8(a)(II) shall in
no case exceed the net proceeds (before deducting offering expenses) to
the Selling Stockholder from the sale of Common Stock. The indemnity
agreement set forth in this Section 8(a)(II) shall be in addition to
any liabilities that the Selling Stockholder may otherwise have. The
Selling Stockholder confirms that the statements with respect to it set
forth under the caption "Principal and Selling Shareholders" in any
Preliminary Prospectus and in the Prospectus are correct and constitute
the only written information furnished by or on behalf of the Selling
Stockholder.
(b) Indemnification of the Company, its Directors and Officers and the
Selling Stockholder. Each Underwriter agrees, severally and not
jointly, to indemnify and hold harmless the Company, each of its
directors, each of its officers who signed the Registration Statement,
the Selling Stockholder and each person, if any, who controls the
Company or the Selling Stockholder within the meaning of the Securities
Act or the Exchange Act, against any loss, claim, damage, liability or
expense, as incurred, to which the Company, or any such director,
officer, the Selling Stockholder or controlling person may become
subject, under the Securities Act, the Exchange Act, or other federal
or state statutory law or regulation, or at common law or otherwise
(including in settlement of
-27-
<PAGE>
any litigation, if such settlement is effected with the written consent
of such Underwriter), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises
out of or is based upon any untrue or alleged untrue statement of a
material fact contained in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto),
or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
the Registration Statement, any preliminary prospectus, the Prospectus
(or any amendment or supplement thereto), in reliance upon and in
conformity with written information furnished to the Company and the
Selling Stockholder by the Underwriters expressly for use therein; and
to reimburse the Company, or any such director, officer, Selling
Stockholder or controlling person for any legal and other expense
reasonably incurred by the Company, or any such director, officer,
Selling Stockholder or controlling person in connection with
investigating, defending, settling, compromising or paying any such
loss, claim, damage, liability, expense or action. Each of the Company
and the Selling Stockholder, hereby acknowledges that the only
information that the Underwriters have furnished to the Company and the
Selling Stockholder expressly for use in the Registration Statement,
any preliminary prospectus or the Prospectus (or any amendment or
supplement thereto) are the statements set forth (A) as the last two
paragraphs on the inside front cover page of the Prospectus concerning
stabilization and passive market making by the Underwriters and (B) in
the table in the first paragraph and as the second, sixth and seventh
paragraphs under the caption "Underwriting" in the Prospectus; and the
Underwriters confirm that such statements are correct. The indemnity
agreement set forth in this Section 8(b) shall be in addition to any
liabilities that each Underwriter may otherwise have.
(c) Notifications and Other Indemnification Procedures. Promptly after
receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in
respect thereof is to be made against an indemnifying party under this
Section 8, notify the indemnifying party in writing of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any indemnified
party for contribution or otherwise than under the indemnity agreement
contained in this Section 8 or to the extent it is not prejudiced as a
proximate result of such failure. In case any such action is brought
against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it
shall elect, jointly with all other indemnifying parties similarly
notified, by written notice delivered to the indemnified party promptly
after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party; provided, however, if the defendants in any such
action include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that a
-28-
<PAGE>
conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or
that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such
indemnifying party's election so to assume the defense of such action
and approval by the indemnified party of counsel, the indemnifying
party will not be liable to such indemnified party under this Section 8
for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof unless (i) the
indemnified party shall have employed separate counsel in accordance
with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the
expenses of more than one separate counsel (together with local
counsel), approved by the indemnifying party (NationsBanc Montgomery
Securities, Inc. in the case of Section 8(b) and Section 9),
representing the indemnified parties who are parties to such action) or
(ii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of the
action, in each of which cases the fees and expenses of counsel shall
be at the expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8 shall not be
liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a
final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party against any loss, claim, damage,
liability or expense by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an indemnified
party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by
Section 8(c) hereof, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of
such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or
consent to the entry of judgment in any pending or threatened action,
suit or proceeding in respect of which any indemnified party is or
could have been a party and indemnity was or could have been sought
hereunder by such indemnified party, unless such settlement, compromise
or consent includes an unconditional release of such indemnified party
from all liability on claims that are the subject matter of such
action, suit or proceeding.
SECTION 9. CONTRIBUTION. If the indemnification provided for in Section
8 is for any reason held to be unavailable to or otherwise insufficient to hold
harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each
-29-
<PAGE>
indemnifying party shall contribute to the aggregate amount paid or payable by
such indemnified party, as incurred, as a result of any losses, claims, damages,
liabilities or expenses referred to therein (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Stockholder, on the one hand, and the Underwriters, on the other hand,
from the offering of the Common Shares pursuant to this Agreement or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company and
the Selling Stockholder, on the one hand, and the Underwriters, on the other
hand, in connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company and the Selling
Stockholder, on the one hand, and the Underwriters, on the other hand, in
connection with the offering of the Common Shares pursuant to this Agreement
shall be deemed to be in the same respective proportions as the total net
proceeds from the offering of the Common Shares pursuant to this Agreement
(before deducting expenses) received by the Company and the Selling Stockholder,
and the total underwriting discount received by the Underwriters, in each case
as set forth on the front cover page of the Prospectus (or, if Rule 434 under
the Securities Act is used, the corresponding location on the Term Sheet) bear
to the aggregate initial public offering price of the Common Shares as set forth
on such cover. The relative fault of the Company and the Selling Stockholder, on
the one hand, and the Underwriters, on the other hand, shall be determined by
reference to, among other things, whether any such untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact or any such inaccurate or alleged inaccurate representation or warranty
relates to information supplied by the Company or the Selling Stockholder, on
the one hand, or the Underwriters, on the other hand, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The amount paid or payable by a party as a result of the
losses, claims, damages, liabilities and expenses referred to above shall be
deemed to include, subject to the limitations set forth in Section 8(c), any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth in
Section 8(c) with respect to notice of commencement of any action shall apply if
a claim for contribution is to be made under this Section 9; provided, however,
that no additional notice shall be required with respect to any action for which
notice has been given under Section 8(c) for purposes of indemnification.
The Company, the Selling Stockholder and the Underwriters
agree that it would not be just and equitable if contribution pursuant to this
Section 9 were determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of allocation
which does not take account of the equitable considerations referred to in this
Section 9.
Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the
underwriting commissions received by such
-30-
<PAGE>
Underwriter in connection with the Common Shares underwritten by it and
distributed to the public. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 9 are several, and not joint, in proportion to their respective
underwriting commitments as set forth opposite their names in Schedule A. For
purposes of this Section 9, each officer and employee of an Underwriter and each
person, if any, who controls an Underwriter within the meaning of the Securities
Act and the Exchange Act shall have the same rights to contribution as such
Underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of the Securities Act and the Exchange Act shall have
the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed or refused to purchase does not exceed 10% of the
aggregate number of the Common Shares to be purchased on such date, the other
Underwriters shall be obligated, severally, in the proportions that the number
of Firm Common Shares set forth opposite their respective names on Schedule A
bears to the aggregate number of Firm Common Shares set forth opposite the names
of all such non-defaulting Underwriters, or in such other proportions as may be
specified by the non-defaulting Underwriters, to purchase the Common Shares
which such defaulting Underwriter or Underwriters agreed but failed or refused
to purchase on such date. If, on the First Closing Date or the Second Closing
Date, as the case may be, any one or more of the Underwriters shall fail or
refuse to purchase Common Shares and the aggregate number of Common Shares with
respect to which such default occurs exceeds 10% of the aggregate number of
Common Shares to be purchased on such date, and arrangements satisfactory to the
non-defaulting Underwriters and the Company for the purchase of such Common
Shares are not made within 48 hours after such default, this Agreement shall
terminate without liability of any party to any other party except that the
provisions of Section 4, Section 6, Section 8 and Section 9 shall at all times
be effective and shall survive such termination. In any such case either the
non-defaulting Underwriters or the Company shall have the right to postpone the
First Closing Date or the Second Closing Date, as the case may be, but in no
event for longer than seven days in order that the required changes, if any, to
the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.
As used in this Agreement, the term "Underwriter" shall be
deemed to include any person substituted for a defaulting Underwriter under this
Section 10. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date this Agreement may be terminated by the Underwriters by notice given to the
Company and the
-31-
<PAGE>
Selling Stockholder if at any time (i) trading or quotation in any of the
Company's securities shall have been suspended or limited by the Commission or
by the Nasdaq Stock Market, or trading in securities generally on either the
Nasdaq Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York,
Delaware or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States' or international political, financial or economic
conditions, as in the judgment of the Underwriters is material and adverse and
makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Underwriters there shall have occurred
any Material Adverse Change; or (v) the Company shall have sustained a loss by
strike, fire, flood, earthquake, accident or other calamity of such character as
in the judgment of the Underwriters may interfere materially with the conduct of
the business and operations of the Company regardless of whether or not such
loss shall have been insured. Any termination pursuant to this Section 11 shall
be without liability on the part of (a) the Company or the Selling Stockholder
to any Underwriter, except that the Company and the Selling Stockholder shall be
obligated to reimburse the expenses of the Underwriters pursuant to Sections 4
and 6 hereof, (b) any Underwriter to the Company or the Selling Stockholder, or
(c) of any party hereto to any other party except that the provisions of Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholder and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholder, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Underwriters:
NationsBanc Montgomery Securities, Inc.
600 Montgomery Street
San Francisco, California 94111
Facsimile: 415-249-5558
Attention: Richard A. Smith
-32-
<PAGE>
with copies to:
NationsBanc Montgomery Securities, Inc.
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
and
Buchanan Ingersoll
500 College Road East
Princeton, New Jersey 08540
Facsimile: (609) 520-0360
Attention: David J. Sorin, Esq.
If to the Company:
Axsys Technologies, Inc.
645 Madison Avenue
New York, New York 10022
Facsimile: 212-754-6348
Attention: Louis D. Mattielli, Esq.
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Facsimile: 212-859-8586
Attention: Kenneth R. Blackman, Esq.
If to the Selling Stockholder:
Lehman Brothers Inc.
3 World Financial Center
New York, NY 10285
Attention: Kevin R. Genirs, Esq.
-33-
<PAGE>
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Facsimile: 212-859-8586
Attention: Kenneth R. Blackman, Esq.
Any party hereto may change the address for receipt of
communications by giving written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and personal representatives, and no
other person will have any right or obligation hereunder. The term "successors"
shall not include any purchaser of the Common Shares as such from any of the
Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS AND OTHER MATTERS.
(a) Governing Law Provisions. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(b) Consent to Jurisdiction. Any legal suit, action or proceeding arising
out of or based upon this Agreement or the transactions contemplated
hereby ("Related Proceedings") may be instituted in the federal courts
of the United States of America located in the City and County of San
Francisco or the courts of the State of California in each case located
in the City and County of San Francisco (collectively, the "Specified
Courts"), and each party irrevocably submits to the exclusive
jurisdiction (except for proceedings instituted in regard to the
enforcement of a judgment of any such court (a "Related Judgment"), as
to which such jurisdiction is non-exclusive) of such courts in any such
suit, action or proceeding. Service of any process, summons, notice or
document by mail to such party's address set forth above shall be
effective service of process for any suit, action or other
proceeding brought in any such court. The parties irrevocably and
unconditionally waive any objection to the laying of venue of any suit,
action or other
-34-
<PAGE>
proceeding in the Specified Courts and irrevocably and unconditionally
waive and agree not to plead or claim in any such court that any such
suit, action or other proceeding brought in any such court has been
brought in an inconvenient forum. Each party not located in the United
States irrevocably appoints CT Corporation System, which currently
maintains a San Francisco office at 49 Stevenson Street, San Francisco,
California 94105, United States of America, as its agent to receive
service of process or other legal summons for purposes of any such
suit, action or proceeding that may be instituted in any state or
federal court in the City and County of San Francisco.
(c) Waiver of Immunity. With respect to any Related Proceeding, each party
irrevocably waives, to the fullest extent permitted by applicable law,
all immunity (whether on the basis of sovereignty or otherwise) from
jurisdiction, service of process, attachment (both before and after
judgment) and execution to which it might otherwise be entitled in the
Specified Courts, and with respect to any Related Judgment, each party
waives any such immunity in the Specified Courts or any other court of
competent jurisdiction, and will not raise or claim or cause to be
pleaded any such immunity at or in respect of any such Related
Proceeding or Related Judgment, including, without limitation, any
immunity pursuant to the United States Foreign Sovereign Immunities Act
of 1976, as amended.
SECTION 17. FAILURE OF THE SELLING STOCKHOLDER TO SELL AND DELIVER
COMMON SHARES. If the Selling Stockholder shall fail to sell and deliver to the
Underwriters the Common Shares to be sold and delivered by the selling
stockholder at the First Closing Date pursuant to this agreement, then the
Underwriters may at their option, by written notice from the Underwriters to the
Company and the Selling Stockholder, either (i) terminate this Agreement without
any liability on the part of any Underwriter or, except as provided in Sections
4, 6, 8 and 9 hereof, the Company or the Selling Stockholder, or (ii) purchase
the shares which the Company has agreed to sell and deliver in accordance with
the terms hereof. If the Selling Stockholder shall fail to sell and deliver to
the Underwriters the Common Shares to be sold and delivered by the Selling
Stockholder pursuant to this Agreement at the First Closing Date, then the
Underwriters shall have the right, by written notice from the Underwriters to
the Company and the Selling Stockholder, to postpone the First Closing Date, but
in no event for longer than seven days in order that the required changes, if
any, to the Registration Statement and the Prospectus or any other documents or
arrangements may be effected.
SECTION 18. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in two
or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Section headings herein are for the convenience of the parties only and
shall not affect the construction or interpretation of this Agreement.
-35-
<PAGE>
Each of the parties hereto acknowledges that it is a
sophisticated business person who was adequately represented by counsel during
negotiations regarding the provisions hereof, including, without limitation, the
indemnification provisions of Section 8 and the contribution provisions of
Section 9, and is fully informed regarding said provisions. Each of the parties
hereto further acknowledges that the provisions of Sections 8 and 9 hereto
fairly allocate the risks in light of the ability of the parties to investigate
the Company, its affairs and its business in order to assure that adequate
disclosure has been made in the Registration Statement, any preliminary
prospectus and the Prospectus (and any amendments and supplements thereto), as
required by the Securities Act and the Exchange Act.
* * * * * * * * * *
-36-
<PAGE>
If the foregoing is in accordance with your understanding of
our agreement, kindly sign and return to the Company and the Selling Stockholder
the enclosed copies hereof, whereupon this instrument, along with all
counterparts hereof, shall become a binding agreement in accordance with its
terms.
Very truly yours,
AXSYS TECHNOLOGIES, INC.
By:
-----------------------------------------
Name:
Title:
SELLING STOCKHOLDER
LEHMAN ELECTRIC INC.
By:
-----------------------------------------
Name:
Title:
The foregoing Underwriting Agreement is hereby confirmed and accepted
by the Underwriters in San Francisco, California as of the date first above
written.
NATIONSBANC MONTGOMERY SECURITIES, INC.
FURMAN SELZ LLC
OPPENHEIMER & CO., INC.
