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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 19, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
HIGH VOLTAGE ENGINEERING CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 3625 04-2035796
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
401 EDGEWATER PLACE, SUITE 680
WAKEFIELD, MA 01880
(617) 224-1001
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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JOSEPH W. MCHUGH, JR.,
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
HIGH VOLTAGE ENGINEERING CORP.
401 EDGEWATER PLACE
WAKEFIELD, MA 01880
(617) 224-1001
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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WITH A COPY TO:
MICHAEL P. O'BRIEN, ESQ.
BINGHAM, DANA & GOULD LLP
150 FEDERAL STREET
BOSTON, MA 02110
(617) 951-8302
FACSIMILE NO. (617) 951-8736
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- --------------------------------------------------------------------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
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If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE OFFERING REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(1)(3) PRICE(1)(3) FEE
<S> <C> <C> <C> <C>
12 -1/2% Series A Exchange Senior
Redeemable Preferred Stock, 33,000(2) $1,066.67 $35,200,000 $10,666.67
liquidation preference $1,000.
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933, as amended.
(2) The maximum number of shares of 12-1/2% Series A Exchange Senior
Redeemable Preferred Stock that may be issued pursuant to this
Registration Statement. This Registration Statement also relates to an
indeterminate number of shares of 12-1/2% Series A Exchange Senior
Redeemable Preferred Stock that may be issued as dividends payable on
shares of 12-1/2% Series A Exchange Senior Redeemable Preferred Stock
pursuant to the terms thereof.
(3) Represents the price to investors per unit consisting of (i) one share
of 12-1/2% Series A Senior Redeemable Preferred Stock, liquidation
preference $1,000 and (ii) certain other securities of the Registrant.
Solely for the purposes of calculating the registration fee, the
Registrant has allocated the full $1066.67 unit price to the 12-1/2%
Series A Senior Redeemable Preferred Stock, liquidation preference
$1,000. Reflects proceeds received upon issuance of the units, before
deduction of discounts, fees and expenses
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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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 is
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED AUGUST 19, 1997
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING SHARES OF
12-1/2% SERIES A SENIOR REDEEMABLE PREFERRED STOCK
FOR SHARES OF
12-1/2% SERIES A EXCHANGE SENIOR REDEEMABLE PREFERRED STOCK
OF
[LOGO] HIGH VOLTAGE ENGINEERING CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON _______________, 1997, UNLESS EXTENDED
__________________
High Voltage Engineering Corporation ("HVE" or, together with its subsidiaries,
the "Company") hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the "Letter
of Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange shares of its 12-1/2% Series A Exchange Senior Redeemable Preferred
Stock, liquidation preference $1,000 per share (the "Exchange Preferred Stock"),
for any and all of the outstanding shares of 12-1/2% Senior Redeemable Preferred
Stock, liquidation preference $1,000 per share (the "Series A Preferred Stock"),
of the Company. The terms of the Exchange Preferred Stock are substantially
identical to the terms of the Series A Preferred Stock, except that the shares
of Exchange Preferred Stock will have been registered under the Securities Act
of 1933, as amended (the "Securities Act") and will not contain terms
restricting the transfer of such shares.
The Company will accept for exchange any and all shares of Series A
Preferred Stock that are validly tendered on or prior to 5:00 p.m., New York
City time, on the date the Exchange Offer expires, which will be ___________,
1997, unless the Exchange Offer is extended (the "Expiration Date"). Tenders of
shares of Series A Preferred Stock may be withdrawn at any time prior to 5:00
p.m., New York City time, on the business day prior to the Expiration Date. The
Exchange Offer is not conditioned upon any minimum number of shares of Series A
Preferred Stock being tendered for exchange. However, the Exchange Offer is
subject to certain conditions which may be waived by the Company and to the
terms and provisions of the Preferred Stock Registration Rights Agreement (as
defined herein). See "Exchange Offer." The Company has agreed to pay the
expenses of the Exchange Offer.
Holders of shares of Series A Preferred Stock whose shares of Series A
Preferred Stock are not tendered and accepted in the Exchange Offer will
continue to hold such shares of Series A Preferred Stock. Following consummation
of the Exchange Offer, the holders of shares of Series A Preferred Stock will
continue to be subject to the existing restrictions upon transfer thereof and,
except as provided herein, the Company will have no further obligation to such
holders to provide for the registration under the Securities Act of the shares
of Series A Preferred Stock held by them.
_____________________
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN RISKS
ASSOCIATED WITH AN INVESTMENT IN THE EXCHANGE PREFERRED STOCK.
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THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THIS EXCHANGE OFFER AND
NO UNDERWRITER IS BEING UTILIZED IN CONNECTION WITH THE EXCHANGE OFFER.
THE SECURITIES OFFERED HEREBY 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
_____________________
The date of this Prospectus is _________ __, 1997.
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33,000 shares of the Series A Preferred Stock were issued and sold on
August 8, 1997 in a transaction not registered under the Securities Act, in
reliance upon the exemption provided in Section 4(2) of the Securities Act.
Accordingly, the Series A Preferred Stock may not be offered, resold or
otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. Shares of Exchange Preferred Stock are being
offered hereby in order to satisfy the obligations of the Company under the
Preferred Stock Registration Rights Agreement. See "Exchange Offer -- Purpose of
the Exchange Offer." Based on no-action letters issued by the staff of the
Securities and Exchange Commission (the "Commission") to third parties, the
Company believes shares of Exchange Preferred Stock to be issued pursuant to the
Exchange Offer may be offered for sale, resold and otherwise transferred by
holders thereof (other than (i) a broker-dealer who purchases such shares of
Exchange Preferred Stock directly from the Company to resell pursuant to Rule
144A or any other available exemption under the Securities Act or (ii) a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such shares of Exchange
Preferred Stock are acquired in the ordinary course of such holders' business
and such holders have no arrangements with any person to participate in the
distribution of such shares of Exchange Preferred Stock. Eligible holders
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met. Each broker-dealer that receives shares of Exchange
Preferred Stock for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such shares of Exchange Preferred Stock. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of shares of Exchange
Preferred Stock received in exchange for shares of Series A Preferred Stock
where such shares of Series A Preferred Stock were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. For a period of 90 days following the consummation of the Exchange
Offer, the Company has agreed to use its best efforts to make this Prospectus
available to broker-dealers who have identified themselves as such for use in
connection with resales by such broker-dealers of shares of Exchange Preferred
Stock received in exchange for shares of Series A Preferred Stock acquired by
such broker-dealers for their own accounts as a result of market-making or other
trading activities. See "Plan of Distribution."
Dividends on the Exchange Preferred Stock will be payable semiannually
on each August 15 and February 15, commencing February 15, 1998, at a rate per
annum of 12-1/2% of the liquidation preference per share. Holders of Series A
Preferred Stock whose shares of Series A Preferred Stock are accepted for
exchange will be deemed to have waived the right to receive any payment in
respect of any unpaid dividends on the Series A Preferred Stock that have
accumulated or accrued to the date of the issuance of the Exchange Preferred
Stock. Consequently, holders who exchange their shares of Series A Preferred
Stock for Exchange Preferred Stock will receive the same dividends on the
Exchange Preferred Stock that holders of the Series A Preferred Stock who do not
accept the Exchange Offer will receive on the Series A Preferred Stock.
Dividends on the Exchange Preferred Stock may be paid, at the Company's option,
on any dividend payment date occurring on or prior to August 15, 2002, either in
cash or by the issuance of additional shares of Exchange Preferred Stock having
an aggregate liquidation preference equal to the amount of such dividends. The
liquidation preference of the Exchange Preferred Stock will be $1,000 per share,
plus accumulated and unpaid dividends. The Exchange Preferred Stock will be
redeemable, at the option of the Company, in whole or in part, at any time on or
after August 15, 2002, at the redemption prices set forth herein, plus, without
duplication, accumulated and unpaid dividends to the redemption date. The
Company will be required, subject to certain conditions, to redeem all of the
Exchange Preferred Stock outstanding on August 15, 2005, at a redemption price
equal to 100% of the liquidation preference thereof, plus, without duplication,
accumulated and unpaid dividends to the redemption date. Upon the occurrence of
a Change of Control, each holder of the Exchange Preferred Stock will be
entitled to require the Company to purchase such holder's Exchange Preferred
Stock at a purchase price equal to 101% of the liquidation preference thereof,
plus, without duplication, accumulated and unpaid dividends to the purchase
date. The Exchange Preferred Stock will rank senior to any class or series of
common stock or preferred stock issued by the Company subsequent to the Issue
Date (as defined herein) with respect to dividend rights and rights upon
liquidation, dissolution or winding-up of the Company.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF SERIES A PREFERRED STOCK IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
There can be no assurance that an active public or private market for
the Exchange Preferred Stock will develop. Whether or not a market for the
Exchange Preferred Stock should develop, the shares of Exchange Preferred Stock
could trade at a discount from their aggregate liquidation preference. The
Company does not intend to list the Exchange Preferred Stock on a national
securities exchange or to apply for quotation of the Exchange Preferred Stock
through the National Association of Securities Dealers Automated
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Quotation System. To the extent shares of Series A Preferred Stock are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted shares of Series A Preferred Stock could be adversely
affected.
The Company has been advised by CIBC Wood Gundy Securities Corp. (the
"Initial Purchaser") that it intends to make a market in the Exchange Preferred
Stock; however, it is under no obligation to do so and any market making
activities with respect to the Exchange Preferred Stock may be discontinued at
any time.
Market data used throughout this Prospectus was obtained through
Company research, surveys or studies conducted by third parties, or industry or
general publications. The Company has not independently verified market data
provided by third parties or industry or general publications. Similarly,
internal Company research, while believed by the Company to be reliable, has not
been verified by any independent sources.
Anderson Power Products(R), AST(TM), Datcon(R), Illuma Deluxe(TM),
IllumaSeal(TM), Intellisensor(TM), Perfect Harmony(TM), PHI(R), Powerpole(R),
Quantum 2000 Scanning ESCA Microprobe(TM), SB(R), Smart Instrument(TM),
SMART-200(TM) and TRIFT II(TM) are trademarks, registered trademarks or brands
that are owned by, or licensed to, the Company. All other trademarks or service
marks referred to in this Prospectus are the property of their respective
owners.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
consolidated financial statements and the notes thereto appearing elsewhere in
this Prospectus. As used in this Prospectus, unless the context otherwise
indicates, the term "HVE" refers to High Voltage Engineering Corporation and the
term the "Company" refers to HVE and its wholly-owned subsidiaries, including
PHI. As used in this Prospectus, the terms "Fiscal 1993," "Fiscal 1994," "Fiscal
1995," "Fiscal 1996" and "Fiscal 1997" refer to HVE's fiscal years ended May 1,
1993, April 30, 1994, April 29, 1995, April 27, 1996 and April 26, 1997,
respectively.
THE COMPANY
The Company owns and operates a diversified group of seven middle
market industrial manufacturing businesses. These businesses focus on designing
and manufacturing high quality, applications-engineered products which are
designed to address specific customer needs. The Company's products are sold to
a broad range of domestic and foreign original equipment manufacturers ("OEMs")
and end-users in a variety of industries including process automation,
freshwater and wastewater treatment, petrochemicals, semiconductor fabrication,
chemicals, construction, agriculture, materials handling, computers,
telecommunications, medical equipment and climate control and for scientific and
educational research. The diversified nature of the products sold and
end-markets served by the Company's businesses limits the effect on the Company
of operating performance fluctuations in any single operating unit and cyclical
downturns within individual industries and end-markets, while the Company
believes that its focus on middle market manufacturing enhances its growth
prospects. The Company believes that these factors have contributed to steady
growth in consolidated net sales and EBITDA (as defined herein). Between Fiscal
1993 and Fiscal 1997, the Company's historical net sales increased at a 14.3%
compound annual growth rate ("CAGR"), from $101.3 million to $173.1 million, and
its EBITDA increased at a 15.7% CAGR from $9.1 million to $16.3 million. Pro
forma for the Merger, the Company had net sales and EBITDA of $237.9 million and
$26.4 million, respectively, in Fiscal 1997.
The Company manufactures and markets its products through the following
seven operating units:
ROBICON CORPORATION ("ROBICON"). Robicon is a leading designer and
manufacturer of high power conversion products, which are used to regulate
electric power, reduce energy costs and improve process control in a wide
variety of industrial applications. Products include variable frequency drives
("VFDs") for large electric motors and power control systems for other
applications. These products are used in process automation, freshwater and
wastewater treatment, oil and gas extraction and transmission, petrochemical
processing, silicon processing, glass manufacturing, cement production and other
general industrial applications. For Fiscal 1997, Robicon had net sales of $83.1
million.
PHYSICAL ELECTRONICS, INC. ("PHI"). On August 8, 1997, HVE acquired PHI
for an aggregate consideration of $55.5 million in cash, subject to certain
adjustments. PHI is the world's leading designer and manufacturer of advanced
surface analysis instruments and components used to determine the elemental
and/or chemical composition of materials found on or near the surface of a
sample. Advanced surface analysis instruments are used in commercial
applications in central support laboratories and at or near the production line
in the semiconductor fabrication, computer peripherals, chemicals, aerospace,
metals, polymers, automotive and biomaterials industries, among others, for
product and process development, process control, defect review and failure
analysis. Advanced surface analysis instruments are also used for materials
science research by universities and government institutions. For the latest
twelve month ("LTM") period ended March 28, 1997, PHI had net sales of $64.8
million.
DATCON INSTRUMENT COMPANY ("DATCON"). Datcon together with its
wholly-owned subsidiary, Industrias Jorda, S.L. ("Jorda"), designs and
manufactures customized monitoring instrumentation for heavy duty and
off-highway vehicles. Datcon's products include instrument clusters,
speedometers, tachometers and fuel, temperature and pressure gauges which are
used in construction equipment, agricultural machinery, materials handling
equipment and generator and compressor engines. For Fiscal 1997, Datcon had net
sales of $32.5 million.
ANDERSON POWER PRODUCTS ("ANDERSON"). Anderson is a leading designer
and manufacturer of high efficiency, pluggable power connectors for use in high
current, quick disconnect applications including materials handling equipment
and other electric-powered vehicles, uninterruptible power supply products,
telecommunications and networking equipment and office furniture panel
electrification. For Fiscal 1997, Anderson had net sales of $21.6 million.
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NATVAR COMPANY ("NATVAR"). Natvar is a manufacturer of disposable
specialty bulk medical grade plastic tubing used primarily in medical devices
and for less-invasive surgical procedures. Natvar also produces electrical
sleeving and tubing used to protect multiple insulated wires. For Fiscal 1997,
Natvar had net sales of $15.2 million.
GENERAL EASTERN INSTRUMENTS ("GENERAL EASTERN"). General Eastern is a
leading designer and manufacturer of relative humidity measurement instruments
and humidity calibration instruments. General Eastern's products are used in a
wide range of applications including energy management and climate control,
calibration and standards laboratories, thermal processing, environmental
monitoring and process control. For Fiscal 1997, General Eastern had net sales
of $12.2 million.
HIGH VOLTAGE ENGINEERING EUROPA B.V. ("HVE EUROPA"). HVE Europa is the
world's leading designer and manufacturer of particle accelerator systems used
in scientific and educational research. HVE Europa's products include ion
particle accelerator systems, research ion implanters, accelerator mass
spectrometer systems and component parts. For Fiscal 1997, HVE Europa had net
sales of $8.5 million.
COMPETITIVE STRENGTHS
Management has focused its efforts on acquiring and developing a group
of middle market manufacturing businesses that generally share the following
competitive strengths:
- Leading Market Positions. Several of the Company's products hold leading
market share positions in their respective niche markets, including the
Company's medium voltage VFDs (Robicon), advanced surface analysis
instruments (PHI), high current, quick disconnect power connectors
(Anderson), humidity calibration instruments (General Eastern) and
particle accelerator systems (HVE Europa). The Company believes that
applications-engineering expertise, proprietary technology and customer
relationships act as significant barriers to entry in several of the
Company's markets.
- Reputation for Innovative Product Development. The Company believes that
its operating units have reputations for the development of innovative
products designed to address specific customer needs. For example, in
November 1994, Robicon introduced its Perfect Harmony(TM) series of
medium voltage VFDs which represented a significant technological
breakthrough relative to competitors' product offerings by increasing
power factor and reducing harmonic distortion typically resulting from
the use of VFDs with large electric motors. In addition, PHI has
recently introduced several new surface analysis instruments, including
the SMART-200(TM), TRIFT II(TM) and 6800 Dynamic SIMS, which each have
the ability to analyze every point on an 8-inch semiconductor wafer.
- Long-Term Relationships with Market-Leading Customers. The Company's
operating units serve some of the largest companies in their respective
industries, including: Advanced Micro Devices, Advanced Silicon
Materials, American Power Conversion, Amoco, Caterpillar, Cummins
Engine, E-Z-GO (Textron), Harley-Davidson, Hewlett-Packard, Hitachi,
IBM, Lucent Technologies, Massey Ferguson, 3M Healthcare and Yaskawa
Electric. With the exception of one customer which accounted for 6.6% of
the Company's consolidated net sales for Fiscal 1997, pro forma for the
Merger, no customer of any of its operating units accounted for more
than 2.7% of such sales. The Company's operating units have long-term
relationships with many of their customers; in many cases these
relationships have existed in excess of 10 years.
- Experienced and Incentivized Senior Management Team. The Company and
each of its operating units are run by senior managers who have an
average of over 20 years of relevant operating experience. The Company's
senior management team has financial incentives tied to long-term
improvements in the Company's financial performance.
BUSINESS STRATEGY
The Company's business strategy is to increase the sales and
profitability of its existing businesses and to build upon their inherent
competitive strengths. The Company applies a consistent operating strategy to
its individual operating units, key elements of which include:
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- Focus on Applications-Engineered Products. The Company's products are
typically engineered based upon specific customer applications. The
Company seeks to involve its customers at an early stage of the product
development process in order to jointly design new products and to
improve existing ones. In certain instances, this process has resulted
in the Company becoming a sole source supplier. The Company believes
that this strategy has led to incremental long-term business with key
customers and the addition of new customers.
- Integrated Product Development. The Company seeks to develop new
products and find new applications for existing products through an
integrated product development process that involves cross-functional
teams including engineering, manufacturing and marketing personnel. As a
result, the Company believes that it is able to design and manufacture
products that address specific customer needs and can be manufactured
efficiently, cost-effectively and on a timely basis.
- Focus on Core Competencies. The Company believes that its core
competencies are the design, engineering and assembly of
applications-engineered products. As part of its focus on these core
competencies, the Company has eliminated certain ancillary functions
performed by certain of its operating units over the last several years
including printed circuit board assembly, machining and metal stamping
and plating.
- Commitment to Process Re-engineering and Total Quality. The Company
maintains process re-engineering and Total Quality programs at each of
its operating units, which it began implementing in 1993. These programs
have enabled the Company to improve product quality, increase
manufacturing efficiency and productivity, reduce product lead and cycle
times and reduce the relative amount of working capital invested in its
businesses.
- Decentralized Management of Operating Units. The Company's operating
units are managed on a decentralized basis by senior managers who apply
a consistent operating strategy, while a small corporate staff provides
strategic direction and support. As a result of the discrete nature of
the Company's operating units, the Company has been able to sell
businesses or product lines on an opportunistic basis. For example,
since 1988, the Company has divested 12 businesses that generally lacked
some or all of the competitive strengths common to its current operating
units.
Acquisitions are also an important part of the Company's growth
strategy. The Company seeks to supplement its internal growth with selected
add-on acquisitions of businesses that are complementary to its existing
operating units. In recent years, both Robicon and Datcon have successfully
completed and integrated such add-on acquisitions. In addition, the Company
seeks to acquire middle market manufacturing businesses to operate on a
stand-alone basis, such as PHI, that possess competitive strengths similar to
those of its existing businesses.
THE TRANSACTIONS
On May 7, 1997, HVE entered into an Agreement and Plan of Merger (the
"Merger Agreement") with PHI Acquisition Holdings, Inc. ("PHI Holdings") and
Chase Venture Capital Associates, L.P. ("CVCA"), the principal stockholder of
PHI Holdings, to acquire PHI for an aggregate consideration of $55.5 million in
cash, subject to certain adjustments (the "Merger Consideration"). This
acquisition was effected on August 8, 1997 through the merger (the "Merger") of
Lauren Corporation, a wholly-owned subsidiary of HVE, with and into PHI
Holdings. Immediately thereafter, PHI Holdings was merged with and into Physical
Electronics, Inc., its wholly-owned subsidiary, and Physical Electronics, Inc.
became a direct, wholly-owned subsidiary of HVE. After the repayment of certain
obligations of PHI, including all of PHI's outstanding indebtedness, the
remainder of the Merger Consideration was distributed to the holders of the
capital stock of PHI Holdings (including holders of options to purchase capital
stock).
In addition to the Merger, on August 8, 1997, the Company completed the
following transactions (collectively with the Merger, the "Transactions"): (i)
the issuance of $135,000,000 in aggregate principal amount of 10-1/2 Senior
Notes due 2004 (the "Notes") and $35,200,000 representing units (the "Units")
consisting of an aggregate of 33,000 shares of 12-1/2% Series A Preferred Stock,
82.7429 shares of HVE Common Stock ("Common Shares") and Warrants to purchase
82.7429 shares of HVE Common Stock ("Warrants"), (collectively, the
"Offerings"), (ii) a refinancing (the "Refinancing") comprised of the repayment
by the Company of certain of its outstanding indebtedness, the redemption of the
Company's outstanding redeemable preferred stock, the extinguishment by the
Company of certain CIP Agreements (as defined herein), the repurchase by the
Company of certain existing warrants, the payment by the Company of certain
distributions and the Company's entrance into a new revolving credit facility
(the "New Revolving Credit Facility") and (iii) the issuance to HVE by each of
its direct Restricted Subsidiaries (as defined herein) of intercompany notes
(the "Intercompany Notes") to be pledged by HVE as security for payment of
principal and interest on the Notes.
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THE EXCHANGE OFFER
Securities Offered............. Up to 33,000 shares of 12-1/2% Series A
Exchange Senior Redeemable Preferred Stock.
The terms of the Exchange Preferred Stock
are substantially identical to the terms of
the Series A Preferred Stock except that the
Exchange Preferred Stock will have been
registered under the Securities Act and will
not contain terms restricting the transfer
of such stock. See "Description of Exchange
Preferred Stock."
The Exchange Offer............. Shares of Exchange Preferred Stock are being
offered in exchange for any and all of the
outstanding shares of Series A Preferred
Stock (on a share for share basis). As of
___________, 1997, 33,000 shares of Series A
Preferred Stock with an aggregate
liquidation preference of $33,000,000 were
issued and outstanding. The Company has
agreed to make the Exchange Offer in order
to satisfy its obligations under the
Preferred Stock Registration Rights
Agreement. For a description of the
procedures for tendering, see "Exchange
Offer -- Procedures for Tendering Series A
Preferred Stock."
Expiration Date; Withdrawal.... The Exchange Offer will expire at 5:00 p.m.,
New York City time, on ____________, 1997,
or such later date and time to which it may
be extended in the sole discretion of the
Company (the "Expiration Date"). Shares of
Series A Preferred Stock tendered pursuant
to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date. Any
shares of Series A Preferred Stock not
accepted for exchange for any reason will be
returned without expense to the tendering
holders thereof as promptly as practicable
after the expiration or termination of the
Exchange Offer. See "Exchange Offer --
Expiration Date; Extensions; Termination;
Amendments; and Withdrawal Rights."
Conditions to Exchange Offer... The Exchange Offer is subject to certain
conditions. See "Exchange Offer -- Certain
Conditions to the Exchange Offer." The
Exchange Offer is not conditioned upon any
minimum number of shares of Series A
Preferred Stock being tendered for exchange.
Procedures for Tendering
Series A Preferred Stock....... Each holder of Series A Preferred Stock
wishing to accept the Exchange Offer must
complete, sign and date a Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with such Existing Notes
and any other required documents, to the
Exchange Agent (as defined) at the address
set forth herein. See
8
<PAGE> 11
"Exchange Offer -- Series A Preferred
Stock."
Use of Proceeds............. There will be no proceeds to the Company
from the exchange of Series A Preferred
Stock for Exchange Preferred Stock pursuant
to the Exchange Offer.
Certain Federal Income Tax
Consideration............... The Exchange of the Series A Preferred Stock
for the Exchange Preferred Stock should not
be a taxable event to the holder for federal
income tax purposes, and the holder should
not recognize any taxable gain or loss as a
result of such exchange. See "Certain
Federal Income Tax Considerations."
Untendered Series A Preferred
Stock....................... Upon consummation of the Exchange Offer, the
holders of Series A Preferred Stock, if any,
will have no further registration or other
rights under the Registration Rights
Agreement, except as provided herein.
Holders of shares of Series A Preferred
Stock who do not tender their shares of
Series A Preferred Stock in the Exchange
Offer or whose shares of Series A Preferred
Stock are not accepted for exchange will
continue to hold such shares of Series A
Preferred Stock and will be entitled to all
the rights and preferences thereof and will
be subject to all the limitations applicable
thereto, except for any such rights or
limitations which, by their terms, terminate
or cease to be effective as a result of this
Exchange Offer. All untendered and tendered
but unaccepted shares of Series A Preferred
Stock will continue to be subject to the
restrictions on transfer provided therein.
To the extent that shares of Series A
Preferred Stock are tendered and accepted in
the Exchange Offer, the trading market for
untendered and tendered but unaccepted
shares of Series A Preferred Stock could be
adversely affected.
Exchange Agent State Street Bank and Trust Company is
serving as the Exchange Agent in connection
with the Exchange Offer.
TERMS OF THE EXCHANGE PREFERRED STOCK
Liquidation Preference...... $1,000 per share, plus accumulated and
unpaid dividends.
Dividends................... Dividends on the Exchange Preferred Stock
will accrue from the Issue Date and will be
payable semiannually on each August 15 and
February 15, commencing February 15, 1998,
at a rate per annum of 12-1/2% of the
liquidation preference per share. Dividends
may be paid, at the Company's option, on any
dividend payment date occurring on or prior
to August 15, 2002, either in cash or by the
issuance of additional shares of Exchange
Preferred Stock having an aggregate
liquidation preference
9
<PAGE> 12
equal to the amount of such dividends;
provided that if any dividend payable on any
dividend payment date subsequent to August
15, 2000 is not paid in full in cash, the
per annum dividend rate will be increased by
0.50% from such dividend payment date; and
provided, further, that following two such
non-cash payments, the per annum dividend
rate will be increased by 1.00% for each
additional semiannual period in which such
non-cash payment occurs, up to a maximum
rate of 200 basis points in excess of the
dividend rate originally borne by the
Exchange Preferred Stock (as shown on the
cover of this Prospectus). After the date on
which such dividend default is cured, the
dividend rate on the Exchange Preferred
Stock will revert to the dividend rate
originally borne by the Exchange Preferred
Stock (as shown on the cover of this
Prospectus).
Optional Redemption......... The Exchange Preferred Stock will be
redeemable, at the option of the Company, in
whole or in part, at any time on or after
August 15, 2002, at the redemption prices
set forth herein, plus, without duplication,
accumulated and unpaid dividends to the
redemption date.
Mandatory Redemption........ The Company will be required, subject to
certain conditions, to redeem all of the
Exchange Preferred Stock outstanding on
August 15, 2005, at a redemption price equal
to 100% of the liquidation preference
thereof, payable in cash, plus, without
duplication, accumulated and unpaid
dividends to the redemption date, which will
also be paid in cash (whether or not
otherwise payable in cash) to the redemption
date.
Voting...................... Election of Directors: Holders of the
Exchange Preferred Stock (acting as a single
class together with holders of any Series A
Preferred Stock), will have the right to
elect that number of directors constituting
at least 25% of HVE's Board of Directors if
cash dividends are in arrears and unpaid for
two consecutive semiannual periods
after August 15, 2002, and in certain other
events.
Other Matters: The Exchange Preferred Stock
will otherwise be non-voting, except as
otherwise required by law.
Ranking..................... The Exchange Preferred Stock will rank
senior to the HVE Common Stock and any other
class or series of common stock or preferred
stock of the Company with respect to
dividend rights and rights upon liquidation,
dissolution or winding-up of the Company.
The Exchange Preferred Stock will rank pari
passu with the Series A Preferred Stock.
10
<PAGE> 13
Change of Control........... Upon the occurrence of a Change of Control,
each holder of the Exchange Preferred Stock
will be entitled to require the Company to
purchase such holder's Exchange Preferred
Stock at a purchase price equal to 101% of
the liquidation preference thereof, plus,
without duplication, accumulated and unpaid
dividends to the purchase date. There can be
no assurance that the Company will have
sufficient funds to pay the required
purchase price for all Exchange Preferred
Stock tendered by holders thereof upon the
occurrence of a Change of Control. See
"Description of the Exchange Preferred Stock
-- Change of Control Offer."
Certain Covenants........... The Restated Articles of Organization of HVE
(the "Restated Articles") contain certain
restrictive provisions that, among other
things, limit the ability of HVE and its
Restricted Subsidiaries to (i) declare or
pay certain dividends or distributions or
payments on capital stock of HVE (other than
the Exchange Preferred Stock and the Series
A Preferred Stock) under certain conditions,
or (ii) purchase, redeem or make any other
acquisition or retirement for value of any
capital stock (other than the Exchange
Preferred Stock and the Series A Preferred
Stock) under certain conditions.
For more complete information regarding the Series A Preferred Stock
and the Exchange Preferred Stock, including the definitions of certain
capitalized terms used above, see "Description of the Exchange Preferred Stock."
RISK FACTORS
Holders of Series A Preferred Stock and prospective purchasers of
Exchange Preferred Stock should consider carefully the information set forth
under the caption "Risk Factors," and all other information set forth in this
Prospectus, in connection with the Exchange Offer.
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<PAGE> 14
SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth Summary Unaudited Pro Forma Condensed
Financial Data derived from the Unaudited Pro Forma Condensed Consolidated
Financial Data contained elsewhere herein. The statement of operations data for
the Company's fiscal year ended April 26, 1997 include the results of operations
of PHI Acquisition Holdings, Inc. and subsidiaries for the LTM period ended
March 28, 1997 and give effect to the Transactions as if they had occurred on
April 28, 1996. The balance sheet data set forth below present the financial
condition of the Company as if the Transactions had occurred on April 26, 1997.
The Summary Unaudited Pro Forma Condensed Financial Data do not purport
to be indicative of the actual financial position or results of operations of
the Company that would have actually been attained had the Transactions in fact
occurred on the date specified, nor are they necessarily indicative of the
results of operations that may be achieved in the future. Furthermore, the
Summary Unaudited Pro Forma Condensed Financial Data set forth below do not
consider any future events which may occur after the Transactions have been
consummated. The Summary Unaudited Pro Forma Condensed Financial Data are based
on certain assumptions described in the Notes to Unaudited Pro Forma Condensed
Consolidated Financial Data and should be read in conjunction therewith. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements of High Voltage
Engineering Corporation and subsidiaries and the notes thereto and the
consolidated financial statements of PHI Acquisition Holdings, Inc. and
subsidiaries and the notes thereto, included elsewhere herein.
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR ENDED
APRIL 26, 1997
-----------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales .......................................... $ 237,855
Gross profit ....................................... 82,999
Income from operations ............................. 15,174
Interest expense ................................... 17,137
Interest income .................................... 418
Income taxes ....................................... 2,104
Loss from continuing operations before extraordinary
item ............................................. (3,649)
Preferred dividends ................................ 4,242
Accretion of redeemable put warrants ............... 2,587
Loss available to common stockholders before
extraordinary item ............................... (10,478)
OTHER DATA:
EBITDA(a) .......................................... $ 26,407
Depreciation and amortization ...................... 8,295
Capital expenditures ............................... 8,233
Cash interest expense(b) ........................... 16,408
Ratio of EBITDA to cash interest expense(b) ........ 1.6x
Ratio of net debt to EBITDA(c) ..................... 5.6x
Ratio of net debt and redeemable preferred stock to
EBITDA(c) ........................................ 6.7x
BALANCE SHEET DATA (AT PERIOD END):
Working capital(d) ................................. $ 47,908
Total assets ....................................... 197,273
Total debt (including redeemable put warrants)(e) .. 159,897
Redeemable preferred stock ......................... 29,291
Stockholder's deficiency ........................... (56,423)
</TABLE>
(see footnotes on following page)
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<PAGE> 15
NOTES TO SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(a) EBITDA is defined as earnings from continuing operations before
interest, income taxes, depreciation, amortization and non-recurring
items. Non-recurring items are comprised of: (i) reimbursed
environmental and litigation costs -- net and other and (ii) $210 of
severance payments to a former officer of PHI and $60 of relocation
expenses in connection with the replacement of such officer of PHI in
Fiscal 1997. See Notes F, K and N to "Notes to Consolidated Financial
Statements" of High Voltage Engineering Corporation and subsidiaries.
EBITDA is not a measure of performance under generally accepted
accounting principles ("GAAP"). While EBITDA should not be considered
as a substitute for net income, cash flows from operating activities
and other income or cash flow statement data prepared in accordance
with GAAP, or as a measure of profitability or liquidity, management
understands that EBITDA is customarily used as a measurement in
evaluating companies. Moreover, substantially all of the Company's
financing agreements contain covenants in which EBITDA, as defined
therein, is used as a measure of financial performance. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" for discussion of other measures of performance
determined in accordance with GAAP.
(b) For the purpose of computing the ratio of EBITDA to cash interest
expense, cash interest expense excludes $0.7 million of non-cash
interest expense comprised of amortization of deferred financing costs.
See "Unaudited Pro Forma Condensed Consolidated Financial Data" and
"Description of Other Indebtedness."
(c) Net debt represents total debt (including redeemable put warrants) less
unrestricted cash and cash equivalents.
(d) Working capital is defined as total current assets less total current
liabilities.
(e) Total debt includes an amount of $2.5 million related to the estimated
value of certain redeemable put warrants issued in connection with the
Subordinated Notes (as defined herein).
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<PAGE> 16
RISK FACTORS
Holders of the Series A Preferred Stock and prospective purchasers of
Exchange Preferred Stock should consider carefully the following risk factors in
addition to the other information set forth in this Prospectus. Certain of the
statements in this Prospectus are forward-looking in nature and, accordingly,
are subject to many risks and uncertainties. The actual results that the Company
achieves may differ materially from any forward-looking statements in this
Prospectus. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed below and those contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
Prospectus.
HIGH LEVEL OF INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS
The Company is, and will continue to be, highly leveraged. At April 26,
1997, on a pro forma basis after giving effect to the Transactions, the Company
would have had $159.9 million of total indebtedness, mandatorily redeemable
preferred stock with an aggregate liquidation preference of $33.0 million, and a
stockholder's deficit of $56.4 million. See "Capitalization." On a pro forma
basis for Fiscal 1997, the Company's earnings would have been insufficient to
cover fixed charges (including preferred dividends requirements and accretion of
redeemable put warrants) by approximately $8.4 million. Furthermore, subject to
certain restrictions in the Indenture, the Company may incur additional
indebtedness from time to time to finance acquisitions, provide for working
capital or capital expenditures or for other purposes.
The level of the Company's indebtedness could have important
consequences to holders of the Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from operations
must be dedicated to debt service and will not be available for other purposes;
(ii) the Company's ability to obtain additional financing in the future, as
needed, may be limited; (iii) the Company's leveraged position and covenants
contained in the Indenture and other indebtedness of the Company may limit its
ability to grow and make capital improvements and acquisitions; (iv) the
Company's level of indebtedness may make it more vulnerable to economic
downturns; and (v) the Company may be at a competitive disadvantage because some
of the Company's competitors are less leveraged, resulting in greater
operational and financial flexibility for such competitors.
The Company currently anticipates that its operating cash flow,
together with available borrowings, will be sufficient to meet its operating
expenses and to service its debt requirements as they become due. However, the
ability of the Company to pay cash dividends on, and to satisfy the redemption
obligations in respect of, the Preferred Stock and to satisfy its debt
obligations, including the Notes, will be primarily dependent upon the future
financial and operating performance of the Company's operating units. Such
performance is dependent upon financial, business and other general economic
factors, many of which are beyond the control of the Company and its operating
units. If the Company is unable to generate sufficient cash flow to meet its
debt service obligations or provide adequate long-term liquidity, it will have
to pursue one or more alternatives, such as reducing or delaying capital
expenditures, refinancing debt, selling assets or raising equity capital. There
can be no assurance that such alternatives could be accomplished on satisfactory
terms, if at all, or in a timely manner. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
RANKING OF THE EXCHANGE PREFERRED STOCK
The Exchange Preferred Stock will rank junior in right of payment upon
liquidation to all existing and future indebtedness of the Company, including,
without limitation, indebtedness under the New Revolving Credit Facility and
indebtedness in respect of the Notes, and senior to the HVE Common Stock and any
other class or series of common stock or preferred stock issued by the Company
subsequent to the Issue Date. The Exchange Preferred Stock will rank pari passu
with the Series A Preferred Stock. As of April 26, 1997, pro forma for the
Transactions, HVE would have had $159.9 million of senior indebtedness
outstanding (including the Notes), of which $20.7 million would have been
secured indebtedness, and the subsidiaries of HVE would have had $49.1 million
of indebtedness and other liabilities and commitments outstanding (excluding the
Intercompany Notes). The Indenture pursuant to which Notes are issued (the
"Indenture") limits, but does not prohibit, the incurrence of additional
indebtedness by the Company. See "Description of Certain Indebtedness."
14
<PAGE> 17
LIMITATIONS ON ABILITY TO PAY DIVIDENDS
The New Revolving Credit Facility and the Indenture limit the amount of
cash dividends that may be paid on shares of preferred stock of the Company,
including the Exchange Preferred Stock, in certain circumstances. Dividends may
be paid, at the company's option, on or prior to August 15, 2002, either in cash
or by the issuance of additional shares of Exchange Preferred Stock. In the
event that cash dividends on the Exchange Preferred Stock are in arrears and
unpaid for two consecutive semiannual periods after such time, holders of the
Series A Preferred Stock and Exchange Preferred Stock will have the right to
elect that number of directors constituting at least 25% of HVE's Board of
Directors. See "Description of Certain Indebtedness" and "Description of the
Exchange Preferred Stock -- Voting Rights."
SUBSIDIARY OPERATIONS; RELIANCE ON SUBSIDIARIES
The Company conducts a substantial portion of its business through
HVE's direct or indirect subsidiaries. HVE's subsidiaries are separate and
distinct legal entities and have no obligations, contingent or otherwise, to pay
any amounts due under the Exchange Preferred Stock, to meet HVE's obligations to
other creditors or to make funds available therefor. Because the shares of
Exchange Preferred Stock are direct obligations of HVE, it must rely on (i) the
ability of those of HVE's subsidiaries which have issued Intercompany Notes to
HVE to pay principal and interest thereon and (ii) the ability of HVE's
subsidiaries to pay dividends and make other advances and transfers of funds to
generate the funds necessary to meet the Company's obligations, including
payment of cash dividends on the Exchange Preferred Stock when due. There can be
no assurance that such payments and distributions will be adequate to fund cash
dividends on the Exchange Preferred Stock when due. The ability of HVE's
subsidiaries to pay such dividends and make such advances and transfers will be
subject to applicable state law regulating the payment of dividends and the
terms of the New Revolving Credit Facility and the Indenture. See "Description
of Certain Indebtedness".
ACQUISITION OF PHI
The acquisition of PHI is the largest acquisition completed by the
Company to date. Acquisitions of this magnitude are inherently subject to
significant risk. Although the Company intends to operate PHI as a stand-alone
subsidiary, the acquisition will require some integration of PHI's management,
control and administrative systems with those of the Company. The Merger will
require substantial attention from, and place substantial demands upon, the
senior management of the Company, which may divert attention from and adversely
impact their ability to manage the Company's existing businesses.
The representations and warranties made by PHI and its principal
stockholder in the Merger Agreement relating to PHI and the indemnities made
with respect to such representations and warranties expired upon the closing of
the Merger. As a result, the Company has little or no recourse to PHI and its
principal stockholder after the Merger. In addition, unanticipated events or
liabilities related to PHI's business could materially and adversely affect the
Company and the success of the Merger.
EFFECT OF POSSIBLE QUALIFIED SUBSIDIARY IPO
Robicon, PHI, Datcon, Anderson and HVE Europa are direct or indirect
subsidiaries of HVE. The Indenture allows each Restricted Subsidiary that is an
obligor under an Intercompany Note to effect a Qualified Subsidiary IPO;
provided, among other things, that: (i) any Restricted Subsidiary effecting a
Qualified Subsidiary IPO will be obligated to repay in full its Intercompany
Note with the net proceeds of such Qualified Subsidiary IPO; (ii) that the
Company make a pro rata offer to purchase Notes from the holders thereof equal
in aggregate principal amount to the Intercompany Note being repaid by such
Restricted Subsidiary at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the purchase date; and (iii) that
immediately after giving effect to such Qualified Subsidiary IPO, and assuming
that the offer to repurchase is fully-subscribed, the Company (excluding the
EBITDA and the Consolidated Fixed Charges of the Restricted Subsidiary effecting
the Qualified Subsidiary IPO) could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under a covenant set forth in the Indenture.
Upon the occurrence of a Qualified Subsidiary IPO, holders of Warrants will have
a one-time right (with respect to each Qualified Subsidiary IPO) to require the
Company, subject to certain restrictions, to exchange their Warrants for
Subsidiary Warrants to purchase common stock of the Restricted Subsidiary
effecting such Qualified Subsidiary IPO. In addition, upon the occurrence of a
Qualified Subsidiary IPO, holders of Common Shares will have a one-time right
(with respect to each Qualified Subsidiary IPO) to require the Company, subject
to certain restrictions, to exchange their Common Shares for Subsidiary Shares
of the Restricted Subsidiary effecting such Qualified Subsidiary IPO. The
exchange of Warrants for Subsidiary Warrants and Common Shares for Subsidiary
Shares will constitute permitted Restricted Payments under the Indenture. Upon
completion of a Qualified Subsidiary IPO,
15
<PAGE> 18
a Restricted Subsidiary will become an Unrestricted Subsidiary and the cash flow
of such Unrestricted Subsidiary will no longer be available (i) to service debt
obligations of HVE or its remaining Restricted Subsidiaries or (ii) for purposes
of determining whether HVE or its remaining Restricted Subsidiaries will be able
to incur additional indebtedness, either of which could affect the ability of
the Company to meet the requirements of certain financial covenants in the New
Revolving Credit Facility and certain of its other indebtedness. There can be no
assurance that such events will not have an adverse effect on the price at which
the Notes may be traded.
UNCERTAINTIES REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY
The Company currently relies on a combination of patents, trade
secrets, technical expertise and continuing technological research and
development to establish and protect proprietary rights in its products. There
can be no assurance that the Company's patents will not be successfully
challenged, that any patents that have been applied for will issue, or that
competitors will not find ways to design around such patents to provide similar
or functionally equivalent products, processes or technologies. In addition, the
Company recognizes that the exclusive rights to make, use and sell a technology
are granted for only a finite time and that new technologies must be developed
on an ongoing basis to replace those under expired patents or which have become
obsolete. The Company attempts to ensure that its products and processes do not
infringe patents and other proprietary rights of third parties, but there can be
no assurance that such an infringement may not be alleged by third parties in
the future. If infringement is alleged, there can be no assurance that the
Company would prevail in any such challenge, or that if the Company did not
prevail, that the necessary licenses would be available on acceptable terms, if
at all. In addition, patent and proprietary rights litigation can be extremely
protracted and expensive. See "Business -- Patents and Trademarks."
VARIABILITY OF CUSTOMER REQUIREMENTS; FLUCTUATIONS IN OPERATING RESULTS
The timing of orders placed by the customers of the Company's operating units
varies with, among other factors, the introduction of new products, product life
cycles, customer attempts to manage inventory levels, competitive conditions,
general economic conditions and the funding of scientific and educational
research. Historically, the industries served by the Company have been cyclical,
affected by both general economic conditions and industry-specific cycles.
Depressed general economic conditions and cyclical downturns in these industries
have had adverse effects on the Company's customers, contributing to
fluctuations in the Company's operating results. The variability of the level
and timing of orders from, and shipments to, customers may result in significant
periodic and quarterly fluctuations in the Company's results of operations. In
addition, the Company's operating units rely upon supplies or subcontractors for
custom components in their respective manufacturing processes, the loss of which
could adversely affect an operating unit's business until alternate suppliers
could be found.
Because the Company's operating expenses are based on anticipated
revenue levels and a high percentage of the Company's operating expenses is
relatively fixed, any unanticipated shortfall in revenue in a quarter may have
an adverse impact on the Company's results of operations for that quarter, which
could impact the Company's ability to pay amounts due under the Notes. In
addition to the factors affecting customer requirements noted above, the
Company's operating results may also fluctuate due to factors such as changes in
the product mix of sales; changes in manufacturing, raw material and other costs
or expenses; competitive pricing pressures; the gain or loss of significant
customers and increased research and development expenses. The Company believes
that quarter-to-quarter comparisons of results of operations are not necessarily
meaningful or indicative of future performance. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends upon the efforts, abilities and
expertise of its executive officers and other key employees, including its
Chairman of the Board and Chief Executive Officer, President, and Chief
Operating Officer and the president or managing director of each of the
Company's operating units. The loss of the services of such individuals and/or
other key individuals could have a material adverse effect on the Company's
operations. Generally, the Company does not offer employment agreements to its
executive officers or key employees, nor does the Company maintain key man life
insurance on such individuals. See "Management."
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<PAGE> 19
TECHNOLOGICAL CHANGE; MANUFACTURING PROCESS DEVELOPMENTS
The markets for the Company's products may be affected by technological
change, continuing process development and new product introductions. The
Company's success will depend, in part, upon its continued ability to
manufacture products that meet changing customer needs, successfully anticipate
or respond to technological changes in manufacturing processes on a
cost-effective and timely basis and enhance and expand its existing product
offerings. Current competitors or new market entrants may develop new products
with features that could adversely affect the competitive position of the
Company's products. The Company has invested and continues to invest substantial
resources in research and development for new products and improved
manufacturing processes; however, there can be no assurance that the Company's
new product or process development efforts will be successful or that the
emergence of new technologies, industry standards or customer requirements will
not render the Company's technology, equipment or processes obsolete or
uncompetitive. Any failure or delay in accomplishing these goals could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, to the extent that the Company determines that
new manufacturing equipment or processes are required to remain competitive, the
acquisition and implementation of the technologies, equipment and processes
required are likely to require significant capital investment by the Company.
FOREIGN OPERATIONS
The Company has manufacturing operations in three foreign countries and
sells its products in a significant number of foreign countries. Pro forma for
the Merger, approximately $81.0 million, or 34%, of the Company's Fiscal 1997
net sales were from products sold overseas. Risks inherent in foreign operations
include fluctuations in foreign currency exchange rates and changes in social,
political and economic conditions. Changes in currency exchange rates may affect
the relative prices at which the Company and foreign competitors purchase
component materials and sell their finished products in the same market. Except
with respect to certain of its European operations, the Company generally does
not hedge its exposure to foreign currency exchange rate changes. The Company is
also exposed to risks associated with changes in the laws and policies that
govern foreign investments in countries where it has operations as well as, to a
lesser extent, changes in United States laws and regulations relating to foreign
trade and investment. While such changes in laws, regulations and conditions to
date have not had a material adverse effect on the Company's business or
financial condition, there can be no assurance as to the future effect of any
such changes.
COMPETITION
The markets for the Company's products are highly competitive. Many of
the Company's competitors are large companies, or divisions or parts of large
companies, that have greater financial resources than the Company. The Company
believes that the principal points of competition in its market niches are
product quality, design and engineering capabilities, product development,
conformity to customer specifications, quality of post-sale support, timeliness
of delivery and price. The rapidly evolving nature of the markets in which the
Company competes may attract new entrants as they perceive opportunities, and
the Company's competitors may foresee the course of market development more
accurately than the Company. In addition, the Company's competitors may develop
products that are superior to the Company's products or may adapt more quickly
than the Company to new technologies or evolving customer requirements. The
Company expects competitive pressures in these markets to remain strong. These
pressures arise from existing competitors, other companies that may enter the
Company's existing or future markets and, in certain cases, the Company's
customers, which may decide to move production in-house of certain items sold by
the Company. There can be no assurance that the Company will be able to compete
successfully with its existing competitors or with new competitors. Failure to
compete successfully could adversely affect the Company's business, results of
operations and financial condition. See "Business -- The Operating Units."
RESTRICTIVE DEBT COVENANTS
Certain loan agreements relating to the financing of Robicon's facility
in New Kensington, Pennsylvania, as well as the New Revolving Credit Facility
(and any other indebtedness incurred to provide for working capital or other
cash needs), contain a number of covenants that, among other things, limit the
ability of the Company to incur additional indebtedness, pay certain dividends,
prepay indebtedness, dispose of certain assets, create liens, make capital
expenditures and make certain investments or acquisitions and otherwise restrict
corporate activities. The New Revolving Credit Facility also contains (and any
indebtedness incurred to provide for working capital or other needs likely will
contain) provisions relating to a change of control of the Company. The New
Revolving Credit Facility also requires the Company to comply with certain
financial ratios and tests, under which the Company will be required to achieve
certain financial and operating results. The ability of the Company to comply
with such provisions may be affected by
17
<PAGE> 20
events beyond its control, including changes in prevailing economic conditions
and in the Company's competitive environment, which could impair the Company's
operating performance. A breach of any of these covenants would result in a
default under the New Revolving Credit Facility, in which event the lenders
under the New Revolving Credit Facility could elect to declare all outstanding
amounts borrowed thereunder, together with accrued and unpaid interest thereon,
to be due and payable. Such acceleration may also constitute an event of default
under the Indenture. As a result of the security interest expected to be
afforded to the lender under the New Revolving Credit Facility, there can be no
assurance that the Company would have sufficient funds to pay amounts due under
the New Revolving Credit Facility, the Notes and the Exchange Preferred Stock,
in the event of such acceleration. Acceleration of such indebtedness would have
a material adverse effect on the Company. See "Description of Certain
Indebtedness."
In addition, the Indenture contains covenants that, among other things,
limit the ability of the Company to incur additional indebtedness, incur liens,
pay dividends and make certain other restricted payments, make certain
investments, consummate certain assets sales, enter into certain transactions
with affiliates, issue subsidiary stock, consolidate or merge with any other
person or transfer all or substantially all of the assets of the Company. See
"Description of Certain Indebtedness."
ENVIRONMENTAL COMPLIANCE
The Company is subject to a variety of environmental laws and
regulations that regulate the use, handling, treatment, storage, discharge and
disposal of solid and hazardous substances and hazardous wastes used or
generated during the Company's manufacturing processes. A failure by the Company
to comply with present and future environmental laws and regulations could
subject it to future liabilities or the suspension of production. Such
environmental laws and regulations could also restrict the Company's ability to
expand its facilities or could require the Company to acquire costly equipment
or to incur other significant expenses in connection with its manufacturing
processes. Although the Company believes it has made sufficient capital
expenditures to maintain compliance with existing laws and regulations, future
expenditures may be necessary as compliance standards and technology change. See
"Business -- Environmental and Insurance Matters."
PRODUCT LIABILITY
The Company's businesses expose it to potential product liability risks
that are inherent in the design, manufacture and sale of its products. While the
Company currently maintains what it believes to be suitable product liability
insurance, there can be no assurance that it will be able to maintain such
insurance on acceptable terms or that any such insurance will provide adequate
protection against potential liabilities. In the event of a claim against the
Company, a lack of sufficient insurance coverage could have a material adverse
effect on the Company. Moreover, even if the Company maintains adequate
insurance, any successful claim could materially and adversely affect the
reputation and prospects of the Company. See "Business -- Legal Proceedings."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will, subject
to certain conditions, be required to offer to purchase all of the Notes then
outstanding at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest to the purchase date and all of the shares of
the Exchange Preferred Stock then outstanding at a purchase price equal to 101%
of the liquidation preference thereof, plus, without duplication, accumulated
and unpaid dividends to the purchase date. If a Change of Control were to occur,
there can be no assurance that the Company would have sufficient funds to pay
the purchase price for all of the Notes and all of the shares of the Exchange
Preferred Stock that the Company might be required to purchase. The exercise by
the respective holders of the Notes and the Exchange Preferred Stock of their
right to require the Company to repurchase the Notes and the Exchange Preferred
Stock upon the occurrence of a Change of Control could also cause a default
under other indebtedness of the Company, even if the Change of Control itself
does not, because of the financial effect of such repurchase on the Company. The
Company's ability to pay cash to holders of the Notes and the Exchange Preferred
Stock upon a repurchase may be limited by the Company's then existing financial
resources. There can be no assurance that, in the event of a Change of Control,
the Company will have, or will have access to, sufficient funds or will be
contractually permitted under the terms of other outstanding indebtedness and
obligations, including the New Revolving Credit Facility, to pay the required
purchase price for all of the Notes tendered by holders thereof upon the
occurrence of a Change of Control. In addition, the Indenture will restrict the
Company's ability to repurchase the shares of the Exchange Preferred Stock,
including pursuant to a Change of Control. See "Description of Certain
Indebtedness" and "Description of the Exchange Preferred Stock -- Change of
Control Offer."
18
<PAGE> 21
CONTROL BY PRINCIPAL STOCKHOLDERS
Letitia Corporation beneficially owns over 90% of the outstanding HVE
Common Stock. Messrs. Laurence S. Levy and Clifford Press, the Chairman of the
Board and Chief Executive Officer, and President and a Director, respectively,
of the Company, are the sole directors of Letitia Corporation and, together with
certain of their affiliates and family members, beneficially own 90% of the
outstanding common stock of Letitia Corporation, before giving effect to any
repurchase of Letitia Common Stock from the High Voltage Engineering Corporation
Retirement Plan. As a result, Messrs. Levy and Press, and such affiliates and
family members, through their control of Letitia Corporation, are currently able
to elect all of the directors of HVE, retain the voting power to approve all
matters requiring stockholder approval and will continue to control HVE. See
"Principal Stockholders."
ADVERSE CONSEQUENCES OF FAILURE TO ADHERE TO EXCHANGE OFFER PROCEDURES
Issuance of shares of the Exchange Preferred Stock in exchange for
shares of the Series A Preferred Stock pursuant to the Exchange Offer will be
made only after a timely receipt by the Company of such shares of the Series A
Preferred Stock, a properly completed and duly executed Letter of Transmittal
and all other required documents. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of shares of the Series A
Preferred Stock tendered for exchange will be determined by the Company in its
sole discretion, which determination will be final and binding on all parties.
Holders of shares of the Series A Preferred Stock desiring to tender such shares
of the Series A Preferred Stock in exchange for shares of the Exchange Preferred
Stock should allow sufficient time to ensure timely delivery. The Company is
under no duty to give notification of defects or irregularities with respect to
the tenders of shares of the Series A Preferred Stock for exchange. Shares of
the Series A Preferred Stock that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof and, except as
provided herein, the Company will have no further obligations to provide for the
registration under the Securities Act of such shares of the Series A Preferred
Stock. In addition, any holder of the Series A Preferred Stock who tenders in
the Exchange Offer for the purpose of participating in a distribution of the
Exchange Preferred Stock may be deemed to have received restricted securities,
and if so, will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. To the extent that shares of the Series A Preferred Stock are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted shares of the Series A Preferred Stock could be
adversely affected. See "Exchange Offer."
LACK OF PUBLIC MARKET FOR THE SECURITIES; RESTRICTIONS ON RESALE
There is no existing trading market for the Exchange Preferred Stock.
There can be no assurance regarding the future development of a market for the
Exchange Preferred Stock, or the ability of holders of any of the Exchange
Preferred Stock to sell their shares, or the price at which such holders may be
able to sell such shares. If such a market were to develop, the Exchange
Preferred Stock could trade at prices that may be lower than the initial
offering price for Series A Preferred Stock depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. The Initial Purchaser has advised the Company that it
currently intends to make a market in the Exchange Preferred Stock. The Initial
Purchaser is not obligated to do so, however, and any market-making with respect
to the Exchange Preferred Stock may be discontinued at any time without notice.
Therefore, there can be no assurance as to the liquidity of any trading market
for the Exchange Preferred Stock, or that an active public market for the
Exchange Preferred Stock will develop. In addition, such market-making activity
will be subject to the limitations imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer. The Company does not
intend to apply for listing or quotation of the Exchange Preferred Stock on any
securities exchange or stock market. See "Plan of Distribution."
19
<PAGE> 22
THE COMPANY
The Company owns and operates a diversified group of seven middle
market industrial manufacturing businesses. HVE was incorporated in
Massachusetts in 1946 by Robert J. van de Graaff, a Massachusetts Institute of
Technology professor of nuclear physics. In the 1970s, HVE began acquiring a
diversified group of industrial manufacturing businesses. In 1988, the Company
was acquired by Letitia Corporation, which is beneficially owned primarily by
Laurence S. Levy, Chairman of the Board and Chief Executive Officer of the
Company, Clifford Press, President and a Director of the Company, and certain of
their affiliates and family members. Since the Company's acquisition by Letitia
Corporation, the Company has disposed of 12 non-core businesses and has made
four acquisitions, including PHI.
The Company operates Robicon, PHI, Datcon, Anderson and HVE Europa as
direct or indirect wholly-owned subsidiaries. Natvar and General Eastern are
operated as divisions of the Company.
The Company's executive offices are located at 401 Edgewater Place,
Suite 680, Wakefield, Massachusetts 01880 and its telephone number is (617)
224-1001.
20
<PAGE> 23
THE TRANSACTIONS
THE OFFERINGS
On August 8, 1997, the Company issued $135,000,000 in aggregate
principal amount of Notes, and $35,200,000 representing 33,000 Units consisting
in the aggregate of 33,000 shares of Series A Preferred Stock, 82.7429 shares of
HVE Common Stock and Warrants to purchase 82.7429 shares of HVE Common Stock.
The gross proceeds to the Company from the Offerings of $170.2 million were or
will be used to consummate the Refinancing on August 8, 1997, finance the
Merger, for general corporate purposes and to pay related fees and expenses.
THE REFINANCING
Of such proceeds, the Company used or will use (i) $80.5 million to
repay certain of its outstanding indebtedness, including accrued and unpaid
interest thereon and prepayment penalties associated therewith, estimated as of
the closing of the Transactions; (ii) $11.6 million to redeem all of the
Company's outstanding redeemable preferred stock, including accumulated and
unpaid dividends thereon, estimated as of the closing of the Transactions; and
(iii) $6.8 million to extinguish the right of BancBoston Capital, Inc.
("BancBoston") pursuant to two agreements (the "CIP Agreements") to require the
Company to make "contingent interest payments" to BancBoston under certain
circumstances; (iv) $2.5 million to repurchase certain warrants issued in
connection with certain subordinated notes included in the repaid indebtedness
(the "Subordinated Notes Warrants"); and (v) up to $2.4 million for
distributions comprised of $2.25 million which may be used for the repurchase of
Letitia Common Stock from the High Voltage Engineering Corporation Retirement
Plan representing up to 10% of the outstanding Letitia Common Stock, and
$150,000 for a proportional accrual relating to the Subordinated Notes Warrants.
As a condition to the completion of the Offerings, the Company entered
into the New Revolving Credit Facility with a maximum committed amount of $25.0
million. The term of the New Revolving Credit Facility is five years.
Obligations under the New Revolving Credit Facility are guaranteed by HVE and
all of its domestic subsidiaries and are secured by the inventories and accounts
receivable of HVE and its domestic subsidiaries. See "Description of Other
Indebtedness -- New Revolving Credit Facility."
THE MERGER
On May 7, 1997, HVE entered into the Merger Agreement with PHI Holdings
and CVCA, the principal stockholder of PHI Holdings, to acquire PHI. The
acquisition was effected on August 8, 1997 through the merger of Lauren
Corporation, a wholly-owned subsidiary of HVE, with and into PHI Holdings.
Immediately thereafter, PHI Holdings was merged with and into Physical
Electronics, Inc., its wholly-owned subsidiary, and Physical Electronics, Inc.
became a direct, wholly-owned subsidiary of HVE. The aggregate Merger
Consideration paid, after adjustment, was approximately $54.6 million in cash
and included the payment of the following: (i) approximately $31.6 million in
cash consideration to the current holders of the capital stock of PHI (including
holders of options to purchase capital stock); (ii) approximately $9.8 million
to The Perkin-Elmer Corporation in repayment of a convertible subordinated
promissory note of PHI (the "Perkin-Elmer Note"); (iii) approximately $7.6
million in the aggregate to First Bank National Association to repay a term
promissory note of PHI; (iv) approximately $1.3 million to CVCA as an advance
against expenses incurred or to be incurred by CVCA in its capacity as
representative of the holders of the capital stock of PHI as determined
immediately prior to the consummation of the Merger; and (v) an aggregate of
approximately $4.3 million to the former and current Chief Executive Officers of
PHI in payment of certain existing obligations of PHI to such officers.
Approximately $12.9 million of the $31.6 million in cash consideration paid to
the holders of the capital stock of PHI in the Merger was received by 93
officers, directors and employees of, and consultants to, PHI in exchange for
their capital stock and options to purchase capital stock of PHI. See "Certain
Relationships and Related Transactions." In addition, pre-Merger holders of the
capital stock of PHI (including holders of options to purchase capital stock)
are entitled to receive an amount in cash equal to the amount of any refunds the
Company receives after the closing of the Merger of taxes paid by PHI for
periods prior to the closing of the Merger and an amount in cash equal to the
amount, if any, by which the cash and cash equivalents of PHI on the closing
date exceed the cash and cash equivalents of PHI on July 31, 1997.
21
<PAGE> 24
INTERCOMPANY NOTES
At the closing of the Offerings, the principal amount of the Notes was
allocated among HVE and each of its direct Restricted Subsidiaries in
consideration for the release of certain obligations of such Restricted
Subsidiaries relating to the indebtedness repaid in connection with the
Refinancing. Amounts allocated to such Restricted Subsidiaries are evidenced by
Intercompany Notes in the following principal amounts: (i) Robicon: $39.5
million; (ii) PHI: $39.5 million; (iii) Datcon: $19.0 million; (iv) Anderson:
$19.0 million; and (v) HIVEC Holdings: $3.5 million. The Intercompany Notes: (i)
are senior obligations of each Restricted Subsidiary; (ii) have terms
substantially similar to the terms of the Notes; and (iii) may not be forgiven
by the Company as long as the Notes remain outstanding; provided, however, that
the Intercompany Note of a particular Restricted Subsidiary must be repaid with
the Net Proceeds of a Qualified Subsidiary IPO of such Restricted Subsidiary.
See "Description of Certain Indebtedness."
22
<PAGE> 25
USE OF PROCEEDS
No proceeds will be received by the Company from the Exchange Offer. The
gross proceeds to the Company from the Offerings, of $170.2 million were or will
be used to consummate the Refinancing, to finance the Merger, for general
corporate purposes and to pay related fees and expenses. See "The Transactions."
The following table sets forth the sources and uses of funds as of the closing
date of the Transactions (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
SOURCES OF FUNDS:
Notes sold in Offering ........................ $135,000
Units sold in Offering ........................ 35,200
--------
Total sources of funds ................... $170,200
========
USES OF FUNDS:
Repayment of Former Revolving Credit
Facility due 2001(a) ........................ $ 14,426
Repayment of Senior Term Loan due 2003(b) ..... 8,231
Repayment of Senior Secured Notes due 2003(c) . 23,551
Repayment of Senior Unsecured Notes due 2003(d) 7,723
Repayment of Subordinated Notes due 2004(e) ... 26,544
Redemption of Series C Preferred Stock(f) ..... 6,871
Redemption of Series B Preferred Stock(g) ..... 4,750
Extinguishment of BancBoston CIP Agreements (h) 6,750
Repurchase of certain Subordinated Notes
Warrants (i) .............................. 2,500
Cash purchase price of PHI(j) ................. 54,536
Distributions to fund Letitia Common
Stock repurchase (k) ...................... 2,400
General corporate purposes .................... 4,935
Estimated fees and expenses ................... 6,983
--------
Total uses of funds ...................... $170,200
========
</TABLE>
- ----------
(a) The Company's former senior revolving credit facility (the "Former Revolving
Credit Facility") bore interest, at the Company's option, at (i) LIBOR plus
2.75% or (ii) the Base Rate (as defined therein) currently 8.50%, and
matured on April 30, 2001. Repayment included $400,000 in prepayment
penalties and $26,000 of accrued and unpaid interest.
(b) The Company's senior term loan (the "Senior Term Loan") bore interest at the
Company's option at (i) LIBOR plus 3.25% or (ii) the Base Rate plus .75% (as
defined therein), currently 9.25% and matured on April 30, 2003. Repayment
included $17,000 of accrued and unpaid interest.
(c) The Company's senior secured notes (the "Senior Secured Notes") bore
interest at 10.84% and matured on May 1, 2003. Repayment included a make
whole premium of $3.0 million and $0.6 million of accrued and unpaid
interest.
(d) The Company's senior unsecured notes (the "Senior Unsecured Notes") bore
interest at 12.09% and matured on May 1, 2003. Repayment included $493,000
in prepayment penalties and $230,000 of accrued and unpaid interest.
(e) The Company's senior subordinated notes (the "Subordinated Notes") paid cash
interest that, together with accrued non-cash interest, provided an annual
yield to maturity of 14%. The Subordinated Notes matured on May 1, 2004.
Repayment included $6.2 million in prepayment penalties and $0.5 million of
accrued and unpaid interest.
(f) The Series C Preferred Stock had an aggregate liquidation preference of $6.9
million (as of the closing date of the Transactions) and was mandatorily
redeemable on June 1, 2000. All of the outstanding Series C Preferred Stock
was owned by Letitia Corporation, which had issued to Quest Equities Corp.
("Quest") a class of its own capital stock (the "Letitia Quest Preferred
23
<PAGE> 26
Stock") having identical rights and preferences to the Series C
Preferred Stock. Letitia Corporation caused the redemption of all of
the outstanding Letitia Quest Preferred Stock, simultaneously with the
closing of the Transactions, with the proceeds of the redemption of the
Series C Preferred Stock. In connection with the redemption of the
Letitia Quest Preferred Stock, certain rights of Quest under agreements
substantially similar to the CIP Agreements, pursuant to which, under
certain circumstances, Quest was entitled to demand "contingent
interest payments" equal to a minimum of 3.1% of HVE's common stock
equity value at the time payment was demanded, were extinguished.
(g) The Series B Preferred Stock had an aggregate liquidation preference of
$4.8 million, and was mandatorily redeemable by the Company on March
17, 2008. All of the outstanding 25,705 shares of Series B Preferred
Stock were held by Letitia Corporation. Messrs. Laurence S. Levy and
Clifford Press, the Chairman of the Board and Chief Executive Officer,
and President and a Director, respectively, of the Company and certain
of their affiliates and family members beneficially own 90% of the
outstanding Letitia Common Stock, before giving effect to any
repurchase of Letitia Common Stock from the High Voltage Engineering
Corporation Retirement Plan.
(h) Under the terms of the CIP Agreements, BancBoston had the right to
demand cash payments equal to a minimum of approximately 12.4% of the
Company's common stock equity value determined as the greater of the
fair market value or the Formula Value of the Company's common stock
equity at the time the demand is made. The Formula Value was an amount
calculated as of a certain date by (a) multiplying the Company's
Consolidated EBITA (as defined therein) during the preceding 12 full
calendar months by 6.5, (b) subtracting the total amount of the
Company's consolidated indebtedness for borrowed money outstanding on
such date and (c) adding to this amount the Company's cash and cash
equivalents on such date (adjusted to include the amount of certain
distributions). The Company and BancBoston extinguished these CIP
Agreements, simultaneously with the closing of the Transactions, along
with other accommodations, in return for payment to BancBoston of $6.75
million from a portion of the net proceeds of the Offerings.
(i) Represents the repurchase of warrants that entitled the holders thereof
to purchase 71.43 shares of HVE Common Stock, or 6.25% of HVE's Common
Stock on a fully diluted basis. In connection with the issuance of the
Subordinated Notes in May 1996, the Company issued to the holders
thereof warrants (the "Subordinated Notes Warrants") to purchase 142.86
shares of HVE Common Stock, representing 12.5% of the fully-diluted HVE
Common Stock.
(j) The Merger Consideration paid at the closing date of the Transactions,
after adjustment, of approximately $54.6 million was distributed as
follows: (i) approximately $31.6 million in cash consideration to the
holders of the capital stock of PHI (including holders of options to
purchase capital stock); (ii) approximately $9.8 million to repay the
Perkin-Elmer Note, which bore interest at a rate of 10.0% and had a
scheduled final maturity of May 20, 2001; (iii) approximately $7.6
million in the aggregate to First Bank National Association to repay a
term promissory note of PHI, which had a scheduled maturity of June 30,
2000 and formerly bore interest at a rate of 8.75%; (iv) approximately
$1.3 million to CVCA as an advance against expenses incurred or to be
incurred by CVCA in its capacity as representative of the holders of
the capital stock of PHI as determined immediately prior to the
consummation of the Merger; and (v) an aggregate of approximately $4.3
million to the former and current Chief Executive Officers of PHI in
payment of certain obligations of PHI to such officers. Approximately
$12.9 million of the $31.6 million in cash consideration paid to the
holders of the capital stock of PHI in the Merger was received by 93
officers, directors and employees of, and consultants to, PHI in
exchange for their capital stock and options to purchase capital stock
of PHI. These estimated payments do not include post-closing
adjustments which may be required. See "The Transactions -- The Merger"
and "Certain Relationships and Related Transactions."
(k) Represents a distribution to Letitia Corporation of up to $2.25 million
to fund the intended purchase of Letitia Common Stock held by the High
Voltage Engineering Corporation Retirement Plan representing up to 10%
of the outstanding Letitia Common Stock, and a $150,000 proportional
accrual relating to the Subordinated Notes Warrants not repurchased
with a portion of the net proceeds of the Offerings.
24
<PAGE> 27
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the consolidated capitalization of High
Voltage Engineering Corporation and subsidiaries as of April 26, 1997, PHI
Acquisition Holdings, Inc. and subsidiaries as of March 28, 1997, and the
Company pro forma as of April 26, 1997, as adjusted to reflect the Transactions.
This table should be read in conjunction with "Use of Proceeds," "Unaudited Pro
Forma Condensed Consolidated Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the consolidated
financial statements and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ------------------------------
HVE(a) PHI(b) ADJUSTMENTS COMBINED
-------- -------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
New Revolving Credit Facility(c) ... $ -- $ -- $ -- $ --
Existing senior secured debt(d) .... 36,630 8,395 (45,025) --
Notes sold in the Offering ......... -- -- 135,000 135,000
Senior Unsecured Notes ............. 7,000 -- (7,000) --
Other debt(e) ...................... 22,397 9,456 (9,456) 22,397
Subordinated Notes(f) .............. 19,374 -- (19,374) --
Total debt ............... 85,401 17,851 54,145 157,397
-------- -------- --------- ---------
Series A Redeemable Preferred Stock -- -- 33,000 29,291
(2,200)
(1,509)
Series B Redeemable Preferred Stock 4,750 -- (4,750) --
Series C Redeemable Preferred Stock 6,724 -- (6,724) --
Redeemable put warrants(g) ......... 2,800 -- (2,500) 2,500
2,200
Stockholder's Deficiency
Common stock .................. 1 17 (17) 1
Paid-in capital ............... 17,326 7,520 2,200 19,425
(7,520)
(101)
Retained earnings (accumulated
deficit) .................... (54,104) 6,432 (21,786)(h) (75,890)
(6,432)
(2,200)
2,200
Cumulative foreign currency
translation adjustment....... 41 (472) 472 41
-------- -------- --------- ---------
Total stockholder's equity
(deficiency) ........... (36,736) 13,497 (33,184) (56,423)
-------- -------- --------- ---------
Total capitalization ..... $ 62,939 $ 31,348 $ 38,478 $ 132,765
======== ======== ========= =========
</TABLE>
- ----------
(a) For purposes of this table, the term "HVE" refers to High Voltage
Engineering Corporation and subsidiaries.
(b) For purposes of this table, the term "PHI" refers to PHI Acquisition
Holdings, Inc. and subsidiaries.
(c) The New Revolving Credit Facility will be a $25.0 million senior
secured revolving credit facility and will bear interest at (i) the
Lender's Base Rate plus 0.25% or (ii) LIBOR plus 1.50%.
(d) Comprised of the Existing Revolving Credit Facility, the Senior Term
Loan, the Senior Secured Notes and PHI's term promissory note.
25
<PAGE> 28
(e) Other debt is comprised of capital leases, industrial revenue bonds
("IRBs"), mortgage notes, notes payable, the foreign credit line and
the Perkin-Elmer Note.
(f) The Subordinated Notes were issued at a price of 82.086% of the
principal amount thereof. The initial carrying value also reflected an
additional discount related to the value allocated to redeemable put
warrants (the "Subordinated Notes Warrants") issued in connection
therewith.
(g) In connection with the issuance of the Subordinated Notes in 1996, the
Company issued the Subordinated Notes Warrants. As of April 26, 1997,
the value allocated to such warrants was $2.8 million. In connection
with the Offerings, the Company repurchased Subordinated Notes Warrants
entitling the holders thereof to purchase 71.43 shares of HVE Common
Stock, or 6.25% of HVE Common Stock on a fully diluted basis, for $2.5
million. As a result, the carrying value of the remaining Subordinated
Notes Warrants will be increased from $1.4 million to $2.5 million.