By: NATIONSBANC MONTGOMERY SECURITIES, INC.
By:
------------------------------------
-37-
<PAGE>
SCHEDULE A
NUMBER OF FIRM COMMON
UNDERWRITERS SHARES TO BE PURCHASED
NationsBanc Montgomery Securities, Inc. ............... [___]
Furman Selz LLC........................................ [___]
Oppenheimer & Co., Inc................................. [___]
---------
Total......................................... 1,528,550
<PAGE>
EXHIBIT (1)(a)
OPINION OF FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
AS COUNSEL TO THE COMPANY
Opinion of counsel for the Company to be delivered to the Underwriters
pursuant to Section 5(d) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
---------
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has the corporate power and authority to own or lease
its properties and to conduct its business substantially as described in the
Prospectus, and to enter into and perform its obligations under the Underwriting
Agreement.
(iii) The Company is qualified to transact business and is in good
standing in each of the following jurisdictions: California, Florida, New
Hampshire, New Jersey, New York and Texas.
(iv) Each of Precision Aerotech, Inc., Speedring, Inc., Speedring
Systems, Inc. and Teletrac, Inc., is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation, has corporate
power and authority to own, lease and operate its properties and to conduct its
business as described in the Prospectus and is duly qualified as a foreign
corporation in the jurisdictions set forth on Annex A hereto.
(v) All of the issued and outstanding capital stock of Precision
Aerotech, Inc. has been duly authorized and validly issued and is fully paid and
non-assessable. All of the issued and outstanding capital stock of each of
Precision Aerotech, Inc., Speedring, Inc. and Speedring Systems, Inc. is owned
of record by the Company directly or through subsidiaries, to our knowledge,
free and clear of all security interests, liens, encumbrances, equities or other
adverse claim except for the security interest of the lenders under the
Company's Senior Secured Credit Facility.
(vi) All of the issued and outstanding capital stock of Teletrac,
Inc., which consists of 207,815 shares of common stock, no par value, has been
duly authorized and validly issued and is fully paid and non-assessable.
177,935 shares of the issued and outstanding capital stock of Teletrac, Inc., is
owned of record by the Company directly or through subsidiaries, to our
knowledge, free and clear of all security interests, liens, encumbrances,
equities or other adverse claim except for the security interest of the lenders
under the Company's Senior Secured Credit Facility.
<PAGE>
(vii) The Company has authorized capital stock as set forth under the
caption "Capitalization" in the Prospectus. The outstanding shares of Common
Stock issued pursuant to the Company's exchange of its outstanding Preferred
Stock consummated in March 1997 have been duly authorized and validly issued,
and are fully paid and nonassessable.
(viii) The certificates for the Common Stock to be delivered to the
Underwriters under the Underwriting Agreement are in due and proper form and
comply with the applicable requirements of the Company's Certificate of
Incorporation (the "Certificate"), the Company's Bylaws (the "Bylaws"), and the
Delaware General Corporation Law (the "DGCL").
(ix) Neither the DGCL, the Certificate nor the Bylaws creates any
preemptive or similar rights in favor of stockholders with respect to the
issuance or sale of the Common Stock. To the best of our knowledge, no
stockholder of the Company or any other person has any such preemptive or
similar rights which have not been waived.
(x) The Underwriting Agreement has been duly authorized, executed and
delivered by the Company and constitutes a legal, valid and binding obligation
of the Company, enforceable against the Company in accordance with its terms.
(xi) The Primary Shares (and the Optional Shares to be sold by the
Company if the over-allotment option is exercised) have been duly authorized for
issuance and sale pursuant to the Underwriting Agreement and, when issued,
delivered and paid for in accordance with the terms of the Underwriting
Agreement, will be validly issued, fully paid and non-assessable. The Secondary
Shares are validly issued, fully paid and non-assessable.
(xii) Each of the Registration Statement [and the Rule 462(b)
Registration Statement], has become effective under the Securities Act of 1933,
as amended (the "Act"); to our knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or threatened by the Commission. Any
required filing of the Prospectus [and any supplement thereto] pursuant to Rule
424(b) under the Act has been made in the manner and within the time period
required by Rule 424(b).
(xiii) The Registration Statement, [including any Rule 462(b)
Registration Statement] and the Prospectus [and each amendment or supplement to
the Registration Statement and the Prospectus] (except for the financial
statements, schedules, and notes thereto and other financial and statistical
data included therein or omitted therefrom, as to which we do not express any
opinion), as of their respective effective or issue date, as the case may be,
appeared on their face to be responsive as to form in all material respects to
the requirements of the Act.
<PAGE>
(xiv) The Primary Shares and Optional Shares have been approved for
listing on the Nasdaq National Market.
(xv) The statements made in the Prospectus under the captions
"Description of Capital Stock" (other than under the subheadings " Warrants," "
Registration Rights" and " Transfer Agent and Registrar") to the extent such
statements constitute summaries of documents referred to therein or summaries of
legal matters or legal conclusions, fairly present the information disclosed
therein in all material respects, provided, however, that we express no opinion
-------- -------
as to the number of shares of Common Stock outstanding following the Offering,
the number of shares of Common Stock issuable upon exercise of outstanding
options following the Offering, the number of holders of the Company's Common
Stock prior to the consummation of the Offering, and, except as provided in
paragraph 11 above, whether upon consummation of the Offering all of the then
outstanding shares of Common Stock will be validly issued, fully paid and non-
assessable.
(xvi) No consent, approval, authorization or order of, or registration
or filing with, any United States Federal, New York or Delaware court or
governmental agency is required on the part of the Company for the delivery of
the Underwriting Agreement and for the valid issuance and sale of the Primary
Shares and the Optional Shares (if the over-allotment option is exercised) to
the Underwriters as contemplated by the Underwriting Agreement, except (a) as
have been obtained, filed or made under the Act, the Securities Exchange Act of
1934, as amended, or the DGCL or (b) as may be required by the NASD or under
state securities or blue sky laws.
(xvii) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, the Underwriting Agreement
(other than performance by the Company of its obligations under the
indemnification and contribution provisions of the Underwriting Agreement, as to
which we do not express any opinion), do not violate (i) any material provision
of present law or present regulation of any governmental agency or authority of
the United States or the State of New York or the DGCL; (ii) any provision of
the Certificate or the Bylaws of the Company; (iii) any agreement or other
instrument binding upon the Company or its subsidiaries that is filed as an
exhibit to or incorporated by reference in the Registration Statement; or (iv)
any judgment, order or decree of any governmental body, agency or court of the
United States or Delaware (as it relates to the DGCL) binding upon the Company
or its properties and set forth in the Officer's Certificate attached hereto as
Annex B; provided, however, that we express no opinion with respect to any
- ------- -------- -------
violation, conflict, breach or default not ascertainable from the text of any
such agreement, instrument, judgment, order or decree, or arising under or based
upon any cross-default provision insofar as such violation relates to a default
under an agreement that is not an exhibit to the Registration Statement or such
violation arises under or is based upon any covenant of a financial or numerical
nature or which requires arithmetic computation and provided, further, that we
-------- -------
express no opinion in this paragraph with respect to the federal securities laws
or any state securities or blue sky laws.
(xviii) The Company is not, and will not be, as a result of the
transactions contemplated by the Underwriting Agreement, and application of the
net proceeds therefrom as
<PAGE>
described in the Prospectus, required to register as an investment company
under the Investment Company Act of 1940, as amended.
(xix) Except as disclosed in the Prospectus under the captions
"Description of Capital Stock" and "Shares Eligible for Future Sale" to our
knowledge, there are no persons with registration or other similar rights to
have any equity or debt securities registered for sale under the Registration
Statement or included in the offering contemplated by the Underwriting
Agreement, except for such rights as have been duly waived.
(xx) Assuming that the Underwriters purchase the Secondary Shares to
be delivered at the First Closing Date for value and without notice of any
adverse claim as such term is used in Section 8-105 of the Uniform Commercial
Code as currently in effect in the State of New York, the delivery of
certificates representing such Secondary Shares either registered in the name of
the Underwriters or effectively endorsed to the Underwriters or in blank will
pass to the Underwriters all rights that the transferor has in such Secondary
Shares, free and clear of all adverse claims.
(xxi) Assuming that the stockholder agreement dated May 30, 1997
between and among the Company and certain minority shareholders of Teletrac (the
"Stockholder Agreement"), including any spousal consents, were duly authorized
and validly executed by the parties thereto (other than the Company), the
Stockholder Agreement constitutes a legal, valid and binding obligation of the
parties thereto, enforceable in accordance with its terms.
The opinions expressed in paragraphs (x) and (xxi) are subject to the
effect of bankruptcy, insolvency, reorganization, fraudulent transfer,
moratorium or similar laws from time to time in effect affecting creditors'
rights generally and subject to the effect of general principles of equity
(including, without limitation, standards of materiality, good faith, fair
dealing, reasonableness, equitable defenses and limits as to the availability of
equitable defenses), whether applied by a court of law or equity, and except as
rights to indemnity and contribution thereunder may be limited by applicable
law, statutory duties or public policy.
In addition, in the course of the preparation by the Company of the
Registration Statement and the Prospectus, we participated in conferences with
certain of the officers and representatives of, and the independent public
accountants for, the Company, at which the Registration Statement and the
Prospectus were discussed. Between the date of effectiveness of the
Registration Statement and the time of delivery of this letter, we participated
in additional conferences with certain of the officers and representatives of,
and the independent public accountants for, the Company, at which the contents
of the Prospectus were discussed to a limited extent. Given the limitations
inherent in the independent verification of factual matters and the character of
determinations involved in the registration process, we are not passing upon or
assuming any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus, except to
the extent set forth in the opinion in paragraphs 7 and 15 above. Subject to
the foregoing and on the basis of the information gained in the performance of
the services referred to above, including information obtained from officers and
other representatives of, and the independent public accountants for, the
Company, no facts have come to our attention that cause us to believe that the
Registration Statement, as of its effective date, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading or
that the Prospectus, as of its date, contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Also, subject to the foregoing, no facts have come to our
attention in the course of proceedings described in the second sentence of this
paragraph that cause us to believe that the Prospectus, as of the date and time
of delivery of this letter, contains an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading. We express no view or belief, however, with
respect to financial statements, schedules or notes thereto or other financial
and statistical data included in or omitted from the Registration Statement or
Prospectus.
<PAGE>
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware, the laws of the State of New York or
the federal law of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion (which shall be dated the First
Closing Date or the Second Closing Date, as the case may be, shall be
satisfactory in form and substance to the Underwriters, shall expressly state
that the Underwriters may rely on such opinion as if it were addressed to them
and shall be furnished to the Underwriters) of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Underwriters; provided, however, that such counsel shall further state that they
believe that they and the Underwriters are justified in relying upon such
opinion of other counsel, and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company and public
officials.
<PAGE>
EXHIBIT AA
OPINION OF BUCHANAN INGERSOLL
AS COUNSEL TO THE UNDERWRITERS
Opinion of counsel for the Underwriters to be delivered to the
Underwriters pursuant to Section 5(e) of the Underwriting Agreement.
References to the Prospectus in this Exhibit AA include any
----------
supplements thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the State
of Delaware.
(ii) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar
right to subscribe for or purchase securities of the Company
arising by operation of the charter or by-laws of the Company
or the General Corporation Law of the State of Delaware.
(iii) The Underwriting Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the
Company, enforceable in accordance with its terms, except as
rights to indemnification thereunder may be limited by
applicable law and except as the enforcement thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws relating to or affecting creditors'
rights generally or by general equitable principles.
(iv) The Common Shares to be purchased by the Underwriters from the
Company have been duly authorized for issuance and sale
pursuant to the Underwriting Agreement and, when issued and
delivered by the Company pursuant to the Underwriting
Agreement against payment of the consideration set forth
therein, will be validly issued, fully paid and nonassessable.
(v) Each of the Registration Statement and the Rule 462(b)
Registration Statement, if any, has been declared effective by
the Commission under the Securities Act. To the best knowledge
of such counsel, no stop order suspending the effectiveness of
either of the Registration Statement or the Rule 462(b)
Registration Statement, if any, has been issued under the
Securities Act and no proceedings for such purpose have been
instituted or are pending or are contemplated or threatened by
the Commission. Any required filing of the Prospectus and any
supplement thereto pursuant to Rule 424(b) under the
<PAGE>
Securities Act has been made in the manner and within the time
period required by such Rule 424(b).
(vi) The Registration Statement, including any Rule 462(b)
Registration Statement, the Prospectus, and each amendment or
supplement to the Registration Statement and the Prospectus,
as of their respective effective or issue dates (other than
the financial statements and supporting schedules included
therein or in exhibits to or excluded from the Registration
Statement, as to which no opinion need be rendered) comply as
to form in all material respects with the applicable
requirements of the Securities Act.
(vii) The Common Shares have been approved for listing on the Nasdaq
National Market.
(viii) The statements in the Prospectus under the captions "Risk
Factors--Control of Company", "--Effect of Certain Anti-
Takeover Provisions," "Business--Environmental Regulations",
"Business--Legal Proceedings", "Management--401(k) Plan," "--
Stock Incentive Plan," "Description of Capital Stock," "Shares
Eligible for Future Sale" and "Underwriting," insofar as such
statements constitute matters of law, summaries of legal
matters, the Company's charter or by-law provisions, documents
or legal proceedings, or legal conclusions, has been reviewed
by such counsel and fairly present and summarize, in all
material respects, the matters referred to therein.
In addition, such counsel shall state that they have
participated in conferences with officers and other representatives of the
Company, representatives of the independent public or certified public
accountants for the Company and with the Underwriters at which the contents of
the Registration Statement and the Prospectus, and any supplements or amendments
thereto, and related matters were discussed and, although such counsel is not
passing upon and does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement or the Prospectus (other than as specified above), and any supplements
or amendments thereto, on the basis of the foregoing, nothing has come to their
attention which would lead them to believe that either the Registration
Statement or any amendments thereto, at the time the Registration Statement or
such amendments became effective, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the Prospectus,
as of its date or at the First Closing Date or the Second Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading (it being
understood that such counsel need express no belief as to the financial
statements or schedules or other financial or statistical data derived
therefrom, included in the Registration Statement or the Prospectus or any
amendments or supplements thereto).
AA-2
<PAGE>
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
General Corporation Law of the State of Delaware, the laws of the State of New
York or the federal law of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion (which shall be dated the First
Closing Date or the Second Closing Date, as the case may be, shall be
satisfactory in form and substance to the Underwriters, shall expressly state
that the Underwriters may rely on such opinion as if it were addressed to them
and shall be furnished to the Underwriters) of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Underwriters; provided, however, that such counsel shall further state that they
believe that they and the Underwriters are justified in relying upon such
opinion of other counsel, and (B) as to matters of fact, to the extent they deem
proper, on certificates of responsible officers of the Company and public
officials.
AA-3
<PAGE>
EXHIBIT B
OPINION OF COUNSEL TO THE SELLING STOCKHOLDER
The opinion of such counsel pursuant to Section 5(h) shall be
rendered to the Underwriters at the request of the Company and shall so state
therein. References to the Prospectus in this Exhibit B include any supplements
thereto at the Closing Date.