(h) Reflects the payment of prepayment penalties, the write-off of
purchased in-process research development, the write-off of deferred
financing costs, a charge related to the extinguishment of the
BancBoston CIP Agreements, distributions to fund the Letitia Common
Stock repurchase and a payment to fund a proportional accrual relating
to the Subordinated Notes Warrants.
26
<PAGE> 29
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet
presents the pro forma financial position of the Company as if the Transactions
had occurred on April 26, 1997. The following Unaudited Pro Forma Condensed
Consolidated Statement of Operations for Fiscal 1997 presents the results of
operations of the Company as if the Transactions had occurred at the beginning
of the period presented. The Unaudited Pro Forma Condensed Consolidated
Financial Data for Fiscal 1997 have been prepared by the Company's management
and are not necessarily indicative of the Company's financial position and
results of operations had the Transactions actually occurred on the assumed
dates, nor are they necessarily indicative of the Company's financial position
and results of operations for any future period. In the opinion of management,
all necessary adjustments have been made to fairly present this pro forma
information. The Unaudited Pro Forma Condensed Consolidated Financial Data are
based on the historical financial statements of High Voltage Engineering
Corporation and subsidiaries and PHI Acquisition Holdings, Inc. and
subsidiaries, and give effect to the assumptions and adjustments set forth in
the accompanying notes. References in this Prospectus to the Company's pro forma
fiscal year ended April 26, 1997, combine, on a pro forma basis, the results of
High Voltage Engineering Corporation and subsidiaries for Fiscal 1997 and PHI
Acquisition Holdings, Inc. and subsidiaries for the LTM period ended March 28,
1997. The fiscal year end of PHI Acquisition Holdings, Inc. and subsidiaries is
on the Friday closest to June 30.
The allocation of the aggregate purchase price for the Merger, together
with the liabilities assumed pursuant thereto, to the net assets acquired has
been based on management's preliminary estimate of the fair value of such assets
and liabilities. Adjustments to asset values, including inventories, and
liabilities in the final allocation may differ from these estimates, which could
significantly impact future earnings.
The Unaudited Pro Forma Condensed Consolidated Financial Data should be
read in conjunction with the "Selected Historical Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "The Transactions," the audited consolidated financial statements
of High Voltage Engineering Corporation and subsidiaries and the notes thereto,
and the audited and unaudited financial statements of PHI Acquisition Holdings,
Inc. and subsidiaries and the notes thereto, included elsewhere in this
Prospectus.
27
<PAGE> 30
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF APRIL 26, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------ ------------------------------
HVE(a) PHI(b) ADJUSTMENTS COMBINED
--------- ------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents ...................... $ 1,542 $ 2,647 $ 9,041 (c) $ 13,230
Restricted cash ................................ 2,210 -- 2,210
Accounts receivable -- net ..................... 33,333 13,337 46,670
Inventories .................................... 22,334 15,901 38,235
Prepaid expenses and other current assets ...... 1,164 336 1,500
Deferred income taxes .......................... -- 288 288
--------- ------- --------- ---------
Total current assets .................... 60,583 32,509 9,041 102,133
PROPERTY, PLANT AND EQUIPMENT -- Net ............. 30,966 9,850 $ 14,561 (e) 55,377
INVESTMENT IN JOINT VENTURE ...................... -- 1,896 1,896
ASSETS HELD FOR SALE ............................. 5,248 -- 5,248
OTHER ASSETS -- Net .............................. 16,790 575 5,023 (c) 26,520
(5,800)(d)
(2,668)(d)
12,600 (e)
COST IN EXCESS OF NET ASSETS ACQUIRED ............ -- -- 6,099 (e) 6,099
--------- ------- --------- ---------
$ 113,587 $44,830 $ 38,856 $ 197,273
========= ======= ========= =========
LIABILITIES AND STOCKHOLDER'S (DEFICIENCY) EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt obligations $ 2,609 $ 2,250 $ (1,429)(c) $ 1,180
(2,250)(c)
Foreign credit line ............................ 2,284 -- 2,284
Accounts payable ............................... 17,199 3,208 20,407
Accrued interest ............................... 8,394 130 951 (d) 144
(2,581)(c)
(6,750)(c)
Accrued liabilities ............................ 12,000 7,439 (9,967)(c) 19,439
9,967 (d)
Advance payments by customers .................. 5,294 800 6,094
Federal, foreign and state income taxes payable 1,261 1,245 2,506
Deferred income taxes .......................... 2,171 -- 2,171
--------- ------- --------- ---------
Total current liabilities ............... 51,212 15,072 (12,059) 54,225
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES ... 80,508 15,601 135,000 (c) 153,933
(61,575)(c)
(15,601)(c)
DEFERRED INCOME TAXES ............................ 1,834 -- 8,758 (e) 10,592
OTHER LIABILITIES ................................ 2,495 660 3,155
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK ....................... 11,474 -- 33,000 (c) 29,291
(2,200)(c)
(11,474)(c)
(1,509)(c)
REDEEMABLE PUT WARRANTS .......................... 2,800 -- (2,500)(c) 2,500
2,200 (f)
STOCKHOLDER'S (DEFICIENCY) EQUITY ................ (36,736) 13,497 2,200 (c) (56,423)
(101)(c)
2,200 (c)
(21,786)(d)
(13,497)(e)
(2,200)(f)
$ 113,587 $44,830 $ 38,856 $ 170,200
========= ======= ========= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Condensed Consolidated Balance Sheet.
28
<PAGE> 31
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF APRIL 26, 1997
(DOLLARS IN THOUSANDS)
(a) For purposes of the Unaudited Pro Forma Condensed Consolidated Balance
Sheet, the term "HVE" refers to High Voltage Engineering Corporation
and subsidiaries.
(b) For purposes of the Unaudited Pro Forma Condensed Consolidated Balance
Sheet, the term "PHI" refers to PHI Acquisition Holdings, Inc. and
subsidiaries. The financial position of PHI is as of March 28, 1997,
the end of PHI's third fiscal quarter.
(c) Reflects the estimated sources and uses of funds for the Transactions,
assuming they had occurred as of April 26, 1997:
<TABLE>
<S> <C> <C>
SOURCES OF FUNDS:
Notes sold in Offering..................................................... $ 135,000
Units sold in Offering(i).................................................. 35,200
---------
Total sources of funds............................................. $ 170,200
=========
USES OF FUNDS:
Merger:
Cash consideration paid to holders of PHI capital stock and
holders of options to purchase capital stock(ii)....................... $ 33,400
Payments to current and former officers of PHI.......................... 4,249
Repayment of existing PHI indebtedness:
Term promissory note-- current maturities............................. 2,250
Term promissory note-- long-term obligations.......................... 6,145
Perkin-Elmer Note-- long-term obligations............................. 9,456 $ 55,500
--------
Estimated Merger expenses............................................... 350
Repayment of HVE's indebtedness:
Senior Term Loan-- current maturities................................... 1,429
Existing Revolving Credit Facility...................................... 7,702
Senior Term Loan........................................................ 7,499
Senior Secured Notes.................................................... 20,000
Senior Unsecured Notes.................................................. 7,000
Subordinated Notes(iii)................................................. 19,374 61,575
--------
Accrued interest........................................................ 2,581
Prepayment penalties and make whole premiums:
Prepayment penalty -- Existing Revolving Credit
Facility......................................................... 400
Make whole premium-- Senior Secured Notes.......................... 2,448
Prepayment penalty-- Senior Unsecured Notes........................ 493
Prepayment penalty-- Subordinated Notes(iii)....................... 6,626 9,967
--------
Redemption of HVE's redeemable preferred stock(iv)......................... 11,474
Extinguishment of BancBoston CIP Agreements (v)............................ 6,750
Repurchase of certain Subordinated Notes Warrants (vi)..................... 2,500
Distributions to fund Letitia Common Stock repurchase (vii)................ 2,400
General corporate purposes................................................. 9,041
Estimated fees and expenses associated with the Notes Offering............. 4,823
Estimated fees and expenses associated with the New Revolving
Credit Facility......................................................... 200
Estimated fees and expenses associated with Series A Preferred
Stock and Warrants (viii)........................................... 1,509
Estimated fees and expenses associated with the Common
Shares.............................................................. 101
---------
Total uses of funds................................................ $ 170,200
==========
</TABLE>
- ----------
29
<PAGE> 32
(i) The proceeds from the Units sold in the Offering, excluding
the $2.2 million of proceeds from the Common Shares, which
have been allocated by the Company between the Series A
Preferred Stock ($30,800) and the Warrants ($2,200) based on
the initial estimated value of such Warrants at the Issue
Date. The initial estimated value of such Common Shares,
Series A Preferred Stock and Warrants are based on preliminary
evaluations by the Company and are subject to change.
(ii) Cash consideration paid to the holders of PHI capital stock
and holders of options to purchase capital stock includes
transaction fees and expenses of approximately $1.2 million.
In addition, the Company may be required to pay to the former
shareholders of PHI contingent consideration in an amount
equal to (1) income tax refunds, if any, that the Company
receives after closing of the Merger for taxes paid by PHI for
periods prior to the closing of the Merger and (2) an amount
in cash equal to the amount, if any, by which the cash and
cash equivalents of PHI on the closing date exceed its cash
and cash equivalents on July 31, 1997.
(iii) HVE's Subordinated Notes were issued at a price of 82.086% of
the principal amount thereof, resulting in gross proceeds to
HVE of $20.5 million. The carrying value of the Subordinated
Notes at April 26, 1997 reflects an additional discount of
$2.4 million related to the value allocated to the redeemable
put warrants issued in connection therewith. The Subordinated
Notes were redeemed at a redemption price of $26.0 million,
104% of the principal amount thereof, plus accrued and unpaid
interest thereon.
(iv) In connection with the Refinancing, the Company redeemed the
issued and issuable shares of all of the Company's redeemable
preferred stock comprised of the Series B Preferred Stock and
the Series C Preferred Stock at their carrying value. See "Use
of Proceeds."
(v) Under the terms of the CIP Agreements, BancBoston had the
right to demand cash payments equal to a minimum of
approximately 12.4% of the Company's common stock equity value
determined as the greater of the fair market value or the
Formula Value of the Company's common stock equity at the time
the demand is made. The Formula Value was an amount calculated
as of a certain date by (a) multiplying the Company's
consolidated EBITA (as defined therein) during the preceding
12 full calendar month by 6.5, (b) subtracting the total
amount of the Company's consolidated indebtedness for borrowed
money outstanding on such date and (c) adding to this amount
the Company's cash and cash equivalents on such date (adjusted
to include the amount of certain distributions). The Company
and BancBoston extinguished these CIP Agreements,
simultaneously with the closing of the Transactions, along
with other accommodations, in return of payment to BancBoston
of $6.75 million from a portion of the net proceeds of the
Offerings.
(vi) Represents the repurchase of warrants entitling the holders
thereof to purchase 71.43 shares of HVE's Common Stock, or
6.25% of HVE's Common stock on a fully diluted basis. In
connection with the issuance of the Subordinated Notes in May
1996, the Company issued to the holders thereof warrants to
purchase 142.86 shares of HVE Common Stock, representing 12.5%
of the fully-diluted HVE Common Stock.
(vii) Represents a $2.25 million distribution to Letitia Corporation
to fund the intended purchase of Letitia Common Stock held by
the High Voltage Engineering Corporation Retirement Plan
representing up to 10% of the outstanding Letitia Common
Stock, and a $150,000 proportional accrual relating to the
Subordinated Notes Warrants.
(viii) On a historical basis, costs associated with the issuance of
the Series A Preferred Stock and Warrants will be charged to
paid-in-capital.
(d) Reflects the following adjustments to Stockholder's equity
(deficiency):
30
<PAGE> 33
<TABLE>
<S> <C> <C>
Charges to historical earnings:
Make whole premiums and prepayment penalties on HVE indebtedness............. $ 9,967
Write-off of purchased in-process research and development................... 5,800
Write-off of deferred financing costs........................................ 2,668
Extinguishment of BancBoston CIP Agreements.................................. 951
--------
Subtotal............................................................... $ 19,386
Distributions to fund Letitia Common Stock repurchase........................ 2,400
--------
Total................................................................... $ 21,786
========
</TABLE>
(e) Reflects the purchase price allocation to cost in excess of net assets
acquired using the purchase method of accounting. The preliminary
allocation of the purchase price and related transaction costs is as
follows:
<TABLE>
<S> <C> <C>
Cash consideration paid to holders of PHI capital stock and
holders of options to purchase capital stock................... $ 33,400
Payments to current and former officers of PHI.................. 4,249 $ 37,649
--------
Estimated Merger expenses....................................... 350
Less: Merger adjustments to PHI's historical financial
statements(i):
Elimination of PHI's stockholders' equity.................. 13,497
Increase in intangibles(ii)(iii)........................... 12,600
Write-up of PHI fixed assets(iii).......................... 14,561
Deferred tax liability arising from the Merger ............ (8,758) 31,900
-------- --------
Cost in excess of net assets acquired................ $ 6,099
========
</TABLE>
- ----------
(i) The purchase price allocation is subject to final
determination upon the closing of the Merger. Contingent
consideration relating to income tax refunds and excess cash
may be required. See "The Transactions." The fair value of net
assets acquired has been based on management's preliminary
estimate of the fair value of such assets and liabilities.
Adjustments to asset values, including inventories and
liabilities in the final allocation may differ from these
estimates, which could significantly impact future earnings.
(ii) Consists of the following (with the amortization period noted
parenthetically):
<TABLE>
<S> <C>
Patents/patent applications (11 years)............................. $ 6,800
In-process research and development -- (see note (d) above)...... 5,800
--------
Total................................................... $ 12,600
========
</TABLE>
(iii) Based on a preliminary appraisal by a nationally recognized
independent appraiser of property and companies, with a
valuation date of May 23, 1997, and current fixed asset
additions after such date.
(f) In connection with the Offerings, the Company repurchased from CIBC
Wood Gundy Subordinated Notes Warrants entitling the holders thereof to
purchase 71.43 shares of HVE's Common Stock, or 6.25% of HVE's Common
Stock on a fully diluted basis, for $2.5 million. As a result, the
carrying value of the Subordinated Notes Warrants will be increased
form $2.8 million to $5.0 million.
31
<PAGE> 34
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 26, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- ------------------------------
HVE(a) PHI(b) ADJUSTMENTS COMBINED
--------- ----------- ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ...................................... $ 173,103 $ 64,752 $ 237,855
Cost of sales .................................. 114,848 39,641 $ 209(c) 154,856
158(f)
--------- -------- --------- ---------
Gross profit .............................. 58,255 25,111 (367) 82,999
Administrative and selling expenses ............ 36,967 10,251 116(c) 48,434
305(d)
618(e)
177(f)
Research and development expenses .............. 9,361 7,286 76(c) 16,723
Reimbursed environmental and litigation
costs-net .................................... 26 -- 26
Other .......................................... 2,234 408 2,642
--------- -------- --------- ---------
Income from operations .................... 9,667 7,166 (1,659) 15,174
Interest expense ............................... 11,602 1,821 3,714(g) 17,137
Interest income ................................ (351) (67) (418)
--------- -------- --------- ---------
Income (loss) from continuing operations
before income taxes and extraordinary
item .................................... (1,584) 5,412 (5,373) (1,545)
Income taxes ................................... 526 1,578 --(h) 2,104
--------- -------- --------- ---------
Income (loss) from continuing operations .. (2,110) 3,834 (5,373) (3,649)
before extraordinary item
Preferred dividend requirement ............ (479) -- (3,763)(i) (4,242)
Accretion of redeemable put warrants ...... (387) -- (2,200)(j) (2,587)
--------- -------- --------- ---------
Income (loss) available to common
stockholders before extraordinary item ....... $ (2,976) $ 3,834 $ (11,336) $ (10,478)
========= ======== ========= =========
Ratio of earnings to fixed charges(k) .......... -- --
EBITDA data(i):
Income from operations ....................... $ 9,667 $ 7,166 $ (1,659) $ 15,174
Reimbursed environmental and litigation
costs-net ................................. 26 -- 26
Other ........................................ 2,234 408 2,642
Depreciation and amortization ................ 4,376 2,595 1,324 8,295
PHI severance and relocation expenses ........ -- 270 270
--------- -------- --------- ---------
EBITDA .................................... $ 16,303 $ 10,439 $ (335) $ 26,407
========= ======== ========= =========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Statement of Operations.
32
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 26, 1997
(DOLLARS IN THOUSANDS)
(a) For purposes of the Unaudited Pro Forma Condensed Consolidated
Statement of Operations, the term "HVE" refers to High Voltage
Engineering Corporation and subsidiaries.
(b) For purposes of the Unaudited Pro Forma Condensed Consolidated
Statement of Operations, the term "PHI" refers to PHI Acquisition
Holdings, Inc. and subsidiaries. The results of operations of PHI are
for the LTM period ended March 28, 1997.
(c) Reflects an increase in depreciation expense resulting from an
appraisal of both the estimated fair value of fixed assets and their
estimated remaining service lives as of March 28, 1997 and current
fixed asset additions after such date. Such assets will be depreciated
over their estimated remaining service lives which range from 3 to 30
years. See note (e) to "Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet." The increase in depreciation expense is
allocated $209 to cost of sales, $116 to administrative and selling
expenses and $76 to research and development expenses, based upon the
allocation of historical depreciation expense in the results of
operations of PHI for the LTM period ended March 28, 1997.
(d) Reflects $305 of estimated amortization of cost in excess of net assets
acquired, totaling $6.1 million, over 20 years resulting from the
Merger. See note (e) to "Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet."
(e) Reflects $618 of amortization of intangible assets, totaling $6.8
million, resulting from the Merger. See note (e) (ii) to "Notes to
Unaudited Pro Forma Condensed Consolidated Balance Sheet."
(f) Reflects an adjustment to remove the reversal of incentive compensation
accruals recorded by PHI in the fourth quarter of its fiscal year ended
June 28, 1996. The amounts recorded were $158 to cost of sales and $177
to administrative and selling expenses, respectively.
(g) Reflects the effect on interest expense resulting from the
Transactions:
<TABLE>
<CAPTION>
INTEREST
INTEREST RATE AMOUNT EXPENSE
------------- ---------- --------
<S> <C> <C> <C>
PRO FORMA INTEREST EXPENSE
Calculation:
New Revolving Credit Facility(i).................. 7.22% $ -- $ --
Notes offered hereby.............................. 10.5% 135,000 14,175
Mortgage notes, capital leases,
foreign credit line and notes
payable........................................ 2.0%-- 16.4% 22,397 2,108
Unused credit facility fee........................ 125
--------
Pro forma cash interest
expense...................................... 16,408
Amortization of deferred financing
costs.......................................... 729
--------
Total pro forma interest
expense...................................... 17,137
Less:
Historical HVE interest expense................... 11,602
Historical PHI interest expense................... 1,821
--------
Total historical interest expense................... 13,423
--------
Total pro forma interest expense
adjustment........................................ $ 3,714
========
</TABLE>
- ---------
33
<PAGE> 36
(i) The New Revolving Credit Facility will bear interest at LIBOR
plus 1.50% or the Lender's Base Rate plus .25%. For the
purpose of this computation LIBOR is assumed to be 5.72% which
is the average of the one, three and six month LIBOR rates.
(h) An income tax benefit has not been recognized for the tax effect of pro
forma adjustments due to the non-deductibility of costs in excess of
net assets acquired and a valuation allowance which was established
against the recoverability of the future income tax benefits due to
uncertainties as to their utilization in future periods.
(i) Represents dividends in the amount of $4,242 on the Series A Preferred
Stock at 12.50% per annum, payable semiannually in cash or additional
shares of Series A Preferred Stock, at the option of the Company, and
the elimination of dividends on the Series C Preferred Stock of $479.
(j) In connection with the Offerings, the Company repurchased Subordinated
Notes Warrants entitling the holders thereof to purchase 71.43 shares
of HVE's Common Stock, or 6.25% of HVE's Common Stock on a fully
diluted basis, for $2.5 million. As a result, the carrying value of the
Subordinated Notes Warrants will be increased from $2.8 million to $5.0
million.
(k) For the purpose of this computation, earnings are defined as income or
loss from continuing operations before income taxes, extraordinary
items and fixed charges. Fixed charges are the sum of: (i) interest
cost; (ii) amortization of deferred financing costs; (iii) the portion
of operating lease rental expense that is representative of the
interest factor (deemed to be one-third); (iv) dividends on preferred
stock; and (v) accretion of redeemable put warrants issued in
connection with the Subordinated Notes. On a pro forma basis and HVE
historical basis, earnings were inadequate to cover fixed charges by
$8.4 million and $2.5 million, respectively, in Fiscal 1997.
(l) EBITDA is defined as earnings from continuing operations before
interest, income taxes, depreciation, amortization and non-recurring
items. Non-recurring items are comprised of: (i) reimbursed
environmental and litigation costs -- net and other and (ii) $210 of
severance payments to a former officer of PHI and $60 of relocation
expenses included in administrative and selling expenses in connection
with the replacement of such officer of PHI in Fiscal 1997. See notes
F, K and N to "Notes to Consolidated Financial Statements" of High
Voltage Engineering Corporation and subsidiaries. EBITDA is not a
measure of performance under GAAP. While EBITDA should not be
considered as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used as a measurement
in evaluating companies. Moreover, substantially all of the Company's
financing agreements contain covenants in which EBITDA, as defined
therein, is used as a measure of financial performance. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" for discussion of other measures of performance
determined in accordance with GAAP.
34
<PAGE> 37
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
The Selected Historical Consolidated Financial Data presented below
under the captions "Statement of Operations Data" and "Balance Sheet Data" as of
and for each of the fiscal years in the five-year period ended April 26, 1997
are derived from the consolidated financial statements of High Voltage
Engineering Corporation and its subsidiaries, as restated.
The Selected Historical Consolidated Financial Data of High Voltage
Engineering Corporation and its subsidiaries should be read in conjunction with
the historical consolidated financial statements of High Voltage Engineering
Corporation and subsidiaries for the fiscal years in the three-year period ended
April 26, 1997 and the notes thereto included elsewhere herein. For additional
information, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ..................................................... $ 101,282 $ 102,098 $ 116,551 $ 149,100 $ 173,103
Cost of sales ................................................. 65,109 63,951 73,424 97,386 114,848
--------- --------- --------- --------- ---------
Gross profit ................................................ 36,173 38,147 43,127 51,714 58,255
Administrative and selling expenses(a) ........................ 24,323 24,902 26,113 34,915 36,967
Research and development expenses ............................. 6,732 6,940 8,094 8,071 9,361
Restructuring charge(b) ....................................... -- -- 1,294 150 --
Reimbursed environmental and litigation costs-net(c) .......... (2,467) (6,725) (2,130) (450) 26
Other(d) ...................................................... (408) 703 892 1,163 2,234
--------- --------- --------- --------- ---------
Income from operations ...................................... 7,993 12,327 8,864 7,865 9,667
Interest expense .............................................. (8,753) (7,870) (8,573) (11,225) (11,602)
Interest income ............................................... 628 99 74 278 351
Income (loss) from continuing operations before income taxes,
discontinued operations and extraordinary item ............ (132) 4,556 365 (3,082) (1,584)
Income taxes (credit) ......................................... 1,677 4,209 196 (2,619) 526
--------- --------- --------- --------- ---------
Income (loss) from continuing operations before discontinued
operations and extraordinary item ........................... (1,809) 347 169 (463) (2,110)
Discontinued operations:
Income (loss) from discontinued operations, net of income
taxes ..................................................... (392) 106 607 (135) --
Gain (loss) on disposal of discontinued operations, net of
income taxes .............................................. -- -- (331) 1,633 --
--------- --------- --------- --------- ---------
Extraordinary gain (loss), net of income taxes ................ 356 -- -- (422) (259)
--------- --------- --------- --------- ---------
Net income (loss) ............................................. $ (1,845) $ 453 $ 445 $ 613 $ (2,369)
========= ========= ========= ========= =========
OTHER DATA:
EBITDA(e) ..................................................... $ 9,120 $ 9,593 $ 12,246 $ 12,768 $ 16,303
Depreciation and amortization(f) .............................. 4,002 3,288 3,080 3,584 4,376
Capital expenditures(g) ....................................... 1,406 3,175 9,135 5,959 5,010
Backlog ....................................................... 23,993 27,883 42,707 62,990 69,632
Ratio of earnings to fixed charges(h) ......................... -- 1.5x -- -- --
BALANCE SHEET DATA (AT PERIOD END):
Working capital ............................................... $ 11,730 $ 19,157 $ 10,685 $ 11,894 $ 9,371
Total assets .................................................. 89,517 92,664 105,974 113,718 113,587
Total debt (including redeemable put warrants) ................ 80,023 78,190 82,232 84,671 88,201
Redeemable preferred stock .................................... 9,750 10,134 10,549 10,995 11,474
Stockholder's deficiency ...................................... (34,426) (34,728) (33,897) (33,482) (36,736)
OPERATING UNIT DATA:
Net sales:
Robicon(i) .................................................. $ 34,099 $ 34,738 $ 40,061 $ 56,145 $ 83,096
Datcon ...................................................... 15,170 16,875 21,514 32,514 32,482
Anderson(i) ................................................. 15,017 15,471 18,136 21,509 21,554
Natvar ...................................................... 13,979 13,948 16,828 17,101 15,227
General Eastern ............................................. 9,837 9,969 10,176 12,093 12,256
HVE Europa .................................................. 7,929 6,008 8,048 9,738 8,488
--------- --------- --------- --------- ---------
Subtotal ................................................ 96,031 97,009 114,763 149,100 173,103
Divested product lines(i) ................................... 5,251 5,089 1,788 -- --
--------- --------- --------- --------- ---------
Total net sales ......................................... $ 101,282 $ 102,098 $ 116,551 $ 149,100 $ 173,103
========= ========= ========= ========= =========
EBITDA:(j)
Robicon ..................................................... $ 2,337 $ 3,057 $ 2,212 $ 1,425 $ 6,330
Datcon ...................................................... 2,005 2,233 3,444 4,230 4,338
Anderson .................................................... 2,632 3,271 3,922 5,240 4,885
Natvar ...................................................... 2,268 2,357 2,881 1,784 1,328
General Eastern ............................................. 1,154 1,173 1,318 1,681 1,916
HVE Europa .................................................. 445 155 463 1,146 673
--------- --------- --------- --------- ---------
Total operating unit EBITDA ............................. 10,841 12,246 14,240 15,506 19,470
Corporate overhead .......................................... (1,721) (2,653) (1,994) (2,738) (3,167)
--------- --------- --------- --------- ---------
Total EBITDA ............................................ $ 9,120 $ 9,593 $ 12,246 $ 12,768 $ 16,303
========= ========= ========= ========= =========
</TABLE>
See accompanying Notes to Selected Historical Consolidated Financial Data.
35
<PAGE> 38
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(a) EBITDA excludes severance expenses of $246 and $456 included in
administrative and selling expenses in Fiscal 1995 and Fiscal 1996,
respectively. See note (e) below.
(b) In Fiscal 1995, HVE incurred a total restructuring charge of $1,294
comprised primarily of $548 due to the closure of a duplicate
manufacturing facility, and costs related to the consolidation of the
operations of this manufacturing facility into another existing
facility and $746 in connection with the write-off of the cumulative
foreign currency translation adjustment resulting from the liquidation
of a subsidiary of HVE Europa.
(c) Represents insurance recoveries related to environmental litigation,
remediation and consequential damages, net of actual legal costs,
estimated settlement costs and changes in cost remediation estimates in
connection with two properties formerly owned by HVE in Burlington,
Massachusetts and Woodbridge Township, New Jersey. See "Business --
Environmental and Insurance Matters."
(d) Other is comprised of the following:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------
1993 1994 1995 1996 1997
----- ---- ----- ------- -------
<S> <C> <C> <C> <C> <C>
Writedown of assets held for sale ........ $ -- $ -- $ 815 $ 1,200 $ --
Net gain on disposition of miscellaneous
assets ................................. (408) -- (47) (83) (230)
Division relocation and moving costs ..... -- 488 124 103 --
Facilities (income) expense, net ......... -- -- -- (57) 319
Aborted acquisition and offering costs ... -- -- -- -- 2,145
Acquisition costs and loss on write-off of
purchased assets ....................... -- 215 -- -- --
----- ---- ----- ------- -------
Total ............................... $(408) $703 $ 892 $ 1,163 $ 2,234
===== ==== ===== ======= =======
</TABLE>
(e) EBITDA is defined as earnings from continuing operations before
interest, income taxes, depreciation, amortization and non-recurring
items. Non-recurring items are comprised of: (i) restructuring charge,
reimbursed environmental and litigation costs - net, and other, and
(ii) non-recurring severance payments of $246 and $456 to certain
former senior executives included in administrative and selling
expenses of HVE in Fiscal 1995 and Fiscal 1996, respectively. See notes
(a) through (d) above and notes F, K and N to "Notes to Consolidated
Financial Statements" of High Voltage Engineering Corporation and
subsidiaries. EBITDA is not a measure of performance under GAAP. While
EBITDA should not be considered as a substitute for net income, cash
flows from operating activities and other income or cash flow statement
data prepared in accordance with GAAP, or as a measure of profitability
or liquidity, management understands that EBITDA is customarily used as
a measurement in evaluating companies. Moreover, substantially all of
the Company's financing agreements contain covenants in which EBITDA,
as defined therein, is used as a measure of financial performance. See
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a discussion of other measures of
performance determined in accordance with GAAP.
(f) Depreciation and amortization excludes $1.1 million and $0.6 million
attributable to discontinued operations in Fiscal 1995 and Fiscal 1996,
respectively.
(g) Capital expenditures include assets acquired under capital leases and
exclude capital expenditures from discontinued operations in the
amounts of $0.8 million and $4 in Fiscal 1995 and Fiscal 1996,
respectively.
(h) For purposes of this computation, earnings are defined as income or
loss from continuing operations before income taxes, discontinued
operations and extraordinary item and fixed charges. Fixed charges are
the sum of: (i) interest cost; (ii) amortization of deferred financing
costs; (iii) the portion of operating lease rental expense that is
representative of the interest factor (deemed to be one third); (iv)
dividends on preferred stock; and (v) accretion of redeemable put
warrants. Earnings were inadequate to cover fixed charges by $496, $0.6
million, $3.5 million and $2.5 million in Fiscal 1993, Fiscal 1995,
Fiscal 1996 and Fiscal 1997.
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(i) Anderson's net sales exclude net sales of $4.5 million, $4.1 million
and $1.4 million from divested product lines for Fiscal 1993, Fiscal
1994 and Fiscal 1995, respectively. Robicon's net sales exclude net
sales of $0.7 million, $1.0 million and $345 from divested product
lines for Fiscal 1993, Fiscal 1994 and Fiscal 1995, respectively.
(j) EBITDA has not been adjusted to exclude divested product lines.
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<PAGE> 40
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
The following Selected Historical Consolidated Financial Data of PHI
Acquisition Holdings, Inc. and subsidiaries for its fiscal years ended June 30,
1995 and June 28, 1996 have been derived from the audited consolidated financial
statements of PHI Acquisition Holdings, Inc. and its subsidiaries (referred to
herein collectively as "PHI"). The Selected Historical Consolidated Financial
Data of PHI for the nine months ended March 30, 1996 and March 28, 1997 and the
12 months ended March 28, 1997 are derived from the unaudited financial
statements of PHI. Such unaudited consolidated financial statements have been
prepared on a basis consistent with the audited consolidated financial
statements of PHI and, in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial position and results of operations of PHI for the
periods covered thereby. The results of any interim periods are not necessarily
indicative of results of operations for a full year. The information presented
below should be read in conjunction with PHI's consolidated financial statements
and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED 12 MONTHS
--------------------- ---------------------- ENDED
JUNE 30, JUNE 28, MARCH 30, MARCH 28, MARCH 28,
1995 1996 1996 1997 1997
-------- -------- -------- --------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................... $ 54,764 $ 58,074 $ 38,446 $ 45,124 $ 64,752
Cost of sales ............................... 34,244 35,740 24,047 27,948 39,641
-------- -------- -------- -------- --------
Gross profit .............................. 20,520 22,334 14,399 17,176 25,111
Administrative and selling expenses(a) ...... 9,374 10,046 7,468 7,673 10,251
Research and development expenses ........... 6,197 6,333 4,884 5,837 7,286
Equity in earnings of joint venture(b) ...... (337) (206) (738) (124) 408
-------- -------- -------- -------- --------
Operating income .......................... 5,286 6,161 2,785 3,790 7,166
Interest expense ............................ (1,855) (1,827) (1,316) (1,310) (1,821)
Interest income ............................. 89 137 89 19 67
-------- -------- -------- -------- --------
Income before income taxes ................ 3,520 4,471 1,558 2,499 5,412
Income tax expense .......................... 812 1,496 623 705 1,578
-------- -------- -------- -------- --------
Net income .................................. $ 2,708 $ 2,975 $ 935 $ 1,794 $ 3,834
======== ======== ======== ======== ========
OTHER DATA:
EBITDA(c) ................................... $ 7,064 $ 8,180 $ 3,793 $ 6,052 $ 10,439
Depreciation, amortization and other non-cash
transactions .............................. 2,115 2,225 1,746 2,116 2,595
Capital expenditures ........................ 2,596 2,814 1,715 2,124 3,223
Backlog ..................................... 13,345 17,797 22,306 21,681 21,681
BALANCE SHEET DATA (AT PERIOD END):
Working capital ............................. $ 14,123 $ 16,037 $ 13,815 $ 17,437 $ 17,437
Total assets ................................ 39,252 41,772 42,996 44,830 44,830
Total debt .................................. 19,668 18,315 19,596 17,851 17,851
Stockholders' equity ........................ 8,836 11,412 9,266 13,497 13,497
</TABLE>
- ----------
(a) Includes $210 of severance payments to a former officer of PHI and $60
in relocation expenses incurred in connection with the replacement of
such officer of PHI in 1997.
(b) PHI owns a 50% interest in a joint venture (ULVAC-PHI) which operates
in Japan. The joint venture is responsible for sales and service of
PHI's products in Japan.
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<PAGE> 41
(c) EBITDA is defined as earnings before interest, income taxes,
depreciation, amortization, other non-cash transactions, equity in
earnings of joint venture and non-recurring items. See notes (a) and
(b) above. Non-recurring items are comprised of severance payments of
$210 to a former officer of PHI and relocation expenses of $60 in
connection with the replacement of such officer of PHI in 1997 and are
included in administrative and selling expenses. EBITDA is not a
measure of performance under GAAP. While EBITDA should not be
considered as a substitute for net income, cash flows from operating
activities and other income or cash flow statement data prepared in
accordance with GAAP, or as a measure of profitability or liquidity,
management understands that EBITDA is customarily used as a measurement
in evaluating companies.
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<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except as otherwise indicated, the following discussion relates to the
Company on a historical basis without giving effect to the acquisition of PHI.
Certain of the statements in this section are forward-looking in nature and,
accordingly, are subject to many risks and uncertainties. The actual results
that the Company achieves may differ materially from any forward-looking
statements herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below and those contained in
"Risk Factors" and "Business," as well as those discussed elsewhere in this
Prospectus. The following discussion should be read in conjunction with the
Selected Historical Consolidated Financial Data and Unaudited Pro Forma
Condensed Consolidated Financial Data and the consolidated financial statements
and notes thereto, and the other financial and operating data included elsewhere
in this Prospectus.
The consolidated financial statements of the Company include the
accounts of High Voltage Engineering Corporation and its subsidiaries after
elimination of material intercompany transactions and balances. The audited
historical financial information of the Company's continuing operations is not
directly comparable on a year to year basis due to (i) the acquisition of Jorda
on March 15, 1995 and (ii) the divestiture by the Company's Robicon and Anderson
operating units of certain non-strategic product lines. Anderson divested five
non-strategic product lines in a series of transactions from Fiscal 1993 to
Fiscal 1995 in accordance with its strategy of focusing on its core power
connector business. These divested product lines accounted for net sales of
approximately $1.4 million in Fiscal 1995. In addition, Robicon divested four
non-strategic product lines which accounted for net sales of approximately
$400,000 in Fiscal 1995. Net sales generated by such divested product lines are
presented elsewhere in this Prospectus under the caption "Divested product
lines" in the Selected Historical Consolidated Financial Data of High Voltage
Engineering Corporation and subsidiaries.
As a result of the sale by the Company of: (i) the assets of the
Company's Shore Instruments operating unit on January 5, 1995; (ii)
substantially all of the assets of the Company's Berger operating unit on
January 27, 1995; and (iii) substantially all of the assets of the Company's
Specialty Connector operating unit on November 9, 1995, the Company's
consolidated results have been restated to reclassify the results of such
operations as discontinued operations.