(i) The Underwriting Agreement has been duly authorized, executed
and delivered by or on behalf of, and is a valid and binding
agreement of, the Selling Stockholder, enforceable in
accordance with its terms, except as rights to indemnification
thereunder may be limited by applicable law and except as the
enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally or by general
equitable principles.
(ii) The execution and delivery by the Selling Stockholder of, and
the performance by the Selling Stockholder of its obligations
under, the Underwriting Agreement and its Power of Attorney,
if any, will not contravene or conflict with, result in a
breach of, or constitute a default under, the charter or by-
laws, partnership agreement, trust agreement or other
organizational documents, as the case may be, of the Selling
Stockholder, or, to the best of such counsel's knowledge,
violate or contravene any provision of applicable law or
regulation, or violate, result in a breach of or constitute a
default under the terms of any other agreement or instrument
to which the Selling Stockholder is a party or by which it is
bound, or any judgment, order or decree applicable to the
Selling Stockholder of any court, regulatory body,
administrative agency, governmental body or arbitrator having
jurisdiction over the Selling Stockholder.
(iii) The Selling Stockholder has good and valid title to all of the
Common Shares which may be sold by the Selling Stockholder
under the Underwriting Agreement and has the legal right and
power, and all authorizations and approvals required under its
charter and by-laws, partnership agreement, trust agreement or
other organizational documents, as the case may be, to enter
into the Underwriting Agreement and its Power of Attorney (if
any), to sell, transfer and deliver all of the Common Shares
which may sold by the Selling Stockholder under the
Underwriting Agreement and to comply with its other
obligations under the Underwriting Agreement and its Power of
Attorney (if any).
(iv) The Power of Attorney of the Selling Stockholder (if any) has
been duly authorized, executed and delivered by the Selling
Stockholder and is a valid and binding agreement of the
Selling Stockholder, enforceable in accordance with
B-1
<PAGE>
its terms, except as rights to indemnification thereunder may
be limited by applicable law and except as the enforcement
thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally or by general
equitable principles.
(v) Assuming that the Underwriters purchase the Common Shares
which are sold by the Selling Stockholder pursuant to the
Underwriting Agreement for value, in good faith and without
notice of any adverse claim, the delivery of such Common
Shares pursuant to the Underwriting Agreement will pass good
and valid title to such Common Shares, free and clear of any
security interest, mortgage, pledge, lieu encumbrance or other
claim.
(vi) To the best of such counsel's knowledge, no consent, approval,
authorization or other order of, or registration or filing
with, any court or governmental authority or agency, is
required for the consummation by the Selling Stockholder of
the transactions contemplated in the Underwriting Agreement,
except as required under the Securities Act, applicable state
securities or blue sky laws, and from the NASD.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than the
General Corporation Law of the State of Delaware, the laws of the State of New
York or the federal law of the United States, to the extent they deem proper and
specified in such opinion, upon the opinion (which shall be dated the First
Closing Date or the Second Closing Date, as the case may be, shall be
satisfactory in form and substance to the Underwriters, shall expressly state
that the Underwriters may rely on such opinion as if it were addressed to them
and shall be furnished to the Underwriters) of other counsel of good standing
whom they believe to be reliable and who are satisfactory to counsel for the
Underwriters; provided, however, that such counsel shall further state that they
believe that they and the Underwriters are justified in relying upon such
opinion of other counsel, and (B) as to matters of fact, to the extent they deem
proper, on certificates of the Selling Stockholder and public officials.
B-2
<PAGE>
EXHIBIT C
[Date]
NationsBanc Montgomery Securities, Inc.
Furman Selz LLC
Oppenheimer & Co., Inc.
c/o Montgomery Securities
600 Montgomery Street
San Francisco, California 94111
RE: (the "Company")
--------------------------------------------------
Ladies & Gentlemen:
The undersigned is an owner of record or beneficially of certain shares of
Common Stock of the Company ("Common Stock") or securities convertible into or
exchangeable or exercisable for Common Stock. The Company proposes to carry out
a public offering of Common Stock (the "Offering") for which you will act as the
underwriters. The undersigned recognizes that the Offering will be of benefit to
the undersigned and will benefit the Company [by, among other things, raising
additional capital for its operations]. The undersigned acknowledges that you
and the other underwriters are relying on the representations and agreements of
the undersigned contained in this letter in carrying out the Offering and in
entering into underwriting arrangements with the Company with respect to the
Offering.
In consideration of the foregoing, the undersigned hereby agrees that the
undersigned will not, without the prior written consent of NationsBanc
Montgomery Securities, Inc. (which consent may be withheld in its sole
discretion), directly or indirectly, sell, offer, contract or grant any option
to sell (including without limitation any short sale), pledge, transfer,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Securities Exchange Act of 1934, or otherwise dispose of any shares of
Common Stock, options or warrants to acquire shares of Common Stock, or
securities exchangeable or exercisable for or convertible into shares of Common
Stock currently or hereafter owned either of record or beneficially (as defined
in Rule 13d-3 under Securities Exchange Act of 1934, as amended) by the
undersigned, or publicly announce the undersigned's intention to do any of the
foregoing, for a period commencing on the date hereof and continuing through the
close of trading on the date 120 days after the date of the Prospectus. The
undersigned also agrees and consents to the entry of stop transfer instructions
with the Company's transfer agent and registrar against the transfer of shares
of Common Stock or securities convertible into or exchangeable or exercisable
for Common Stock held by the undersigned except in compliance with the foregoing
restrictions.
C-1
<PAGE>
With respect to the Offering only, the undersigned waives any registration
rights relating to registration under the Securities Act of any Common Stock
owned either of record or beneficially by the undersigned, including any rights
to receive notice of the Offering.
This agreement is irrevocable and will be binding on the undersigned and the
respective successors, heirs, personal representatives, and assigns of the
undersigned.
- -------------------------------------------
Printed Name of Holder
By:
----------------------------------------
Signature
- ------------------------------
Printed Name of Person Signing
(and indicate capacity of person signing if
signing as custodian, trustee, or on behalf of an entity)
C-2
<PAGE>
EXHIBIT 3.4
RESTATED
CERTIFICATE OF INCORPORATION
OF
AXSYS TECHNOLOGIES, INC.
(a Delaware corporation)
Pursuant to Section 245 of the General Corporation Law of
Delaware (the "DGCL"), Axsys Technologies, Inc., a corporation
incorporated under the DGCL, does hereby certify:
FIRST: The name of the Corporation is Axsys Technologies,
Inc. (the "Corporation").
SECOND: The Corporation was originally incorporated under the
name, Vernitron Corporation and the Corporation's original certificate
of incorporation was filed with the Secretary of State of the State of
Delaware on April 11, 1968.
THIRD: The Board of Directors directed that the Corporation's
Certificate of Incorporation be restated so that the same shall read,
in its entirety, as follows:
1. The name of the corporation is Axsys Technologies,
Inc. ("the Corporation").
2. The address of its registered office in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, in
the City of Wilmington, County of New Castle. The name of
its registered agent at such address is The Corporation
Trust Company.
3. The nature of the business or purposes to be
conducted or promoted is to engage in any lawful act or
activity for which corporations may be organized under the
General Corporation Law of Delaware.
4. (a) The aggregate number of shares which the
Corporation shall have authority to issue is 34,000,000, of
which 4,000,000 shares, par value $.01 per share, shall be
designated "Preferred Stock," and 30,000,000 shares, par
value $.01 per share, shall be designated "Common Stock."
(b) Each holder of Common Stock shall be entitled to
one vote for each share of such stock held.
(c) Authority is hereby expressly granted to the
Board of Directors from time to time to issue the Preferred
Stock of any series and, in connection with the creation of
each such series, to fix by the resolution or resolutions
providing for the issue of shares thereof, the number of
shares of such series, and the designations, stated value,
powers, preferences, and rights, and the qualifications,
limitations, and restrictions thereof, of such series,
including, without limiting the generality of the foregoing,
such provisions as may be desired concerning voting,
redemption, dividends, dissolution or distribution of
assets, conversion or exchange, to the full extent now or
hereafter permitted by the laws of the State of Delaware,
including, without limiting the generality of the foregoing,
such provisions as may be desired concerning voting,
redemption, dividends, dissolution or distribution of
assets, conversion or exchange. Notwithstanding the fixing
of the maximum number of shares constituting a particular
series, the Board of Directors may at any time thereafter
authorize the issuance of additional shares of the same
series or may reduce the maximum number of shares
constituting such series.
(d) Except as may be determined by the Board or
Directors of the Corporation pursuant to paragraph (c) of
this Article 4 with respect to the voting rights, if any, of
the Preferred Stock, and except as otherwise required by
law, the holders of the Common Stock shall vote with the
holders of voting shares of the Preferred Stock, if any, as
one class with respect to the election of directors and with
respect to all other matters to be voted on by stockholders
of the Corporation.
5. The board of directors is authorized to make, alter
or repeal the by-laws of the Corporation.
<PAGE>
6. Election of directors need not be by written ballot.
7. (a) Any person who was or is a party or is
threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative (whether or not
by or in the right of the Corporation) by reason of the fact
that he is or was a director, officer, incorporator,
employee, or agent of the Corporation, or is or was serving
at the request of the Corporation, or is or was serving at
the request of the Corporation as a director, officer,
incorporator, employee, or agent of another corporation,
partnership, joint venture, trust, or other enterprise
(including an employee benefit plan), shall be entitled to
be indemnified by the Corporation to the full extent then
permitted by law against expenses (including attorneys'
fees), judgments, fines (including excise taxes assessed on
a person with respect to an employee benefit plan), and
amounts paid in settlement incurred by him in connection
with such action, suit, or proceeding. Such right of
indemnification shall inure whether or not the claim
asserted is based on matters which antedate the adoption of
this Article 7. Such right of indemnification shall continue
as to a person who has ceased to be a director, officer,
incorporator, employee, or agent and shall inure to the
benefit of the heirs and personal representatives of such a
person. The foregoing rights of indemnification shall not be
deemed exclusive of any other rights to which such a
director, officer, incorporator, employee, agent, heir, or
personal representative may otherwise be entitled.
(b) No director of the Corporation shall be
personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director;
provided, however, that the foregoing clause shall not apply
to any liability of a director (i) for any breach of the
director's duty of loyalty to the Corporation or its
stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing
violation of the law, (iii) under Section 174 of the
Delaware General Corporation Law, or on personal liability
provided herein, shall be limited to the fullest extent
permitted by the amended Delaware Law, or (iv) for any
transaction from which the director derived an improper
personal benefit. If the Delaware General Corporation Law
hereafter is amended to authorize the further elimination or
limitation of the liability of directors, then the liability
of a director of the Corporation, in addition to the
limitation on personal liability provided herein, shall be
limited to the fullest extent permitted by the amended
Delaware General Corporation Law.
8. Any action required or permitted to be taken by the
holders of Common Stock at any meeting of stockholders of
the Corporation may be taken without a meeting only by
unanimous written consent signed by the holders of all the
outstanding shares of Common Stock.
FOURTH: This Restated Certificate of Incorporation has been
duly adopted in accordance with Section 245 of the DGCL.
FIFTH: This Restated Certificate of Incorporation only
integrates and restates, and does not further amend, the provisions of
the Corporation's Certificate of Incorporation, as heretofore amended,
and there is no discrepancy between the provisions of the
Corporation's Certificate of Incorporation and the provisions of this
Restated Certificate of Incorporation.
IN WITNESS WHEREOF, this Restated Certificate of
Incorporation, having been duly adopted in accordance with the
provisions of Section 245 of the DGCL, has been executed this 14th day
of October, 1997.
AXSYS TECHNOLOGIES, INC.
By: /s/ Stephen W. Bershad
-----------------------------------
Stephen W. Bershad
Chairman of the Board and
Chief Executive Officer
<PAGE>
EXHIBIT 4(7)
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON
EXERCISE OF THIS WARRANT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. BOTH THIS WARRANT AND SUCH SHARES HAVE BEEN
ACQUIRED BY THE HOLDER FOR INVESTMENT AND MAY NOT BE SOLD, ENCUMBERED
OR OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR AN EXEMPTION FROM SUCH REGISTRATION
REQUIREMENT, AND, IF AN EXEMPTION SHALL BE APPLICABLE, THE HOLDER
SHALL HAVE DELIVERED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO
THE ISSUER THAT SUCH REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
WARRANT
TO PURCHASE 6,269 SHARES OF COMMON STOCK OF
AXSYS TECHNOLOGIES, INC.
EXPIRING JULY 20, 2004
WHEREAS, (i) on July 20, 1994, The CIT Group/Credit Finance,
Inc. ("CIT Finance"), a Delaware corporation, was granted a warrant to
purchase 31,345 shares of Common Stock of the Company (as hereinafter
defined) at a purchase price of $0.34 per share (the "Original
Warrant"); (ii) on July 25, 1996, the Company completed a one-for-five
reverse stock split of its Common Stock (the "Reverse Stock Split");
(iii) on September 24, 1997, CIT Finance's board of directors approved
the assignment of the Original Warrant to its wholly-owned subsidiary,
The CIT Group/CrF Securities Investment, Inc., a New Jersey
corporation with a place of business at 650 CIT Drive, Livingston, NJ
07039; and (iv) the Original Warrant was canceled by the Company as of
the date hereof upon receipt of an executed assignment agreement and
the original executed Original Warrant;
THIS IS TO CERTIFY that for value received, The CIT
Group/CrF Securities Investment, Inc., as assignee of CIT Finance, and
its successors and assigns (the "Holder" or sometimes "Holders") may,
at any time after the date hereof and, before 3:00 P.M., New York City
time, on July 20, 2004 (the "Expiration Date"), exercise this Warrant
in whole or in part from time to time for the purchase of Six Thousand
Two Hundred Sixty-Nine (6,269) shares of Common Stock, par value $.01
per share (such number of shares reflecting the Reverse Stock Split
and being subject to further adjustments from time to time as
hereinafter provided) at the purchase price of $1.70 per share and to
exercise all other appurtenant rights, powers and privileges provided
in this Warrant, all on the terms and conditions hereinafter
specified.
As used herein the following terms have the following
respective meanings:
"Common Stock" shall mean the common stock, $.01 par value,
of the Company.
"Company" shall mean Axsys Technologies, Inc., formerly
Vernitron Corporation, a Delaware corporation, with a place of
business at 645 Madison Avenue, New York, New York 10022 and any
corporation which shall succeed to or assume the obligations of the
Company hereunder whether by operation of law or otherwise.
"Purchase Price" shall mean $1.70 per share of Common Stock,
the price at which the Holder can exercise this Warrant to purchase
shares of Common Stock, as adjusted in accordance with the provisions
of Section 4 of this Warrant.
"register", "registered", "registration" shall mean a
registration effected by filing a registration statement in compliance
with the Securities Act.
"Securities Act" or "Act" shall mean the Securities Act of
1933, as amended, or any similar Federal statute in effect after the
date hereof, and the rules and regulations of the Securities and
Exchange Commission (or of any other Federal agency then administering
the Securities Act) promulgated thereunder, as the same shall be
amended from time to time.
"Warrant Common Stock" shall mean all shares of Common Stock
issued upon the exercise, by a Holder, of the right to purchase Common
Stock pursuant to the terms of this Warrant.
SECTION 1. EXERCISE OF WARRANT.
1.1 The Holder may, at any time and from time to time
after the date hereof, and, before 3:00 P.M., New York City time, on
the Expiration Date, exercise this Warrant in whole or in part for the
purchase of such number of shares of Common Stock as to which this
Warrant is then exercisable, at the Purchase Price. In order to
exercise this Warrant in whole or in part, the Holder shall deliver to
the Company at its principal office (a) a written notice of such
Holder's election to exercise this Warrant, in substantially the form
annexed hereto, specifying the number of shares of Common Stock to be
purchased, (b) a certified or official bank check or checks payable to
the order of the Company in an amount equal to the aggregate Purchase
Price of the shares of Common Stock being purchased and (c) this
Warrant.
<PAGE>
1.2 ISSUANCE OF WARRANT COMMON STOCK. The Company
shall, as promptly as practicable after receipt of the items specified
in Section 1.1, issue to the Holder a single certificate, registered
in the name of the Holder, or Holder's nominee or designee,
representing the number of shares of Common Stock purchased upon such
exercise. Such certificate shall be deemed to have been issued, and
such Holder or such nominee or designee shall be deemed for all
purposes to have become the holder of record of such shares of Common
Stock, as of the close of business on the day payment for such shares
is received by the Company as provided in Section 1.1 (b). If this
Warrant shall have been exercised only in part, the Company shall, at
the time of delivery of said certificate, deliver to the Holder a new
Warrant evidencing the rights of such Holder to purchase the number of
remaining shares of Common Stock called for by this Warrant, which new
Warrant shall in all other respects be identical with this Warrant.
The obligations of the Company to issue shares of Common Stock upon
exercise of this Warrant shall be conditional on the Holder's
compliance with Section 3 hereof. All shares of Common Stock issued
upon exercise of this Warrant shall be validly issued, fully paid and
non-assessable. The Company shall pay all expenses, taxes (other than
stock transfer taxes) and other charges payable in connection with the
preparation, issue and delivery of stock certificates and a new
Warrant under this Section 1.
1.3 COMPANY TO REAFFIRM OBLIGATIONS. The Company will,
at the time of the exercise of this Warrant, in full or in part, upon
the request of the Holder, acknowledge in writing its continuing
obligation to afford to such Holder any rights (including, without
limitation, the right to registration of the Warrants and the shares
of Common Stock issued and issuable upon exercise) to which the Holder
shall continue to be entitled in accordance with the provisions of
this Warrant, provided that if the Holder of this Warrant shall fail
to make any such request, such failure shall not affect the continuing
obligation of the Company to afford to such Holder any such rights.
1.4 ABSENCE OF RIGHTS OF HOLDER. This Warrant shall not
entitle the Holder to any voting rights or other rights as a
shareholder of the Company, or to any rights whatsoever except the
rights herein expressed, and no dividend or interest shall be payable
or accrue in respect to this Warrant or the interest represented
hereby or the shares issuable upon the exercise hereof unless and
until, and except to the extent that, this Warrant shall be exercised.
SECTION 2. TRANSFER AND EXCHANGE; MUTILATED OR MISSING WARRANTS.
2.1 TRANSFER OF WARRANT. This Warrant is transferable,
subject to requirements set forth herein, in whole or in part, on the
books of the Company to be maintained for such purpose, upon surrender
of this Warrant at the principal office of the Company, together with
a written assignment of this Warrant, in substantially the form
annexed hereto, duly executed by the Holder hereof, and funds
sufficient to pay any stock transfer taxes payable upon such transfer.
Upon such surrender and payment the Company shall execute and deliver
a new Warrant or Warrants in the name of the assignee or assignees and
in the authorized denominations specified in such instrument of
assignment, and this Warrant shall promptly be cancelled. If and when
this Warrant is assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner of this
Warrant for all purposes.
2.2 EXCHANGE OF WARRANT. This Warrant is exchangeable
upon the surrender hereof at the principal office of the Company, for
new Warrants in authorized denominations and of like tenor and date
representing in the aggregate the right to purchase the number of
shares of Common Stock then issuable upon the exercise hereof.
2.3 LOST, STOLEN, DESTROYED OR MUTILATED WARRANT. Upon
receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant, and, in the case of
loss, theft or destruction, of an indemnity satisfactory to it, and,
in the case of mutilation upon surrender and cancellation of this
Warrant, the Company will execute and deliver a new Warrant of like
tenor and date, upon reimbursement to the Company for all reasonable
expense incidental thereto. Any such new Warrant executed and
delivered pursuant to this section shall constitute a contractual
obligation on the part of the Company, whether or not this Warrant (so
lost, stolen, destroyed or mutilated) shall thereafter at any time be
enforceable by anyone.
2.4 PAYMENT OF EXPENSES, TAXES AND CHARGES. Except as
otherwise provided in Section 2.3, the Company shall pay all expenses,
taxes (other than stock transfer taxes) and other charges payable in
connection with the preparation, issue and delivery of Warrants under
this Section 2.
2.5 WARRANT REGISTRATION. The Company agrees to
maintain, at its principal office, books for the registration and
transfer of the Warrant. Until transfer on the books of the Company,
the Company may treat the registered holder of this Warrant as the
owner hereof for all purposes. The foregoing provisions of this
Section 2 pertaining to transfer or exchange of the Warrant are
subject to the provisions of Section 3.
<PAGE>
SECTION 3. COMPLIANCE WITH SECURITIES ACT; REGISTRATION, ETC.
3.1 RESTRICTIONS ON TRANSFER. (a) The Holder, by
acceptance hereof, represents and warrants that this Warrant, and upon
exercise hereof the holder of any Warrant Common Stock will represent
and warrant, that any shares of Warrant Common Stock are being
acquired for its own account for investment without any intent to make
a public distribution thereof in violation of the securities laws and
that this Warrant and such Warrant Common Stock may not be sold,
encumbered or otherwise transferred except pursuant to an effective
Registration Statement under the Act or an exemption from such
registration requirement and, if an exemption shall be applicable, the
Holder or the holder of Warrant Common Stock shall have delivered an
opinion of counsel reasonably satisfactory to the Company that such
registration is not required under the Act.
(b) The Holder acknowledges that the Company may
direct the Transfer Agent for the Warrant and the Warrant Common Stock
to note a stop transfer order upon its records in respect of this
Warrant and any certificates evidencing shares of the Warrant Common
Stock and that in the event of any sale, transfer or exchange of this
Warrant, any Warrant certificate issued by the Company shall bear the
legend contained on the front part of this Warrant. In addition, each
certificate for shares of Common Stock issued upon exercise of this
Warrant shall bear the following legend:
"The shares represented by this certificate
have not been registered under the Securities Act
of 1933, as amended. Such shares have been
acquired by the Holder for its own account for
investment and may not be sold, encumbered or
otherwise transferred except pursuant to an
effective registration statement under such Act or
an exemption from such registration requirement,
and, if an exemption shall be applicable, the
holder shall have delivered an opinion of counsel
reasonably satisfactory to the issuer that such
registration is not required under said Act."
(c) As a condition to any sale, transfer or other
disposition of this Warrant, the transferee shall be required to make
the representations and warranties contained in Section 3.1 (a) hereof
and acknowledge the stop transfer order and consent to the legend
contained in Section 3.1(b) hereof.
3.2 REGISTRATION RIGHTS. If at any time or from time to
time:
(a) the Company shall determine to register any of
its securities (other than by means of a registration statement on a
form (e.g., Form S-8 or Form S-4 or successor forms) which by its
terms could not be used for the sale and distribution of any Warrant
Common Stock) the Company will:
(i) promptly (but not less than thirty (30)
days prior to the filing of any registration
statement) give written notice thereof (which
shall include a list of the jurisdictions, if any,
in which the Company intends to register or
qualify such securities under the applicable blue
sky or other state securities laws) to each holder
of Warrant Common Stock;
(ii) if so requested in writing by any holder
of Warrant Common Stock, use its best efforts to
effect such registration and any qualification and
compliance relating thereto, including, without
limitation, the execution of an undertaking to
file post-effective amendments, appropriate
qualification under applicable blue sky or other
state securities laws and appropriate compliance
with the Securities Act and any other governmental
requirements or regulations as would permit or
facilitate the sale and distribution of all
Warrant Common Stock, unless, in the opinion of
counsel to the Company reasonably acceptable to
the holder of the Warrant Common Stock who wishes
to have them included in such registration
statement, registration under the Act is not
required for the sale of such Warrant Common Stock
in the manner proposed by such holders.
Notwithstanding the foregoing, if any managing
underwriter of the Company's offering shall advise
the Company in writing that, in its opinion, the
distribution of all or a portion of the Warrant
Common Stock (the "Piggy-back Shares") requested
to be included in the registration statement
concurrently with the securities being registered
by the Company would materially adversely affect
the distribution of such securities by the Company
for its own account, then the holders of such
Warrant Common Stock shall delay their offering
and sale of Warrant Common Stock (or the portions
thereof so designated by such managing
underwriter) for such period, not to exceed 180
days, as the managing underwriter shall request.
In the event of such delay, the Company shall file
such supplements, post-effective amendments or
separate registration statement, and take any such
other steps as may be necessary to permit such
holders to make their proposed offering
<PAGE>
and sale for a period of 90 days immediately following the
end of such period of delay ("Piggy-back Termination Date");
provided, however, that if at the Piggy-back Termination
Date the Piggy-back Shares are covered by a registration
statement which is, or is required to remain, in effect
beyond the Piggy-back Termination Date, the Company shall
maintain in effect the registration statement as it relates
to the Piggy-back Shares for so long as such registration
statement remains or is required to remain in effect for any
other such securities.
(iii) bear all expenses in connection with
such registration, qualification and compliance,
including, without limitation, all registration
and filing fees, printing expenses, fees and
disbursements of the Company's counsel (but
exclusive of the fees and disbursements of legal
counsel retained by holders of Warrant Common
Stock) and expenses of any audits incident to or
required by any such registration, qualification
or compliance, provided, that the Company shall
not, in any event, be required to bear the cost of
any commissions and compensation paid, and
concessions and discounts allowed to,
underwriters, dealers or others performing similar
functions in connection with the sale and
distribution of the Warrant Common Stock sold by
any holders thereof.
3.3 NO ADDITIONAL LIABILITY. Notwithstanding anything
to the contrary contained in this Section 3 or elsewhere herein, the
Company will not, in any event, be obligated to qualify any Warrant
Common Stock covered by a registration statement under any blue sky or
other state securities law if the Company would by reason thereof be
required to qualify to do business in any jurisdiction where it is not
then so qualified.
3.4 NOTIFICATION; CONTINUATION OF EFFECTIVENESS. In the
case of each registration, qualification and compliance pursuant to
this Section 3, the Company will keep all holders of Warrant Common
Stock promptly advised in writing as to the initiation of proceedings
for such registration, qualification and compliance and as to the
completion thereof, and will advise, upon request, of the progress of
such proceedings. The Company will, at its expense, keep such
registration, qualification and compliance effective for a period of
90 days after the later of (x) the effective date of such registration
statement or (y) the last day on which the holder of this Warrant is
restricted in selling Warrant Common Stock, as set forth in Section
3.2(a)(ii) hereof.
3.5 INFORMATION FROM HOLDERS. The Company may require
the holder of Warrant Common Stock, as a condition to having the
Warrant Common Stock included among the securities as to which any
registration, qualification or compliance referred to in this Section
3 is being effected, to furnish to the Company such reasonable
information regarding the proposed distribution of the Warrant Common
Stock as the Company may request in writing and as shall be required
in connection with such registration, qualification or compliance.
3.6 PROSPECTUSES, ETC. Company will, at its expense,
furnish to each holder of Warrant Common Stock with respect to which
registration has been effected, such number of prospectuses, offering
circulars and other documents incident to such registration and
related qualification or compliance as such holder from time to time
may reasonably request.
3.7 INDEMNIFICATION. The Company will indemnify each
holder of Warrant Common Stock (and each person, if any, who or which
controls such holder) and each underwriter of the Warrant Common Stock
held by or issuable to such holder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus, offering circular or other
document (including any related registration statement, notification
or the like) incident to any registration, qualification or compliance
referred to in this Section 3, or arising out of or based on any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the
Company and relating to action or inaction required of the Company in
connection with any such registration, qualification or compliance,
and will reimburse each such holder of Warrant Common Stock (and each
person, if any, who or which controls such holder of Warrant Common
Stock) and each such underwriter for any legal or any other expenses
reasonably incurred
<PAGE>
in connection with investigating or defending any such claim,
loss, damage, liability or action, provided, that the
Company will not be liable in any such case to the extent that any
such claim, loss, damage or liability arises out of or is based on any
untrue statement or omission based upon written information furnished
to the Company by an instrument duly executed by such holder of
Warrant Common Stock (and each person, if any, who or which controls
such holder of Warrant Common Stock) or underwriter and stated
specifically to be for use therein. The Company may require of such
holder of Warrant Common Stock, as a condition to having such Warrant
Common Stock held or issuable to holder of Warrant Common Stock
included among the securities as to which such registration,
qualification or compliance is being effected, that each such holder
of Warrant Common Stock and underwriter will indemnify the Company,
its directors, and its officers who sign the registration statement in
respect of such registration against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on
any untrue statement (or alleged untrue statement) of a material fact
contained in any written information furnished by such holder for
inclusion in the registration statement by such holder of Warrant
Common Stock or underwriter, as the case may be, or an omission (or
alleged omission) to state in any such written information a material
fact required to be stated therein or necessary to make the statement
therein not misleading.
3.8 NOTICE OF CLAIM, ETC. Each party entitled to
indemnification hereunder (the "Indemnified Party") shall give notice
to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of
any claim as to which indemnity may be sought, and shall permit the
Indemnifying Party to participate in the defense of any such claim or
any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall participate in the defense of such claim
or litigation, shall be acceptable to the Indemnified Party (which
acceptance shall not be unreasonably withheld), and provided further,
that the failure of any Indemnified Party to give notice as provided
in this Section 3.8 shall not relieve the Indemnifying Party of its
obligation under Section 3.7.
3.9 LISTING ON SECURITIES EXCHANGES, ETC. The Company
will, at its expense, promptly list on each national securities
exchange or quotation system on which Common Stock is at the time
listed, upon official notice of issuance upon the exercise of the
Warrant, all Warrant Common Stock, provided that the Warrant Common
Stock is registered under the Securities Act of 1933.