OVERVIEW
The Company owns and operates a diversified group of seven middle
market industrial manufacturing businesses including PHI. These businesses focus
on designing and manufacturing high quality, applications-engineered products
which are designed to address specific customer needs. The Company's products
are sold to a broad range of domestic and foreign OEMs and end-users in a
variety of industries including process automation, freshwater and wastewater
treatment, petrochemicals, semiconductor fabrication, chemicals, construction,
agriculture, materials handling, computers, telecommunications, medical
equipment and climate control and for scientific and educational research. The
diversified nature of the products sold and end-markets served by the Company's
businesses limits the effect on the Company of operating performance
fluctuations in any single operating unit and cyclical downturns within
individual industries and end-markets, while the Company believes that its focus
on middle market manufacturing enhances its growth prospects. Since Fiscal 1993,
the Company has taken several initiatives that have contributed to growth in net
sales and EBITDA, margin improvement and gains in market share, including: (i)
implementing Total Quality and process re-engineering programs; (ii) introducing
new products, certain of which utilize proprietary technology or are
applications-engineered to address specific customer requirements; (iii)
increasing research and development and capital expenditures; and (iv) hiring
new senior management at each operating unit. Between Fiscal 1993 and Fiscal
1997, the Company's historical net sales increased at a 14.3% CAGR, from $101.3
million to $173.1 million, and its EBITDA increased at a 15.7% CAGR from $9.1
million to $16.3 million. On August 8, 1997, the Company purchased PHI. Pro
forma for the Merger, the Company had net sales and EBITDA of $237.9 million and
$26.4 million, respectively, in Fiscal 1997. See " -- The PHI Acquisition."
The Company maintains Total Quality and process re-engineering programs
at each of its operating units, which it began implementing in 1993. These
programs have enabled the Company to improve product quality, increase
manufacturing efficiencies and productivity, reduce product lead times and
reduce the relative amount of working capital invested in its businesses. The
Company uses a variety of analytical tests to assess the effectiveness of these
programs. The Company believes that the most important of these tests is the
calculation of cycle time, which is the time necessary to complete certain
strategic business processes. The Company specifically measures the cycle time
for obtaining new customers, order fulfillment and new product development and
views the compression of cycle time as a point of market differentiation.
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<PAGE> 43
Between Fiscal 1995 and Fiscal 1997, the Company's operating units have
invested $25.5 million in research and development and $20.1 million in capital
expenditures primarily to facilitate growth. Such research and development
expenditures have resulted in innovative new products such as Robicon's Perfect
Harmony series of medium voltage VFDs, Datcon's Intellisensor(TM) fuel
measurement systems, Natvar's bonded tri-layer 151 tubing and numerous
applications-engineered products for Anderson's customers. As a result of the
capital expenditures incurred since the beginning of Fiscal 1995, the majority
of which funded the construction of new manufacturing facilities and the upgrade
of existing facilities, management currently believes that the Company's capital
expenditures in the fiscal year ending April 1998 will primarily fund planned
maintenance, including information technology investments, although the Company
may invest in information technology and additional manufacturing capacity if
necessitated by sales volume increases.
Since January 1992, the Company has replaced the senior management at
all of its operating units, in addition to hiring a new Chief Operating Officer;
Chief Financial Officer; Vice President, Financial Operations; and Vice
President, Human Relations.
SEASONALITY; VARIABILITY OF OPERATING RESULTS
The majority of the Company's operating units have historically
recorded the strongest operating results in the fourth quarter of the fiscal
year due in part to seasonal considerations and other factors, although in
recent years, seasonal fluctuations have been partially mitigated by overall
business growth.
The timing of orders placed by the Company's customers has varied with,
among other factors, the introduction of new products, product life cycles,
customer attempts to manage inventory levels, competitive conditions, general
economic conditions and the funding of scientific and educational research. The
variability of the level and timing of orders has, from time to time, resulted
in significant periodic and quarterly fluctuations in the operations of the
Company's operating units. Such variability is particularly evident at HVE
Europa, which ships on average four particle accelerator systems per year. These
systems are typically sold for between $1.0 million and $2.0 million each and
have long lead times. As a result, the timing of HVE Europa's shipments within
any fiscal year can have a material impact on an individual quarter's results.
RESTRUCTURING CHARGES
Restructuring costs declined from $1.3 million in Fiscal 1995 to
$150,000 in Fiscal 1996. The Fiscal 1995 provision included costs related to the
closing of an excess manufacturing facility, costs related to the consolidation
of the operations of this manufacturing facility into another existing facility,
and the write-off of the cumulative foreign currency translation adjustment
resulting from the liquidation of a subsidiary of HVE Europa. The Fiscal 1996
provision reflected the closure of a sales office in Europe.
REIMBURSED ENVIRONMENTAL AND LITIGATION COSTS - NET
The Company has, from time to time, received cash settlements and
insurance recoveries relating to environmental litigation, remediation and
consequential damages incurred in connection with properties formerly owned or
leased by the Company. The Company recorded net gains of $2.1 million, $450,000
and $351,000 for Fiscal 1995, Fiscal 1996 and Fiscal 1997, respectively, net of
actual legal costs, estimated settlement costs and changes in cost remediation
estimates, on cash recoveries of $2.3 million, $1.5 million and $1.1 million,
respectively, for such years. These cash recoveries have generally been received
from insurance companies in reimbursement of costs previously incurred, or
scheduled to be incurred, by the Company in remediation efforts or the payment
of damages to third parties, from other responsible or potentially responsible
parties in settlement of potential claims relating to remediation
responsibilities, and from the recovery of expenses incurred both in the
recovery of such amounts and the remediation of affected properties. See
"Business -- Environmental and Insurance Matters."
OTHER
Other expenses in Fiscal 1995 were primarily related to a $0.8 million
provision to write down certain assets held for sale to estimated net realizable
value and costs incurred by Anderson to move into another existing facility.
Other expenses in Fiscal 1996 included a $1.2 million provision to write down
certain assets held for sale to estimated net realizable value and costs
incurred by Robicon to move to a newly constructed facility, which were
partially offset by a net gain on the sale of vacant land and income from
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<PAGE> 44
certain excess facilities. In Fiscal 1997, HVE recorded a $2.1 million provision
to write-off the costs associated with an aborted acquisition and related
offering costs, and $319,000 in net expenses incurred in connection with for
assets held for sale, offset by a $230,000 gain on the sale of a small product
line at Robicon. See note K to the consolidated financial statements of High
Voltage Engineering Corporation and subsidiaries.
THE PHI ACQUISITION
On May 7, 1997, HVE entered into the Merger Agreement with PHI Holdings
and CVCA, the principal stockholder of PHI Holdings, to acquire PHI for an
aggregate Merger Consideration of $55.5 million in cash, subject to certain
adjustments. The acquisition was consummated on August 8, 1997 through the
merger of Lauren Corporation, a wholly-owned subsidiary of HVE, with and into
PHI Holdings. Immediately thereafter, PHI Holdings was merged with and into
Physical Electronics, Inc., its wholly-owned subsidiary, and Physical
Electronics, Inc. became a direct, wholly-owned subsidiary of HVE.
PHI was founded in 1969 as a manufacturer of surface analysis
components for use by industrial customers primarily for metallurgy and thin
film applications. During the early 1970's, PHI introduced its first Auger
surface analysis instruments and its second line of surface analysis instruments
when it entered the ESCA market. PHI was subsequently acquired in 1977 by The
Perkin-Elmer Corporation ("Perkin-Elmer"), a diversified manufacturing company.
In 1982, PHI formed a 50%/50% joint venture ("ULVAC-PHI") with ULVAC, a Japanese
manufacturing company, which resells and services PHI's instruments in the
Japanese market. This joint venture has enabled PHI to successfully sell
products in Japan, currently the largest market for advanced surface analysis
instruments. PHI introduced its first Dynamic SIMS instruments in 1985 to
complement Auger in serving the semiconductor fabrication market. In 1988, PHI
introduced a TOF-SIMS instrument primarily for use in applications in the
chemicals industry and subsequently the semiconductor industry. The assets of
PHI were acquired from Perkin-Elmer on May 20, 1994 in a leveraged acquisition
sponsored by PHI's former senior management and CVCA. In August 1994, PHI
acquired the instrument division of Charles Evans & Associates ("CEA") which was
designing and manufacturing market-leading surface analysis instruments using
state-of-the-art TOF-SIMS and Dynamic SIMS surface analysis techniques primarily
for use in semiconductor applications. As a result of this acquisition, PHI
added a facility in Redwood City, California, the manufacturing activities of
which were recently consolidated into PHI's main facility in Eden Prairie,
Minnesota. For a more detailed description of PHI's products, see "Business --
The Operating Units -- PHI."
With the exception of Dr. David Chalmers, Chief Executive Officer, and
Mr. Paul Brown, Chief Financial Officer, PHI's senior management team has been
with PHI for an average of 14 years. Dr. Chalmers replaced Paul Palmberg, Former
Chief Executive Officer, in February 1997 and Mr. Brown joined PHI in 1994. The
management team has worked to increase PHI's net sales and cash flow by
implementing an operating strategy based upon: (i) the development of new
applications for existing products; (ii) increased penetration of international
markets; (iii) the development of new hardware configurations for its
instruments; and (iv) improvements in the ease of use of its instruments through
increased automation and enhanced technological capability.
CERTAIN BENEFITS OF THE PHI ACQUISITION
Management believes that PHI possesses many of the competitive
strengths common to its other operating units, including but not limited to:
leading market position, reputation for innovative product development,
long-term relationships with market-leading customers and an experienced senior
management team. PHI is the world's leading designer and manufacturer of
advanced surface analysis instruments and components. The Company believes that
PHI's patented and proprietary technology, expertise in the manufacture of
instruments incorporating ultrahigh vacuum technology, superior customer
service, support and training and reputation for product quality and reliability
will continue to differentiate PHI from its competitors and result in strong
operating performance. In addition, PHI has recently introduced several new
surface analysis instruments, including the SMART-200, TRIFT II and 6800 Dynamic
SIMS, which each have the ability to analyze every point on an 8-inch
semiconductor wafer and can be used for process development and failure analysis
in semiconductor fabrication. PHI serves some of the largest companies in their
respective industries, including Advanced Micro Devices, Alcoa, DuPont,
Hewlett-Packard, IBM, Matsushita, Motorola, Nippon Steel, Samsung, Seagate,
Siemens, Texas Instruments and Toshiba.
CERTAIN EFFECTS OF THE PHI ACQUISITION
In recent years, PHI has achieved consistent growth in consolidated net
sales and EBITDA. PHI increased net sales and EBITDA from $54.8 million and $7.1
million, respectively, for the fiscal year ended June 30, 1995 to $64.8 million
and $10.4 million,
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respectively, for the LTM period ended March 28, 1997. PHI's EBITDA margin also
increased from 12.9% for the fiscal year ended June 30, 1995 to 16.1% for the
LTM period ended March 28, 1997.
The Company does not believe that there will be significant cost
savings or integration costs as a result of the Merger, as PHI will be operated
as a stand-alone operating unit.
The Company believes that PHI has the leading market share in Auger,
ESCA and TOF-SIMS and the second largest market share in Dynamic SIMS. The
capital outlay required to purchase advanced surface analysis instruments
(ranging from approximately $250,000 to $1.5 million) leads to careful
consideration by potential purchasers not only of product reliability and
performance, but also availability and quality of technical support and
training, factors which the Company believes favor PHI and enable it to realize
a pricing premium over competitors' comparable products. For the LTM period
ended March 28, 1997, PHI had a gross margin of 38.8% and an EBITDA margin of
16.1%. Pro forma for the Merger, the Company's gross margin and EBITDA margin
for Fiscal 1997 would have been 34.9% and 11.1%, respectively, as compared to
33.7% and 9.4% on a historical basis.
In recent years, PHI's shipments have increased to approximately 70
systems per year plus ongoing services and complementary components and hardware
options. Due to the relatively large capital outlay required to purchase PHI's
surface analysis instruments, the limited quantity sold every year and the
timing of shipments, the acquisition of PHI may increase the variability of the
Company's quarterly operating results. PHI incurs significant research and
development expenses due to the high technology content of PHI's surface
analysis instruments and PHI's growth strategy of increasing sales through
identification of new applications for its existing products, enhancements in
the technological capability of its instruments, development of
application-specific hardware configurations for its instruments and continued
improvement in operating ease and efficiency of its instruments through
increased automation and software development. In recent years, such initiatives
have resulted in the development of innovative products especially suitable for
applications in high growth end markets such as the semiconductor fabrication
industry. PHI's research and development expenses represented 11.3% of net sales
for the LTM period ended March 28, 1997 as compared to 5.4% of net sales for the
Company in Fiscal 1997.
RESULTS OF OPERATIONS
Fiscal 1997 Compared to Fiscal 1996
Net sales increased $24.0 million, or 16.1%, from $149.1 million in
Fiscal 1996 to $173.1 million in Fiscal 1997. This increase was primarily
attributable to a $27.0 million, or 48.0%, increase at Robicon due to the
continued growth in sales of medium voltage VFDs. Robicon's net sales increase
was slightly offset by a $1.9 million, or 11.0% decline in Natvar's net sales,
due to weakness in medical markets and related market price reductions, as well
as a decrease of $1.3 million, or 12.8%, at HVE Europa which was primarily
attributable to weaker foreign currencies. Net sales at General Eastern
increased slightly despite flatness in the market for humidity measurement
instruments. Net sales at Datcon remained flat as a sales increase in domestic
markets was offset by weakness in agricultural equipment markets in Europe. Net
sales at Anderson remained flat as higher domestic shipments of connectors for
new applications and new customers were offset by weaker markets in traction
batteries for materials handling equipment.
Gross profit increased $6.5 million, or 12.6%, from $51.7 million
during Fiscal 1996 to $58.3 million in Fiscal 1997. The increase was primarily
attributable to the growth in shipments at Robicon, but was somewhat offset by
lower sales at Natvar and HVE Europa. Gross margin declined from 34.7% to 33.7%
primarily due to the shipment by Robicon of certain higher cost prototype units
for new applications, the investment in a leased facility (a technical center
for new applications) at Anderson and the inclusion of the first full year of
costs of Natvar's Colorado facility.
Administrative and selling expenses increased $2.1 million, or 5.9%,
primarily due to a $1.6 million increase at Robicon due to increased commissions
and other selling and administrative costs attributable to higher sales levels.
Administrative and selling expenses declined as a percentage of net sales from
23.4% to 21.4% during the periods compared, including a decline from 21.9% to
16.7% at Robicon.
Research and development expenses increased $1.3 million, or 16.0% from
$8.1 million to $9.4 million, which was primarily attributable to new product
investments at Robicon, as well as volume related applications engineering to
support the aforementioned sales increase at Robicon. Such expenses remained
unchanged as a percentage of net sales at 5.4%.
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Depreciation and amortization from continuing operations increased from
$3.6 million to $4.4 million as a result of continued capital investment in
automation at Anderson and Datcon as well as a full year of depreciation in
connection with a new facility at Natvar.
As a result of the factors discussed above, EBITDA as defined in note
(e) to "Notes to Selected Historical Consolidated Financial Data," increased
$3.5 million, or 27.7%, from $12.8 million in Fiscal 1996 to $16.3 million in
Fiscal 1997.
The net total of restructuring charges, net reimbursed environmental
and litigation costs and other increased from a charge of $0.9 million in Fiscal
1996 to a charge of $2.3 million in Fiscal 1997. In Fiscal 1996, a restructuring
charge of $150,000 was recorded in connection with the closure of a sales office
in Europe. In Fiscal 1996, the Company recorded a gain of $450,000 resulting
from reimbursement from an insurance company of environmental and litigation
expenses. Other expenses in Fiscal 1996 included a $1.2 million provision to
write down certain assets held for sale to estimated net realizable value and
costs incurred by Robicon to move to a newly constructed facility, which were
partially offset by a net gain on the sale of vacant land and income from
certain excess facilities. In Fiscal 1997, other expenses reflected a $2.1
million provision to write-off costs associated with an aborted acquisition and
related offering costs, and $319,000 in net expenses incurred for assets held
for sale. In addition, Robicon recorded a gain on the sale of a small product
line of $230,000 in Fiscal 1997.
As a result of the factors described above, income from operations
increased $1.8 million, or 22.9%, from $7.9 million in Fiscal 1996 to $9.7
million in Fiscal 1997.
Interest expense increased $377,000 from $11.2 million in Fiscal 1996
to $11.6 million in Fiscal 1997 due to higher average interest rates in Fiscal
1997 which were partially offset by a reduction in CIP expense.
As a result of the above items, the Company recorded a loss from
continuing operations before income taxes, discontinued operations and
extraordinary item of $3.1 million in Fiscal 1996, as compared to a loss of $1.6
million in Fiscal 1997.
The Company recorded an income tax credit of $2.6 million in Fiscal
1996 compared to income taxes of $0.5 million in Fiscal 1997. The change in tax
provision was largely attributable to a Fiscal 1996 reversal of a tax reserve
previously accrued in connection with a federal tax audit of prior years.
Income from continuing operations before extraordinary items decreased
$1.6 million to a loss of $2.1 million in Fiscal 1997. Income from discontinued
operations totaling $1.5 million was recorded in Fiscal 1996 primarily relating
to the sale of the Specialty Connector operating unit. The Company recorded an
extraordinary loss related to debt extinguishment, net of income taxes, of
$422,000 in Fiscal 1996 and $259,000 in Fiscal 1997.
The foregoing factors contributed to net income of $0.6 million in
Fiscal 1996 compared to a net loss of $2.4 million in Fiscal 1997.
Fiscal 1996 Compared to Fiscal 1995
Net sales increased $32.5 million, or 27.9%, from $116.6 million in
Fiscal 1995 to $149.1 million in Fiscal 1996. This increase included a $16.1
million, or 40.1%, increase at Robicon, excluding sales from divested product
lines of $345,000, due to increased sales of medium voltage VFDs, as well as an
increase of $11.0 million at Datcon attributable to the inclusion of sales
generated by Jorda for an entire fiscal year. Excluding sales from divested
product lines totaling $1.4 million in Fiscal 1995, net sales increased at
Anderson by $3.4 million, or 18.6%, primarily as a result of increased power
connector sales for new applications, market growth (particularly in Europe),
new market penetration and price increases. General Eastern's net sales
increased $1.9 million, or 18.8%, primarily due to higher calibration and
service revenues. HVE Europa's net sales increased $1.7 million, or 21.0%, in
Fiscal 1996 as compared to Fiscal 1995, primarily due to higher average selling
prices, as well as increased sales of component parts. Fiscal 1996 net sales at
Natvar were generally flat compared to the prior year.
Gross profit increased $8.6 million, or 19.9%, from $43.1 million
during Fiscal 1995, to $51.7 million in Fiscal 1996. This increase was primarily
attributable to the higher sales volumes discussed above. Gross margin decreased
from 37.0% to 34.7%, primarily as a result of: (i) a reduction in gross margin
at Natvar from 30.9% to 23.4% in Fiscal 1996 resulting from pricing pressures
and new plant start-up costs; (ii) a reduction in gross margin at Datcon from
36.3% to 28.9% in Fiscal 1996 resulting from plant
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<PAGE> 47
reconfiguration and new product introduction costs, as well as the impact of a
full year of Jorda's lower gross margin; and (iii) a reduction in gross margin
at Robicon from 36.6% to 33.0% in Fiscal 1996 resulting from inefficiencies
relating to Robicon's move to a new facility, its outsourcing of production of
its printed circuit boards and an upgrade of its MIS software system. These
gross margin reductions were partially offset by: (i) an increase in gross
margin at Anderson from 41.1% to 47.0% in Fiscal 1996 resulting from increased
automation, a more profitable mix of products resulting from the divestiture of
three lower margin product lines in Fiscal 1995, and cost savings resulting from
the consolidation of Anderson's manufacturing operations into a single facility
in Fiscal 1996; (ii) an increase in gross margin at HVE Europa from 29.1% to
36.8% in Fiscal 1996 resulting from improved pricing and certain product cost
reductions; and (iii) an increase in gross margin at General Eastern from 48.8%
to 50.8% in Fiscal 1996 resulting primarily from the growth of its calibration
and service businesses.
Administrative and selling expenses increased $8.8 million, or 33.7%,
including $1.1 million due to the incremental costs associated with the
inclusion of the operations of Jorda for a full year and increased commissions
and other selling and administrative costs at Robicon, Anderson, General Eastern
and HVE Europa attributable to higher sales levels. In addition, the Company
incurred severance costs of $246,000 during Fiscal 1995, as compared to $456,000
in Fiscal 1996, in connection with the replacement of operating unit presidents
as part of the Company's overall program to improve operating unit management.
Such costs have been excluded from EBITDA. Administrative and selling expenses
as a percentage of net sales increased from 22.4% to 23.4%, primarily as a
result of the increase at Robicon from 19.3% to 21.9% in Fiscal 1996 due to
higher sales levels.
Research and development expenses were $8.1 million in both Fiscal 1995
and Fiscal 1996. As a percentage of net sales, such expenses declined from 6.9%
in Fiscal 1995 to 5.4% in Fiscal 1996.
Depreciation and amortization from continuing operations increased
$500,000, from $3.1 million to $3.6 million, primarily as a result of the Jorda
acquisition.
As a result of the factors discussed above, EBITDA as defined in note
(e) to "Notes to Selected Historical Consolidated Financial Data," increased
$0.5 million, or 4.3%, from $12.2 million in Fiscal 1995 to $12.8 million in
Fiscal 1996.
The net total of restructuring charges, net reimbursed environmental
and litigation costs and other increased from a charge of $56,000 in Fiscal 1995
to a charge of $0.9 million in Fiscal 1996. Restructuring costs declined from
$1.3 million in Fiscal 1995 to $150,000 in Fiscal 1996. The Fiscal 1995
provision included costs related to the closure of a duplicate manufacturing
facility, costs related to the consolidation of the operations of this
manufacturing facility into another existing facility, and the write-off of the
cumulative foreign currency translation adjustment resulting from the
liquidation of a subsidiary of HVE Europa. The Fiscal 1996 provision reflected
the closure of a sales office in Europe. The favorable impact of net reimbursed
environmental and litigation costs declined approximately $1.7 million from $2.1
million in Fiscal 1995 to $450,000 in Fiscal 1996. See "Business --
Environmental and Insurance Matters." Other expenses increased from $0.9 million
in Fiscal 1995 to $1.2 million in Fiscal 1996. Other expenses in Fiscal 1995
were primarily related to a $0.8 million provision to write down certain assets
held for sale to estimated net realizable value and costs incurred by Anderson
to move into another existing facility. Other expenses in Fiscal 1996 included a
$1.2 million provision to write down certain assets held for sale to estimated
net realizable value and costs incurred by Robicon to move to a newly
constructed facility, which were partially offset by a net gain on the sale of
vacant land and income from certain excess facilities.
As a result of the factors described above, income from operations
decreased $1.0 million, from $8.9 million in Fiscal 1995 to $7.9 million in
Fiscal 1996.
Interest expense increased $2.7 million from $8.6 million in Fiscal
1995 to $11.2 million in Fiscal 1996 due to an increase in CIP expense, the full
year impact of indebtedness incurred in connection with the Jorda acquisition
and the construction of a new manufacturing facility for Robicon, as well as
slightly higher interest rates.
As a result of the above items, the Company recorded income from
continuing operations before income taxes, discontinued operations and
extraordinary item of $365,000 in Fiscal 1995, as compared to a loss of $3.1
million in Fiscal 1996.
In Fiscal 1995, the Company had income tax expense of $196,000 compared
to an income tax credit of $2.6 million in Fiscal 1996, which was largely
attributable to a Fiscal 1996 reversal of a tax reserve previously accrued in
connection with a federal tax audit of prior years.
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The Company recorded income from discontinued operations net of income
taxes of $276,000 in Fiscal 1995 including the net loss on disposal of the
Berger and Shore operating units as compared to income of $1.5 million in Fiscal
1996, net of income taxes, including a gain on disposal of the Specialty
Connector operating unit.
In Fiscal 1996, the Company recorded an extraordinary loss of $422,000
on debt extinguishment, net of income taxes.
The foregoing factors contributed to an increase in net income from
$445,000 in Fiscal 1995 to $0.6 million in Fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs are primarily for working capital and
capital expenditures. The Company's primary sources of liquidity have been funds
provided by operations, proceeds from the sale of discontinued operations and
asset sales and proceeds from financing activities. On August 8, 1997, the
Company entered into a $25.0 million New Revolving Credit Facility which is
being used primarily to fund the Company's working capital requirements and has
a $5.0 million sublimit for the issuance of standby letters of credit. The New
Revolving Credit Facility has a term of five years and replaces the $20.0
million Existing Revolving Credit Facility. Borrowings outstanding under the New
Revolving Credit Facility as of August 8, 1997 were $8.5 million. The New
Revolving Credit Facility contains covenants restricting the ability of the
Company's operating units to, among other things, pay dividends or make other
restricted payments to the Company. See "Description of Other Indebtedness and
Obligations --New Revolving Credit Facility."
On August 8, 1997, the Company completed a private placement of
$135,000,000 in Existing Notes, $35,200,000 in Units consisting of Series A
Preferred Stock, Common Stock and Common Stock Warrants. A portion of the net
proceeds of the Offering was used to repay existing indebtedness described
below, including accrued and unpaid interest thereon and associated prepayment
penalties. In connection with the issuance of the Series A Preferred Stock, the
Company issued to the holders thereof warrants representing 6.6% of the
fully-diluted HVE Common Stock.
On May 9, 1996, the Company entered into the Existing Revolving Credit
Facility and the $10.0 million Senior Term Loan and completed a private
placement of $20.0 million of Senior Secured Notes, $7.0 million of Senior
Unsecured Notes and $25.0 million principal amount of Subordinated Notes (issued
at 82.086% of the principal amount thereof), the net proceeds of which were used
to refinance existing indebtedness. In connection with the issuance of the
Subordinated Notes, the Company issued to the holders thereof warrants (the
"Subordinated Notes Warrants") representing 12.5% of the fully-diluted HVE
Common Stock. The holders of such warrants have the right, after May 1, 2000, to
require the Company to purchase all or any portion of such warrants or any
shares of HVE Common Stock issued upon exercise of such warrants at the greater
of (i) a valuation prepared by an independent financial advisor or (ii) a
formula value calculated as 8.0x the Company's EBITDA (as defined therein) less
preferred stock and debt outstanding plus excess cash. The Company used $2.5
million of the net proceeds of the Offerings to repurchase Subordinated Notes
Warrants representing 6.25% of the fully-diluted HVE Common Stock.
For the third and fourth quarters of Fiscal 1997, the Company was not
in compliance with certain of its financial covenants contained in the Existing
Revolving Credit Facility, Senior Term Loan, Senior Secured Notes, Senior
Unsecured Notes and Subordinated Notes due primarily to costs incurred in
connection with an aborted acquisition and related offering costs. These
technical covenant breaches did not create an event of default whereby the
lenders could declare all outstanding balances due and payable, terminate all
available commitments or enforce their rights under all security arrangements.
The Company has received waivers with respect to such covenant defaults and all
such indebtedness was repaid in full, together with accrued and unpaid interest
and prepayment penalties, with the net proceeds of the Offerings.
During the same time period, the Company was also not in compliance
with certain of the financial covenants contained in the PEDFA IRB (as defined
herein) as a result of the factors described above; however the Company has
received a waiver with respect to such defaults. Additionally, if the waivers
discussed above had not been obtained one of the Company's lessors could have
declared a default under leases of certain of its properties in Lancaster,
Pennsylvania and Sterling, Massachusetts.
Pro forma for the consummation of the Transactions, as of April 26,
1997, the Company would have had total indebtedness (including redeemable put
warrants) of $159.9 million and mandatorily redeemable preferred stock with an
aggregate liquidation preference of $33.0 million.
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The Company does not anticipate any significant principal payment
obligations under any of its outstanding indebtedness prior to maturity of the
Notes except with respect to the New Revolving Credit Facility which has a term
of five years. The ability of the Company to satisfy its obligations under
existing indebtedness and preferred stock will be primarily dependent upon the
future financial and operating performance of its operating units and upon the
Company's ability to renew or refinance borrowings or to raise additional equity
capital as necessary.
The Company's working capital was $10.7 million, $11.9 million and $9.4
million at April 29, 1995, April 27, 1996 and April 26, 1997, respectively. The
$1.2 million increase in working capital from April 29, 1995 to April 27, 1996
resulted in part from increases in accounts receivable, inventories and
restricted cash and a decrease in federal, foreign and state income taxes
payable which were partially offset by an increase in accounts payable, accrued
interest and accrued liabilities, advance payments by customers and deferred
income taxes. The increases in accounts receivable and inventories were related
to growth of Robicon's medium voltage VFD sales, the inclusion of sales
generated by Jorda for the entire fiscal year and growth in the sales of
Anderson's power connectors, partially offset by the sale of the Specialty
Connector operating unit. The increase in working capital was funded primarily
by proceeds from the divestiture of discontinued operations and the net proceeds
from the issuance of long-term obligations and a cash overdraft. The $2.5
million decrease in working capital from April 27, 1996 to April 26, 1997
resulted from a decrease in restricted cash and an increase in accrued interest
and accrued liabilities, despite increases in inventories and decreases in
deferred income taxes and advance payments by customers. The decrease in
restricted cash was due to the shipment of certain systems by HVE Europa and the
increase in inventories was related to higher sales levels. After giving effect
to the Merger, the Company's pro forma working capital at April 26, 1997 would
have increased by $38.5 million. Cash and cash equivalents of $1.5 million on
the Company's balance sheet as of April 26, 1997, unadjusted for the
Transactions, excludes $2.2 million of restricted cash in uninsured foreign bank
accounts which was used as collateral for a bank guarantee facility for customer
advances.
Net cash provided by operating activities in Fiscal 1995 was $10.1
million, compared to net cash used in operating activities of $6.4 million in
Fiscal 1996. The increase in net cash used in operating activities reflected
significant increases in accounts receivable and inventories related to higher
sales volumes in Fiscal 1996 and a decrease in federal, foreign and state income
taxes payable. Net cash used in operating activities in Fiscal 1996 was $6.4
million as compared to $0.6 million of net cash provided by operating activities
in Fiscal 1997. The net cash provided by operating activities in Fiscal 1997
resulted primarily from a decrease in working capital employed in the Company's
businesses, despite increased sales levels.
As of April 29, 1995, April 27, 1996 and April 26, 1997, the Company
had assets held for sale, consisting of several former manufacturing facilities,
of $6.4 million, $6.2 million and $5.2 million, respectively. These properties
are recorded at the carrying amount or fair value less selling costs. The
Company believes it is possible that the proceeds from the sale of these
properties will differ significantly from the carrying amount and additional
losses may then be recorded. During Fiscal 1995 and Fiscal 1996, the Company
recorded provisions of $0.8 million and $1.2 million, respectively, to write
down the value of certain former manufacturing facilities. During Fiscal 1996,
the Company reclassified to assets held for sale a former manufacturing facility
valued at $1.2 million, which was retained in the sale of the Specialty
Connector operating unit.
Net cash used in investing activities in Fiscal 1995 was $12.3 million
due primarily to the $10.0 million of capital expenditures (including $0.8
million related to discontinued operations and leased asset additions) and the
$5.9 million investment to acquire Jorda in Fiscal 1995. In Fiscal 1996, net
cash provided by investing activities was $5.7 million, due primarily to
approximately $11.0 million of proceeds from the sale of the Specialty Connector
operating unit partially offset by $6.0 million in capital expenditures
(including leased asset additions) in Fiscal 1996. The Company incurred capital
expenditures of $10.0 million (including $0.8 million related to discontinued
operations and leased asset additions) in Fiscal 1995, including $6.6 million
for a new manufacturing facility for Robicon compared to $6.0 million of capital
expenditures (including leased asset additions) in Fiscal 1996. Net cash
provided by investing activities in Fiscal 1996 was $5.7 million, as compared to
$3.1 million used in investing activities in Fiscal 1997. Cash provided by
investing activities in Fiscal 1996 was due primarily to the sale of Specialty
Connector partially offset by additions to property, plant and equipment. Net
cash used in investing activities increased in Fiscal 1997 despite a decrease in
capital expenditures (including leased asset additions) from $6.0 million in
Fiscal 1996 to $5.0 million in Fiscal 1997. Capital expenditures in Fiscal 1996
included a $1.9 million expenditure for an additional facility for Natvar.
Although the Company believes that a significant portion of future capital
expenditures will be used to fund planned maintenance of facilities and
equipment, the Company may require additional capital expenditures to support
growth at certain of its operating units. The Company expects to make capital
expenditures (including leased asset additions) of $7.5 million in its fiscal
year ending April 1998.
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Net cash provided by financing activities increased from $1.2 million
in Fiscal 1995 to $1.9 million in Fiscal 1996, primarily due to the issuance of
long-term obligations and the cash overdraft which was partially offset by
payments on certain long-term obligations and decreases in restricted cash. Net
cash provided by financing activities was $1.9 million for Fiscal 1996 and
Fiscal 1997, which included a refinancing of a majority of the Company's
long-term obligations in Fiscal 1997.
The Indenture will allow each Restricted Subsidiary that is an obligor
under an Intercompany Note to effect a Qualified Subsidiary IPO. Upon completion
of a Qualified Subsidiary IPO, such Restricted Subsidiary will become an
Unrestricted Subsidiary and the cash flow of such Unrestricted Subsidiary will
no longer be available (i) to service debt obligations of the Company or its
remaining Restricted Subsidiaries or (ii) for purposes of determining whether
the Company or its remaining Restricted Subsidiaries will be able to incur
additional indebtedness, either of which could affect the liquidity of the
Company.
While the Company believes that internally generated funds and amounts
available under the New Revolving Credit Facility will be sufficient to satisfy
its operating cash requirements and make required interest and principal
payments under the New Revolving Credit Facility, the Notes and existing capital
leases, IRBs, mortgage notes, notes payable and the foreign credit line and
payments with respect to the contingent interest payments and the redeemable put
warrants, there can be no assurance that such sources will be adequate and that
the Company will not require additional capital from borrowings or securities
offerings to satisfy such requirements. In addition, the Company may require
additional capital to fund future acquisitions. There can be no assurance that
such capital will be available.
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BUSINESS
COMPANY OVERVIEW
The Company owns and operates a diversified group of seven middle market
industrial manufacturing businesses. These businesses focus on designing and
manufacturing high quality, applications-engineered products which are designed
to address specific customer needs. The Company's products are sold to a broad
range of domestic and foreign OEMs and end-users in a variety of industries
including process automation, freshwater and wastewater treatment,
petrochemicals, semiconductor fabrication, chemicals, construction, agriculture,
materials handling, computers, telecommunications, medical equipment and climate
control and for scientific and educational research. The diversified nature of
the products sold and end-markets served by the Company's businesses limits the
effect on the Company of operating performance fluctuations in any single
operating unit and cyclical downturns within individual industries and
end-markets, while the Company believes that its focus on middle market
manufacturing enhances its growth prospects. The Company believes that these
factors have contributed to steady growth in consolidated net sales and EBITDA.
Between Fiscal 1993 and Fiscal 1997, the Company's historical net sales
increased at a 14.3% CAGR, from $101.3 million to $173.1 million, and its EBITDA
increased at a 15.7% CAGR from $9.1 million to $16.3 million. Pro forma for the
Merger, the Company had net sales and EBITDA of $237.9 million and $26.4
million, respectively, in Fiscal 1997.
COMPETITIVE STRENGTHS
Management has focused its efforts on acquiring and developing a group of
middle market manufacturing businesses that generally share the following
competitive strengths:
- Leading Market Positions. Several of the Company's products hold leading
market share positions in their respective niche markets, including the
Company's medium voltage VFDs (Robicon), advanced surface analysis
instruments (PHI), high current, quick disconnect power connectors
(Anderson), humidity calibration instruments (General Eastern) and
particle accelerator systems (HVE Europa). The Company believes that
applications-engineering expertise, proprietary technology and customer
relationships act as significant barriers to entry in several of the
Company's markets.
- Reputation for Innovative Product Development. The Company believes that
its operating units have reputations for the development of innovative
products designed to address specific customer needs. For example, in
November 1994, Robicon introduced its Perfect Harmony series of medium
voltage VFDs which represented a significant technological breakthrough
relative to competitors' product offerings by increasing power factor
and reducing harmonic distortion typically resulting from the use of
VFDs with large electric motors. In addition, PHI has recently
introduced several new surface analysis instruments, including the
SMART-200, TRIFT II and 6800 Dynamic SIMS, which each have the ability
to analyze every point on an 8-inch semiconductor wafer.
- Long-Term Relationships with Market-Leading Customers. The Company's
operating units serve some of the largest companies in their respective
industries, including: Advanced Micro Devices, Advanced Silicon
Materials, American Power Conversion, Amoco, Caterpillar, Cummins
Engine, E-Z-GO (Textron), Harley-Davidson, Hewlett-Packard, Hitachi,
IBM, Lucent Technologies, Massey Ferguson, 3M Healthcare and Yaskawa
Electric. With the exception of one customer which accounted for 6.6% of
the Company's consolidated net sales for Fiscal 1997, pro forma for the
Merger, no customer of any of its operating units accounted for more
than 2.7% of such sales. The Company's operating units have long-term
relationships with many of their customers; in many cases these
relationships have existed in excess of 10 years.