3.10 RIGHT TO DELIVER CASH. Notwithstanding the
provisions of this Warrant, the Company shall have the right, in lieu
of including the shares of Warrant Stock in a registration statement
pursuant to Section 3.2(a) or effecting a demand registration pursuant
to Section 3.2(b) hereof, to elect to purchase the Warrant Common
Stock to be included in such registration statement by delivering to a
holder of Warrant Common Stock cash in the amount ("Repurchase
Amount") equal to the number of shares of Warrant Common Stock to be
included in such registration statement multiplied by an amount equal
to the closing price (or, if applicable, the average of the closing
bid and asked prices) of the Company's Common Stock on the last
trading day immediately preceding the day of notice by the Company
pursuant to Section 3.2(a)(1) or the day preceding the day of demand
pursuant to Section 3.2(b), as the case may be. If the Company elects
to exercise its rights hereunder, it should so notify the holders of
Warrant Common Stock within 10 business days of such notice or demand,
as the case may be. The holders shall thereupon promptly deliver the
certificates evidencing shares of Warrant Common Stock to be sold at
the time and place designated in the Company's notice, in duly
transferable form, together with a representation and warranty of good
title free and clear of all liens and encumbrances against receipt
from the Company of a bank or certified check payable to the
respective order of such holders in the Repurchase Amount.
SECTION 4. ADJUSTMENT OF NUMBER AND PURCHASE
PRICE OF SHARES COVERED BY WARRANT.
4.1 ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If the
Company:
(a) pays a dividend or makes a distribution on its
Common Stock in its Common Stock;
(b) subdivides its outstanding Common Stock into a
greater number of shares;
(c) combines its outstanding Common Stock into a
lesser number of shares;
(d) pays a dividend or makes a distribution on its
Common Stock in shares of its capital stock other than Common Stock;
or
<PAGE>
(e) issues by reclassification of its Common Stock
any shares of its capital stock,
then the Purchase Price in effect immediately prior to such action
shall be adjusted so that the Holder of this Warrant thereafter may
receive the number of shares of capital stock of the Company which he
would have owned immediately following such action if he had exercised
the Warrant immediately prior to such action.
The adjustment shall become effective immediately
after the record date in the case of a dividend or distribution and
immediately after the effective date in the case of a sub-division,
combination or reclassification.
If after an adjustment a Holder of this Warrant
upon exercise of it may receive shares of two or more classes of
capital stock of the Company, the Board of Directors of the Company
shall in good faith determine the allocation of the adjusted exercise
price between the classes of capital stock. After such allocation, the
price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in
this Section 4.
4.2 ADJUSTMENT FOR RIGHTS OR WARRANTS ISSUED BELOW
MARKET PRICE. If the Company distributes any rights or warrants to
holders of its Common Stock entitling them to subscribe for or
purchase Common Stock at a Price Per Share (as defined and determined
according to the formula given below) lower than the Current Market
Price (as determined pursuant to Section 4.5) on the record date for
the determination of the shareholders entitled to receive such rights
or warrants, the Purchase Price shall be adjusted in accordance with
the following formula:
R
-
AE = CE x O + M
---------
0 + N
where
AE = the adjusted exercise price.
CE = the then current exercise price.
O = the number of shares of Common Stock outstanding at the
close of business on such record date. The number of shares
of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company.
N = the maximum number of additional shares of Common Stock
offered.
R = the total amount, if any, received or receivable by the
Company in consideration for the distribution of such rights
or warrants, plus the minimum aggregate amount of additional
consideration payable to the Company upon exercise thereof.
M = the Current Market Price for one share of Common Stock on
the record date.
"Price Per Share" shall be defined and determined
according to the following formula:
P = R
-
N
where
P = Price Per Share
and R and N have the meanings assigned above.
If the Company shall distribute rights or warrants for
a consideration consisting, in whole or in part, of property other
than cash the amount of such consideration shall be determined in good
faith by the Board of Directors whose determination shall be
conclusive and evidenced by a resolution of the Board of Directors
filed with the Secretary of the Company and a copy thereof made
available to the Holder of this Warrant.
The adjustment shall be made successively whenever any
such rights or warrants are distributed, and shall become effective
immediately after the record date for the determination of
shareholders entitled to receive such rights or warrants.
To the extent that such rights or warrants expire
unexercised, the Purchase Price shall be readjusted to the Purchase
Price which would then be in effect had the adjustment made upon the
record date of distribution of such rights or warrants been made upon
<PAGE>
the basis of the distribution of rights or warrants to subscribe for
or purchase only the number of shares of Common Stock as to which such
rights or warrants were actually exercised.
4.3 ADJUSTMENT FOR OTHER DISTRIBUTIONS. If the Company
distributes to all holders of its Common Stock any of its assets or
debt securities or any rights or warrants to purchase assets or debt
securities of the Company, the Purchase Price shall be adjusted in
accordance with the formula:
AE = CE x (O x M) - F
-----------------
O x M
where:
AE = the adjusted exercise price.
CE = the then current exercise price.
O = the number of shares of Common Stock outstanding on the
record date mentioned below. M = the Current Market Price
per share of Common Stock on the record date mentioned
below.
F = the aggregate fair market value on the record date of the
assets, securities, rights or warrants distributed. The
Board of Directors of the Company shall in good faith
determine the fair market value thereof.
The adjustment shall become effective immediately
after the record date for the determination of stockholders entitled
to receive the distribution.
This Section 4.3 does not apply to (i) regular
cash dividends, (ii) to reclassifications or distributions referred to
in Section 4.1, or (iii) distributions of securities referred to in
Section 4.2.
4.4 LIMITATIONS ON ADJUSTMENT. The Company at any time
may reduce the Purchase Price, temporarily or otherwise, by any
amount, but in no event shall such exercise price be less than the par
value of the Common Stock at the time such reduction is made.
4.5 CURRENT MARKET PRICE. In this Section 4, the
current market price (the "Current Market Price") per share of Common
Stock on any date shall be the average of the "Immediate Market Price"
of the Common Stock for the five consecutive trading days immediately
preceding the date in question. The "Immediate Market Price" of the
Common Stock shall be the closing sale price of the Common Stock on
the principal trading market for the Common Stock on the trading day
immediately preceding the date of the event giving rise to such
determination or, if there is no such sale price, the average of the
closing bid and asked prices for the Common Stock on such trading day
on the principal trading market for the Common Stock, as determined by
the Board of Directors, whose determination shall be made in good
faith and shall be conclusive and described in a resolution of the
Board of Directors.
4.6 WHEN ADJUSTMENT MAY BE DEFERRED. No adjustment in
the Purchase Price need be made unless the adjustment would require an
increase or decrease of at least 1% in the exercise price. Any
adjustments that are not made shall be carried forward and taken into
account in any subsequent adjustment.
All calculations under this Section 4 shall be
made to the nearest cent or to the nearest 1/100th of a share, as the
case may be.
4.7 REORGANIZATION OF THE COMPANY. If the Company is a
party to a consolidation or merger transaction in which it is not the
surviving corporation, the corporation which is the surviving
corporation shall enter into a supplemental agreement.
The supplemental agreement shall provide that the
Holder of the Warrant may exercise the Warrant for the kind and amount
of securities, cash or other assets which he would have owned
immediately after the consolidation or merger transaction if he had
exercised the Warrant immediately before the effective date of the
transaction. The supplemental agreement shall provide for adjustments
which shall be as nearly equivalent as may be practical to the
adjustment provided for in this Section 4. Such surviving corporation
shall mail to Holder a notice briefly describing the supplemental
agreement. The above provisions of this Section shall apply similarly
to successive consolidations and mergers.
If this Section 4.7 applies, Section 4.1 does not
apply. Notwithstanding any provision hereof to the contrary, in the
event the Company shall be a party to a merger or consolidation and
neither the surviving corporation thereof nor any entity controlling
the surviving corporation shall have common stock registered under the
Securities Exchange Act of 1934, the Warrant shall be exercisable only
<PAGE>
for the kind and amount of consideration payable per share of Common
Stock to holders of Common Stock in such merger or consolidation, less
the Purchase Price per share for each share of Common Stock covered by
this Warrant.
4.8 FRACTIONAL SHARES. In case at any time the total
number of shares issuable upon exercise of this Warrant shall be
increased or decreased pursuant to any of the provisions of this
Section 4, such total number of shares issuable shall be rounded out
to the nearest full share and no adjustment shall be made with respect
to any fractional share of Common Stock which otherwise would be
issuable as a result of any computation made pursuant to this Section.
4.9 CERTIFICATE. Whenever there is an adjustment in the
number and/or purchase price of shares of Common Stock issuable upon
exercise of this Warrant, as provided herein, the Company shall
promptly file with the Holder a certificate signed by the President or
a Vice President of the Company and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company,
showing in detail the facts requiring such adjustment and the purchase
price per share and number and kind of securities issuable upon
exercise of the Warrant after such adjustment.
SECTION 5. COVENANTS.
5.1 RESERVATION OF SHARES. The Company shall reserve
out of its authorized shares of Common Stock a number of shares
sufficient at all times to enable it to comply with its obligation to
issue shares of fully paid and non-assessable Common Stock upon the
exercise of the Warrant.
5.2 FURTHER ACTION. The Company will not, by amendment
of its Certificate of Incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale
of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant, but
shall at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the
Warrants against dilution or other impairment as elsewhere set forth
in this Agreement.
5.3 PRIOR NOTICE OF CERTAIN EVENTS. If the Company
shall take any action:
(a) to make any distribution to the holders of
Common Stock;
(b) to offer for subscription pro rata to the
holders of Common Stock any additional shares of stock of any class or
other rights;
(c) to accomplish any capital reorganization, or
reclassification of the capital stock of the Company, or consolidation
or merger of the Company with, or sale of all or substantially all of
its assets, to another corporation; or
(d) to effect a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then in any one or more of such events, concurrent with the giving of
notice thereof to the Company's stockholders, the Company shall give
like notice thereof to the Holder of this Warrant. Such notice shall
also specify, in the case of any such distribution or subscription
rights, the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up,
as the case may be.
SECTION 6. MISCELLANEOUS.
6.1 NOTICE. All communications in connection herewith
shall be in writing and if sent to the Holder or to the holders of
Warrant Common Stock shall be mailed, delivered or telegraphed to such
Holder or holders of Warrant Common Stock at the last address shown on
the books of the Company maintained for the registry and transfer of
the Warrant or if sent to the Company shall be mailed, delivered or
telegraphed to it at Axsys Technologies, Inc., 645 Madison Avenue, New
York, New York 10022 (until another address is furnished to the Holder
or holders of Warrant Common Stock in writing by the Company).
6.2 GOVERNING LAW. This Warrant and the provisions
contained herein shall be deemed to be a contract made under the laws
of the State of Delaware and for all purposes shall be construed in
accordance with the laws of Delaware.
6.3 SPECIFIC PERFORMANCE. The Company stipulates that
the remedies at law of the Holder hereof and of the holders of Warrant
Common Stock in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of
this Warrant are not and will not be adequate, and that such terms may
<PAGE>
be specifically enforced by a decree for the specific performance of
any agreement contained herein.
IN WITNESS WHEREOF, the Company has caused this Warrant to
be executed by its Vice President - General Counsel thereunto duly
authorized and its corporate seal to be hereunto affixed and attested
by its Treasurer as of the 15th day of October, 1997.
AXSYS TECHNOLOGIES, INC.
By: /s/ Louis D. Mattielli
-------------------------------------
Name: Louis D. Mattielli
Title: Vice President - General Counsel
ATTEST:
/s/ Vincent Giangrande
- -------------------------
Vincent Giangrande
Treasurer
<PAGE>
EXHIBIT 5(1)
October 17, 1997
Board of Directors
Axsys Technologies, Inc.
645 Madison Avenue
New York, New York 10022
Gentlemen:
We are acting as special counsel for Axsys Technologies,
Inc., a Delaware corporation (the "Company"), in connection with the
public offering pursuant to the Registration Statement on Form S-1,
Registration No. 333-36027 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Act") covering 1,528,550
shares of the Company's common stock, par value $.01 per share
("Common Stock"), of which 1,064,809 shares (the "Primary Shares") are
being offered by the Company and 463,741 shares (the "Lehman Shares")
are being offered by Lehman Electric, Inc. ("Lehman"), and an
over-allotment option of up to 229,283 shares of Common Stock (the
"Additional Shares"), which may be offered by the Company. With your
permission, all assumptions and statements of reliance herein have
been made without any independent investigation or verification on our
part except to the extent otherwise expressly stated, and we express
no opinion with respect to the subject matter or accuracy of such
assumptions or items relied upon.
In connection with this opinion, we have (i) investigated
such questions of law, (ii) examined originals or certified, conformed
or reproduction copies of such agreements, instruments, documents and
records of the Company and its subsidiaries, such certificates of
public officials, officers or other representatives of the Company and
its subsidiaries, and other persons, and such other documents, and
(iii) reviewed such information from officers and representatives of
the Company and others as we have deemed necessary or appropriate for
the purposes of this opinion.
In all such examinations, we have assumed the legal capacity
of all natural persons, the genuineness of all signatures on original
or certified copies, and the conformity to original or certified
documents of all copies submitted to us as conformed or reproduction
copies. As to various questions of fact relevant to the opinions
expressed herein, we have relied upon, and assumed the accuracy of,
certificates and oral or written statements and other information of
or from public officials, officers or other representatives of the
Company, and other persons.
Based upon the foregoing, and subject to the limitations,
qualifications and assumptions set forth herein, we are of the opinion
that the Primary Shares to be offered by the Company and the
Additional Shares that may be offered by the Company, when issued,
delivered and paid for as contemplated by the Registration Statement,
will be validly issued, fully paid and non-assessable and that the Lehman
Shares to be offered by Lehman are validly issued, fully paid and
non-assessable.
The opinions expressed herein are limited to the General
Corporation Law of the State of Delaware. We assume no obligations to
supplement this letter if any applicable laws change after the date
hereof or if we become aware of any facts that might change the
opinions expressed herein after the date hereof.
We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement and to the reference to this
firm under the caption "Legal Matters" in the prospectus forming a
part of the Registration Statement. In giving this consent, we do not
hereby admit that we are in the category of persons whose consent is
required under Section 7 of the Act.
FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
<PAGE>
By: /s/ Kenneth R. Blackman
---------------------------------
Kenneth R. Blackman
<PAGE>
EXHIBIT 10.10
FOURTH AMENDMENT TO CREDIT AGREEMENT
------------------------------------
FOURTH AMENDMENT TO CREDIT AGREEMENT (this "Fourth Amendment"),
dated as of September __, 1997, among AXSYS TECHNOLOGIES, INC. (f/k/a
VERNITRON CORPORATION), a corporation organized and existing under the
laws of the State of Delaware (the "Borrower"), the financial
institutions party to the Credit Agreement referred to below (each a
"Bank" and, collectively, the "Banks"), and BANQUE PARIBAS, as agent
(the "Agent"). All capitalized terms used herein and not otherwise
defined shall have the respective meanings provided such terms in the
Credit Agreement.
W I T N E S S E T H :
---------------------
WHEREAS, the Borrower, the Banks and the Agent are parties to a
Credit Agreement, dated as of April 25, 1996 (as amended, modified or
supplemented to the date hereof, the "Credit Agreement");
WHEREAS, the Borrower adopted an amendment to its Long-Term Stock
Incentive Plan (the "Amended Plan") increasing the number of shares
issuable under the Amended Plan to 400,000, subject to stockholders'
approval;
WHEREAS, the Borrower intends to offer for sale up to 1,064,809
shares of Common Stock (the "Borrower Common Shares") (plus an
additional 229,283 shares of Common Stock pursuant to an
over-allotment option) in connection with an underwritten public
offering of such shares (the "Offering");
WHEREAS, after giving effect to the Offering, Mr. Stephen W.
Bershad would fail to control shares of capital stock of the Borrower
entitling him to exercise at least 35% of the combined voting power of
the Voting Securities; and
WHEREAS, the Banks are willing to amend certain provisions of the
Credit Agreement, subject to and on the terms and conditions set forth
herein;
NOW, THEREFORE, it is agreed:
1. Notwithstanding anything to the contrary contained in the
Credit Agreement, the undersigned Banks hereby consent to the
amendment of the Borrower's Long-Term Stock Incentive Plan increasing
the number of shares issuable under the Amended Plan to 400,000.
2. The covenant on limitation of issuance of capital stock
contained in Section 9.18 of the Credit Agreement is hereby amended by
deleting the words "as in effect on the Effective Date" and inserting
in lieu thereof the words "as amended from time to time".
3. The definition of "Change of Control" contained in Section 11
of the Credit Agreement is hereby amended by deleting the percentage
"35%" appearing in clause (ii) thereof and inserting in lieu thereof
the percentage "25%".
4. Notwithstanding anything to the contrary contained in the
Credit Agreement, including the equity recapture provisions contained
therein, the undersigned Banks hereby consent to the Borrower using
the proceeds of 314,809 of Borrower Offered Shares sold pursuant to
the Offering, to purchase certain warrants exercisable into shares of
Common Stock (the "Warrant Shares") held by Banque Paribas, Paribas
Principal Incorporated, DLJ First ESC L.L.C. and CIT Group/Credit
Finance, Inc., which Warrant Shares would otherwise be sold pursuant
to the Offering.
5. In order to induce the Banks to enter into this Fourth
Amendment, the Borrower hereby represents and warrants that on the
Fourth Amendment Effective Date, both before and after giving effect
to this Fourth Amendment and the transactions contemplated hereby, (1)
no Default or Event of Default shall exist and (2) all of the
representations and warranties contained in the Credit Documents shall
be true and correct in all material respects, with the same effect as
though such representations and warranties had been made on and as of
the Fourth Amendment Effective Date (it being understood that any
representation or warranty made as of a specific date shall be true
and correct in all materials respects as of such specified date).
6. This Fourth Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision
of the Credit Agreement or any other Credit Document.
7. This Fourth Amendment may be executed in any number of
counterparts and by the different parties hereto on separate
counterparts, each of which counterparts when executed and delivered
shall be an original, but all of which shall together constitute one
and the same instrument. A complete set of counterparts shall be
lodged with the Borrower and the Agent.
<PAGE>
8. THIS FOURTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAW OF THE STATE OF NEW YORK.
9. This Fourth Amendment shall become effective as of the date
hereof (the "Fourth Amendment Effective Date") when each Credit Party,
the Required Banks and the Collateral Agent shall have signed a copy
hereof (whether the same or different copies) and shall have delivered
(including by way of telecopier) the same to the Agent.
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Fourth Amendment to be duly executed and delivered
as of the date first above written.
AXSYS TECHNOLOGIES, INC.,
as Borrower
By /s/ Louis D. Mattielli
------------------------------
Name: Louis D. Mattielli
Title: Vice President, General Counsel
and Secretary
PRECISION AEROTECH, INC.,
as Subsidiary Guarantor
By /s/ Louis D. Mattielli
------------------------------
Name: Louis D. Mattielli
Title: Vice President, General Counsel
and Secretary
SPEEDRING, INC.,
as Subsidiary Guarantor
By /s/ Louis D. Mattielli
------------------------------
Name: Louis D. Mattielli
Title: Vice President, General Counsel
and Secretary
SPEEDRING SYSTEMS, INC.,
as Subsidiary Guarantor
By /s/ Louis D. Mattielli
------------------------------
Name: Louis D. Mattielli
Title: Vice President, General Counsel
and Secretary
TELETRAC, INC.,
as Subsidiary Guarantor
By /s/ Louis D. Mattielli
------------------------------
Name: Louis D. Mattielli
Title: Vice President, General Counsel
and Secretary
BANQUE PARIBAS
individually, as Agent and as Collateral Agent.
By /s/ Donald Ercole
------------------------------
Name: Donald Ercole
Title: Managing Director
By /s/ David Moszer
------------------------------
Name: David Moszer
Title: Vice President
PARIBAS CAPITAL FUNDING LLC
By /s/ Eric Green
------------------------------
Name: Eric Green
Title: Director
PRIME INCOME TRUST
By /s/ Rafael Scolari
------------------------------
Name: Rafael Scolari
Title: V.P. Portfolio Manager
<PAGE>
FIRST SOURCE FINANCIAL LLP
By First Source Financial, Inc.,
its Agent/Manager
By /s/ John L. Walding
------------------------------
Name: John L. Walding
Title: Vice President
IBJ SCHRODER BANK & TRUST COMPANY
By /s/ Mark H. Minter
------------------------------
Name: Mark H. Minter
Title: Director
Fleet Bank, N.A.
By /s/ Robert Isaksen
------------------------------
Name: Robert Isaksen
Title: Vice President
<PAGE>
EXHIBIT 10.23
AXSYS TECHNOLOGIES, INC.
RESTATED SUPPLEMENTAL REVENUE GROWTH INCENTIVE PLAN
Axsys Technologies, Inc. (the "Company") has endeavored to create
incentives for its general managers, certain other employees and
corporate executive staff in order to promote overall growth in
Company revenue. Accordingly, the Company has established a
Supplemental Revenue Growth Incentive Plan, adopted by the Board of
Directors on July 24, 1996, that it is restating herein (the "Plan").
The Plan shall be in effect for calendar years 1996, 1997 and 1998.
1. (A) DEFINITIONS:
As used herein, the following capitalized terms shall have the
following meanings:
Award shall have the meaning set forth in Section 2.
Base Revenue shall mean, in respect of any Unit, net sales
generated by that Unit for the calendar year 1995.
Base Salary shall mean, in respect of any Participant, that
Participant's base salary, without regard to bonuses or incentive
payments, at the beginning of the Current Plan Year.
Board shall mean the Board of Directors of the Company.
Cause shall have the meaning set forth in Section 6.
Change in Capitalization shall have the meaning set forth in
Section 5.
Common Stock shall mean the common stock of the Company, par
value $.01 per share.
Current Plan Year shall mean the year in respect of which a
determination is being made as to whether a Participant in the
Plan is entitled to any Award.
Current Revenue shall mean, in respect of any Unit, net sales
generated by that Unit for the Current Plan Year.
Disability shall have the meaning set forth in Section 6.
Dollar Value shall have the meaning set forth in Section 3.
Fair Market Value shall have the meaning set forth in Section 9.
Participant shall mean any employee of the Company, its divisions
and subsidiaries who is selected by the Board to participate in
the Plan.
Participant Percentage shall mean, in respect of any Participant,
the percentage of that Participant's Base Salary as of the
beginning of the Current Plan Year which such Participant would
be granted as an Award pursuant to Section 2 if the Unit Target
was met. Participant Percentages are subject to adjustment as
provided in Section 2.
Previous Revenue shall mean, in respect of any Unit, the highest
net sales generated by that Unit for any year subsequent to the
calendar year 1995 and prior to the Current Plan Year and which
is higher than the Base Revenue.
Securities Act shall mean the Securities Act of 1933, as amended.
Shares shall have the meaning set forth in Section 3.
Stock Price shall have the meaning set forth in Section 3.
Unit shall mean, in respect of the employees of the divisions and
companies listed herein, each of the Motion Control Group, Beau
Interconnect, AST Bearings, Speedring Systems, Inc. and
Speedring, Inc., and, in respect of the corporate executive
staff, the aggregate of the foregoing divisions and companies.
Unit Increase shall mean, in respect of any Unit, the percentage
increase in net sales which Current Revenue for that Unit
represents, as compared with the higher of (i) the Base Revenue
or (ii) the Previous Revenue for that Unit.
<PAGE>
Unit Targets shall mean the Unit Increases established by the
Board as targets for each Unit.
Withholding Taxes shall have the meaning set forth in Section 9.
(B) ACCOUNTING:
In determining the Base Revenue, the Current Revenue and the
Previous Revenue: (i) the amount of net sales shall be determined
by the Company from the financial statements of the Company as
prepared in accordance with generally accepted accounting
principles; and (ii) adjustments shall be made to exclude net
sales resulting from any structural changes to the relevant Unit,
including acquisitions and divestitures and other extraordinary
events. All determinations by the Company of Base Revenue,
Current Revenue and Previous Revenue shall be final, binding and
conclusive upon the Participants and for all other purposes of
the Plan.
2. DETERMINATION OF AWARD:
For any Current Plan Year, a Participant shall be granted an
award under the Plan corresponding to his Participant Percentage
(an "Award") if the Unit Increase for his or her Unit meets or
exceeds the Unit Target. In the event that the Unit Increase
exceeds the Unit Target by one percentage point or more, then,
for each additional full percentage point increase over the Unit
Target, the Participant Percentage of each Participant in the
Unit will be increased by an additional two percentage points.
3. PAYMENT IN SHARES:
Subject to Sections 7 and 8, Awards shall be paid in the form of
shares of Common Stock. The number of shares of Common Stock to
which a Participant would be entitled if such Participant's Unit
Target shall be met will be calculated as follows:
Dollar Value / Stock Price = Shares
where: Dollar Value is the dollar value of the Award at the end
of the Current Plan Year calculated by multiplying the
Participant's Base Salary for such Current Plan Year by
his or her Participant Percentage, as adjusted pursuant
to Section 2,
Stock Price is the average of the high and low sales
prices of the Common Stock on the Nasdaq National Market
on the last trading day of the Current Plan Year, and
Shares is the number of shares of Common Stock to which
such Participant is entitled pursuant to the Dollar
Value of his or her Award.
Whether an Award will be granted and the Dollar Value and the
Shares related thereto will be determined on a date not later
than April 30 of the year following the Current Plan Year.
4. VESTING OF AWARDS:
Awards granted under the Plan shall vest and be paid in one-third
increments, on January 1, 12 months, 24 months and 36 months
after the end of the Current Plan Year. Subject to Sections 8 and
9, stock certificates for the Shares shall be issued in the name
of the Participant and delivered to him or her as soon as
practicable after each vesting date.
5. ADJUSTMENTS:
(a) In the event of a Change in Capitalization, the number of
Shares shall be appropriately and equitably adjusted by the
Board.
(b) If, by reason of a Change in Capitalization, a Participant
shall be entitled to receive new, additional or different shares
of stock or securities, such new, additional or different shares
of stock or securities shall thereupon be subject to all of the
conditions which were applicable to the Shares, as the case may
be, prior to such Change in Capitalization. The Company shall
promptly inform each Participant in the Plan of such adjustment.
(c) For purposes of this Section 5, "Change in Capitalization"
shall mean any increase or reduction in the number of shares of
Common Stock, or exchange of shares of Common Stock for a
different number or kind of shares or other securities or
property, by reason of a reclassification, recapitalization,
merger, consolidation, reorganization, stock dividend, stock
split or reverse stock split, spin off, combination or exchange
<PAGE>
of shares, or other similar event.
6. TERMINATION OF EMPLOYMENT:
(a) In the event a Participant voluntarily terminates employment
with the Company or any of the Units, he or she shall receive
Shares or cash only in respect of those Awards, if any, which
will have fully vested on the date of termination.
(b) If a Participant is terminated by the Company or any of the
Units for reasons other than Cause, he or she will be entitled to
Shares or cash in respect of the Awards, if any, granted prior to
the date of termination but will only receive Shares or cash in
respect of such Awards, if any, on their scheduled payment date.
There will be no acceleration of the vesting period.
(c) Notwithstanding anything to the contrary in paragraph (b)
above, if Participant's employment is terminated because of death
or Disability, he or she (or his or her estate) shall receive
within six months of the date of termination Shares or cash in
respect of the Awards, if any, granted prior thereto, even if not
vested.
(d) Termination for Cause will result in a forfeiture of all
Awards not vested, unless otherwise determined by the Board in
its sole discretion.
(e) For purposes of this Section 6, "Cause" shall mean the
willful failure by a Participant to perform his or her duties
with his or her Unit or the willful engaging in conduct which is
injurious to that Unit, monetarily or otherwise, and "Disability"
shall mean the condition which results when an individual has
become permanently and totally disabled within the meaning of
Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended.
7. PAYMENT IN CASH IN LIEU OF SHARES:
(a) In the event that the average of the high and low sales
prices of the Common Stock on the Nasdaq National Market on the
last trading day preceding the vesting date is less than the
Stock Price, each Participant entitled to payment on such vesting
date will have the option to receive a cash payment equal to the
Dollar Value in lieu of the Shares to which he would be otherwise
entitled. If such a decrease in the Company's stock price occurs,
the Company shall so notify such Participant within 10 days of
the vesting date and such Participant shall notify the Company
within 15 days of the receipt of the Company's notice of his or
her election.
(b) The Company reserves the right, in its sole discretion, to
pay any Award in cash for the amount of the Dollar Value in lieu
of issuing the Shares.
8. COMPANY'S OBLIGATIONS SUBJECT TO REGULATIONS:
(a) The obligation of the Company to issue or deliver shares of
Common Stock under the Plan shall be subject to all applicable
laws, rules and regulations, including all applicable federal and
state securities laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate
by the Board. The obligation of the Company to issue or deliver
shares of Common Stock under the Plan shall also be subject to
the Company's compliance with any agreement to which it is a
party. The Company shall not be required to issue any shares of
Common Stock, in whole or in part, unless all such laws, rules,
regulations and agreements have been complied with and all such
approvals obtained.
(b) If at any time the Board determines, in its sole discretion,
that the listing, registration or qualification of the Shares
issuable pursuant to the Plan is required by any securities
exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body is necessary or
desirable as a condition of, or in connection with, the issuance
of the Shares, no Shares shall be issued, in whole or in part,
unless listing, registration, qualification, consent or approval
has been effected or obtained free of any conditions as
acceptable to the Board.
(c) Notwithstanding anything contained in the Plan to the
contrary, in the event that the disposition of Shares acquired
pursuant to the Plan is not covered by a then current
registration statement under the Securities Act and is not
otherwise exempt from such registration, such Shares shall be
restricted against transfer to the extent required by the
Securities Act and Rule 144 or other regulations thereunder. The
Board may require any Participant receiving Shares pursuant to
the Plan, as a condition precedent to receipt of such Shares, to
represent and warrant to the Company in writing that the Shares
acquired by such Participant are acquired without a view to any
<PAGE>
distribution thereof and will not be sold or transferred other
than pursuant to an effective registration thereof under the
Securities Act or pursuant to an exemption from registration
under the Securities Act or the rules and regulations promulgated
thereunder. The certificates evidencing any of such Shares shall
be appropriately legended to reflect their status as restricted
securities as aforesaid.