- Experienced and Incentivized Senior Management Team. The Company and
each of its operating units are run by senior managers who have an
average of over 20 years of relevant operating experience. The Company's
senior management team has financial incentives tied to long-term
improvements in the Company's financial performance.
BUSINESS STRATEGY
The Company's business strategy is to increase the sales and profitability
of its existing businesses and to build upon their inherent competitive
strengths. The Company applies a consistent operating strategy to its individual
operating units, key elements of which include:
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- Focus on Applications-Engineered Products. The Company's products are
typically engineered based upon specific customer applications. The
Company seeks to involve its customers at an early stage of the product
development process in order to jointly design new products and to
improve existing ones. In certain instances, this process has resulted
in the Company becoming a sole source supplier. The Company believes
that this strategy has led to incremental long-term business with key
customers and the addition of new customers.
- Integrated Product Development. The Company seeks to develop new
products and find new applications for existing products through an
integrated product development process that involves cross-functional
teams including engineering, manufacturing and marketing personnel. As a
result, the Company believes that it is able to design and manufacture
products that address specific customer needs and can be manufactured
efficiently, cost-effectively and on a timely basis.
- Focus on Core Competencies. The Company believes that its core
competencies are the design, engineering and assembly of
applications-engineered products. As part of its focus on these core
competencies, the Company has eliminated certain ancillary functions
performed by certain of its operating units over the last several years
including printed circuit board assembly, machining and metal stamping
and plating.
- Commitment to Process Re-engineering and Total Quality. The Company
maintains process re-engineering and Total Quality programs at each of
its operating units, which it began implementing in 1993. These programs
have enabled the Company to improve product quality, increase
manufacturing efficiency and productivity, reduce product lead and cycle
times and reduce the relative amount of working capital invested in its
businesses.
- Decentralized Management of Operating Units. The Company's operating
units are managed on a decentralized basis by senior managers who apply
a consistent operating strategy, while a small corporate staff provides
strategic direction and support. As a result of the discrete nature of
the Company's operating units, the Company has been able to sell
businesses or product lines on an opportunistic basis. For example,
since 1988, the Company has divested 12 businesses that generally lacked
some or all of the competitive strengths common to its current operating
units.
Acquisitions are also an important part of the Company's growth strategy.
The Company seeks to supplement its internal growth with selected add-on
acquisitions of businesses that are complementary to its existing operating
units. In recent years, both Robicon and Datcon have successfully completed and
integrated such add-on acquisitions. In addition, the Company seeks to acquire
middle market manufacturing businesses to operate on a stand-alone basis, such
as PHI, that possess competitive strengths similar to those of its existing
businesses.
THE OPERATING UNITS
The Company conducts its business through seven independent operating units,
Robicon, PHI, Datcon, Anderson, Natvar, General Eastern and HVE Europa, each of
which has its own management team and manufacturing facilities and maintains its
own independent market identity. A discussion of the businesses conducted by
each of the operating units follows.
ROBICON
Robicon is a leading designer and manufacturer of high power conversion
products, which are used to regulate electric power, reduce energy costs and
improve process control in a wide variety of industrial applications. Products
include variable frequency drives ("VFDs") for large electric motors and power
control systems for other applications. These products are used in process
automation, freshwater and wastewater treatment, oil and gas extraction and
transmission, petrochemical processing, silicon processing, glass manufacturing,
cement production and other general industrial applications. In general,
Robicon's products are designed to provide highly engineered solutions to
specific customer requirements by utilizing a combination of standard product
platforms and options, with customized features. Robicon's growth strategy is to
increase sales of existing product lines through entrance into new end markets
and international expansion, and to add products and services complementary to
its existing product lines. The Company believes that Robicon is able to
differentiate itself from its competitors through the use of proprietary
technology, innovative product development, superior customer service, and the
ability to offer applications-engineered solutions based on standard products.
Robicon's headquarters are located in New Kensington, Pennsylvania, a facility
opened in Fiscal 1996. For Fiscal
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1997, Robicon had net sales of $83.1 million, which represented 34.9% of the
Company's consolidated net sales for such period, pro forma for the Merger.
Products
Industry sources estimate that motors consume 65% to 70% of all electricity
used for industrial applications, or more than half of the electric power
generated in the United States, at an annual cost of over $90 billion. In a
single year, a typical large industrial motor typically consumes electricity
that costs 10 to 20 times its total capital cost. Many machines driven by
electric motors, particularly pumps and fans, need to vary their speed in
response to changing process needs. Particularly in large motor applications,
this is often done by operating the pump or fan at full power while "throttling"
its output with a partly closed valve or damper, which is comparable to driving
a car with the accelerator completely depressed and using the brake pedal to
vary the car's speed. Operating the pump or fan at full power wastes tremendous
amounts of electricity at significant cost and results in poor process control.
A VFD is analogous to an electric dimmer switch which regulates the brightness
of light in a lamp. VFDs regulate the amount of electricity supplied to electric
motors as an alternative means of varying output. For example, when only half
the flow from a pump is needed, the VFD supplies a reduced amount of electricity
to the electric motor driving the pump. As a result, according to industry
sources, electricity savings on motors using VFDs can range from 10% to 40%. Of
particular importance to Robicon, which participates in the VFD market for large
motors, is the estimate by industry sources that the largest 10% of the domestic
motor population accounts for at least 80% of all motor energy consumption. Use
of VFDs has been growing steadily, driven by the desire to achieve energy cost
savings, the need to control large industrial processes more accurately and
technological advances that have improved the cost and practicality of using
VFDs in large motor applications.
Historically, Robicon primarily manufactured low voltage (480 volts) VFDs
for small electric motors (20 to 1,500 horsepower) for use in industrial
applications such as commercial building climate control, incinerators and
freshwater and wastewater treatment plants, and in other general industrial
uses. Recently, the Company introduced the Perfect Harmony series of medium
voltage (2,300 to 7,200 volts) VFDs for large electric motors (400 to 7,000
horsepower). Heavy industrial processes such as freshwater and wastewater
treatment, oil and gas extraction and transmission, petrochemical processing,
and cement production, utilize large electric motors that require high levels of
power to drive pumps and fans. An undesirable byproduct of using medium voltage
VFDs on a large electric motor is the creation of harmonic distortion which
causes stress and fatigue to the electric motor and shortens its useful life, as
well as current and voltage fluctuations which may result in damage to other
equipment on the power grid. Most VFDs also place greater demands on a power
grid than the actual power consumed by the motor, an occurrence referred to as
reduced power factor, which can result in assessments of penalty charges against
the user by the local utility. Perfect Harmony, Robicon's patented technology
for medium voltage VFDs, virtually eliminates harmonic distortion and poor power
factor in large electric motors and as a result has significantly expanded the
market for medium voltage VFDs. The Company believes that Perfect Harmony is the
leading technology for reducing harmonic distortion and improving power factor
in medium voltage VFD applications and that this technology complements
Robicon's applications expertise and long-term customer relationships. Perfect
Harmony drives can be installed on virtually any large electric motor without
costly modifications and can be customized using a standard set of options.
Robicon has recently expanded its Perfect Harmony series to include synchronous
transfer, a feature that allows a single VFD to regulate multiple motors
sequentially. These VFDs are currently targeted at new end users in the oil and
gas pipeline markets. Introduced in November 1994, Perfect Harmony medium
voltage VFDs accounted for approximately $27 million of Robicon's net sales for
Fiscal 1997, or approximately 33% of Robicon's total net sales for such period.
While VFDs regulate electricity for motors, power control systems regulate
electric power for other applications. Typical applications for Robicon's power
control systems include: (i) power supplies for high-power melting applications,
such as glass and fiberglass furnaces and plasma arc torches used in steel mills
and smelters; (ii) power supplies for polysilicon extraction and silicon crystal
growing for use in the semiconductor industry; and (iii) power supplies for
plasma generators used in sputtering equipment for coating the surface of glass
or plastics. Power control systems are critical to process control and reducing
overall energy costs in these applications.
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Markets and Customers
Robicon markets and sells VFDs primarily in North America and Asia with an
expanding presence in Europe, Australia and South America. The market for VFDs
is comprised primarily of two customer segments: industrial and municipal. The
industrial market for VFDs is comprised of large power users such as metals
smelting plants, cement plants, pulp and paper mills, chemical processing plants
and power generation facilities. Robicon's industrial customers include Amoco,
Chevron, Interprovincial Pipeline, Lafarge, Mead Paper, Medusa Cement,
Westinghouse Electric and Yaskawa Electric. The municipal market for VFDs is
comprised primarily of municipalities which operate freshwater and wastewater
treatment facilities.
Customers for Robicon's power control systems include OEMs such as British
Oxygen (Airco), Kayex and Wheelabrator and end-users such as Advanced Silicon
Materials, Geneva Steel and Owens-Corning. Demand for power control systems is
driven by the construction of new, or the upgrading of existing, steel mills or
smelting facilities, semiconductor fabrication facilities, glass and fiberglass
furnaces and other large electrical process manufacturing facilities. Because of
the long lead time required to design, permit and build such facilities, demand
for power systems does not necessarily correlate to general economic cycles.
Sales and Marketing
Robicon's VFDs are sold through Robicon's direct sales force and by
independent manufacturers' representatives. Bids for large municipal VFD
contracts are typically conducted through a "request for proposal" process and
handled by Robicon's independent manufacturers' representatives. Robicon's power
control systems are sold by its direct sales force.
Competition
Robicon's principal competitor in the VFD market is Rockwell Automation
(Allen-Bradley/Reliance). Other competitors include divisions of multinational
corporations such as Ansaldo Ross-Hill, Asea Brown Boveri ("ABB"), Cegelec,
Eaton (Cutler Hammer), Emerson Electric and Siemens. Robicon's major competitors
in the power control systems market include multinational corporations such as
ABB and Westinghouse Electric, and several niche engineering firms such as
InverPower, Rapid Technology and Spang & Company. As with VFDs, power systems
are often produced by divisions of large multinational corporations that may
offer a broader product range than that of Robicon.
PHI
PHI is the world's leading designer and manufacturer of advanced surface
analysis instruments and components used to determine the elemental and/or
chemical composition of materials found on or near the surface of a sample.
Advanced surface analysis instruments are used in commercial applications in
central support laboratories and at or near the production line in the
semiconductor fabrication, computer peripherals, chemicals, aerospace, metals,
polymer, automotive and biomaterials industries, among others, for product and
process development, process control, defect review and failure analysis.
Advanced surface analysis instruments are also used for materials science
research by universities and government institutions. PHI is also a leading
supplier of ultrahigh vacuum ion pumps and controls required for highly accurate
surface analysis and for other applications. PHI's headquarters are located in
Eden Prairie, Minnesota. For the LTM period ended March 28, 1997, PHI had net
sales of $64.8 million, which represented 27.2% of the Company's consolidated
net sales for Fiscal 1997, pro forma for the Merger.
PHI's growth strategy is to increase sales of its products through
identification of new applications for its existing products, increased
penetration of international markets, enhancements in the technological
capability of its instruments, development of application-specific hardware
configurations for its instruments and the continued improvement in the
operating ease and efficiency of its instruments through increased automation
and software development. The Company believes that PHI differentiates itself
from its competitors through its patented and proprietary technology, expertise
in the manufacture of instruments incorporating ultrahigh vacuum technology,
superior customer service, support and training and a reputation for product
quality, ease of operation and reliability.
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Products
PHI's products include Auger Electron Spectroscopy ("Auger"), Electron
Spectroscopy for Chemical Analysis ("ESCA"), Time-of-Flight Secondary Ion Mass
Spectrometry ("TOF-SIMS") and Dynamic Secondary Ion Mass Spectrometry ("Dynamic
SIMS") instruments. Under ultrahigh vacuum conditions, PHI's surface analysis
instruments direct a particle beam at the surface of a solid under
investigation, causing the emission of particles from the specimen that may be
analyzed to determine the elemental and/or chemical composition of the sample
surface. Highly sophisticated software, customized for each of PHI's surface
analysis instruments, interprets data received from the instrument's analyzer
and creates images that show the distribution of elements or molecules on a
surface. Graphical and numerical data may also be obtained. In addition, by
removing and analyzing successive layers of material each surface analysis
instrument is capable of generating a depth profile, which indicates how
elemental and/or chemical composition varies throughout the thickness of a
sample.
PHI's Auger surface analysis instruments direct a highly focused continuous
electron beam onto a sample, which causes high energy "Auger electrons" to be
emitted from the sample surface. Because the energy level of such Auger
electrons is unique to the element from which they were emitted, it may be
measured to identify the elements present on the surface. Auger offers the
highest spatial resolution of all of PHI's surface analysis instruments,
providing high definition images of the distribution of elements on a
microscopic region of a surface. In general, Auger may be used to examine
inorganic samples that are electrically conductive, such as semiconductors and
metals. While PHI's Auger instruments are well-suited to a variety of
applications, they are primarily used in the semiconductor industry for process
development, process control, defect review and failure analysis. For example,
PHI's Auger instruments are used to create high resolution images showing the
location of elements on a selected region of a semiconductor wafer. The Company
believes that, because of its high resolution capabilities, Auger will be of
increasing significance in semiconductor fabrication as the dimensions of
semiconductor devices are reduced. Auger also offers high elemental sensitivity,
enabling the identification of impurities in or on semiconductor devices which
may affect production yields in semiconductor fabrication. PHI's 680 Auger
instrument is primarily used in central support laboratories to analyze
materials in a variety of industries, including the semiconductor, aerospace,
computer peripherals, metals and automotive industries. PHI's introduction in
1994 of the SMART-200, a new Auger surface analysis instrument which has the
ability to analyze every point on an 8-inch semiconductor wafer, enabled PHI to
expand the market for its Auger instruments within the semiconductor industry.
Another typical application of PHI's Auger instruments is the analysis of
corrosion of the read/write heads of computer hard drives.
PHI's ESCA surface analysis instruments direct a continuous x-ray beam onto
a sample, which causes "photoelectrons" to be emitted from the sample surface.
Because the energy level of such photoelectrons is unique to the element or
arrangement of atoms from which they were emitted, it may be measured to
identify the elements or determine the chemical composition of molecules on the
surface. ESCA may be used to analyze a wide variety of materials, including both
conductive and non-conductive solids, and provides both elemental and chemical
data, although with lower spatial resolution than Auger. While PHI's ESCA
instruments are well-suited to a variety of applications, they are primarily
used by PHI's customers for the analysis of polymers, semiconductors, chemicals,
computer peripherals, biomaterials and automotive components-. Typical
applications include the development and optimization of chemical processing for
etching semiconductor wafers, the application of thin polymer films on bulk
materials, such as polymer coatings on aluminum cans, anti-corrosion coatings on
metal surfaces and non-stick coatings for kitchen utensils, as well as the
analysis of multi-layered paint. PHI's ESCA product line currently includes the
5800 as its standard model and the Quantum 2000 Scanning ESCA Microprobe(TM),
which offers enhanced resolution and operation on a fully-automated "turn-key"
basis.
PHI's TOF-SIMS surface analysis instruments direct short, intermittent
bursts of charged atoms or molecules called "ions" onto a sample, which causes
other ions to be emitted from the sample surface. These emitted ions traverse a
long flight path, with the time required for an ion to reach the analyzer (the
"time of flight") being directly related to its mass. Because the mass of such
ions is unique to the material from which they were emitted, it may be measured
to identify the elements or molecules present. The "time of flight" method of
determining the mass of the emitted ions is highly precise and can be used to
accurately identify both the elemental and chemical composition of a surface. In
addition, TOF-SIMS is the best-suited of PHI's instruments to the detection of
very large molecules, such as those found in plastics and biomaterials, and
PHI's TOF-SIMS instruments can detect trace impurities in a sample at levels of
one part per million. PHI's TOF-SIMS products are used in a variety of
applications including the semiconductor industry for quality control and
process development, primarily in central support laboratories. For example,
PHI's TOF-SIMS instruments are capable of detecting contamination on
semiconductor devices, including photoresist used in semiconductor device
manufacturing, which may affect production yields. PHI's TOF-SIMS products are
also sold for use in a variety other industries, including polymers, computer
peripherals and biomaterials. Applications include the process development of
the application of thin films on printer paper
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and lubricants on computer hard disks. In 1994, PHI introduced the TRIFT II, a
new TOF-SIMS instrument which may be configured to analyze every point on an
8-inch semiconductor wafer.
PHI's Dynamic SIMS surface analysis instruments direct a highly focused
continuous beam of ions onto a sample, which causes other ions to be emitted
from the sample surface. Because the mass of such ions is unique to the material
from which they were emitted, it may be measured to identify the elements
present. In general, Dynamic SIMS is used to examine inorganic samples. PHI's
Dynamic SIMS instruments are capable of detecting trace impurities with a
sensitivity of greater than one part per billion, although without the chemical
sensitivity of PHI's TOF-SIMS instruments. While PHI's Dynamic SIMS instruments
are well-suited to a variety of applications, they are predominantly used in
central support laboratories in the semiconductor industry for process control
to monitor the precise elemental composition of semiconductor devices and in
quality control to identify contaminants that may affect yields in semiconductor
fabrication. Because the ion beam in PHI's Dynamic SIMS instruments removes the
surface layer of a material under investigation, depth profiles are generated as
a result of the operation of the instrument. This is in contrast to PHI's other
surface analysis instruments in which an additional ion beam is required to
remove successive layers of material. The 6650 Dynamic SIMS is PHI's standard
model. In 1997, PHI intends to introduce the 6800 Dynamic SIMS instrument, which
has the ability to analyze every point on an 8-inch semiconductor wafer. All of
PHI's Dynamic SIMS surface analysis instruments are designed for ease of use and
rapid sample change for efficiency of sample analysis in industrial
applications.
Markets and Customers
PHI markets and sells its surface analysis instruments worldwide, with Japan
representing its largest market and North America its second largest market. The
Company believes that demand for advanced surface analysis instruments will
increase most rapidly in Asia and the Pacific Rim region over the next several
years due primarily to an increased level of semiconductor fabrication facility
construction in those regions.
Historically, customers have operated PHI's surface analysis instruments
primarily in industrial central support laboratories for research and
development, pre-production testing of pilot processes, materials
characterization and process control and verification, typically where
understanding the elemental and/or chemical composition of a material's surface
is critical to product or process development. In addition, the Company believes
that production support applications, such as failure analysis, defect review
and quality control, represent an important growth area, particularly in
semiconductor fabrication. PHI's surface analysis instruments are also used by
universities and government institutions for materials science research.
Due to the diversity of applications for PHI's surface analysis instruments,
PHI is not dependent on sales to customers in any single industry. PHI's
products are suitable for a wide variety of applications without the need for
customization or modification. This versatility of function permits PHI to
respond quickly to changes in the marketplace that favor new technologies or
demonstrate new applications. In addition, PHI has the ability to tailor each
surface analysis instrument to specific applications through changes in hardware
configuration, software customization and varying degrees of automation of
operation in response to industry-specific demands or customer requirements.
PHI's customer base is principally comprised of industrial laboratories,
OEMs and research facilities, including those associated with universities and
government institutions. Demand for PHI's products is driven by the need for
precise chemical and/or elemental analysis of materials. Some of PHI's customers
include Advanced Micro Devices, Alcoa, DuPont, Hewlett-Packard, IBM, Matsushita,
Motorola, Nippon Steel, Samsung, Seagate, Siemens, Texas Instruments, Toshiba
and numerous universities and government institutions worldwide. PHI seeks to
cultivate long-term relationships with its various customers through the
continuous provision of post-sale technical support and on-site training of new
users of PHI's installed base of surface analysis instruments.
Sales and Marketing
PHI markets its products domestically and internationally on the basis of
product performance and quality, availability and quality of after-sales
support, and industry reputation in the manufacture of advanced surface analysis
instruments. The significant cost of surface analysis instruments (ranging from
approximately $250,000 to $1.5 million) leads to careful consideration among
potential purchasers not only of product reliability and performance, but also
availability and quality of technical support and training, factors which the
Company believes favor PHI and enable it to realize a pricing premium over
competitors' comparable products.
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PHI's experienced and technically-oriented sales force is organized
geographically and consists of teams responsible for North America, Japan, the
Pacific Rim region and Europe. Technical service personnel (most of whom are
scientists and engineers) are decentralized within each region and strategically
situated in close proximity to major customers. PHI presently has a 50% interest
in a joint venture with ULVAC, a Japanese company, which resells and services
PHI's surface analysis instruments in the Japanese market. This joint venture
(ULVAC-PHI) has enabled PHI to successfully sell products into Japan, currently
the largest market for advanced surface analysis instruments. In addition, PHI
provides surface analysis services on a contract basis in its analytical
laboratories located in the United States, Germany and Japan. Such services
often serve as an effective means of demonstrating the capabilities of PHI's
surface analysis instruments to customers who may then consider purchasing an
instrument.
Competition
Competition in the surface analysis market is highly concentrated. The only
broad line competitors in the markets served by PHI's products are Cameca and VG
Scientific (Thermo Electron). The Company believes that PHI has leading market
shares in the Auger, ESCA and TOF-SIMS and that PHI has the second largest
market share in Dynamic SIMS. In Auger, PHI's primary competitors are VG
Scientific and JEOL (Nihon Densi). In ESCA, PHI's primary competitors are Kratos
Analytical (Shimadzu) and VG Scientific. In TOF-SIMS, PHI's primary competitor
is ION-TOF, which is partially-owned by and markets its products through Cameca.
In Dynamic SIMS, PHI's primary competitor is Cameca. The Company believes that
the technical expertise required for the design, production and support of
instruments incorporating ultrahigh vacuum technology is a significant barrier
to entry to potential competitors.
DATCON
Datcon together with its wholly-owned subsidiary, Jorda, designs and
manufactures customized monitoring instrumentation for heavy duty and
off-highway vehicles. Datcon's products include instrument clusters,
speedometers, tachometers and fuel, temperature and pressure gauges which are
used in construction equipment, agricultural machinery, materials handling
equipment and generator and compressor engines. Jorda, based in Barcelona,
Spain, was acquired by the Company in March 1995, and is a leading manufacturer
of instrument clusters for farm tractors in Europe. Datcon's headquarters are
located in Lancaster, Pennsylvania. For Fiscal 1997, Datcon had net sales of
$32.5 million, which represented 13.7% of the Company's consolidated net sales
for such period, pro forma for the Merger.
A principal element of Datcon's strategy is to provide its customers a broad
line of "mass customized" products in the niche market for monitoring
instrumentation for heavy duty and off-highway vehicles. Mass customization
involves several steps, from manufacturing instrumentation to a customer's
specific tolerances to incorporating the customer's logo and design profile in
the product. In order to mass customize products profitably, a manufacturer must
be able to meet short lead times and operate short production runs, both areas
in which Datcon has significant expertise. Datcon seeks to increase its market
share by introducing complementary new products that leverage its applications
expertise. Datcon has designed many innovative products capable of performing
accurately under the harsh conditions that are endemic to the construction,
agriculture and mining industries, including high vibration, extreme
temperature, exposure to ultra-violet light and humidity, which can cause
fogging.
Products
The Company believes that Datcon has one of the broadest lines of mass
customized monitoring instrumentation for heavy duty and off-highway vehicles.
Datcon's line of gauges and meters includes electrical instruments such as
speedometers, tachometers, fuel, temperature and pressure gauges and hour meters
in a variety of styles. Datcon offers its customers integrated monitoring
instrumentation packages comprised of gauges and/or senders or sensors. Sensors
and senders are devices that collect information at its source and relay it to
gauges and meters. Sensors are generally more technologically sophisticated than
senders and are used where the provision of precise measurement is
cost-justified. Datcon also manufactures and sells instrument clusters, which
are distinct from stand-alone vehicle monitoring instrumentation as they combine
multiple instruments in a single package with one set of electronics. Datcon
believes that its ability to offer its customers instrument clusters, through
the acquisition of Jorda, has enhanced its market position. In furtherance of
its strategy to increase market share through the introduction of innovative
products, Datcon has introduced several products including: (i) the
IllumaSeal(TM) line of heavy duty instruments that deliver no-fog, waterproof
performance and high levels of night visibility; (ii) the Smart Instrument(TM)
line of instruments that provide visual indication of operational problems and
can offer such feature enhancements on a simple plug-in replacement basis to
existing vehicle designs; (iii) the Illuma Deluxe(TM) line of field-programmable
speedometers and tachometers which enable customers to custom-calibrate these
new microprocessor controlled
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instruments to match individual vehicle specifications; and (iv) the
Intellisensor series of fuel measurement systems which allow for electronic
measurement of fluid levels through the use of solid state technology, thereby
eliminating moving parts and increasing accuracy and durability.
Markets and Customers
Datcon sells its products in 40 countries worldwide. Approximately 75% of
Datcon's product sales are to OEM markets (including OEM after market sales) to
a diverse group of customers. Datcon has multi-year relationships with some of
the largest OEMs in its markets including Caterpillar, Cummins Engine,
Harley-Davidson, Case, Landini, Massey Ferguson, SAME and Toro. The remaining
25% of Datcon's products are sold through third-party distributors under the
Datcon(R) and AST(TM) brand names to other OEM customers and to the after
market. Datcon believes that it has developed significant customer loyalty by
consistently providing high quality products and exceptional service. The
acquisition of Jorda has provided Datcon with direct access to additional
European customers and an immediate presence in the European instrument cluster
market.
Sales and Marketing
Datcon's products are sold through direct sales representatives in the
United States and Europe, as well as by manufacturers' sales agents in regions
where sales volume does not necessitate the assignment of a direct
representative. In addition, Datcon is represented by a worldwide network of
authorized distributors who carry Datcon products in inventory.
Competition
The market for monitoring instrumentation for heavy duty and off-highway
vehicles is highly fragmented. The U.S. Gauge/Dixson division of AMETEK, a
diversified manufacturer, is the largest competitor in the industry. Other
competitors are Beede, Frank W. Murphy Manufacturing, Hobbs, Joseph Pollack
(Stoneridge), Kysor/Medallion (Kuhlman) and Teleflex. The Company believes that
Datcon's largest competitor in Europe is VDO, a subsidiary of Mannesman.
ANDERSON
Anderson is a leading designer and manufacturer of high efficiency,
pluggable power connectors for use in high current, quick disconnect
applications including materials handling equipment and other electric-powered
vehicles, uninterruptible power supply products, telecommunications and
networking equipment and office furniture panel electrification. Anderson
specializes in high efficiency, pluggable connectors that are designed to
provide applications-specific solutions to power distribution and power
management challenges for end users. In addition to introducing new
applications-specific products, Anderson seeks to increase sales through finding
new applications for its standard power connectors. Anderson's headquarters are
located in Sterling, Massachusetts. For Fiscal 1997, Anderson had net sales of
$21.6 million, which represented 9.1% of the Company's consolidated net sales
for such period, pro forma for the Merger.
Products
Power connectors allow for the transmission of electric current to provide
distributed power within a device or system. Anderson focuses on the niche
market for wire-to-wire and wire-to-board, high current, quick disconnect
electric power connectors. Quick disconnect power connectors, in contrast to
permanent connectors, allow for easy and repeated disconnection and reconnection
to the power source. Anderson manufactures a broad range of both
applications-specific and standard power connectors. Anderson connectors utilize
a flat interlock contact design. These contacts are supplied in a variety of
housings and manufactured in a range of sizes in two product families. The SB(R)
series consists of two contacts, spring-mounted in a genderless plastic housing
design for easy connection and disconnection. The Powerpole(R) series consists
of a single contact, mounted in a modular, genderless housing which can be
assembled with other connectors in any configuration or quantity, offering
customers wide flexibility in customized connector solutions at reasonable cost
for low and high volume applications.
Anderson differentiates its power connectors from those of its competitors by
focusing on specialized applications that require unique power connectors to be
customized for specific applications on a rapid-turnaround basis. For example,
Anderson designed a special power connector for electric golf carts made by
E-Z-GO (Textron). Anderson designed and supplies a unique "smart" connector that
disables the electric drive control while the cart is being recharged, thereby
eliminating the possibility of inadvertent drive-aways
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while the cart remains connected to the charging stand. Anderson also
specializes in uncovering new applications for its standard power connectors.
For example, Anderson successfully applied its existing power connector
technology to the rapidly growing market for uninterruptible power supply
products.
Markets and Customers
Anderson's connectors are primarily used in OEM applications that typically
require high current capacity, high reliability and ease of installation, as
well as blind-mate, hot pluggable and quick disconnect capabilities. Typical
applications include: (i) materials handling equipment and other
electric-powered vehicles, including forklifts, golf carts, wheelchairs and
other vehicles; (ii) uninterruptible power supply (UPS) products and other
peripherals; (iii) telecommunications and networking equipment; and (iv) office
furniture panel electrification. Anderson's products are purchased both directly
by OEMs and indirectly through distributors.
A majority of Anderson's sales are derived from products which are
incorporated into the design of an OEM's product. Therefore, Anderson focuses
its sales and marketing efforts on OEMs and Anderson's engineers work directly
with an OEM's in-house product development team during the design phase of the
OEM's product life cycle to facilitate the engineering of effective power
interconnect solutions. Frequently, this collaborative effort results in a
design for which Anderson is designated by the OEM as a sole source supplier
through the life of the product program. Anderson believes that OEMs choose
Anderson's power connector products in large part due to its reputation for
innovative and customized solutions, its ability to quickly design products and
create prototypes and its long-term customer relationships. Anderson's product
design and prototyping capabilities were recently enhanced by the addition in
Fiscal 1997 of a technical center located in Leominster, Massachusetts which was
established specifically for such purposes.
Anderson's connectors are designed into products by OEMs including E-Z-GO
(Textron), Hyster-Yale and Yuasa-Exide in the materials handling equipment and
electric-powered vehicle industries, American Power Conversion and Yuasa-Exide
in UPS applications and Ericsson and Lucent Technologies in the
telecommunications and networking equipment industry.
Sales and Marketing
Anderson markets and sells the majority of its products under the Anderson
Power Products(R) name primarily in North America, Europe, Japan and the Pacific
Rim region both through an in-house direct sales force and through a global
third-party network of manufacturers' representatives, stocking agents and
authorized distributors. Anderson's products are generally purchased directly by
OEMs and by distributors for resale to OEMs and the after market.
Competition
The connector market served by Anderson is highly fragmented, although the
Company believes that the segment in which Anderson participates is less
fragmented than the overall connector market. Anderson's principal competitors
include Hypertronics, Multi-Contact, ODU and Positronics Industries. In
addition, certain large manufacturers of connectors, such as AMP, also produce
power connectors for certain applications which compete directly with Anderson
products.
NATVAR
Natvar is a manufacturer of disposable specialty bulk medical grade plastic
tubing used primarily in medical devices and for less-invasive surgical
procedures. Specialty bulk medical grade tubing is made from standard PVC,
polyethylene, polyurethane and radio page resin compounds extruded in conformity
with customer requirements and tolerances. The Company believes that Natvar
differentiates itself from other specialty bulk medical grade plastic tubing
manufacturers by selling products customized on a highly accurate basis to
medical device manufacturers' exacting standards. Natvar does not compete in the
non-specialty bulk medical tubing market, which is a commodity-type product used
in applications such as intravenous infusion therapy. Natvar also produces
electrical sleeving and tubing used to protect multiple insulated wires.
Natvar's headquarters are located in Clayton, North Carolina. For Fiscal 1997,
Natvar had net sales of $15.2 million, which represented 6.4% of the Company's
consolidated net sales for such period, pro forma for the Merger.
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Products
Natvar manufactures a variety of disposable specialty bulk medical grade
tubing products. These products are primarily incorporated in single use,
disposable products used in medical devices and for less-invasive surgical
procedures as opposed to products used in administering long-term patient care.
Specialty bulk medical grade tubing products include: (i) co-extruded
combinations of PVC and polyethylene used for administering unstable solutions
such as nitroglycerine, insulin and chemotherapy drugs; (ii) profile extrusion
tubing used as connectors to medical devices; (iii) transition tubing with
specially designed bubble spaces that reduce platelet damage during blood
hemolysis; (iv) heat exchanger coils used during cardioplegia procedures when
warming or cooling of blood is required; and (v) anesthesia monitoring lines.
Specialty bulk medical grade tubing can also be solvent bonded into paratubing
which allows for multiple fluids to be infused or removed without the need for
separate lines. Natvar has developed proprietary products such as Natvar 151
tubing, a bonded tri-layer tubing which does not react with drugs being
administered, and thereby combines the low cost of PVC with the inert properties
of more expensive materials such as silicone. Natvar also manufactures precision
medical and surgical tubing, which is designed for less-invasive surgical
procedures involving the use of products such as catheters, dilators and
arthroscopic applicators.
Natvar manufactures electrical sleeving and tubing for the secondary
electrical insulation market for use in a variety of applications, including low
voltage electric motors, instrument wiring, electric heater elements, wire
harnesses and cable assemblies. Electrical sleeving and tubing differs from
standard primary wire insulation in that it provides a secondary layer of
protection for an insulated wire. Electrical sleeving is made from fiberglass,
nylon and other fibers.
Markets and Customers
Substantially all of Natvar's customers for specialty bulk medical grade
tubing are medical equipment OEMs. Typically, manufacturing specifications for
such tubing are established by the customer in advance of placing the order.
Although many medical device companies utilize Natvar's products, each requires
slight variances in hardness, tint level, plasticity and thickness. All of these
customer specifications must be approved by the Food and Drug Administration
(the "FDA") prior to sale. OEMs closely monitor their suppliers to ensure that
tubing is being produced within FDA-approved specifications, and have lengthy
qualification procedures for new products to assure compliance. As a consequence
of this level of oversight, medical equipment manufacturers tend to maintain
only a limited number of specialty bulk medical grade tubing suppliers. Natvar's
major customers include COBE Laboratories, Haemonetics, Medtronics and 3M
Healthcare.
Unlike specialty bulk medical grade tubing, the majority of electrical
sleeving and tubing sales are made through distributors, while the balance is
made to OEMs. Products are sold primarily on the basis of price and performance
considerations. Electrical sleeving is sold for use in motors and appliances as
well as applications in the automotive and aerospace industries.
Sales and Marketing
All of Natvar's products are sold primarily by a direct sales force to
customers located primarily in the United States. Natvar maintains a performance
guarantee and marketing campaign for its specialty bulk medical grade tubing
products that guarantees that its products will be shipped on the date quoted to
the customer or the product and shipping is provided free to the customer. Since
the introduction of this policy, known as "On Time or On Us," Natvar has
consistently met this performance guarantee.
Competition
Competitors in the specialty bulk medical grade tubing market are typically
small, private companies, such as Kelcourt, Pexco and Sunlite, and divisions of
larger companies, including Norton and Plastron. Major competitors in the
electrical sleeving and tubing market include Bentley-Harris Manufacturing and
Varflex.
GENERAL EASTERN
General Eastern is a leading designer and manufacturer of relative humidity
measurement instruments and humidity calibration instruments. General Eastern's
products are used in a wide range of applications including energy management
and climate control, calibration and standards laboratories, thermal processing,
environmental monitoring and process control. General Eastern also
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provides long-term support and calibration services for all of its products.
Humidity measurement instruments are used to save energy, manufacture products
with greater quality and consistency, and allow people to live and work in more
comfortable surroundings. General Eastern's headquarters are located in Woburn,
Massachusetts. For Fiscal 1997, General Eastern had net sales of $12.2 million,
which represented 5.1% of the Company's consolidated net sales for such period,
pro forma for the Merger.
Products
General Eastern designs and manufactures a broad line of relative humidity
measurement instruments which are used to measure moisture levels in ambient
environments (those not subject to extreme conditions) for the purpose of
monitoring the temperature and humidity of such environments. General Eastern
also manufactures chilled mirror hygrometers, which are humidity measurement and
calibration instruments used primarily to confirm the accuracy of other humidity
measurement instruments. Chilled mirror hygrometers are highly accurate and are
therefore used as a reference standard for faster but less accurate humidity
measurement devices.
Markets and Customers
General Eastern's products are used in a wide range of application markets
including energy management and control, calibration and standards laboratories,
thermal processing, environmental monitoring, process control and gas systems.
Relative humidity measurement instruments are used in a wide variety of
manufacturing processes including pulp and paper drying, pharmaceuticals
production and other processes that require the monitoring of humidity to ensure
product quality. Humidity monitoring applications include semiconductor
fabrication, pharmaceutical production, museums and warehouses. General
Eastern's customers include OEMs such as Cray Computer, Johnson Controls, Landis
& Staefa and Siebe (Barber-Colman), and end users such as Eastman Kodak and
Intel. Customers for General Eastern's calibration services include the
Department of the Navy and the U.S. Geological Survey.
Sales and Marketing
General Eastern's products are sold in North America through a direct sales
force and independent manufacturers' representatives and overseas by a network
of distributors. General Eastern markets its products through direct mail
advertisement, advertisement in trade journals, participation in trade shows,
attendance at industry-related seminars, publication of scientific papers and an
internet website.