9. WITHHOLDING TAXES:
The Company shall have the right to deduct from any distribution
of cash to any Participant, an amount equal to the federal, state
and local income taxes and other amounts as may be required by
law to be withheld (the "Withholding Taxes") with respect to any
Award. If a Participant is entitled to receive Shares, the
Participant shall pay the Withholding Taxes to the Company prior
to the issuance of such Shares. In satisfaction of the
Withholding Taxes to the Company, the Participant may make a
written election to have withheld a portion of the Shares
issuable to him or her having an aggregate Fair Market Value
equal to the Withholding Taxes. "Fair Market Value" shall mean
the average of the high and low sales prices of the Common Stock
on the Nasdaq National Market on the last trading day preceding
the issuance of the Shares.
10. ADMINISTRATION OF THE PLAN:
(a) The Plan shall be administered by the Board which shall hold
meetings at such times as may be necessary for the proper
administration of the Plan. In administering the Plan, the Board
shall consider the recommendations of the Stock Incentive Plan
Committee.
(b) The Board shall have the power from time to time to (i) amend
the Plan, and more specifically to determine the Participants,
adjust the Unit Targets and/or the Participant Percentages, (ii)
construe and interpret the Plan, and (iii) generally exercise
such powers and perform such acts as are deemed necessary or
advisable to promote the best interests of the Company with
respect to the Plan. Moreover, the Board may, in its sole
discretion, accelerate the vesting of the Awards, or any portion
thereof, at any time and for any reason.
(c) No member of the Board shall be personally liable for any
action, determination or interpretation made in good faith with
respect to the Plan, and all members of the Board shall be fully
indemnified and held harmless by the Company and its subsidiaries
with respect to any such action, determination or interpretation.
(d) All actions, determinations and interpretations under the
Plan by the Board, including as to the determination of the Base
Revenue, Current Revenue and Previous Revenue as well as any
adjustments thereto, shall be final, binding and conclusive upon
the Company, the Units, the Participants and all other persons
having any interest therein.
11. EFFECTIVENESS OF THE PLAN:
The effective date of the Plan shall be the date of its adoption
by the Board. The Board, in its sole discretion, may extend the
Plan after the calendar year 1998.
<PAGE>
EXHIBIT 10.25
FIFTH AMENDMENT TO CREDIT AGREEMENT
FIFTH AMENDMENT TO CREDIT AGREEMENT (this "Fifth Amendment"),
dated as of October 15, 1997, among AXSYS TECHNOLOGIES, INC. (f/k/a
VERNITRON CORPORATION), a corporation organized and existing under the
laws of the State of Delaware (the "Borrower"), the financial
institutions party to the Credit Agreement referred to below (each a
"Bank" and, collectively, the "Banks"), and BANQUE PARIBAS, as agent
(the "Agent"). All capitalized terms used herein and not otherwise
defined shall have the respective meanings provided such terms in the
Credit Agreement.
W I T N E S S E T H :
WHEREAS, the Borrower, the Banks and the Agent are parties to a
Credit Agreement, dated as of April 25, 1996 (as amended, modified or
supplemented to the date hereof, the "Credit Agreement");
WHEREAS, the Banks are willing to amend certain provisions of the
Credit Agreement, subject to and on the terms and conditions set forth
herein;
NOW, THEREFORE, it is agreed:
1. Notwithstanding anything to the contrary contained in the
Credit Agreement, the undersigned Banks hereby consent to the issuance
at up to 80,000 shares of capital stock of the Borrower pursuant to the
terms of the Borrower's Supplemental Revenue Growth Incentive Plan
substantially in the form attached hereto as Exhibit A.
2. The definition of "Change of Control" contained in Section 11
of the Credit Agreement is hereby amended by deleting the words "or
(v) an ownership change within Section 382 of the Code shall have
occurred" and by adding the word, "and" immediately preceding clause
(iv).
3. In order to induce the Banks to enter into this Fifth
Amendment, the Borrower hereby represents and warrants that on the
Fifth Amendment Effective Date, both before and after giving effect to
this Fifth Amendment and the transactions contemplated hereby, (1) no
Default or Event of Default shall exist and (2) all of the
representations and warranties contained in the Credit Documents shall
be true and correct in all material respects, with the same effect as
though such representations and warranties had been made on and as of
the Fifth Amendment Effective Date (it being understood that any
representation or warranty made as of a specific date shall be true
and correct in all materials respects as of such specified date).
4. This Fifth Amendment is limited as specified and shall not
constitute a modification, acceptance or waiver of any other provision
of the Credit Agreement or any other Credit Document.
5. This Fifth Amendment may be executed in any number of
counterparts and by the different parties hereto on separate
counterparts, each of which counterparts when executed and delivered
shall be an original, but all of which shall together constitute one
and the same instrument. A complete set of counterparts shall be
lodged with the Borrower and the Agent.
6. THIS FIFTH AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE
PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED
BY THE LAW OF THE STATE OF NEW YORK.
7. This Fifth Amendment shall become effective as of the date
hereof (the "Fifth Amendment Effective Date") when each Credit Party,
the Required Banks and the Collateral Agent shall have signed a copy
hereof (whether the same or different copies) and shall have delivered
(including by way of telecopier) the same to the Agent.
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Fifth Amendment to be duly executed and delivered
as of the date first above written.
AXSYS TECHNOLOGIES, INC.,
as Borrower
By /s/ Louis D. Mattielli
------------------------------------
Name: Louis D. Mattielli
<PAGE>
Title: Vice President, General Counsel
and Secretary
PRECISION AEROTECH, INC.,
as Subsidiary Guarantor
By /s/ Louis D. Mattielli
------------------------------------
Name: Louis D. Mattielli
Title: Vice President, General Counsel
and Secretary
SPEEDRING, INC.,
as Subsidiary Guarantor
By /s/ Louis D. Mattielli
------------------------------------
Name: Louis D. Mattielli
Title: Vice President, General Counsel
and Secretary
SPEEDRING SYSTEMS, INC.,
as Subsidiary Guarantor
By /s/ Louis D. Mattielli
------------------------------------
Name: Louis D. Mattielli
Title: Vice President, General Counsel
and Secretary
TELETRAC, INC.,
as Subsidiary Guarantor
By /s/ Louis D. Mattielli
------------------------------------
Name: Louis D. Mattielli
Title: Vice President, General Counsel
and Secretary
BANQUE PARIBAS
individually, as Agent and as Collateral Agent.
By /s/ Donald Ercole
------------------------------------
Name: Donald Ercole
Title: Managing Director
By /s/ Douglas R. Gouchee
------------------------------------
Name: Douglas R. Gouchee
Title: Director
PARIBAS CAPITAL FUNDING LLC
By
------------------------------------
Name:
Title:
PRIME INCOME TRUST
By /s/ Rafael Scolari
------------------------------------
Name: Rafael Scolari
Title: V.P. Portfolio Manager
FIRST SOURCE FINANCIAL LLP
By First Source Financial, Inc.,
its Agent/Manager
By /s/ James W. Wilson
------------------------------------
Name: James W. Wilson
Title: Senior Vice President
IBJ SCHRODER BANK & TRUST COMPANY
<PAGE>
By /s/ Mark H. Minter
------------------------------------
Name: Mark H. Minter
Title: Director
Fleet Bank, N.A.
By /s/ Robert Isaksen
------------------------------------
Name: Robert Isaksen
Title: Vice President
<PAGE>
EXHIBIT 10(26)
[AXSYS LETTERHEAD]
October 15, 1997
HAND DELIVERY
The CIT Group/CrF Securities Investment, Inc.
Attention: James P. Shanahan, Esq.
650 CIT Drive
Livingston, New Jersey 07039-5795
RE: Warrant dated October 15, 1997 to purchase
6,269 shares of Common Stock at an exercise
price of $1.70 per share of Common Stock (the
"Warrant")
Dear Ms. Beroza:
Reference is made to the above-referenced Warrant
whereby The CIT Group/CrF Securities Investment, Inc.
("Warrantholder"), as assignee and wholly-owned subsidiary
of The CIT Group/Credit Finance, Inc. ("CIT Finance"), is
entitled to register the shares of common stock par value
$.01 per share (the "Common Stock") of Axsys Technologies,
Inc. (the "Company"), issuable upon exercise of the Warrant
currently held by Warrantholder. Warrantholder confirms
that instead of exercising the Warrant and selling the
shares of Common Stock issuable upon such exercise in the
contemplated public offering of the Common Stock pursuant to
a Registration Statement (the "Registration Statement")
filed with the Securities and Exchange Commission under the
Securities Act of 1933, as amended (the "Offering"), and
notwithstanding anything to the contrary in the Warrant,
Warrantholder agrees to sell to the Company and the Company
agrees to repurchase from Warrantholder the Warrant upon the
terms and conditions set forth below:
1. Waiver of Notice. Warrantholder confirms and
ratifies the waiver of any failure by the Company to deliver
notice pursuant to Section 3.2 of the Warrant or any defect
in the form of such notice relating to the Offering.
2. Repurchase. The Company will repurchase the
Warrant at a price per share of Common Stock subject to the
Warrant equal to the excess of the public offering price per
share as set forth in the final prospectus for the Offering,
less the underwriting discount per share, over the exercise
price per share of the Warrant. The public offering price
per share will be determined by the Pricing Committee of the
Board of Directors of the Company.
3. Representations and Warranties of the
Company. The Company hereby represents and warrants that:
(a) The Company has all requisite corporate
power and authority to enter into this agreement and to
<PAGE>
consummate the transactions contemplated hereby.
(b) The execution and delivery by the
Company of this agreement, and the consummation by the
Company of the transactions contemplated hereby, have
been duly authorized by all necessary corporate action
on the part of the Company.
(c) This agreement has been duly executed
and delivered by the Company and constitutes a valid
and binding obligation of the Company enforceable
against the Company in accordance with its terms.
(d) Neither the execution and delivery of
this agreement nor the consummation of the transactions
contemplated hereby will (i) violate or conflict with,
or constitute a default under, or cause the
acceleration of the maturity of any debt obligation
pursuant to, any material agreement or commitment to
which the Company is a party or by which the Company is
bound, (ii) conflict with, or result in a breach of,
the charter and bylaws of the Company, (iii) violate
any order, judgment or decree applicable to the
Company, or (iv) violate any provision of any federal,
state, local and foreign laws, rules and regulations
(collectively, the "Laws").
(e) No consent, approval or authorization
of, or declaration, filing or registration with, any
governmental or regulatory authority is required in
connection with the Company's execution and delivery of
this agreement and consummation of the transactions
contemplated hereby, except for such consent, approval
or authorization of, or declaration, filing or
registration with, any governmental or regulatory
authority which is required in connection with the
filing of the Registration Statement.
4. Representations, Warranties and Covenants of
Warrantholder. Warrantholder hereby represents, warrants
and covenants that:
(a) Warrantholder has all requisite power
and authority to enter into this agreement and to
consummate the transactions contemplated hereby.
(b) The execution and delivery by
Warrantholder of this agreement, and the consummation
by Warrantholder of the transactions contemplated
hereby, have been duly authorized by all necessary
corporate action on the part of Warrantholder.
(c) This agreement has been duly executed
and delivered by Warrantholder and constitutes a valid
and binding obligation of Warrantholder enforceable
against Warrantholder in accordance with its terms,
except as the enforcement hereof may be limited by
bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting the rights
and remedies of creditors or by general equitable
principles.
(d) Warrantholder has good title to the
<PAGE>
Warrant, free and clear of any lien, pledge, security
interest or other encumbrance whatsoever, and, upon
transfer of the Warrant to the Company pursuant to this
agreement and upon receipt of the purchase price set
forth in Section 2 hereof, the Company will acquire
good title to the Warrant free and clear of any lien,
pledge, security interest or other encumbrance
whatsoever.
(e) Warrantholder will not (i) exercise the
Warrant or seek to have the shares issuable upon such
exercise registered pursuant to the Warrant and (ii)
sell, transfer, assign, pledge or otherwise dispose of
the Warrant beneficially owned by it, other than
pursuant to this agreement (unless this agreement is
terminated as provided in Section 8 hereof).
(f) Neither the execution and delivery of
this agreement nor the consummation of the transactions
contemplated hereby will (i) violate or conflict with,
or constitute a default under, or cause the
acceleration of the maturity of any debt obligation
pursuant to, any material agreement or commitment to
which Warrantholder is a party or by which
Warrantholder is bound, (ii) conflict with, or result
in a breach of, the charter and bylaws of
Warrantholder, (iii) violate any order, judgment or
decree applicable to Warrantholder, or (iv) violate any
provision of the Laws.
(g) No consent, approval or authorization
of, or declaration, filing or registration with, any
governmental or regulatory authority is required in
connection with Warrantholder's execution and delivery
of this agreement and consummation of the transactions
contemplated hereby.
5. Condition to the Company's Obligation. The
Company's obligation to repurchase the Warrant under the
terms of this agreement is contingent on the sale by the
Company in the Offering of at least 1,064,809 shares of
Common Stock.
6. Closing. The repurchase of the Warrant and
payment therefor shall take place concurrently with the
closing of the Offering. At the closing of the repurchase
of the Warrant, Warrantholder will deliver to the Company
the original executed Warrant and, in exchange therefor, the
Company will make payment by wire transfer of the amount
determined pursuant to Section 2 hereof to the Warrantholder
to the following account: The CIT Group Holding Inc./CrF
Securities, Investment, Inc., Chase Manhattan Bank, Account
# 026036503, ABA # 021000021.
7. Continued Effectiveness of the Warrant. The
Warrant shall remain in full force and effect until
repurchased by the Company, subject to the waivers agreed
upon in the introductory paragraph above.
8. Termination. This agreement may be
terminated by the Company at any time if the Offering is
abandoned prior to December 31, 1997 and shall automatically
terminate on such date if the Offering is not then
<PAGE>
consummated.
9. Counterparts. This letter agreement may be
executed in counterparts, each of which shall be deemed to
be an original, and all of which shall constitute one and
the same agreement.
[The Remainder of this Page Intentionally Left
Blank]
Please confirm your agreement with the foregoing
by signing and returning to the undersigned the duplicate
copy of this letter enclosed herewith.
Very truly yours,
Axsys Technologies, Inc.
By: /s/ Louis D. Mattielli
-----------------------
Louis D. Mattielli
Vice President and
General Counsel
Accepted and Agreed
as of the date first above written
The CIT Group/CrF Securities Investment, Inc.
By:
----------------------
Name:
Title:
<PAGE>
EXHIBIT 10.27
[AXSYS LETTERHEAD]
October 15, 1997
HAND DELIVERY
Banque Paribas
Paribas Principal, Inc.
Attention: Mr. Donald Ercole
787 Seventh Avenue
New York, NY 10022
RE: Warrants dated April 25, 1996 to purchase
155,278 and 133,262 shares of Common Stock at
an exercise price of $6.25 and $.05,
respectively, per share of Common Stock (the
"Warrants")
Dear Mr. Ercole:
Reference is made to the letter dated September 4,
1997 requesting registration of the shares of common stock
of Axsys Technologies, Inc. (the "Company"), par value $.01
per share (the "Common Stock"), issuable upon exercise of
the Warrants currently held by Banque Paribas and Paribas
Principal, Inc. (each a "Warrantholder"). Instead of
exercising the Warrants and selling the shares of Common
Stock issuable upon such exercise in the contemplated public
offering of the Common Stock pursuant to a Registration
Statement (the "Registration Statement") filed with the
Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Offering"), and notwithstanding
anything to the contrary in such letter, the Warrants or the
related Warrant Purchase Agreement, Warrantholder agrees to
sell to the Company and the Company agrees to repurchase
from Warrantholder the Warrants upon the terms and
conditions set forth below:
1. Repurchase. The Company will repurchase the
Warrants at the respective price per share of Common Stock
subject to each Warrant equal to the excess of the public
offering price per share as set forth in the final
prospectus for the Offering, less the underwriting discount
per share, over the respective exercise price per share of
each Warrant. The public offering price per share will be
determined by the Pricing Committee of the Board of
Directors of the Company.
2. Representations and Warranties of the
Company. The Company hereby represents and warrants that:
(a) The Company has all requisite corporate
power and authority to enter into this agreement and to
consummate the transactions contemplated hereby.
(b) The execution and delivery by the
Company of this agreement, and the consummation by the
<PAGE>
Company of the transactions contemplated hereby, have
been duly authorized by all necessary corporate action
on the part of the Company.
(c) This agreement has been duly executed
and delivered by the Company and constitutes a valid
and binding obligation of the Company enforceable
against the Company in accordance with its terms.
(d) Neither the execution and delivery of
this agreement nor the consummation of the transactions
contemplated hereby will (i) violate or conflict with,
or constitute a default under, or cause the
acceleration of the maturity of any debt obligation
pursuant to, any material agreement or commitment to
which the Company is a party or by which the Company is
bound, (ii) conflict with, or result in a breach of,
the charter and bylaws of the Company, (iii) violate
any order, judgment or decree applicable to the
Company, or (iv) violate any provision of any federal,
state, local and foreign laws, rules and regulations
(collectively, the "Laws").
(e) No consent, approval or authorization
of, or declaration, filing or registration with, any
governmental or regulatory authority is required in
connection with the Company's execution and delivery of
this agreement and consummation of the transactions
contemplated hereby, except for such consent, approval
or authorization of, or declaration, filing or
registration with, any governmental or regulatory
authority which is required in connection with the
filing of the Registration Statement.
3. Representations, Warranties and Covenants of
Warrantholder. Warrantholder hereby represents, warrants
and covenants that:
(a) Warrantholder has all requisite power
and authority to enter into this agreement and to
consummate the transactions contemplated hereby.
(b) The execution and delivery by
Warrantholder of this agreement, and the consummation
by Warrantholder of the transactions contemplated
hereby, have been duly authorized by all necessary
corporate action on the part of Warrantholder.
(c) This agreement has been duly executed
and delivered by Warrantholder and constitutes a valid
and binding obligation of Warrantholder enforceable
against Warrantholder in accordance with its terms.
(d) Warrantholder has good title to the
Warrants, free and clear of any lien, pledge, security
interest or other encumbrance whatsoever, and, upon
transfer of the Warrants to the Company pursuant to
this agreement, the Company will acquire good title to
the Warrants free and clear of any lien, pledge,
security interest or other encumbrance whatsoever.
(e) Warrantholder will not (i) exercise the
Warrants or seek to have the shares issuable upon such
<PAGE>
exercise registered pursuant to the Warrants and (ii)
sell, transfer, assign, pledge or otherwise dispose of
the Warrants beneficially owned by it, other than
pursuant to this agreement.
(f) Neither the execution and delivery of
this agreement nor the consummation of the transactions
contemplated hereby will (i) violate or conflict with,
or constitute a default under, or cause the
acceleration of the maturity of any debt obligation
pursuant to, any material agreement or commitment to
which Warrantholder is a party or by which
Warrantholder is bound, (ii) conflict with, or result
in a breach of, the charter and bylaws of
Warrantholder, (iii) violate any order, judgment or
decree applicable to Warrantholder, or (iv) violate any
provision of the Laws.
(g) No consent, approval or authorization
of, or declaration, filing or registration with, any
governmental or regulatory authority is required in
connection with Warrantholder's execution and delivery
of this agreement and consummation of the transactions
contemplated hereby.
4. Condition to the Repurchase and Sale of the
Warrants. The Company's obligation to repurchase the
Warrants under the terms of this agreement is contingent on
the sale by the Company in the Offering of at least
1,064,809 shares of Common Stock. The Warrantholder's
obligation to sell the Warrants under the terms of this
agreement is contingent on the Offering price of at least
$25.00 per share of Common Stock.
5. Closing. The repurchase of the Warrants and
payment therefor shall take place concurrently with the
closing of the Offering. At the closing of the repurchase
of the Warrants, Warrantholder will deliver to the Company
the original executed Warrants and, in exchange therefor,
the Company will deliver to Warrantholder a bank or
certified check payable to the Warrantholder or any of its
affiliates for the amount determined pursuant to Section 1
hereof.
6. Continued Effectiveness of the Warrants. The
Warrants shall remain in full force and effect until
repurchased by the Company, subject to the waivers agreed
upon in the letter first mentioned above.
7. Termination. This agreement may be
terminated by the Company at any time if the Offering is
abandoned prior to December 31, 1997 and shall automatically
terminate on such date if the Offering is not then
consummated.
8. Counterparts. This letter agreement may be
executed in counterparts, each of which shall be deemed to
be an original, and all of which shall constitute one and
the same agreement.
<PAGE>
[The Remainder of this Page Intentionally Left
Blank]
Please confirm your agreement with the foregoing
by signing and returning to the undersigned the duplicate
copy of this letter enclosed herewith.
Very truly yours,
Axsys Technologies, Inc.
By: /s/ Louis D. Mattielli
----------------------
Louis D. Mattielli
Vice President and
General Counsel
Accepted and Agreed
as of the date first above written
Paribas Principal, Inc.
By:
---------------------
Name:
Title:
Banque Paribas
By:
---------------------
Name:
Title:
21904
<PAGE>
EXHIBIT 10.28
[AXSYS LETTERHEAD]
October 15, 1997
HAND DELIVERY
DLJ First ESC L.L.C.
Attention: Ivy Dodes, Esq.
277 Park Avenue
New York, NY 10172
RE: Warrant dated April 25, 1996 to purchase
20,000 shares of Common Stock at an exercise
price of $6.25 per share of Common Stock (the
"Warrant")
Dear Ms. Dodes:
Reference is made to the letter dated September 4,
1997 requesting registration of the shares of common stock
of Axsys Technologies, Inc. (the "Company"), par value $.01
per share (the "Common Stock"), issuable upon exercise of
the Warrant currently held by DLJ First ESC L.L.C.
("Warrantholder"). Instead of exercising the Warrant and
selling the shares of Common Stock issuable upon such
exercise in the contemplated public offering of the Common
Stock pursuant to a Registration Statement (the
"Registration Statement") filed with the Securities and
Exchange Commission under the Securities Act of 1933, as
amended (the "Offering"), and notwithstanding anything to
the contrary in such letter or in the Warrant, Warrantholder
agrees to sell to the Company and the Company agrees to
repurchase from Warrantholder the Warrant upon the terms and
conditions set forth below:
1. Repurchase. The Company will repurchase the
Warrant at a price per share of Common Stock subject to the
Warrant equal to the excess of the public offering price per
share as set forth in the final prospectus for the Offering,
less the underwriting discount per share, over the exercise
price per share of the Warrant. The public offering price
per share will be determined by the Pricing Committee of the
Board of Directors of the Company.
2. Representations and Warranties of the
Company. The Company hereby represents and warrants that:
(a) The Company has all requisite corporate
power and authority to enter into this agreement and to
consummate the transactions contemplated hereby.
(b) The execution and delivery by the
Company of this agreement, and the consummation by the
Company of the transactions contemplated hereby, have
been duly authorized by all necessary corporate action
on the part of the Company.
<PAGE>
(c) This agreement has been duly executed
and delivered by the Company and constitutes a valid
and binding obligation of the Company enforceable
against the Company in accordance with its terms.
(d) Neither the execution and delivery of
this agreement nor the consummation of the transactions
contemplated hereby will (i) violate or conflict with,
or constitute a default under, or cause the
acceleration of the maturity of any debt obligation
pursuant to, any material agreement or commitment to
which the Company is a party or by which the Company is
bound, (ii) conflict with, or result in a breach of,
the charter and bylaws of the Company, (iii) violate
any order, judgment or decree applicable to the
Company, or (iv) violate any provision of any federal,
state, local and foreign laws, rules and regulations
(collectively, the "Laws").
(e) No consent, approval or authorization
of, or declaration, filing or registration with, any
governmental or regulatory authority is required in
connection with the Company's execution and delivery of
this agreement and consummation of the transactions
contemplated hereby, except for such consent, approval
or authorization of, or declaration, filing or
registration with, any governmental or regulatory
authority which is required in connection with the
filing of the Registration Statement.
3. Representations, Warranties and Covenants of
Warrantholder. Warrantholder hereby represents, warrants
and covenants that:
(a) Warrantholder has all requisite power
and authority to enter into this agreement and to
consummate the transactions contemplated hereby.
(b) The execution and delivery by
Warrantholder of this agreement, and the consummation
by Warrantholder of the transactions contemplated
hereby, have been duly authorized by all necessary
corporate action on the part of Warrantholder.
(c) This agreement has been duly executed
and delivered by Warrantholder and constitutes a valid
and binding obligation of Warrantholder enforceable
against Warrantholder in accordance with its terms.
(d) Warrantholder has good title to the
Warrant, free and clear of any lien, pledge, security
interest or other encumbrance whatsoever, and, upon
transfer of the Warrant to the Company pursuant to this
agreement, the Company will acquire good title to the
Warrant free and clear of any lien, pledge, security
interest or other encumbrance whatsoever.
(e) Warrantholder will not (i) exercise the
Warrant or seek to have the shares issuable upon such
exercise registered pursuant to the Warrant and (ii)
sell, transfer, assign, pledge or otherwise dispose of
the Warrant beneficially owned by it, other than
pursuant to this agreement.
<PAGE>
(f) Neither the execution and delivery of
this agreement nor the consummation of the transactions
contemplated hereby will (i) violate or conflict with,
or constitute a default under, or cause the
acceleration of the maturity of any debt obligation
pursuant to, any material agreement or commitment to
which Warrantholder is a party or by which
Warrantholder is bound, (ii) conflict with, or result
in a breach of, the charter and bylaws of
Warrantholder, (iii) violate any order, judgment or
decree applicable to Warrantholder, or (iv) violate any
provision of the Laws.
(g) No consent, approval or authorization
of, or declaration, filing or registration with, any
governmental or regulatory authority is required in
connection with Warrantholder's execution and delivery
of this agreement and consummation of the transactions
contemplated hereby.
4. Condition to the Company's Obligation. The
Company's obligation to repurchase the Warrant under the
terms of this agreement is contingent on the sale by the
Company in the Offering of at least 1,064,809 shares of
Common Stock.
5. Closing. The repurchase of the Warrant and
payment therefor shall take place concurrently with the
closing of the Offering. At the closing of the repurchase
of the Warrant, Warrantholder will deliver to the Company
the original executed Warrant and, in exchange therefor, the
Company will deliver to Warrantholder a bank or certified
check payable to the Warrantholder or any of its affiliates
for the amount determined pursuant to Section 1 hereof, less
the amount of expenses as provided below.
6. Expenses. To induce the Company to enter
into this agreement, Warrantholder will bear $1,000 of
expenses incurred by the Company in connection with the
transactions contemplated hereby.
7. Continued Effectiveness of the Warrant. The
Warrant shall remain in full force and effect until
repurchased by the Company, subject to the waivers agreed
upon in the letter first mentioned above.
8. Termination. This agreement may be
terminated by the Company at any time if the Offering is
abandoned prior to December 31, 1997 and shall automatically
terminate on such date if the Offering is not then
consummated.
9. Counterparts. This letter agreement may be
executed in counterparts, each of which shall be deemed to
be an original, and all of which shall constitute one and
the same agreement.
Please confirm your agreement with the foregoing
by signing and returning to the undersigned the duplicate
copy of this letter enclosed herewith.
Very truly yours,
<PAGE>
Axsys Technologies, Inc.
By: /s/ Louis D. Mattielli
----------------------
Louis D. Mattielli
Vice President and
General Counsel
Accepted and Agreed
as of the date first above written
DLJ First ESC L.L.C.
By: DLJ LBL Plans Management Corporation
as Manager
By:
----------------------
Name:
Title:
21903
<PAGE>
EXHIBIT 10.30
[AXSYS LETTERHEAD]
October 13, 1997
Lehman Electric, Inc.
200 Vesey Street
New York, NY 10285
Dear Ladies and Gentlemen:
I am writing this letter on behalf of Axsys Technologies, Inc.
(the "Company") to confirm our understanding of the arrangements
between the Company and you regarding certain expenses incurred in
connection with the underwriting described in the Underwriting
Agreement proposed to be entered into by the Company and the
Underwriters, a copy of which is attached hereto. Specifically, you
have agreed to reimburse the Company for 30.3% of the costs, fees and
expenses that it incurs in connection with the underwriting and that
are described in Section 4 of the proposed Underwriting Agreement.
Capitalized terms used in this letter shall have the meanings given to
them in the proposed Underwriting Agreement.
Please indicate your agreement by signing this letter where
indicated below and returning the signed letter to us. An extra copy
is included for your files.
Very truly yours,
AXSYS TECHNOLOGIES, INC.
By: /s/ Stephen W. Bershad
-----------------------------------
Stephen W. Bershad
Chairman and Chief Executive Officer
LEHMAN ELECTRIC, INC.
By: /s/ Eliot M. Fried
---------------------------
Eliot M. Fried
Managing Director
<PAGE>
EXHIBIT 23(1)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports on Axsys Technologies, Inc. and to all references to our Firm included
in or made a part of this Amendment No. 2 to the Registration Statement on Form
S-1.
New York, New York
October 17, 1997
Arthur Andersen LLP
/s/ Arthur Andersen LLP
<PAGE>
EXHIBIT 23(2)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on Teletrac, Inc. and to all references to our Firm included in or made
a part of this Amendment No. 2 to the Registration Statement on Form S-1.
Los Angeles, California
October 17, 1997
Arthur Andersen LLP
/s/ Arthur Andersen LLP
<PAGE>
EXHIBIT 23(3)
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the heading "Experts" and to
the use of our report dated July 19, 1995 related to Precision Aerotech, Inc.
in this Amendment No. 2 to the Registration Statement on Form S-1 (File No.
333-36027) and related Prospectus of Axsys Technologies, Inc. for the
registration of 1,757,833 shares of its Common Stock.
San Diego, California
October 17, 1997
McGladrey & Pullen, LLP
/s/ McGladrey & Pullen, LLP