Competition
General Eastern's primary competitors are Edgetech, HyCal (Honeywell), MBW,
Panametrics, Protimeter and Vaisala. Companies compete in the humidity
measurement instrumentation industry primarily on the basis of price and the
quality and accuracy of their products.
HVE EUROPA
HVE Europa is the world's leading designer and manufacturer of particle
accelerator systems used in scientific and educational research. HVE Europa's
products are used primarily for applications including "carbon dating" and
materials science and semiconductor research. HVE Europa's headquarters are
located in Amersfoort, The Netherlands. For Fiscal 1997, HVE Europa had net
sales of $8.5 million, which represented 3.6% of the Company's consolidated net
sales for such period, pro forma for the Merger.
In addition to focusing on its core research markets, HVE Europa has begun
to pursue a strategy of identifying new markets for its existing products. In
furtherance of this strategy, HVE Europa has developed and begun to sell a new
ion particle accelerator subsystem to a launch customer in the industrial ion
implantation market who supplies complete systems to semiconductor
manufacturers. In addition, HVE Europa is currently assessing the feasibility of
adapting certain of its systems for biomedical and biochemical applications.
Products
HVE Europa's products include ion particle accelerator systems, research ion
implanters, accelerator mass spectrometer systems and component parts such as
accelerator tubes. In a particle accelerator, ions are accelerated to a high
velocity under the influence of a
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strong electrical field and then fired into the material under investigation.
Instrumentation then measures the impact of the ion beams on the target
material. Accelerator mass spectrometer systems are specialized ion particle
accelerator systems used for carbon dating materials.
Markets and Customers
Historically, demand for HVE Europa's products was driven by nuclear physics
research. However, since the end of the Cold War, HVE Europa's products have
been sold for applications including carbon dating and materials science and
semiconductor research. Other applications include ratio spectrometry in
archaeology, oceanography, geosciences, materials science and biochemistry.
Accelerator mass spectrometer systems are used by universities and research
institutes for carbon dating in the fields of archaeology, oceanography and
geosciences. The demand for particle accelerator systems has historically been
tied to the construction of new or expanded research facilities, which for
educational institutions is mainly dependent upon grants and fund raising.
Sales and Marketing
HVE Europa's products are sold worldwide by its direct sales force. Due to
the complex, custom-built nature of HVE Europa's particle accelerators, frequent
and extensive interaction is required between HVE Europa and the customer. HVE
Europa presents technical papers at, and participates in, scientific
conferences, advertises in scientific periodicals and distributes product
literature and information on new developments to its existing customers.
Competition
Competition in HVE Europa's market is highly concentrated. HVE Europa's
sales in the particle accelerator market are often bid competitively against the
National Electrostatics Corporation, a privately-held U.S. manufacturer. HVE
Europa's primary competitor in Japan is Nissin High Voltage.
BACKLOG
The Company's backlog (prior to giving effect to the Merger) was as follows
as of the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
APRIL 29, 1995 APRIL 27, 1996 APRIL 26, 1997
----------------------- ----------------------- ------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robicon........ $20,887 48.9% $38,158 60.6% $41,661 59.8%
Datcon......... 4,787 11.2 6,773 10.7 7,655 11.0
Anderson....... 3,758 8.8 2,584 4.1 3,425 4.9
Natvar......... 3,432 8.0 3,579 5.7 3,239 4.7
General Eastern 1,735 4.1 1,430 2.3 1,804 2.6
HVE Europa..... 8,108 19.0 10,466 16.6 11,848 17.0
------- --------- ------- --------- ------- --------
Total..... $42,707 100.0% $62,990 100.0% $69,632 100.0%
======= ========= ======= ========= ======= ========
</TABLE>
The backlog of PHI as of March 28, 1997 was $21.7 million.
The Company believes that the Company's backlog as of any particular date
may not be indicative of sales for any future period. The Company expects that
approximately 25% of the Company's backlog (excluding PHI) as of April 26, 1997
will not be shipped before the end of the Company's 1998 fiscal year.
RESEARCH AND DEVELOPMENT
Research and development activities are conducted separately by each
operating unit. The Company's operating units focus on developing
applications-engineered products designed to meet their customers' needs. Teams
representing different functional areas within an operating unit work closely
with customers early in the product design process to ensure that the product
meets the
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<PAGE> 63
customer's specifications and is designed for ease of manufacturing. As a
general matter, with the exception of Robicon and PHI, the Company's operating
units have not required substantial research and development expenditures.
Research and development expenditures that the Company has made have resulted in
innovative new products such as Robicon's Perfect Harmony series of medium
voltage VFDs, Datcon's Intellisensor fuel measurement systems, Natvar's bonded
tri-layer 151 tubing and numerous applications-engineered products for
Anderson's customers. PHI incurs significant research and development expenses
due to the high technology content of PHI's surface analysis instruments and
PHI's growth strategy of increasing sales through the identification of new
applications for its existing products, enhancements in the technological
capability of its instruments, the development of application-specific hardware
configurations for its instruments and the continued improvement in the
operating ease and efficiency of its instruments through increased automation
and software development. Pro forma for the Merger, the Company incurred
research and development expenses of $16.7 million for Fiscal 1997 (representing
7.0% of the consolidated net sales of the Company for such period), the majority
of which was incurred at Robicon and PHI.
PATENTS AND TRADEMARKS
The Company holds domestic and foreign patents covering certain products and
processes in all of its operating units, as well as trademarks covering certain
of its products. While these patents and trademarks are considered important to
the ability of the various operating units to compete, the Company believes that
these patents and trademarks are less important than the quality and
applications-engineered nature of its products and its unpatented manufacturing
expertise. Certain patents relating to Robicon's Perfect Harmony series of
medium voltage VFDs are of particular significance; these patents issued in
April and June of 1997. In addition, PHI holds key patents relating to its
Auger, ESCA and TOF-SIMS surface analysis instruments that issued between 1991
and 1995, and filed a provisional patent application in December 1996 relating
to its ESCA surface analysis instruments. The Company also holds patents on
certain products which, although valuable to the Company, are not critical to
its operations. Management does not believe that the future profitability of the
Company's operating units is dependent upon any one patent or group of related
patents.
EMPLOYEES
At April 26, 1997, pro forma for the Merger, the Company had a total of
1,616 employees, of whom 1,600 were employed by the Company's operating units.
The Company's domestic employees are not covered by collective bargaining
agreements, however, substantially all of the personnel employed by its foreign
subsidiaries belong to national Workers' Councils. The Company considers it
relations with its employees to be good. The following table provides
information relating to the employees of the Company's operating units as of
April 26, 1997, pro forma for the Merger:
<TABLE>
<CAPTION>
TOTAL
OPERATING UNIT EMPLOYEES
-------------- ----------
<S> <C>
Robicon............................. 446
PHI................................. 386
Datcon.............................. 333
Anderson............................ 126
Natvar.............................. 168
General Eastern..................... 66
HVE Europa.......................... 75
------
Total Operating Unit
Employees............... 1,600
======
</TABLE>
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<PAGE> 64
PROPERTIES
The following are the principal operating facilities of the Company, listed
by operating unit, each of which also has limited general office and
administrative space:
<TABLE>
<CAPTION>
USABLE SPACE
OPERATING UNIT FUNCTION (SQUARE FEET) OWNED/LEASED
-------------- -------- ------------- ------------
<S> <C> <C> <C>
ROBICON:
New Kensington,
Pennsylvania Design and assembly 124,800 Leased(a)
Pittsburgh, Pennsylvania Assembly 79,000 Owned(b)
PHI:
Eden Prairie, Minnesota Design and assembly 207,000 Owned(c)
Redwood City, California Design 11,800 Leased
DATCON:
Lancaster, Pennsylvania Design and assembly 70,700 Leased(a)
Barcelona, Spain Design and assembly 35,500 Leased(a)
ANDERSON:
Sterling, Massachusetts Plastic injection molding and assembly 42,400 Leased(a)
Sterling, Massachusetts Plastic injection molding and assembly 31,000 Leased(a)
Leominster, Massachusetts Technical center (design and tooling) 10,000 Leased(a)
Fermoy, Ireland Plastic injection molding and assembly 8,500 Leased
NATVAR:
Clayton, North Carolina Plastic extrusion 75,000 Owned
Lakewood, Colorado Plastic extrusion 17,300 Leased
GENERAL EASTERN:
Woburn, Massachusetts Design and assembly 21,400 Leased
HVE EUROPA:
Amersfoort, The
Netherlands Design and assembly 60,000 Owned
</TABLE>
- ----------
(a) The Company holds a purchase option on these facilities.
(b) Approximately 21,800 square feet of space at the Robicon facility in
Pittsburgh, Pennsylvania is currently leased by Robicon to a third party.
(c) Approximately 14,000 square feet of space at the PHI facility in Eden
Prairie, Minnesota is currently leased by PHI to a third party.
In addition to the facilities described above, the Company leases various
warehouses and sales and administrative facilities. The Company believes that
its manufacturing facilities are properly maintained and that production
capacity is adequate to meet the requirements of its operating units.
ENVIRONMENTAL AND INSURANCE MATTERS
The Company's operations are subject to extensive and changing federal,
state, local and foreign environmental laws and regulations, including those
relating to the use, handling, storage, discharge and disposal of hazardous
substances and, as a result, the Company is from time to time involved in
administrative and judicial proceedings and inquiries relating to environmental
matters. Following is a description of the Company's significant pending
environmental matters.
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<PAGE> 65
Burlington, Massachusetts Cleanup. In June 1989, the Company entered into a
Consent Order with the predecessor to the Massachusetts Department of
Environmental Protection (the "DEP") with respect to the remediation of alleged
contamination at property formerly leased by the Company in Burlington,
Massachusetts (the "Burlington Site"). Pursuant to the Consent Order and a
remediation plan approved by the DEP, the Company has posted financial
assurances currently consisting of a $100,000 letter of credit and a $1.3
million lien on a site owned by the Company in Dorchester, Massachusetts and is
proceeding with certain remediation measures at the Burlington Site. The owners
of several parcels of land adjoining or near the Burlington Site have also
asserted claims or sought damages from the Company claiming damages from waste
allegedly originating from activities on the Burlington Site. The Company has
allowed $200,000 with respect to one adjoining property, and has agreed to pay
the first $500,000 of future costs incurred plus two-thirds of any additional
costs with respect to the cleanup of another. As of April 26, 1997, the
Company's estimate of the costs that will be necessary to complete these
cleanups is $1.5 million. Expenditures for cleanup will be incurred by the
Company over a number of years.
Woodbridge Township, New Jersey Cleanup. The Company is conducting an
environmental investigation and remediation of a former manufacturing site
located in Woodbridge Township, New Jersey (the "New Jersey Site") under New
Jersey law. The investigation and remediation are being undertaken in accordance
with an August 1989 agreement (the "Settlement Agreement") among the Company,
the current owner of the site and the former owner of the site who had purchased
the site from the Company which settled litigation brought against the Company
by the current owner of the New Jersey Site to recover damages allegedly caused
by environmental contamination of the site. As part of the Settlement Agreement,
the Company has agreed to assume full responsibility for the cleanup, and has
been conducting an investigation and remediation of the New Jersey Site in
accordance with the terms of the Settlement Agreement and New Jersey law. As of
April 26, 1997, the Company's estimate of the costs that will be necessary to
complete the cleanup is $2.1 million. Expenditures for cleanup will be incurred
by the Company over a number of years. In accordance with the terms of the
Settlement Agreement, the Company has posted financial assurances currently
consisting of a $2.2 million letter of credit. The Company is also involved in
litigation with the current owner of the New Jersey Site in which the Company is
seeking limited monetary damages in recovery of legal and consulting fees as
well as other relief.
The Company has, from time to time, received cash settlements and insurance
recoveries relating to environmental litigation, remediation and consequential
damages incurred in connection with properties formerly owned or leased by the
Company. The Company recorded net gains of $2.1 million, $450,000 and $351,000
for Fiscal 1995, Fiscal 1996 and Fiscal 1997, respectively, net of actual legal
costs, estimated settlement costs and changes in cost remediation estimates, on
cash recoveries of $2.3 million, $1.5 million and $1.1 million, respectively,
for such fiscal years. These cash recoveries have generally been received from
insurance companies in reimbursement of costs previously incurred by the Company
in remediation efforts or the payment of damages to third parties, from other
responsible or potentially responsible parties in settlement of potential claims
relating to remediation responsibilities, and from the recovery of expenses
incurred both in the recovery of such amounts and the remediation of affected
properties. Most of the amounts recovered by the Company in Fiscal 1995, Fiscal
1996 and Fiscal 1997 were recovered in connection with the litigation and
arbitration relating to the Burlington Site and the New Jersey Site. The Company
is not currently a party to any actions in which it has made a claim seeking
recovery for remediation and consequential damages incurred in connection with
environmental matters at properties formerly owned or leased by the Company.
Although the Company has realized significant recoveries on a historical basis,
the Company does not expect to receive any material recoveries relating to
environmental matters in any future periods.
In addition, although the Company believes it has made sufficient capital
expenditures to maintain compliance with existing laws and regulations, future
expenditures may be necessary as compliance standards and technology change. The
Company has expended, and may be required to expend in the future, significant
amounts for investigation of environmental conditions, remediation of
environmental conditions and other similar matters. See "Risk Factors --
Environmental Compliance."
LEGAL PROCEEDINGS
The nature of the Company's business is such that it is regularly involved
in legal proceedings incidental to its business. Although the Company believes
that none of these proceedings is material, the Company, along with six others,
is a defendant in an action commenced in November 1996 by Chicago-Dubuque
Foundry Corporation ("Chicago-Dubuque") and its property insurer, Employers
Mutual Casualty Co. in Iowa state court. The suit concerns a May 1, 1996 fire
that destroyed a Chicago-Dubuque facility located in East Dubuque, Illinois.
According to the complaint, defective products sold by one or more of the
defendants (including, it is alleged, the Company's Anderson division) to
Chicago-Dubuque, or incorporated in products sold by others to Chicago-Dubuque,
caused or contributed to the casualty. Chicago-Dubuque has not yet quantified
the amount of damages sought, but its property insurer has stated
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<PAGE> 66
that damages for property damage will be in excess of $11 million. No estimate
of economic losses caused by business interruption has been made by any
plaintiff. At the present time, the Company is not aware of any personal
injuries or deaths caused by the fire and the Company has been informed that the
State Fire Marshall who investigated the fire has, to date, not been able to
render an opinion as to the cause of the fire. The Company has placed its
insurers on notice of the claim and at least one insurer has retained legal
counsel to defend the Company. In light of the preliminary stage of the
proceedings, the Company is unable to assess the likelihood of liability in this
action, the amount of any damages that may be assessed against the Company, and
the extent to which any assessed liability will be covered by the Company's
insurance, as of the date of this Prospectus.
Natvar received a sixty (60) day notice of intent to sue on December 11,
1996 from a California citizens group regarding alleged violations of notice and
labeling requirements under California Proposition 65, a "right to know"
provision intended to give consumers clear and reasonable warnings of the
presence of certain potentially hazardous substances in products. Natvar and the
citizens group have signed an agreement delaying the deadline for filing any
lawsuit. The relevant regulations provide that violations of Proposition 65 are
subject to civil penalties of up to $2,500 per day retroactive to the beginning
of an alleged violation of Proposition 65. The substance contained in Natvar's
products and implicated in the notice of intent to sue has been listed under
Proposition 65 since 1988, and Natvar has sold products containing this
substance in California since that time. The Company is currently conducting
fact-finding to determine whether it believes a violation of Proposition 65 has
occurred. If a lawsuit is filed, the Company intends to defend it vigorously;
however, the Company believes, based on results in similar cases and a
preliminary review of the relevant facts, that any such suit could be settled
for substantially less than the maximum penalty available under the statute. The
Company does not believe that it is likely that it will incur material liability
as a result of any lawsuit arising in connection with this matter.
During Fiscal 1996, the Company reached a proposed settlement with the IRS
and various state taxation authorities with respect to issues arising out of an
audit of the 1986 through 1991 tax years of the Company and Letitia Corporation
which was approved, in January 1997, by the Joint Committee on Taxation. The
Company agreed to pay an aggregate amount of $1.2 million in income tax
assessments in settlement of such issues. The assessments that were the subject
of the audit related primarily to foreign tax credits claimed and disallowances
of deductions for certain costs incurred in connection with the acquisition of
HVE in the 1988 tax year of Letitia Corporation.
In February 1997, the Company commenced litigation in Massachusetts federal
court against TVM Group, Inc., ("TVM") of Fremont, California, and TVM's
principal stockholder, Mr. T. Lyn Morris, seeking damages on account of breach
by TVM and Mr. Morris of a December 1996 agreement pursuant to which a
subsidiary of the Company was to acquire TVM. In April 1997, TVM and Mr. Morris
filed a counterclaim alleging breaches by the Company and its subsidiary of that
agreement and seeking damages. In light of the preliminary stage of the
proceedings, the Company is unable to assess the likelihood of liability in this
action, the amount of any damages that may be assessed against the Company, and
the extent to which any assessed liability will be covered by the Company's
insurance; however, the Company believes the counterclaim to be without merit.
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<PAGE> 67
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and key employees of the Company are as
follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Laurence S. Levy..... 41 Chairman of the Board and Chief Executive Officer
Clifford Press....... 43 President and Director
Paul H. Snyder....... 59 Chief Operating Officer and Director
Joseph W. McHugh, Jr. 42 Vice President and Chief Financial Officer
Michael Brosnan...... 42 Vice President, Financial Operations
Arthur J. Burdett.... 53 Vice President, Human Relations
Jody E. Kurtzhalts... 50 President of Robicon
David J. Chalmers.... 57 President of PHI
Oddie V. Leopando.... 51 President of Datcon
Ronald G. Robinson... 63 President of Anderson
Scott M. Kelley...... 43 President of Natvar
James H. Schleckser.. 34 President of General Eastern
Renee Koudijs........ 51 Managing Director of HVE Europa
Edward Levy.......... 33 Director
H. Cabot Lodge III... 41 Director
</TABLE>
Laurence S. Levy is the Chairman of the Board and Chief Executive Officer of
the Company. Mr. Levy joined the Company in 1988 in connection with its
acquisition and reorganization and has been a member of the Board of Directors
since that time. Since 1988, he has served as Chairman and since 1991 he has
been the Company's Chief Executive Officer. From 1983 to 1986, Mr. Levy was a
consultant with Bain & Co., a leading strategic management company. Mr. Levy is
a graduate of the University of Witwatersrand in South Africa and the Harvard
Business School. Mr. Levy is also a director of Safety 1st, Inc.
Clifford Press is the President and a Director of the Company. Mr. Press
joined the Company in 1988 in connection with its acquisition and reorganization
and has been a member of the Board of Directors since that time. Since 1991, he
has served as President. From 1983 to 1986, Mr. Press was employed by Morgan
Stanley & Co., Incorporated in its Mergers and Acquisitions Department. Mr.
Press is a graduate of Oxford University and the Harvard Business School. Mr.
Press is also a director of Buck Hill Falls Company.
Paul H. Snyder is the Chief Operating Officer of the Company and became a
Director of the Company effective upon consummation of the Transactions. Mr.
Snyder joined the Company in February 1993 and has over 37 years of management
experience. Since joining the Company, Mr. Snyder has implemented Total Quality
programs and process re-engineering at each of the Company's operating units.
From 1989 to 1993, Mr. Snyder was President of the Bendix Electric Power
Division of AlliedSignal Inc. From 1976 to 1989, Mr. Snyder served as Vice
President/General Manager and in other senior management positions in various
divisions of TRW, Inc., including the Computer Services, Electronic Assemblies
and Electronic Connector Divisions. From 1959 to 1976, Mr. Snyder held various
financial management positions at Bose Corporation, Polaroid Corporation,
Corning Glass and Bell Telephone. Mr. Snyder is a graduate of Penn State
University.
Joseph W. McHugh, Jr. is a Vice President and the Chief Financial Officer of
the Company. Mr. McHugh joined the Company in January 1992. From 1983 to 1992,
Mr. McHugh worked at GCA Corporation as a Division Controller and later as
Controller. In the former capacity, he participated in the workout and
recapitalization of GCA before its purchase in 1988 by General Signal. From 1977
to 1983, Mr. McHugh served in various financial management positions at
Honeywell Information Systems. Mr. McHugh is a Certified Management Accountant
and received both a Bachelor of Science degree in accounting and a Masters
degree in Business Administration from Bentley College.
Michael Brosnan is Vice President, Financial Operations of the Company.
Prior to joining the Company in March 1997, Mr. Brosnan worked at Polaroid
Corporation as Senior Controller - Electronic Imaging Systems Group from 1994
through 1996, and
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<PAGE> 68
Senior Controller - Commercial Imaging Group thereafter. Mr. Brosnan was
employed by KPMG Peat Marwick LLP from 1978 to 1994, most recently as an Audit
Partner. Mr. Brosnan is a Certified Public Accountant and received his Bachelor
of Science degree in Business Administration from Northeastern University.
Arthur J. Burdett is Vice President, Human Relations of the Company. Mr.
Burdett joined the Company in 1993. From 1982 to 1993, Mr. Burdett held various
human resources and management positions at Hewlett-Packard Company culminating
in the position of Education Manager for the Medical Products Group. From 1966
to 1982, Mr. Burdett held various teaching and program director positions in the
Philadelphia School System and was one of the founders and eventually the
Director of the Bartram School for Human Services. Mr. Burdett is a graduate of
Temple University.
Jody E. Kurtzhalts has served as President of Robicon since April 1995.
Prior to joining the Company, Mr. Kurtzhalts was employed by Giddings & Lewis
Corp., from November 1992 to March 1995 as the Vice President/General Manager of
its Automation Control Division. Prior to November 1992, Mr. Kurtzhalts was the
Vice President, Electronics and Software Engineering of Giddings & Lewis. Mr.
Kurtzhalts has a Bachelor of Science in Electrical Engineering from Marquette
University.
David J. Chalmers has served as President and Chief Executive Officer of PHI
since February 1997. Following the Merger, Dr. Chalmers will continue to serve
in such capacities. Prior to February 1997, Dr. Chalmers was the President and
Chief Executive Officer of TA Instruments Inc., which was formed through a
leveraged buyout of the Thermal Analysis Division of E.I DuPont de Nemours in
1990. From 1967 to 1990, Dr. Chalmers held several technical, marketing and
product management positions at E.I DuPont de Nemours, most recently serving as
General Manager of the Thermal Analysis Division. Dr. Chalmers received a
Bachelor of Science in Chemistry from the University of Aberdeen and a Ph.D. in
Chemistry from Oxford University.
Oddie V. Leopando has served as President of Datcon since November 1995.
Prior to joining the Company, Mr. Leopando was employed by MascoTech, Inc. as
President of the MascoTech Body Systems & Assembly Division from 1994 to 1995.
From 1991 to 1994, Mr. Leopando was the Senior Vice President/General Manager of
MascoTech Manufacturing & Assembly Division. Prior to 1991, Mr. Leopando acted
in managerial roles in several other companies, including Massey Ferguson, Inc.
and the Chrysler Corporation. Mr. Leopando earned a Masters of Business
Administration in Finance and Operations from the University of Detroit and a
Bachelor of Science in Mechanical Engineering from the Mapua Institute of
Technology in Manila, Philippines. Mr. Leopando is a licensed professional
engineer.
Ronald G. Robinson has served as President of Anderson since 1992. Prior to
joining the Company in 1985, Mr. Robinson was employed by the Selectro
Corporation, where he was Senior Vice President, Operations. Mr. Robinson is a
former Director of the American Production and Inventory Control Society. Mr.
Robinson is a graduate of the University of Hartford.
Scott M. Kelley, who has been employed by the Company since 1993, has served
as President of Natvar since January 1996. Prior to being appointed as President
of Natvar, Mr. Kelley was the President of the Company's General Eastern
division, from August 1994 to January 1996, and the Acting President of the
Company's Specialty Connector division from December 1993 to August 1994. Prior
to joining the Company, Mr. Kelley was the Vice President of Operations at Data
Translation Inc. from 1990 to 1993. Mr. Kelley also served as a management
consultant at Ernst & Young LLP and Coopers & Lybrand L.L.P. Mr. Kelley is a
graduate of Eastern Connecticut State University.
James H. Schleckser has served as President of General Eastern since January
1996. Prior to being appointed President, Mr. Schleckser was the Vice President,
Sales and Marketing at General Eastern from August 1995 to January 1996. Prior
to joining the Company in 1995, Mr. Schleckser was employed from 1988 to 1995 by
J.M. Ney Company, most recently serving as the Director, Sales and Marketing of
Ney Ultrasonics Inc. Mr. Schleckser received his Master of Business
Administration from the University of Connecticut and his Bachelor of Chemical
Engineering from the University of Delaware.
Renee Koudijs has served as Managing Director of HVE Europa since May 1993,
and served as Engineering and Research and Development Manager at HVE Europa
from 1978 to 1993. From 1976 to 1978, Mr. Koudijs served as Engineering Manager
at Unicorp. Prior to that, Mr. Koudijs founded the Netherlands division of Sola
Basic Industries. Mr. Koudijs graduated from the Industrial and Commercial
Mechanical and Electrical College in The Netherlands and has a License for
Business Operation in The Netherlands through the General Commercial School.
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<PAGE> 69
Edward Levy became a Director of the Company effective upon consummation of
the Transactions. Mr. Levy has been a Managing Director of CIBC Wood Gundy
Securities Corp. since August 1995. Between 1991 and 1995, Mr. Levy held various
positions at The Argosy Group L.P. culminating in the position of Managing
Director. Mr. Levy has also held positions in the Mergers and Acquisitions Group
of Drexel Burnham Lambert Incorporated and the Corporate Finance Department of
Kidder, Peabody & Co. Incorporated. Mr. Levy is a graduate of Connecticut
College. Mr. Levy is also a director of Heating Oil Partners, L.P., Norcross
Safety Products L.L.C. and DSMax International Inc.
H. Cabot Lodge III became a Director of the Company effective upon
consummation of the Transactions. Mr. Lodge is the Chairman, Chief Executive
Officer and President of Superconducting Core Technologies, Inc., a wireless
telephone equipment manufacturer that he founded in 1987. Mr. Lodge also served
as Executive Vice President, Managing Director and in other senior management
positions at W.P. Carey & Co., an investment banking firm, from 1983 to 1995.
Mr. Lodge is a graduate of Harvard University and the Harvard Business School.
Mr. Lodge is also a director of American General Hospitality Corp. and
TelAmerica Media, Inc.
ELECTION; TERM OF OFFICE
All officers are elected at the annual meeting of the Board of Directors and
hold office until the next annual meeting of the Board of Directors or until
their respective successors are chosen and qualified. Directors are elected at
the annual meeting of the stockholders and hold office until the next annual
meeting of the stockholders or until their successors are elected. According to
the Company's By-Laws, the President of the Company must be a member of the
Board of Directors. In addition, holders of the Exchange Preferred Stock (acting
as a single class together with holders of any Series A Preferred Stock) will
have the right to elect that number of directors constituting at least 25% of
the Board of Directors if cash dividends are in arrears and unpaid for two
semiannual periods after August 15, 2002, and in certain other events. See
"Description of the Exchange Preferred Stock -- Voting Rights."
BOARD COMMITTEES
The Bylaws of the Company provide for the election of an executive committee
of the Board of Directors which may exercise any powers delegated to it by the
full Board of Directors which the law permits a corporation's board to delegate
to a committee. There is no executive committee in existence at this time and
the Board of Directors has no plans to establish such a committee. By November
5, 1997, the Company expects to appoint both an audit committee and a
compensation committee of the Board of Directors, both committees to be
delegated the customary functions of such committees, with the compensation
committee being specifically empowered to set the compensation of each of the
Company's executive officers, including the Company's Chairman of the Board and
Chief Executive Officer and President.
COMPENSATION OF DIRECTORS
Prior to the Offerings, directors of the Company were not compensated for
their service as such. After the Offerings, non-employee directors of the
Company will be paid an annual retainer of $10,000 plus expenses incurred by the
directors in such capacity.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not currently have a compensation committee. During Fiscal
1997, Fiscal 1996 and Fiscal 1995, Laurence S. Levy and Clifford Press, the
Company's Chairman of the Board and Chief Executive Officer, and President and a
Director, respectively (who together comprised the Board of Directors during
such period) established the compensation of the Company's executive officers,
including their own compensation. The Company expects to appoint a compensation
committee by November 5, 1997.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company for services rendered during Fiscal 1997, Fiscal 1996 and Fiscal 1995 to
the Company's Chairman of the Board and Chief Executive Officer, President and
four other most highly-compensated executive officers.
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<PAGE> 70
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL PERIOD SALARY BONUS COMPENSATION(6) COMPENSATION(1)
--------------------------- ------------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Laurence S. Levy................ 1997 $ 100,000(2) $ -- $3,300
Chairman of the Board and 1996 100,000(2) 250,000(3) 4,000
Chief Executive Officer 1995 184,050(2) -- 8,311
Clifford Press.................. 1997 $ 100,000(2) $ -- $3,300
President and Director 1996 100,000(2) 250,000(3) 4,000
1995 184,050(2) -- 8,536
Paul H. Snyder.................. 1997 $ 210,000 $ 50,000 $4,950
Chief Operating Officer 1996 203,850 45,600 6,260
1995 189,050 65,000 4,936
Oddie V. Leopando............... 1997 $ 181,750 $ 74,000 $6,805
President of Datcon 1996(4) 87,500 35,000 --
Renee Koudijs................... 1997 $ 162,614 $ 53,164 $ --
Managing Director of HVE Europa 1996 141,327 125,597 --
1995 116,003 41,039 --
Jody E. Kurtzhalts.............. 1997 $ 168,750 $ 40,000 $ 51,480
President of Robicon 1996 165,000 18,250 $ 31,492 4,713
1995(5) 13,750 -- --
</TABLE>
- ----------
(1) Represents matching employer contributions under the Company's Section
401(k) savings plan. See "Retirement Plans" below.
(2) Amounts shown as salary do not include management and transaction fees paid
to Hyde Park Holdings, Inc. ("Hyde Park"), and certain of its affiliates at
the request of the named executive officers, aggregating $780,901, $758,424
and $552,226 in Fiscal 1997, Fiscal 1996 and Fiscal 1995, respectively. See
"Certain Relationships and Related Transactions."
(3) Represents amounts paid to affiliates of Hyde Park at the request of the
named executive officers.
(4) Mr. Leopando became an employee of the Company in November 1995.
(5) Mr. Kurtzhalts became an employee of the Company in April 1995.
(6) Represents relocation expenses.
VALUE CREATION PLAN AND RELATED PLAN
The Company's Value Creation Plan (the "VCP") is a long-term cash incentive
compensation plan for certain key officers and employees of the Company which is
intended to provide participants in the VCP with an opportunity to share in an
increase in the value of the operating unit or units with which the
participating employee is associated. The VCP is designed to provide incentives
for employees in the Company's various operating units by tracking increases in
the economic value of an operating unit based upon a multiple of EBITDA, as
defined in the VCP, and allocating to the VCP an aggregate amount equal to up to
5% of the incremental increases in value achieved in the unit. In the event that
the value of any of the operating units increases over time, the interests of
its participating employees in the VCP will increase proportionally.
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<PAGE> 71
Interests are granted in the VCP to certain key employees of a particular
operating unit as they are hired or promoted and vest over five years. The value
of an employee's interest is based on increases in the value of the employee's
operating unit (based on a multiple of EBITDA of the operating unit) from the
date of grant to the end of the year prior to the determination date. Subject to
the Company's discretion to defer cash payments, an employee may cash out up to
50% of his vested interests at any one time and may cash out all of his vested
interests if he leaves the Company or retires, if his operating unit is sold or
if he is transferred to another division; provided that if he is dismissed for
cause, his interests (vested and unvested) are forfeited. The VCP is a
non-qualified and non-funded plan. While Messrs. Leopando, Kurtzhalts and
Koudijs have each received interests in the VCP, none of Messrs. Laurence S.
Levy, Press or Snyder participates in the VCP. As of April 26, 1997, the Company
had an accrued liability of $1.3 million under the VCP.
Paul H. Snyder, who is the Chief Operating Officer of the Company and who
became a Director of the Company effective upon the consummation of the
Transactions, is the beneficiary of an incentive compensation plan of the
Company pursuant to which Mr. Snyder shall be entitled to receive, upon
termination of employment with the Company or his death, a special bonus equal
to the amount that the market value of 2% of the outstanding common equity of
Letitia Corporation exceeds $300,000. Mr. Snyder's right to receive this bonus
vests in equal installments on May 1 of each year beginning in 1994 and ending
in 1998; provided that Mr. Snyder is employed by the Company on such vesting
date. In the event that a majority interest in HVE is sold to an unrelated third
party, or in the event of Mr. Snyder's death, any unvested rights to this bonus
shall immediately vest. Any bonus payment which becomes due shall be paid over
two years, but only to the extent permitted by applicable covenants and
restrictions, including those under the Indenture, and shall bear interest until
paid.
RETIREMENT PLANS
The Company maintains the High Voltage Engineering Corporation 401(k)
Retirement Plan, a Section 401(k) savings plan for qualified domestic employees,
pursuant to which the Company matches discretionary employee contributions up to
$1,800, and also contributes an annual profit-sharing amount equal to 2.5% of
the employee's annual salary and bonus. While each of Messrs. Laurence S. Levy,
Press, Snyder, Leopando and Kurtzhalts participates in this plan, Mr. Koudijs
does not participate in this plan.
The Company also maintains the High Voltage Engineering Corporation
Retirement Plan (the "Retirement Plan"), a defined benefit plan, which provides
for the accrual of annual pension benefits, payable on retirement, based on the
participating employee's salary during the time of accrual. Participation in the
Retirement Plan, and the accrual of additional benefits thereunder, was frozen
by the Company in 1992. Messrs. Laurence S. Levy and Press will receive monthly
benefits under the Retirement Plan of $191.05 and $148.35, respectively,
beginning upon their retirement. Messrs. Snyder, Leopando, Koudijs and
Kurtzhalts do not participate in the Retirement Plan.
BONUS PLAN
The Company has in effect various plans pursuant to which the Company's
executive officers and certain other employees may receive incentive cash
bonuses based upon the achievement of certain earnings goals in the preceding
fiscal year by an operating unit or by the Company as a whole, and upon
individual performance. The amounts of incentive and discretionary awards, and
the performance criteria for such awards, are currently fixed by the Board of
Directors. Such amounts, and the related performance criteria, will be set by
the compensation committee of the Board of Directors to be appointed within 90
days after consummation of the Offerings.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Laurence S. Levy and Clifford Press, officers and directors of the Company,
are directors of Letitia Corporation, which owns all of the Company's
outstanding common and preferred stock. Hyde Park Holdings, Inc. ("Hyde Park"),
a corporation wholly-owned by Laurence S. Levy and Clifford Press, is a minority
stockholder of Letitia Corporation. See "Principal Stockholders" and "Management
- -- Executive Compensation."
Historically, the Company has paid to Hyde Park and its affiliates: (i) an
annual fee for services performed in managing the Company; (ii) an acquisition
fee payable upon the closing of acquisitions by the Company of additional
businesses; and (iii) a disposition fee payable upon the closing of the
disposition of certain divisions or subsidiaries (or significant groups of
assets) of the Company.
The management fees paid to Hyde Park and its affiliates were $780,901,
$648,424 and $450,376 for Fiscal 1997, Fiscal 1996 and Fiscal 1995,
respectively. Under the terms of the Indenture, while there are any of the Notes
outstanding, management fees to Hyde Park in excess of $750,000 for any fiscal
year of the Company will be limited by the Indenture's Restricted Payments
provision. Acquisition and disposition fees have been calculated as an amount
equal to 1% of the sum of the total price paid or received for shares of stock
(or in the case of an asset acquisition or disposition, the total price paid for
such assets) in such acquisition or divestiture. In Fiscal 1996, the Company
paid a fee of $110,000 in connection with the disposition of the Company's
Specialty Connector division. In Fiscal 1995, the Company paid fees aggregating
$101,850 in connection with the sale of the Company's Shore Instruments and
Berger divisions, and the acquisition of Jorda. No acquisition or divestiture
fees were paid in Fiscal 1997, and the Company did not pay an acquisition fee in
connection with the Merger.
In connection with the consummation of the Refinancing, the Company redeemed
all of the outstanding Series B Preferred Stock for an aggregate redemption
price of $4.8 million. All of the outstanding 25,705 shares of Series B
Preferred Stock were held by Letitia Corporation. Messrs. Laurence S. Levy and
Clifford Press, the Company's Chairman of the Board and Chief Executive
Officer, and President and a Director, respectively, and certain of their
affiliates and family members beneficially own 90% of the outstanding common
stock of Letitia Corporation before giving effect to any repurchase of Letitia
Common Stock from the High Voltage Engineering Corporation Retirement Plan and,
accordingly, were the primary beneficiaries of such redemption and could
through dividends or other distributions receive a majority of the proceeds of
such redemption.
Mr. Press and Mr. Levy, as well as certain other executives named above in
"Management -- Executive Compensation" also hold interests in the High Voltage
Engineering Corporation Retirement Plan which holds shares of Letitia Common
Stock intended to be repurchased with a portion of the net proceeds from the
Offerings.
In connection with the consummation of the Refinancing, the Company also
redeemed all of the issued and issuable 6,871 shares of Series C Preferred Stock
for an aggregate liquidation preference of $6.9 million. All of these shares
were held by Letitia Corporation, which redeemed 6,871 issued and issuable
shares of the Letitia Quest Preferred Stock having identical rights and
preferences to the Series C Preferred Stock simultaneously with the closing of
the Transactions, with the proceeds of the redemption of the Series C Preferred
Stock.
Upon the consummation of the Merger, CIBC Wood Gundy Securities Corp. ("CIBC
Wood Gundy") received a transaction fee of $500,000 (comprising a portion of the
Merger Consideration) for advisory services provided to the Company in
connection with the Merger. A predecessor of CIBC Wood Gundy also provided
investment banking services in connection with the May 1996 refinancing of
certain of the Company's indebtedness, for which it received customary
compensation. On July 24, 1997, CIBC Wood Gundy purchased existing Subordinated
Notes Warrants to purchase 71.43 shares of HVE Common Stock, representing 6.25%
of the HVE Common Stock on a fully diluted basis, for an aggregate purchase
price of $2.5 million. Such Subordinated Notes Warrants were repurchased from
CIBC Wood Gundy for the same purchase price by the Company from the proceeds of
the Offering. Mr. Edward Levy, who became a director of the Company effective
upon the consummation of the Transactions, is a managing director of CIBC Wood
Gundy.
David J. Chalmers, the President of PHI, is party to an employment
agreement, dated as of February 14, 1997, with Physical Electronics, Inc.
pursuant to which, among other things, PHI established an Executive Equity
Compensation Plan (the "Equity Plan")
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for Dr. Chalmers' benefit. The Equity Plan is intended to provide Dr. Chalmers
with stock appreciation rights payable in shares of PHI common stock or cash, at
the discretion of PHI, in the event of certain transactions constituting the
sale of PHI to a third party. Under the terms of the Equity Plan, Dr. Chalmers
was entitled to receive a benefit calculated as 20% of the remainder of the
aggregate cash proceeds received by the common equity stockholders in a sale of
PHI minus an accreting base value equal to $10.0 million plus $40,000 for each
complete month after December 31, 1996 to the relevant determination date. The
Company believes that the Merger constituted a sale of PHI for purposes of the
Equity Plan and the aggregate benefit paid to Dr. Chalmers under the Equity Plan
(comprising a portion of the Merger Consideration) was approximately $3.8
million.
In addition to the payment to Dr. Chalmers, 93 officers, directors and
employees of, and consultants to, PHI received an aggregate of approximately
$12.9 million in cash (comprising a portion of the Merger Consideration) in the
Merger in exchange for their capital stock and options to purchase capital stock
of PHI. See "The Transactions."
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<PAGE> 74
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of the HVE Common Stock, as of the date of this Prospectus by: (i)
each person known to the Company to own beneficially more than 5% of the
outstanding shares of HVE Common Stock; (ii) each director and each executive
officer named in the "Summary Compensation Table;" and (iii) all directors and
executive officers of the Company as a group. All shares are owned by such
person with sole voting and investment power. See "Description of Outstanding
Capital Stock."
<TABLE>
<CAPTION>
HVE COMMON STOCK
-------------------------------
NAME OF STOCKHOLDERS, DIRECTORS NUMBER OF PERCENT OF
AND EXECUTIVE OFFICERS SHARES COMMON SHARES
---------------------------------------------- -------------- ---------------
<S> <C> <C>
Letitia Corporation(1)........................ 1,000 92.4%
Laurence S. Levy(1)(2)........................ 1,000 92.4%
Clifford Press(1)(3).......................... 1,000 92.4%
Jody E. Kurtzhalts............................ -- --
Oddie V. Leopando............................. -- --
Paul H. Snyder................................ -- --
Edward Levy................................... -- --
H. Cabot Lodge III............................ -- --
Directors and executive officers as a group... 1,000 92.4%
</TABLE>
- ----------
(1) The address of each of these persons or organizations is c/o Hyde Park
Holdings, Inc., 595 Madison Avenue, 35th Floor, New York, New York 10022.
(2) All of such shares of HVE Common Stock (92.4% of the outstanding HVE Common
Stock) are held by Letitia Corporation. Mr. Laurence S. Levy is the Chairman
of the Board, Treasurer and Secretary of Letitia Corporation. Mr. Levy is
also a 50% stockholder of Hyde Park, which owns 15 shares (representing 2.5%
of the total outstanding) of Letitia Common Stock. Mr. Levy also personally
owns 25 shares (4.3%) of Letitia Corporation common stock and has an option
to purchase an additional 38.9015 shares (6.6%) of such stock from Clifford
Press for a nominal sum. Mr. Levy also holds a minor interest in the High
Voltage Engineering Corporation Retirement Plan, which owns 10% of the
outstanding Letitia Common Stock. Mr. Laurence S. Levy disclaims beneficial
ownership of any shares of HVE Common Stock.
(3) All of such shares of HVE Common Stock (92.4% of the outstanding HVE Common
Stock) are held by Letitia Corporation. Mr. Press is a Director and
President of Letitia Corporation. Mr. Press is also a 50% stockholder of
Hyde Park, which owns 15 shares (representing 2.5% of the total outstanding)
of Letitia Common Stock. In addition, Mr. Press personally owns 103 shares
(17.4%) of Letitia Common Stock and has granted an option to purchase
38.9015 shares (6.6%) of such stock to Mr. Laurence S. Levy for a nominal
sum. Certain family members of Mr. Press own, in the aggregate, 389 shares
(65.8%) of Letitia Common Stock, with respect to which Mr. Press does not
have any voting or investment power. Mr. Press also holds a minor interest
in the High Voltage Engineering Corporation Retirement Plan, which owns 10%
of the outstanding Letitia Common Stock. Mr. Press disclaims beneficial
ownership of any shares of HVE Common Stock.
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EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange shares of Exchange
Preferred Stock for any and all of the outstanding shares of Series A Preferred
Stock (on a share for share basis) properly tendered on or prior to the
Expiration Date and not withdrawn as permitted pursuant to the procedures
described below.
PURPOSE OF THE EXCHANGE OFFER
Pursuant to the Offering which closed on August 8, 1997, the Company issued
33,000 shares of the Series A Preferred Stock. The issuance of Series A
Preferred Stock was not registered under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act.
In connection with the issuance and sale of the Series A Preferred Stock,
the Company entered into the Preferred Stock Registration Rights Agreement,
which requires it, at its cost, (i) within 45 days after the date of original
issue of the Series A Preferred Stock, to file a registration statement (the
"Exchange Offer Registration Statement") with the Commission with respect to a
registered offer to exchange the Series A Preferred Stock for the Exchange
Preferred Stock, which will have terms substantially identical in all material
respects to the Series A Preferred Stock (except that the Exchange Preferred
Stock will not contain terms with respect to transfer restrictions), and (ii)
within 135 days after the Issue Date, use its best efforts to cause the Exchange
Offer Registration Statement to be declared effective under the Securities Act.
Upon the Exchange Offer Registration Statement being declared effective, the
Company will offer the Exchange Preferred Stock in exchange for surrender of the
Series A Preferred Stock. The Company will keep the Exchange Offer open for not
less than 30 days (or longer if required by applicable law) after the date
notice of the Exchange Offer is mailed to the holders of the Series A Preferred
Stock. For each of the shares of Series A Preferred Stock surrendered to the
Company pursuant to the Exchange Offer, the holder who surrendered such shares
will receive shares of Exchange Preferred Stock having a liquidation preference
equal to that of the surrendered shares of Series A Preferred Stock. Under
existing Commission interpretations, the Exchange Preferred Stock will in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act; provided that in the case of
broker-dealers, a prospectus meeting the requirements of the Act be delivered as
required. The Company has agreed for a period of 180 days after consummation of
the Exchange Offer to make available a prospectus meeting the requirements of
the Securities Act to any broker-dealer for use in connection with any resale of
any such Exchange Preferred Stock acquired as described below. A broker-dealer
which delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the Act, and
will be bound by the provisions of the Preferred Stock Registration Rights
Agreement (including certain indemnification rights and obligations). See "Plan
of Distribution"
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the date of the
Preferred Stock Registration Rights Agreement, the Company will, at its own
expense, (a) as promptly as practicable, file a Shelf Registration Statement
covering resales of the Series A Preferred Stock (the "Shelf Registration
Statement"), (b) use its best efforts to cause the Shelf Registration Statement
to be declared effective under the Act and (c) use its best efforts to keep
effective the Shelf Registration Statement until two years after its effective
date. The Company will, in the event of the Shelf Registration Statement,
provide to each holder of the Series A Preferred Stock copies of the prospectus
which is a part of the Shelf Registration Statement, notify each such holder
when the Shelf Registration Statement for the Series A Preferred Stock has
become effective and take certain other actions as are required to permit
unrestricted resales of the Series A Preferred Stock. A holder of the Series A
Preferred Stock that sells such Preferred Stock pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Act in connection with such sales and will be bound by the provisions of the
Preferred Stock Registration Rights Agreement which are applicable to such a
holder (including certain indemnification rights and obligations).
If the Company fails to comply with the above provisions or if such
registration statement fails to become effective, then, as liquidated damages,
additional dividends shall become payable in respect of the Series A Preferred
Stock as follows:
If (i) the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 45 days after the Issue Date or, if required
to be filed on behalf of the holders, the Shelf Registration Statement is
not filed with 30 days following delivery of notice of an Exchange Offer
Registration Statement;
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<PAGE> 76
(ii) the Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 135 days after the Issue Date;
and
(iii) either (A) the Company has not exchanged the Exchange Preferred
Stock for all Series A Preferred Stock validly tendered in accordance with
the terms of the Exchange Offer on or prior to 60 days after the date on
which the Exchange Offer Registration Statement was declared effective or
(B) the Exchange Offer Registration Statement ceases to be effective at any
time prior to the time that the Exchange Offer is consummated or (C) if
applicable, the Shelf Registration Statement has been declared effective and
such Shelf Registration Statement ceases to be effective at any time prior
to the second anniversary of its effective date;
(each such events referred to in clauses (i) through (iii) above is a
"Registration Default"), the sole remedy available to holders of the Series A
Preferred Stock will be the immediate assessment of additional dividends
("Additional Dividends") as follows: the per annum dividend rate on the Series A
Preferred Stock will increase by 50 basis points; and the per annum dividend
rate will increase by an additional 25 basis points for each subsequent 90-day
period during which the Registration Default remains uncured, up to a maximum
additional dividend rate of 200 basis points per annum in excess of the dividend
rate originally borne by the Series A Preferred Stock (as shown on the cover of
this Prospectus). All Additional Dividends will be payable to holders of the
Series A Preferred Stock in cash on each August 15 and February 15, commencing
with the first such date occurring after any such Additional Dividend commences
to accrue, until such Registration Default is cured. After the date on which
such Registration Default is cured, the dividend rate on the Series A Preferred
Stock will revert to the dividend rate originally borne by the Series A
Preferred Stock (as shown on the cover of this Prospectus).
The Exchange Offer is being made by the Company to satisfy its obligations
under the Preferred Stock Registration Rights Agreement.
The summary herein of certain provisions of the Preferred Stock Registration
Rights Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Preferred
Stock Registration Rights Agreement, a copy of which will be available upon
request to the Company.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 P.M., New York City time, on , 1997,
unless the Company, in its sole discretion, has extended the period of time (as
described below) for which the Exchange Offer is open (such date, as it may be
extended, is referred to herein as the "Expiration Date"). The Expiration Date
will be at least 30 days after the commencement of the Exchange Offer (or longer
if required by applicable law). The Company expressly reserves the right, at any
time or from time to time, to extend the period of time during which the
Exchange Offer is open, and thereby delay acceptance for exchange of any shares
of Series A Preferred Stock by giving oral notice (confirmed in writing) or
written notice to the Exchange Agent (as defined herein) and by giving written
notice of such extension to the holders thereof or by timely public announcement
communicated, unless otherwise required by applicable law or regulation, by
making a release through the Dow Jones News Service, in each case, no later than
9:00 A.M. New York City time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that the Company is
extending the Exchange Offer for a specified period of time. During any such
extension, all shares of Series A Preferred Stock previously tendered will
remain subject to the Exchange Offer.
In addition, the Company expressly reserves the right to terminate or amend
the Exchange Offer and not to accept for exchange any shares of Series A
Preferred Stock not theretofore accepted for exchange upon the occurrence of any
of the events specified below under "-- Certain Conditions to the Exchange
Offer." If any such termination or amendment occurs, the Company will notify the
Exchange Agent and will either issue a press release or give oral or written
notice to the holders of the Series A Preferred Stock as promptly as
practicable.
PROCEDURES FOR TENDERING SERIES A PREFERRED STOCK
The tender to the Company of shares of Series A Preferred Stock by a holder
thereof as set forth below and the acceptance thereof by the Company will
constitute a binding agreement between the tendering holder and the Company upon
the terms and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal.
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<PAGE> 77
A holder of shares of Series A Preferred Stock may tender the same by (i)
properly completing and signing the Letter of Transmittal or a facsimile thereof
(all references in this Prospectus to the Letter of Transmittal shall be deemed
to include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the shares of Series A Preferred Stock
being tendered and any required signature guarantees, to the Exchange Agent at
its address set forth below on or prior to 5:00 p.m., New York City time, on the
Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
THE METHOD OF DELIVERY OF SERIES A PREFERRED STOCK, LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF
SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, OR AN OVERNIGHT OR HAND DELIVERY
SERVICE, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE
TIMELY DELIVERY. NO SHARES OF SERIES A PREFERRED STOCK OR LETTERS OF TRANSMITTAL
SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the shares of Series A Preferred Stock
surrendered for exchange pursuant thereto are tendered (i) by a registered
holder of the shares of Series A Preferred Stock who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (ii) for the account of an Eligible Institution (as
defined herein). In the event that signatures on a Letter of Transmittal or a
notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantee must be by a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States (each an "Eligible Institution"). If shares
of Series A Preferred Stock are registered in the name of a person other than a
signer of the Letter of Transmittal, the shares of Series A Preferred Stock
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Series A Preferred Stock at
the book-entry transfer facility, The Depository Trust Company, for the purpose
of facilitating the Exchange Offer, and subject to the establishment thereof,
any financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of shares of Series A Preferred
Stock by causing such book-entry transfer facility to transfer such shares of
Series A Preferred Stock into the Exchange Agent's account with respect to the
shares of Series A Preferred Stock in accordance with the book-entry transfer
facility's procedures for such transfer. Although delivery of shares of Series A
Preferred Stock may be effected through book-entry transfer in the Exchange
Agent's account at the book-entry transfer facility, an appropriate Letter of
Transmittal with any required signature guarantee and other required documents
must in each case be transmitted to and received or confirmed by the Exchange
Agent at its address set forth below on or prior to the Expiration Date, or, if
the guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or shares of Series A Preferred Stock to reach the
Exchange Agent before the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if the
Exchange Agent has received at its address or facsimile number set forth below
on or prior to the Expiration Date a letter, telegram or facsimile from an
Eligible Institution setting forth the name and address of the tendering holder,
the name in which the shares of Series A Preferred Stock are registered and, if
possible the certificate number or numbers of the Certificate or certificates
representing the shares of Series A Preferred Stock to be tendered, and stating
that the tender is being made thereby and guaranteeing that within three
business days after the Expiration Date the shares of Series A Preferred Stock
in proper form for transfer (or a confirmation of book-entry transfer of such
shares of Series A Preferred Stock into the Exchange Agent's account at the
book-entry transfer facility), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless shares of Series A Preferred Stock being
tendered by the above-described method are deposited with the Exchange Agent
within the time period set forth above (accompanied or preceded by a properly
completed Letter of Transmittal and any other required documents), the Company
may, at its option, reject the tender. Copies of a Notice of Guaranteed Delivery
which may be used by an Eligible Institution for the purposes described in this
paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the shares of Series A Preferred Stock (or a confirmation of
book-entry transfer of such shares
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of Series A Preferred Stock into the Exchange Agent's account at the book-entry
transfer facility) is received by the Exchange Agent, or (ii) a Notice of
Guaranteed Delivery or letter, telegram or facsimile to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of shares of Exchange Preferred Stock in exchange for shares of Series
A Preferred Stock tendered pursuant to a Notice of Guaranteed Delivery or
letter, telegram or facsimile to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered shares of Series
A Preferred Stock.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of shares of Series A Preferred Stock tendered for
exchange will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
right to reject any and all tenders of any particular shares of Series A
Preferred Stock not properly tendered or reject any particular shares of Series
A Preferred Stock the acceptance of which might, in the judgment of the Company
or its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or condition of the Exchange Offer as to any
particular shares of Series A Preferred Stock either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender shares of Series A Preferred Stock in the Exchange Offer).
The interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of shares of Series A Preferred Stock for exchange
must be cured within such time as the Company shall determine. Neither the
Company nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of shares of Series A
Preferred Stock for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal or any share of Series A Preferred Stock or
powers of attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
By tendering, each holder that is not a broker-dealer or is a broker-dealer
but is not receiving shares of Exchange Preferred Stock for its own account will
represent to the Company that, among other things, the shares of Exchange
Preferred Stock acquired pursuant to the Exchange Offer are being obtained in
the ordinary course of such holder's business, that such holder has no
arrangement or understanding with any person to participate in the distribution
of such shares of Exchange Preferred Stock and that such holder is not an
"affiliate" of the Company as defined in Rule 405 under the Securities Act or,
if it is an affiliate, such holder will comply with the registration and
prospectus delivery requirements of the Securities Act, to the extent
applicable. Each broker-dealer that is receiving shares of Exchange Preferred
Stock for its own account in exchange for shares of Series A Preferred Stock
that were acquired as a result of market-making or other trading activities will
represent to the Company that it will deliver a prospectus in connection with
any resale of such shares of Exchange Preferred Stock.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any shares of Series A Preferred Stock that remain
outstanding subsequent to the Expiration Date, or, as set forth under "--
Certain Conditions to the Exchange Offer," to terminate the Exchange Offer and
(b) to the extent permitted by applicable law, purchase shares of Series A
Preferred Stock in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers may differ from the terms
of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of shares of Series A Preferred Stock may be withdrawn at any time
prior to to 5:00 p.m., New York City time, on the business day prior to the
Expiration Date. For a withdrawal to be effective, a written notice of
withdrawal sent by letter, telegram or facsimile must be received by the
Exchange Agent prior to to 5:00 p.m., New York City time, on the business day
prior to the Expiration Date at its address or facsimile number set forth below.
Any such notice of withdrawal must (i) specify the name of the person having
tendered the shares of Series A Preferred Stock to be withdrawn (the
"Depositor"), (ii) identify the shares of Series A Preferred Stock to be
withdrawn (including the certificate number of numbers of the certificate or
certificates representing such shares of Series A Preferred Stock and number of
shares of such Series A Preferred Stock), (iii) be signed by the holder in the
same manner as the original signature on the Letter of Transmittal by which such
shares of Series A Preferred Stock were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Transfer Agent with respect to the shares of Series A Preferred Stock
to register the transfer of such shares of Series A Preferred Stock into the
name of the person
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withdrawing the tender and (iv) specify the name in which any such shares of
Series A Preferred Stock are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the Company in
its sole discretion, which determination will be final and binding on all
parties. Any shares of Series A Preferred Stock so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no shares
of Exchange Preferred Stock will be issued with respect thereto unless the
shares of Series A Preferred Stock so withdrawn are validly retendered. Any
shares of Series A Preferred Stock which have been tendered but which are
withdrawn will be returned to the holder thereof without cost to such holder as
soon as practicable after such withdrawal. Properly withdrawn shares of Series A
Preferred Stock may be retendered by following one of the procedures described
above under "-- Procedures for Tendering Series A Preferred Stock" at any time
prior to the Expiration Date.
ACCEPTANCE OF SERIES A PREFERRED STOCK FOR EXCHANGE; DELIVERY OF EXCHANGE
PREFERRED STOCK
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all shares of
Series A Preferred Stock properly tendered and will issue the shares of Exchange
Preferred Stock promptly after acceptance of the Exchange Offer. See "-- Certain
Conditions to the Exchange Offer" below. For purposes of the Exchange Offer, the
Company will be deemed to have accepted properly tendered shares of Series A
Preferred Stock for exchange when the Company has given oral or written notice
thereof to the Exchange Agent.
In all cases, issuance of the shares of Exchange Preferred Stock in exchange
for shares of Series A Preferred Stock pursuant to the Exchange Offer will be
made only after timely receipt by the Company of such shares of Series A
Preferred Stock, a properly completed and duly executed Letter of Transmittal
and all other required documents. If any tendered shares of Series A Preferred
Stock are not accepted for exchange for any reason set forth in the terms and
conditions of the Exchange Offer, such unaccepted shares of Series A Preferred
Stock will be returned without expense to the tendering holder thereof as
promptly as practicable after the rejection of such tender or the expiration or
termination of the Exchange Offer.
UNTENDERED SERIES A PREFERRED STOCK
Holders of shares of Series A Preferred Stock whose shares of Series A
Preferred Stock are not tendered or are tendered but not accepted in the
Exchange Offer will continue to hold such shares of Series A Preferred Stock and
will be entitled to all the rights and preferences and subject to the
limitations applicable thereto. Following consummation of the Exchange Offer,
the holders of shares of Series A Preferred Stock will continue to be subject to
the existing restrictions upon transfer thereof and, except as provided herein,
the Company will have no further obligation to such holders to provide for the
registration under the Securities Act of the shares of Series A Preferred Stock
held by them. To the extent that shares of Series A Preferred Stock are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted shares of Series A Preferred Stock could be adversely
affected.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or issue shares of Exchange Preferred Stock
in exchange for, any shares of Series A Preferred Stock, and may terminate or
amend the Exchange Offer, if at any time before the acceptance of such shares of
Series A Preferred Stock for exchange, any of the following events shall occur:
(A) an injunction, order or decree shall have been issued by any court or
governmental agency that would prohibit, prevent or otherwise materially
impair the ability of the Company to proceed with the Exchange Offer; or
(B) there shall occur a change in the current interpretation of the staff
of the Commission which current interpretation permits the shares of
Exchange Preferred Stock issued pursuant to the Exchange Offer in exchange
for the shares of Series A Preferred Stock to be offered for resale, resold
and otherwise transferred by holders thereof (other than (i) a broker-dealer
who purchases such Exchange Preferred Stock directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an affiliate of the Company within
the meaning of Rule 405 under the Securities Act), without compliance with
the registration and prospectus delivery provisions of the Securities Act
provided that such shares of Exchange Preferred Stock are acquired in the
ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of shares of
Exchange Preferred Stock.
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<PAGE> 80
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any shares of Series A
Preferred Stock and return any shares of Series A Preferred Stock that have been
tendered to the holders thereof, (ii) extend the Exchange Offer and retain all
shares of Series A Preferred Stock tendered prior to the Expiration Date,
subject to the rights of such holders of tendered shares of Series A Preferred
Stock to withdraw their tendered shares of Series A Preferred Stock, or (iii)
waive such termination event with respect to the Exchange Offer and accept all
properly tendered shares of Series A Preferred Stock that have not been
withdrawn. If such waiver constitutes a material change in the Exchange Offer,
the Company will disclose such change by means of a supplement to this
Prospectus that will be distributed to each registered holder of shares of
Series A Preferred Stock, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders of the shares of
Series A Preferred Stock, if the Exchange Offer would otherwise expire during
such period.
In addition, the Company will not accept for exchange any Series A Preferred
Stock tendered, and no Exchange Preferred Stock will be issued in exchange for
any such Series A Preferred Stock, if at any time any stop order shall be
threatened by the Commission or in effect with respect to the Registration
Statement.
The Exchange Offer is not conditioned on any minimum number of shares of
Series A Preferred Stock being tendered for exchange.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions regarding Exchange Offer procedures and requests
for additional copies of this Prospectus or the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
By Mail: By Hand or Overnight Delivery:
------------------------------ ------------------------------
------------------------------ ------------------------------
------------------------------ ------------------------------
------------------------------ ------------------------------
By Facsimile:
------------------------------
Confirm by Telephone:
------------------------------
State Street Bank and Trust Company is also the Transfer Agent for the
Series A Preferred Stock and the Exchange Preferred Stock.
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptance of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The cash expenses to be incurred by the Company in
connection with the Exchange Offer will be paid by the Company.
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<PAGE> 81
No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of shares of Series A Preferred Stock in
any jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of shares of Series A Preferred Stock pursuant to the Exchange Offer. If,
however, certificates representing shares of Exchange Preferred Stock or shares
of Series A Preferred Stock not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the shares of Series A Preferred Stock tendered,
or if tendered shares of Series A Preferred Stock are registered in the name of
any person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of shares of
Series A Preferred Stock pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holders.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. Expenses incurred in connection
with the issuance of the Exchange Preferred Stock will be charged by the
Company to paid-in-capital under generally accepted accounting principles.
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<PAGE> 82
PLAN OF DISTRIBUTION
Based on no action letters issued by the staff of the Commission to third
parties, the Company believes that the Exchange Preferred Stock issued pursuant
to the Exchange Offer in exchange for Series A Preferred Stock may be offered
for resale, resold and otherwise transferred by holders thereof (other than (i)
a broker-dealer who purchases such Exchange Preferred Stock directly from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an affiliate of the Company within
the meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery requirements of the Securities Act provided
that such shares of Exchange Preferred Stock are acquired in the ordinary course
of such holders' business and such holders have no arrangement with any person
to participate in the distribution of such Exchange Preferred Stock. Any holder
of Series A Preferred Stock who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Preferred Stock could not rely
on such interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Thus, any shares of Exchange Preferred
Stock acquired by such holders will not be freely transferable except in
compliance with the Securities Act.
Each broker-dealer that receives shares of Exchange Preferred Stock for its
own account in exchange for shares of Series A Preferred Stock acquired as a
result of market-making or other trading activities must acknowledge that it
will deliver a prospectus in connection with any resale of such shares of
Exchange Preferred Stock. For a period of 90 days after the Expiration Date,
this Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of such shares of Exchange
Preferred Stock. During such 90-day period, the Company will use its best
efforts to make this Prospectus available to any broker-dealer for use in
connection with such resale, provided that such broker-dealer indicates in the
Letter of Transmittal that it is a broker-dealer.
The Company will not receive any proceeds from any sale of shares of
Exchange Preferred Stock by broker-dealers. Shares of Exchange Preferred Stock
received by broker-dealers for their own account pursuant to the Exchange Offer
may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the shares of Exchange Preferred Stock or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through broker-dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such shares of Exchange Preferred
Stock. Any broker-dealer that resells shares of Exchange Preferred Stock that
were received by it for its own account pursuant to the Exchange Offer and any
person that participates in the distribution of such shares of Exchange
Preferred Stock may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of shares of Exchange Preferred
Stock and any commissions or concessions received by any such broker-dealers may
be deemed to be underwriting compensation under the Securities Act. The Letter
of Transmittal states that a broker-dealer, by acknowledging that it will
deliver and by delivering a prospectus, will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The Company will indemnify the holders of the Exchange Preferred Stock
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
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DESCRIPTION OF THE EXCHANGE PREFERRED STOCK
The Board of Directors of the Company has authorized the issuance of up to
110,000 shares of Exchange Preferred Stock, which consist of up to 38,000 shares
of Exchange Preferred Stock for original issuance (of which up to 33,000 shares
are to be issued in the Exchange Offer) plus 72,000 additional shares of
Exchange Preferred Stock which may be issued only to pay dividends on the
Exchange Preferred Stock if the Company elects to pay dividends in additional
shares of Exchange Preferred Stock.
RANKING
The Exchange Preferred Stock will, with respect to dividend distributions
and distributions upon the liquidation, dissolution or winding-up of the
Company, rank senior to all classes of common stock of the Company and to each
other class of capital stock or series of preferred stock established after the
date of this Prospectus (collectively, "Junior Securities"). The Company may not
issue any class or series of capital stock ranking senior to or on a parity with
the Exchange Preferred Stock (or amend the provisions of any existing class of
capital stock or series of preferred stock to make such class or series rank
senior to or on a parity with the Exchange Preferred Stock) with respect to
dividend distributions or distributions upon liquidation, dissolution or
winding-up of the Company without the approval of the holders of at least a
majority of the shares of Exchange Preferred Stock then outstanding, voting or
consenting, as the case may be, together as one class; provided, however, that
the Company can issue, from time to time, (i) additional shares of Exchange
Preferred Stock to satisfy dividend payments on outstanding shares of Exchange
Preferred Stock, and (ii) up to 5,000 shares of Exchange Preferred Stock, or
Series A Preferred Stock, along with sufficient additional shares of Exchange
Preferred Stock and Series A Preferred Stock to satisfy the payment of dividends
thereon. The Exchange Preferred Stock will rank pari passu with the Series A
Preferred Stock.
DIVIDENDS
Holders of the Exchange Preferred Stock will be entitled to receive, when,
as and if declared by the Board of Directors of the Company, out of funds
legally available therefor, dividends on the Exchange Preferred Stock at a rate
per annum equal to 12-1/2% of the liquidation preference per share of Exchange
Preferred Stock, payable semiannually. All dividends will be cumulative whether
or not earned or declared on a daily basis from the Issue Date and will be
payable semiannually in arrears on August 15 and February 15 of each year,
commencing on February 15, 1998, to holders of record on the August 1 and
February 1 immediately preceding the relevant dividend payment date. Dividends
may be paid, at the Company's option, on any dividend payment date occurring on
or prior to August 15, 2002 either in cash or by the issuance of additional
shares of Exchange Preferred Stock (including fractional shares) having an
aggregate liquidation preference equal to the amount of such dividends. In the
event that on or prior to August 15 , 2002 dividends are declared and paid
through the issuance of additional shares of Exchange Preferred Stock, as
provided in the previous sentence, such dividends shall be deemed paid in full
and will not accumulate. If any dividend payable on any dividend payment date
subsequent to August 15, 2000 is not paid in full in cash, the per annum
dividend rate will be increased by 0.50% from such dividend payment date, and
following two such non-cash payments, the per annum dividend rate will be
increased by 1.00% for each additional semiannual period in which such non-cash
payment occurs, up to a maximum rate of 200 basis points in excess of the
dividend rate originally borne by the Exchange Preferred Stock (as shown on the
cover of this Prospectus). After the date on which such dividend default is
cured, the dividend rate on the Exchange Preferred Stock will revert to the
dividend rate originally borne by the Exchange Preferred Stock (as shown on the
cover of this Prospectus). After August 15, 2002, dividends must be paid in
cash. The Indenture and the New Revolving Credit Facility restrict the Company's
ability to pay cash dividends on its Capital Stock and will prohibit such
payments in certain instances and other future agreements may provide the same.
See "Description of Certain Indebtedness."
Unpaid dividends accumulating after August 15, 2002 on the Exchange
Preferred Stock for any past dividend period and dividends in connection with
any optional redemption may be declared and paid at any time, without reference
to any regular dividend payment date, to holders of record on such date, not
more than forty-five days prior to the payment thereof, as may be fixed by the
Board of Directors of the Company.
REDEMPTION
Optional Redemption. The Exchange Preferred Stock may be redeemed (subject
to contractual and other restrictions with respect thereto and to the legal
availability of funds therefor) at any time on or after August 15 , 2002, in
whole or in part, at the option of the Company, at the redemption prices
(expressed in percentages of the then effective liquidation preference thereof)
set forth below,
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plus, without duplication, an amount in cash equal to all accumulated and unpaid
dividends (including an amount in cash equal to a prorated dividend for the
period from the dividend payment date immediately prior to the redemption date
to the redemption date), if redeemed during the 12-month period beginning August
15 of each of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- -----------
<S> <C>
2002.............. 106.250%
2003.............. 103.125%
2004.............. 101.563%
2005 and thereafter 100.000%
</TABLE>
Mandatory Redemption. The Exchange Preferred Stock will also be subject to
mandatory redemption (subject to contractual and other restrictions with respect
thereto and to the legal availability of funds therefor) in whole on August 15,
2005 at a price equal to 100% of the liquidation preference thereof, payable in
cash, plus, without duplication, all accumulated and unpaid dividends, which
will also be paid in cash (whether or not otherwise payable in cash) to the date
of redemption.
In the event of redemption of fewer than all of the outstanding shares of
Exchange Preferred Stock, the Exchange Preferred Stock will be redeemed on a pro
rata basis. The Exchange Preferred Stock will be redeemable upon not less than
30 nor more than 60 days' prior written notice, mailed by first class mail to a
holder's last address as it shall appear on the register maintained by the
Transfer Agent of the Exchange Preferred Stock. On and after any redemption
date, dividends will cease to accrue on the Exchange Preferred Stock or portions
thereof called for redemption unless the Company shall fail to redeem any such
Exchange Preferred Stock. The Indenture and the New Revolving Credit Facility
restrict the ability of the Company to redeem the Exchange Preferred Stock and
will prohibit any such redemption in certain instances.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, holders of the Exchange Preferred Stock will initially be entitled
to be paid, out of the assets of the Company available for distribution, $1,000
per share, plus an amount in cash equal to accumulated and unpaid dividends
thereon to the date fixed for liquidation, dissolution or winding-up (including
an amount equal to a prorated dividend for the period from the immediately
preceding dividend payment date to the date fixed for liquidation, dissolution
or winding-up), before any distribution is made on any Junior Securities. If
upon any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the amounts payable with respect to the Exchange Preferred Stock are
not paid in full, the holders of the Exchange Preferred Stock and Series A
Preferred Stock will share equally and ratably in any distribution of assets of
the Company first in proportion to the full liquidation preference to which each
is entitled until such preferences are paid in full, and then in proportion to
their respective amounts of accumulated but unpaid dividends. After payment of
the full amount of the liquidation preference and accumulated and unpaid
dividends to which they are entitled, the holders of shares of Exchange
Preferred Stock will not be entitled to any further participation in any
distribution of assets of the Company. However, neither the sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with one or more
corporations shall be deemed to be a liquidation, dissolution or winding-up of
the Company.
VOTING RIGHTS
Holders of the Exchange Preferred Stock will have no voting rights with
respect to general corporate matters except as provided by law or as set forth
in the Restated Articles. The Restated Articles provide that if (i) after August
15, 2002, cash dividends on the Exchange Preferred Stock are in arrears and
unpaid for two consecutive semiannual periods; (ii) the Company fails to redeem
the Exchange Preferred Stock on or before August 15 , 2005 or fails to discharge
any redemption obligation with respect to the Exchange Preferred Stock; (iii)
the Company fails to make a Change of Control Offer in the event of a Change of
Control or fails to purchase shares of the Exchange Preferred Stock from holders
who elect to have such shares purchased pursuant to the Change of Control Offer;
(iv) a breach or violation of any of the provisions described under the caption
" -- Certain Covenants" below occurs and the breach of violation continues for a
period of 30 days or more after the Company receives notice thereof specifying
the default from the holders of at least 25% of the shares of the Exchange
Preferred Stock then outstanding; or (v) the failure to pay at the final stated
maturity (giving effect to any extensions thereof and applicable grace periods)
the principal amount of any Indebtedness of the Company or any Subsidiary of the
Company, or the acceleration of the final stated maturity of any such
Indebtedness, if the aggregate principal amount of such Indebtedness, together
with the aggregate principal amount of any other such Indebtedness in default
for
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failure to pay principal at the final stated maturity (giving effect to any
extensions thereof and applicable grace periods) or which has been accelerated,
aggregates $3.0 million or more at any time, in each case, after a 10-day period
during which any one or more of the above defaults shall not have been cured or
such acceleration rescinded, then the number of directors constituting the Board
of Directors will be adjusted to permit the holders of the majority of the then
outstanding Series A Preferred Stock and Exchange Preferred Stock, voting
together as a single class, to elect that number of directors constituting at
least 25% of the Board of Directors of the Company. Such voting rights will
continue until such time as, in the case of a dividend default, all accumulated
and unpaid dividends on the Series A Preferred Stock and Exchange Preferred
Stock are paid in full in cash and, in all other cases, any failure, breach or
default giving rise to such voting right is remedied, at which time the term of
any directors elected pursuant to the provisions of this paragraph shall
immediately terminate.
The Restated Articles provide that the Company will not authorize any
additional shares of Exchange Preferred Stock or any class or series of capital
stock ranking prior to or on a parity with the Exchange Preferred Stock (other
than the Series A Preferred Stock) with respect to dividend distributions or
distributions upon liquidation, dissolution or winding-up without the
affirmative vote or consent of holders of at least a majority of the shares of
Exchange Preferred Stock of the Company then outstanding which are entitled to
vote thereon, voting or consenting, as the case may be, as one class. The
Restated Articles also provide that the Company may not amend the Restated
Articles so as to affect adversely the specified rights, preferences, privileges
or voting rights of the holders of shares of Exchange Preferred Stock, without
the affirmative vote or consent of the holders of at least a majority of the
then outstanding shares of Exchange Preferred Stock which are entitled to vote
thereon, voting or consenting, as the case may be, as one class.
Under Massachusetts state law, holders of Exchange Preferred Stock are
entitled to vote as a class upon a proposed amendment to the articles of
organization of the Company, whether or not entitled to vote thereon by the
articles of organization, if the amendment would adversely affect the rights of
the shares of such class.
CHANGE OF CONTROL OFFER
Within 20 days of the occurrence of a Change of Control, the Company shall
make an offer to purchase (the "Change of Control Offer") the outstanding
Exchange Preferred Stock at a purchase price equal to 101% of the liquidation
preference thereof plus, without duplication, an amount in cash equal to all
accumulated and unpaid dividends thereon (including an amount in cash equal to a
prorated dividend for the period from the immediately preceding dividend payment
date to the Change of Control Payment Date (such applicable purchase price being
hereinafter referred to as the "Change of Control Purchase Price")) in
accordance with the procedures set forth in this covenant.
Within 20 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send by first-class mail, postage prepaid, to each holder of Exchange
Preferred Stock, at the address appearing in the register maintained by the
Preferred Stock Transfer Agent, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Exchange Preferred Stock tendered will be accepted for
payment, and otherwise subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 Business Days from the date such
notice is mailed (the "Change of Control Payment Date"));
(3) that any Exchange Preferred Stock not tendered will continue to
accumulate dividends;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Exchange Preferred Stock accepted for payment
pursuant to the Change of Control Offer shall cease to accumulate dividends
after the Change of Control Payment Date;
(5) that holders accepting the offer to have their Exchange Preferred
Stock purchased pursuant to a Change of Control Offer will be required to
surrender their certificates representing Exchange Preferred Stock to the
Company at the address specified in the notice prior to the close of
business on the Business Day preceding the Change of Control Payment Date;
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(6) that holders will be entitled to withdraw their acceptance if the
Company receives, not later than the close of business on the third Business
Day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the holder, the
number of shares of Exchange Preferred Stock delivered for purchase, and a
statement that such holder is withdrawing his election to have such Exchange
Preferred Stock purchased;
(7) that holders whose Exchange Preferred Stock is being purchased only
in part will be issued new certificates representing the number of shares of
Exchange Preferred Stock equal to the unpurchased portion of the
certificates surrendered; and
(8) any other procedures that a holder must follow to accept a Change of
Control Offer or effect withdrawal of such acceptance.
On the Change of Control Payment Date, the Company shall accept for payment
the Exchange Preferred Stock tendered pursuant to the Change of Control Offer
and promptly mail to each holder of Exchange Preferred Stock so accepted payment
in an amount equal to the purchase price for such Exchange Preferred Stock, and
the Company shall execute and issue a new Exchange Preferred Stock certificate
equal to any unpurchased shares represented by a certificate surrendered.
In the event that a Change of Control occurs and the holders of Exchange
Preferred Stock exercise their right to require the Company to purchase Exchange
Preferred Stock, if such purchase constitutes a "tender offer" for purposes of
Rule 14e-1 under the Exchange Act at that time, the Company will comply with the
requirements of Rule 14e-1 as then in effect with respect to such repurchase.
Prior to the mailing of the notice referred to above, but in any event
within 20 days following the date on which a Change of Control occurs, the
Company covenants that, if the purchase of the Exchange Preferred Stock would
violate or constitute a default or be prohibited under the Indenture, the New
Revolving Credit Facility or any other instrument governing Indebtedness
outstanding at the time, then the Company will, to the extent needed to permit
such purchase of Exchange Preferred Stock, either (i) repay in full all
Indebtedness under the Indenture, the New Revolving Credit Facility or any such
other instrument, as the case may be, or (ii) obtain the requisite consents
under the Indenture, the New Revolving Credit Facility or any such other
instrument, as the case may be, to permit the redemption of the Exchange
Preferred Stock as provided above. The Company will first comply with the
covenant in the preceding sentence before it will be required to redeem Exchange
Preferred Stock pursuant to the provisions described above.
CERTAIN COVENANTS
The Restated Articles impose certain restrictions on the ability of the
Company to (i) declare or pay any dividend or any other distribution or payment
on Capital Stock of the Company or make any payment to the direct or indirect
holders (in their capacities as such) of Capital Stock of the Company other than
the Series A Preferred Stock and the Exchange Preferred Stock (other than
dividends or distributions payable solely in Capital Stock (other than capital
stock which matures or is mandatorily redeemable prior to the maturity date of
the Exchange Preferred Stock ("Disqualified Capital Stock")) or in options,
warrants or other rights to purchase Capital Stock (other than Disqualified
Capital Stock) or (ii) purchase, redeem or make any other acquisition or
retirement for value of any Capital Stock of the Company other than the Exchange
Preferred Stock (other than Capital Stock owned by the Company or a Wholly-Owned
Subsidiary of the Company, excluding Disqualified Capital Stock) unless (A)
dividends on the Exchange Preferred Stock have been paid in cash for the most
recent semiannual period and (B) the payments made on Capital Stock shall not
exceed the sum of (1) 50% of the Company's cumulative Consolidated Net Income
after the Issue Date (or minus 100% of any cumulative deficit in Consolidated
Net Income during such period), and (2) 100% of the aggregate Net Proceeds and
the fair market value of securities or other property received by the Company as
a capital contribution to the common equity of the Company after the Issue Date
and from the issue or sale, after the Issue Date, of Capital Stock (other than
Disqualified Capital Stock or Capital Stock of the Company issued to any
Subsidiary of the Company) of the Company or any Indebtedness or other
securities of the Company convertible into or exercisable or exchangeable for
Capital Stock (other than Disqualified Capital Stock) of the Company which has
been so converted or exercised or exchanged, as the case may be plus (3)
$2,500,000. Such restrictions do not prohibit (i) the retirement of any shares
of Capital Stock of the Company or by conversion into, or by or in exchange for,
shares of Capital Stock (other than Disqualified Capital Stock), or out of, the
Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of
the Company) of other shares of Capital Stock of the Company (other than
Disqualified Capital Stock); (ii) the retirement of any shares of Disqualified
Capital Stock by conversion into, or by exchange for, shares of Disqualified
Capital Stock, or out of the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of other shares of Disqualified
Capital Stock; (iii) payment, from the proceeds of the Offerings, of up to $2.25
million to Parent to be used to repurchase from the High Voltage Engineering
Corporation Retirement Plan
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shares of Letitia Common Stock within 60 days of the Issue Date for not more
than $2.25 million and payment of $150,000 to fund a proportional accrual
relating to the Subordinated Notes Warrants of up to $150,000; (iv) the exchange
of Warrants for Subsidiary Warrants or Common Shares for Subsidiary Shares in
the event of a Qualified Subsidiary IPO; or (v) the payment of management fees
for services provided by Parent or its employees in an aggregate annual amount
not to exceed $750,000; provided, however that any amounts paid by the Company
with respect to clause (iv) shall reduce amounts available for other payments on
Capital Stock as described in clause (B) in the preceding sentence.
TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company is the transfer agent (the "Preferred
Stock Transfer Agent") and registrar for the Exchange Preferred Stock.
REPORTS TO HOLDERS
Even if the Company is not subject to the reporting requirements of Section
13 or Section 15(d) of the Exchange Act, the Company will be obligated to
provide to the holders of Preferred Stock all annual and quarterly reports and
other documents which the Company would have been required to file with the
Commission pursuant to such Sections 13 and 15(d) had it been so subject and
provide to all holders of Preferred Stock, without cost to such holders, copies
of such reports and documents.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Restated Articles. Reference is made to the Restated Articles for the full
definition of all such terms as well as any other capitalized terms used herein
for which no definition is provided.
"Affiliate" of any specified Person means any other Person which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, such specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Asset Sale" means the sale, transfer, repayment or other disposition (other
than to the Company or any of its Restricted Subsidiaries) in any single
transaction or series of related transactions with a fair market value in excess
of $1.0 million of (a) any Capital Stock of or other equity interest in any
Restricted Subsidiary of the Company, (b) all or substantially all of the assets
of the Company or of any Restricted Subsidiary thereof, (c) real property, (d)
all or substantially all of the assets of any business owned by the Company or
any Restricted Subsidiary thereof, or a division, line of business or comparable
business segment of the Company or any Restricted Subsidiary thereof; provided
that Asset Sales shall not include sales, leases, conveyances, transfers or
other dispositions to the Company or to a Restricted Subsidiary or to any other
Person if after giving effect to such sale, lease, conveyance, transfer or other
disposition such other Person becomes a Restricted Subsidiary.
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
A "Change of Control" of the Company will be deemed to have occurred at such
time as (i) any Person (including a Person's Affiliates and associates), other
than a Permitted Holder, becomes the beneficial owner (as defined under Rule
13d-3 or any successor rule or regulation promulgated under the Exchange Act) of
50% or more of the total voting or economic power of the Company's or Parent's
Common Stock, as the case may be, (ii) any Person (including a Person's
Affiliates and associates), other than a Permitted Holder, becomes the
beneficial owner of more than 33 1/3% of the total voting power of the Common
Stock of the Company or Parent, as the case may be, and the Permitted Holders
beneficially own, in the aggregate, a lesser percentage of the total voting
power of the Common Stock of the Company or Parent, as the case may be, than
such other Person and do not have the right or ability by
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voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Company or Parent, as the case may be,
(iii) there shall be consummated any consolidation or merger of the Company or
Parent in which the Company or Parent, as the case may be, is not the continuing
or surviving corporation or pursuant to which the Common Stock of the Company or
Parent, as the case may be, would be converted into cash, securities or other
property, other than a merger or consolidation of the Company or Parent, as the
case may be, in which the holders of the Common Stock of the Company or Parent,
as the case may be, outstanding immediately prior to the consolidation or merger
hold, directly or indirectly, at least a majority of the Common Stock of the
surviving corporation immediately after such consolidation or merger, or (iv)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of the Company or Parent, as the
case may be, (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company or
Parent, as the case may be, has been approved by 66 2/3% of the directors then
still in office who either were directors at the beginning of such period or
whose election or recommendation for election was previously so approved) cease
to constitute a majority of the Board of Directors of the Company or Parent, as
the case may be.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person, including any
Unrestricted Subsidiary of the Company or a Restricted Subsidiary (the "other
Person") in which the Person in question or any of its Restricted Subsidiaries
has less than a 100% interest (which interest does not cause the net income of
such other Person to be consolidated into the net income of the Person in
question in accordance with GAAP) shall be included only to the extent of the
amount of dividends or distributions actually paid to the Person in question or
the Restricted Subsidiary, (b) the Net Income of any Restricted Subsidiary of
the Person in question that is subject to any restriction or limitation on the
payment of dividends or the making of other distributions to the Company (other
than pursuant to the Notes or the Indenture) shall be excluded to the extent of
such restriction or limitation, (c)(i) the Net Income of any Person acquired in
a pooling of interests transaction for any period prior to the date of such
acquisition and (ii) any net gain (but not loss) resulting from an Asset Sale by
the Person in question or any of its Restricted Subsidiaries other than in the
ordinary course of business shall be excluded, (d) extraordinary, unusual and
non-recurring gains and losses shall be excluded and (e) without duplication,
the tax effected non-cash accrual or accretion of, and payment of, Contingent
Interest Payments or Warrants during such period shall be excluded.
"Contingent Interest Payments" means the contingent interest payments
payable by the Company to BancBoston Capital, Inc. pursuant to the Contingent
Interest Payment Agreement, dated as of April 27, 1991, as amended, between the
Company, Robicon and Datcon and BancBoston Capital, Inc. ("BancBoston") and that
Agreement For Additional Contingent Interest Payments (Quest), dated as of June
29, 1995, between the Company, Robicon and Datcon and BancBoston.
"Exchange Preferred Stock" means the 12-1/2% Series A Exchange Redeemable
Preferred Stock of the Company.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such person (and
"incurrence," "incurred," "incurable," and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations, (ii) obligations secured by a lien to which the
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property or assets owned or held by such Person is subject, whether or not the
obligation or obligations secured thereby shall have been assumed, (iii)
guarantees of items of other Persons which would be included within this
definition for such other Persons (whether or not such items would appear upon
the balance sheet of the guarantor), (iv) all obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (v) in the case of the Company, Disqualified Capital Stock of the
Company or any Restricted Subsidiary thereof, and (vi) obligations of any such
Person under any Interest Rate Agreement applicable to any of the foregoing (if
and to the extent such Interest Rate Agreement obligations would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP).
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided (i) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount, including the Notes, is the principal amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with GAAP
and (ii) that Indebtedness shall not include any liability for federal, state,
local or other taxes. Notwithstanding any other provision of the foregoing
definition, any trade payable arising from the purchase of goods or materials or
for services obtained in the ordinary course of business shall not be deemed to
be "Indebtedness" of the Company or any Restricted Subsidiaries for purposes of
this definition. Furthermore, guarantees of (or obligations with respect to
letters of credit supporting) Indebtedness otherwise included in the
determination of such amount shall not also be included.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by any
Person, the aggregate net proceeds received by such Person, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the fair market value
thereof, as determined in good faith by the board of directors, at the time of
receipt), (b) in the case of any exchange, exercise, conversion or surrender of
outstanding securities of any kind for or into shares of Capital Stock of the
Company which is not Disqualified Capital Stock, the net book value of such
outstanding securities on the date of such exchange, exercise, conversion or
surrender (plus any additional amount required to be paid by the holder to the
Company upon such exchange, exercise, conversion or surrender, less any and all
payments made to the holders, e.g., on account of fractional shares and less all
expenses incurred by the Company in connection therewith) and (c) in the case of
any issuance of any Indebtedness by the Company or any Restricted Subsidiary,
the aggregate net cash proceeds received by such Person after the payment of
expenses, commissions, underwriting discounts and the like incurred in
connection therewith.
"New Revolving Credit Facility" means the credit agreement or credit
agreements to be entered into by and among the Company, the Restricted
Subsidiaries and any one or more lenders from time to time parties thereto, as
the same may be amended, extended, increased, renewed, restated, supplemented or
otherwise modified (in whole or in part, and without limitation as to amount,
terms, conditions, covenants and other provisions) from time to time and any
agreement or agreements governing Indebtedness incurred to refinance, replace,
restructure or refund in whole or in part the borrowings and then maximum
commitments under the New Revolving Credit Facility or such agreement (whether
with the original administrative agent and lenders or other lenders or other
agents and lenders or otherwise and whether provided under the original credit
facility or other credit agreements or otherwise). The Company shall promptly
notify the Transfer Agent with respect to the Exchange Preferred Stock of any
such refunding, replacement, restructuring or refinancing of the New Revolving
Credit Facility.
"Parent" means Letitia Corporation, a Delaware corporation and the Company's
sole stockholder.
"Permitted Holders" means (a) Parent, (b) Laurence S. Levy, (c) Clifford
Press and (d) any spouse and any trust, holding company, or similar entity
established by and or controlled by either or both of Laurence S. Levy and
Clifford Press for the principal benefit of them and any of their spouses,
lineal descendants or other family members.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
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"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over holders of other
Capital Stock issued by such Person.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date.
"Series A Preferred Stock" means the 12-1/2% Senior Redeemable Preferred
Stock of the Company.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of its
Subsidiaries; or (ii) in the case of a partnership, joint venture, association
or other business entity, with respect to which such first-named Person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in
accordance with generally accepted accounting principles such entity is
consolidated with the first-named Person for financial statement purposes.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary, (b) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of
Directors of the Company and (c) any Restricted Subsidiary that may be
classified as an Unrestricted Subsidiary pursuant to the Indenture.
"Wholly-Owned Subsidiary" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares) of which
are owned, directly or indirectly, by the Company.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The Company has certain outstanding indebtedness and other payment
obligations (including guarantees of a subsidiary's indebtedness) which contain
a number of covenants that, among other things, restrict the ability of the
Company and its subsidiaries to incur additional indebtedness, pay certain
dividends, prepay indebtedness, dispose of certain assets, create liens, make
capital expenditures, make certain investments or acquisitions and otherwise
restrict corporate activities. Certain of these agreements also contain
provisions relating to a change of control of the Company, requirements that the
Company comply with certain financial ratios and tests and, in some cases, that
the Company make payments relating to the value of the Company's equity.
Following is a description of such other indebtedness and other obligations. The
following summary does not purport to be complete and is qualified in its
entirety by reference to the provisions of these agreements, copies of certain
of which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
NEW REVOLVING CREDIT FACILITY
Concurrently with the closing of the Offerings, the Company entered into a
new $25.0 million senior secured revolving credit facility, including a $5.0
million sublimit for the issuance of standby letters of credit (the "New
Revolving Credit Facility"), with Fleet National Bank (the "Lender").
Interest Rate and Security. Availability under the New Revolving Credit
Facility is limited to the sum of 85% of eligible accounts receivable and 60% of
eligible inventory. The term of the New Revolving Credit Facility is five years.
Amounts borrowed under the New Revolving Credit Facility bear interest, at the
option of the Company, at either (i) the Lender's Base Rate plus 0.25% or (ii)
LIBOR plus 1.50%. Obligations under the New Revolving Credit Facility are
guaranteed by the Company and all of its domestic subsidiaries and secured by
accounts receivable and inventories of HVE and its domestic subsidiaries.
Certain Covenants. The New Revolving Credit Facility contains a number of
covenants that restrict the operation of the Company, including restrictions on,
among other things: (i) certain mergers, acquisitions or sales of the Company's
assets or stock (other than the stock of HVE); (ii) cash dividends and other
distributions to equity holders; (iii) payments in respect of subordinated debt;
(iv) transactions resulting in a change of control of HVE; (v) transactions with
affiliates; and (vi) indebtedness and liens. The New Revolving Credit Facility
will also include certain financial covenants, including without limitation, a
maximum total leverage ratio and a minimum fixed charge coverage ratio. The New
Revolving Credit Facility also contains customary representations, warranties,
affirmative and negative covenants and events of default for a facility of this
type.
THE INDENTURE AND NOTES
Concurrently with the issuance of the Series A Preferred Stock, the Company
issued $135,000,000 in aggregate principal amount of its 10-1/2% Senior Notes
due 2004, under an Indenture, dated as of August 8, 1997 (the "Indenture") by
and between the Company and State Street Bank and Trust Company, as trustee (the
"Trustee"). Capitalized terms used in this section and not otherwise defined
herein shall have the meaning set forth in the Indenture. As used in this
description, the "Company" means HVE only.
The Notes are general unsecured obligations of the Company ranking pari
passu in right of payment to all existing and future senior indebtedness of the
Company and senior in right of payment to any current or future subordinated
indebtedness of the Company.
The Notes mature on August 15, 2004. The Notes bear interest at a rate of
10-1/2% per annum from the date of original issuance until maturity. Interest is
payable semiannually in arrears on August 15 and February 15, commencing
February 15, 1998, to holders of record of the Notes at the close of business on
the immediately preceding August 1, and February 1, respectively. The interest
rate on the Notes is subject to increase, and such Additional Interest will be
payable on the payment dates set forth above, in certain circumstances, if the
Notes (or other securities substantially similar to the Notes) are not
registered with the Commission within the prescribed time periods.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after August 15, 2001 at the following redemption prices
(expressed as a percentage of principal amount), together, in each case, with
accrued and unpaid interest to the redemption date, if redeemed during the
twelve-month period beginning on August 15, of each year listed below:
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<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001......................... 105.250%
2002......................... 102.625%
2003 and thereafter.......... 100.000%
</TABLE>
Notwithstanding the foregoing, the Company may redeem in the aggregate up to
35% of the original principal amount of Notes at any time and from time to time
prior to August 15, 2000, at a redemption price equal to 110.500% of the
aggregate principal amount so redeemed, plus accrued and unpaid interest to the
redemption date with the Net Proceeds of one or more Qualified Equity Offerings
of the Company, or Parent to the extent such proceeds were contributed to the
Company as common equity; provided that at least $87.8 million of the principal
amount of Notes originally issued remains outstanding immediately after the
occurrence of any such redemption and that any such redemption occurs within 60
days following the closing of any such Qualified Equity Offering.
At the closing of the Offerings, the principal amount of the Notes Offering
was allocated among the Company and each of its direct Restricted Subsidiaries
in consideration for the release of certain obligations of such Restricted
Securities relating to the indebtedness being repaid in connection with the
Refinancing. Amounts allocated to individual Restricted Subsidiaries were
evidenced by the Intercompany Notes. The Intercompany Notes: (i) are senior
obligations of each Restricted Subsidiary; (ii) bear interest at least at the
rate borne by the Notes; (iii) mature on the maturity date of the Notes or such
earlier time when no Notes remain outstanding; (iv) not be subject to
redemption, repayment or repurchase prior to the stated maturity thereof except
as set forth below; and (v) will be pledged by the Company as collateral on the
Notes. See "The Transactions -- Intercompany Notes."
The Indenture allows each Restricted Subsidiary that is an obligor under an
Intercompany Note to effect a Qualified Subsidiary IPO; provided that (i) the
Restricted Subsidiary consummating such Qualified Subsidiary IPO will have
repaid in full its applicable Intercompany Note, together with all accrued and
unpaid interest, if any, thereon, (ii) immediately after giving pro forma effect
to such Qualified Subsidiary IPO, the Company (excluding the EBITDA and
Consolidated Fixed Charges of the Restricted Subsidiary effecting the Qualified
Subsidiary IPO) could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the covenant set forth under " -- Limitation on
Additional Indebtedness," assuming for the purposes of this calculation only,
that the offer to repurchase referred to in the following paragraph has been
subscribed in full, and (iii) no Default or Event of Default shall have occurred
and be continuing. Upon completion of a Qualified Subsidiary IPO and the
repayment of its Intercompany Note, such Restricted Subsidiary will become an
Unrestricted Subsidiary.
Within 30 days of the consummation of a Qualified Subsidiary IPO, the
Company shall mail a notice to each holder of Notes stating, among other things:
(1) that the holders of the Notes have the right to require the Company to apply
the Net Proceeds received from the repayment of the applicable Intercompany Note
to repurchase Notes from the holders thereof at a purchase price in cash equal
to 101% of the aggregate principal amount thereof (plus accrued and unpaid
interest to the purchase date) in the principal amount of the Intercompany Note
being repaid by such Restricted Subsidiary; (2) the purchase date, which shall
be no earlier than 30 days and not later than 60 days from the date such notice
is mailed; (3) the instructions, determined by the Company, that each holder
must follow in order to have such Notes repurchased; and (4) if the aggregate
principal amount of Notes surrendered by Holders exceeds the principal amount of
such Intercompany Note, the Company shall select the Notes to be purchased on a
pro rata basis.
Following the consummation of any such offer to holders of the Notes
following a Qualified Subsidiary IPO, the remaining Net Proceeds from the
payment of the Intercompany Note repurchased by the Company in connection
therewith shall be proceeds of an Asset Sale and shall be applied in accordance
with the covenant regarding limitation on certain asset sales.
The Indenture contains numerous affirmative and negative covenants that
restrict the activities of the Company in many respects. Among other things, the
Indenture provides that (i) the Company will not, and will not permit any
Restricted Subsidiary of the Company to, directly or indirectly, incur (as
defined) any Indebtedness (including Acquired Indebtedness) unless certain Fixed
Change Coverage Rates are met and no Default or Event of Default shall have
occurred and be continuing at the time or as a consequence of the incurrence of
such Indebtedness.
The Indenture provides that the Company will not make, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, make, any
Restricted Payment, unless no Default or Event of Default shall have occurred
and be continuing at the time of or immediately after giving effect to such
Restricted Payment and immediately after giving pro forma effect to such
Restricted Payment, the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) and such payments, together
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with the aggregate of all Restricted Payments declared or made after the Issue
Date, does not exceed certain limits set forth in the Indenture.
In addition, the Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, (i) make any Investment other than
certain permitted investments and investments that are made as Restricted
Payments in compliance with the Restricted Payments covenant; (ii) create, incur
or otherwise cause or suffer to exist or become effective certain Liens upon any
property or asset of the Company or any Restricted Subsidiary or any shares of
stock or debt of any Restricted Subsidiary which owns property or assets, now
owned or hereafter acquired; or (iii) enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate (including entities in which the Company or any of its Restricted
Subsidiaries owns a minority interest) or holder of 10% or more of the Company's
Common Stock (an "Affiliate Transaction") or extend, renew, waive or otherwise
modify the terms of any Affiliate Transaction entered into prior to the Issue
Date unless certain specified conditions are met.
The Indenture also limits (i) certain mergers, consolidations, asset sales
and dispositions of assets, (ii) the issuance of Preferred Stock by a Restricted
Subsidiary, (iii) the sale, pledge, conveyance or disposal of any Capital Stock
of a Restricted Subsidiary, (iv) the sale, pledge, conveyance or disposal of the
Intercompany Notes or repayment thereof and (v) creation or existence of any
encumbrances on the ability of a Restricted Subsidiary to meet its principal and
interest obligations on the Intercompany Notes.
The Indenture also provides that within 20 days of the occurrence of a
Change of Control, the Company shall notify the Trustee in writing of such
occurrence and shall make an offer to purchase (the "Change of Control Offer")
the outstanding Notes at a purchase price equal to 101% of the principal amount
thereof plus any accrued and unpaid interest thereon to the Change of Control
Payment Date in accordance with specified procedures.
Events of Default under the Indenture include (i) default in payment of any
principal of, or premium, if any, on the Notes; (ii) default for 30 days in
payment of any interest on the Notes; (iii) default by the Company or any
Guarantor in the observance or performance of any other covenant in the Notes or
the Indenture for 60 days after written notice from the Trustee or the holders
of not less than 25% in aggregate principal amount of the Notes then
outstanding; (iv) failure to pay when due principal, interest or premium in an
aggregate amount of $3,000,000 or more with respect to any Indebtedness of the
Company or any Restricted Subsidiary thereof, or the acceleration of any such
Indebtedness aggregating $3,000,000 or more which default shall not be cured,
waived or postponed pursuant to an agreement with the holders of such
Indebtedness within 60 days after written notice as provided in the Indenture,
or such acceleration shall not be rescinded or annulled within 20 days after
written notice as provided in the Indenture; (v) any final judgment or judgments
which can no longer be appealed for the payment of money in excess of $3,000,000
shall be rendered against the Company or any Restricted Subsidiary thereof, and
shall not be discharged for any period of 60 consecutive days during which a
stay of enforcement shall not be in effect; and (vi) certain events involving
bankruptcy, insolvency or reorganization of the Company or any Restricted
Subsidiary thereof.
If an Event of Default (other than an Event of Default resulting from
certain events of bankruptcy, insolvency or reorganization) shall have occurred
and be continuing, then the Trustee or the holders of not less than 25% in
aggregate principal amount of the Notes then outstanding may declare to be
immediately due and payable the entire principal amount of all the Notes then
outstanding plus accrued interest to the date of acceleration; provided,
however, that after such acceleration but before a judgment or decree based on
acceleration is obtained by the Trustee, the holders of a majority in aggregate
principal amount of outstanding Notes may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than nonpayment of
accelerated principal, premium or interest, have been cured or waived as
provided in the Indenture. In case an Event of Default resulting from certain
events of bankruptcy, insolvency or reorganization shall occur, the principal,
premium and interest amount with respect to all of the Notes shall be due and
payable immediately without any declaration or other act on the part of the
Trustee or the Holders of the Notes.
GUARANTEES OF ROBICON INDUSTRIAL REVENUE BONDS
Pennsylvania Economic Development Financing Authority. HVE is the guarantor
of Robicon's obligations to the Pennsylvania Economic Development Financing
Authority ("PEDFA") under a certain loan agreement among Robicon, PEDFA and
Dollar Bank, Federal Savings Bank ("Dollar Bank"), pursuant to which Robicon
borrowed $4.2 million from PEDFA to finance the construction of Robicon's
manufacturing facility in New Kensington, Pennsylvania. In connection with the
loan, PEDFA issued a Pennsylvania Economic Development Revenue Bond (1995 Series
C) (the "PEDFA IRB") to Dollar Bank for $4.2 million. PEDFA simultaneously
assigned most of its rights to reimbursement under the loan agreement to Dollar
Bank pursuant to an indenture between PEDFA and
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Dollar Bank. The PEDFA IRB is a special limited obligation of PEDFA, payable
solely from funds received from Robicon and under the guarantee (the "PEDFA
Guarantee") from HVE and an Open-End Mortgage and Security Agreement granting a
first priority security interest in the land and improvements at the New
Kensington facility.
The PEDFA IRB bears interest at a rate of 8.29% and matures on April 21,
2011. Robicon is permitted to prepay the PEDFA IRB at any time before maturity,
subject to prepayment premiums ranging from 101% to 105% of the principal amount
thereof.
The PEDFA Guarantee imposes certain financial and non-financial covenants
upon the Company which, once modified, are expected to correspond to covenants
contained in the New Revolving Credit Facility. The PEDFA Guarantee provides a
cure period of 30 days with respect to certain non-financial covenants contained
therein and, in most cases, an additional notice period of five days following
the acceleration of the PEDFA IRB before payment must be made by the Company
under the PEDFA Guarantee. The outstanding principal balance under the PEDFA IRB
as of April 26, 1997 was $3.9 million.
In the third and fourth quarters of Fiscal 1997, HVE was in technical
default of certain covenants under the PEDFA Guarantee, which defaults were
waived by the lender. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Pennsylvania Industrial Development Authority. HVE has also guaranteed
Robicon's obligations to the Pennsylvania Industrial Development Authority
("PIDA") under a Consent, Subordination and Assumption Agreement (the
"Assumption Agreement") between Robicon and the Monroeville Area Industrial
Development Corporation ("MAID"), pursuant to which MAID assigned to Robicon all
of MAID's obligations to PIDA under a Loan Agreement between PIDA and MAID (the
"PIDA Loan Agreement"). Under the PIDA Loan Agreement, MAID borrowed $2.0
million from PIDA to defray the costs of Robicon's construction of its New
Kensington facility. Simultaneously with the execution of the Assumption
Agreement, Robicon entered into an installment sale agreement (the "Installment
Sale Agreement") with MAID pursuant to which Robicon agreed to purchase the New
Kensington property from MAID. The PIDA Loan Agreement is secured by the
guaranty from HVE and a mortgage granting a security interest in the land and
improvements at the New Kensington facility. The security interest represented
by this mortgage has been subordinated to the lien of Dollar Bank under the
PEDFA IRB pursuant to a subordination agreement between PIDA and Dollar Bank.
The balance outstanding under the PIDA Loan Agreement as of April 26, 1997 was
approximately $1.7 million.
The PIDA loan is evidenced by a note which bears interest at a rate of 2%
per annum of the outstanding principal balance of the note, unless the loan is
in default, in which case the note shall bear interest at a rate of the greater
of 12.5% or the Prime Interest Rate (as defined therein) plus 2% per annum,
applied from the date of such event of default (or if the event of default
relates to violation of a certain covenant relating to employment, applied
retroactively to the date of disbursement of the funds under the note)
prospectively until the note is paid in full. Robicon's obligations under the
Installment Sale Agreement also include payment of a fee to MAID of
seven-eighths of 1% charged on the outstanding principal balance of the note for
each year that the Installment Sale Agreement remains unsatisfied together with
any and all charges assessed annually or otherwise by PIDA relative to the note.
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DESCRIPTION OF OUTSTANDING CAPITAL STOCK
Under HVE's Restated Articles of Organization (the "Restated Articles"), HVE
is authorized to issue up to 4,000 shares of HVE Common Stock, and 400,000
shares of preferred stock, par value $1.00 per share ("Preferred Stock").
HVE COMMON STOCK
At August 15, 1997, there were 1,084.7429 shares of HVE Common Stock
outstanding and held of record by two stockholders. HVE has reserved up to
154.1729 shares of HVE Common Stock for issuance upon exercise of certain
warrants described below.
Holders of HVE Common Stock are entitled to one vote for each share held on
all matters submitted to a vote of stockholders and do not have cumulative
voting rights. Accordingly, holders of a majority of the shares of HVE Common
Stock entitled to vote in any election of directors may elect a majority of the
directors standing for election. Holders of HVE Common Stock are entitled to
receive ratably such dividends, if any, as may be declared by the Board of
Directors out of funds legally available therefor, subject to any preferential
dividend rights of outstanding Preferred Stock. Upon the liquidation,
dissolution or winding-up of HVE, the holders of HVE Common Stock are entitled
to receive ratably the net assets of HVE available after the payment of all
debts and other liabilities, subject to the prior rights of any outstanding
Preferred Stock. Holders of HVE Common Stock have no preemptive, subscription,
redemption or conversion rights. The outstanding shares of HVE Common Stock are
fully paid and nonassessable. The rights, preferences and privileges of holders
of HVE Common Stock are subject to, and may be adversely affected by, the rights
of the holders of shares of any additional series of Preferred Stock that the
Company may designate and issue in the future.
Holders of the Common Shares included in the Units sold in the Offerings
will have the right, immediately prior to the occurrence of a Qualified
Subsidiary IPO and at certain times thereafter, to require the Company to
exchange a portion of their Common Shares into shares of common stock of the
Restricted Subsidiary effecting such Qualified Subsidiary IPO ("Subsidiary
Shares"). In addition, holders of the Common Shares have certain registration
rights and take-along rights. Moreover, additional Common Shares may be issuable
to the holders of the Common Shares in the future, under certain circumstances.
COMMON STOCK WARRANTS
In connection with the sale of HVE's Subordinated Notes, HVE issued to such
noteholders warrants (the "Subordinated Notes Warrants") to purchase an
aggregate of 142.86 shares of HVE Common Stock (the "Subordinated Notes Warrant
Shares"), representing 12.5% of the fully-diluted HVE Common Stock, at an
exercise price of $.01 per share. The exercise price and number of Subordinated
Notes Warrant Shares issuable upon exercise of the Subordinated Notes Warrants
are subject to adjustment to prevent dilution in the event of issuance of shares
of HVE Common Stock below the then-current market value or payments made by the
Company under the CIP Agreements. The Subordinated Notes Warrant holders will
have the right to require the Company to purchase the Subordinated Notes
Warrants or Subordinated Notes Warrant Shares at a price calculated as the
proportionate percentage of the value of the Company's capital stock (determined
by an appraiser or pursuant to a formula of a multiple of eight times the
Company's EBITDA (as defined therein) less outstanding preferred stock and debt
plus cash), if the Company does not consummate an initial public offering of its
capital stock before May 1, 2000. Any repurchase of Subordinated Notes Warrants
by the Company would constitute a Restricted Payment under the Indenture. The
Subordinated Notes Warrants expire on May 9, 2004. On July 24, 1997, CIBC Wood
Gundy purchased Subordinated Notes Warrants to purchase 71.43 shares of HVE
Common Stock, representing 6.25% of the then outstanding HVE Common Stock on a
fully-diluted basis, for an aggregate purchase price of $2.5 million. Such
Subordinated Notes Warrants were repurchased by the Company with a portion of
the net proceeds of the Offering at the same purchase price. See "Use of
Proceeds."
In the Offerings, HVE issued, as part of 33,000 Units comprising in the
aggregate also 33,000 shares of Series A Preferred stock and 82.7429 Common
Shares, Warrants to purchase an aggregate of 82.7429 shares of HVE Common Stock.
Each Warrant, when exercised, will entitle the holder thereof to purchase
.00250736 shares of HVE Common Stock (each such share a "Warrant Share") at an
exercise price equal to $0.01 per .00250736 shares (the "Exercise Price"). The
number of Warrant Shares may be adjusted from time to time upon the occurrence
of certain events as provided in the Warrant Agreement. The Warrants are
presently exercisable and, unless exercised, will automatically expire on August
15, 2005 (the "Expiration Date"). The Warrants
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<PAGE> 96
will entitle the holders thereof to purchase in the aggregate approximately 6.6%
of the outstanding HVE Common Stock on a fully diluted basis as of the date of
issuance of the Warrants.
The Warrants are detachable from the Series A Preferred Stock and the Common
Shares and separately transferable, subject to compliance with applicable
federal and state securities laws. The Warrants and the Warrant Shares have not
been registered under the Securities Act and are subject to certain transfer
restrictions further described in the Warrant Agreement.
Immediately prior to the occurrence of a Qualified Subsidiary IPO and at
certain times thereafter, Warrant holders will have a right to require the
Company to exchange a portion of their Warrants into new warrants to purchase
Subsidiary Shares. In addition, holders of the Warrants have certain
registration rights and take-along rights. Moreover, additional Warrants may be
issuable to the holders of the Warrants in the future, under certain
circumstances.
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law and the terms of the Indenture and the Restated Articles,
without further stockholder approval, from time to time to issue up to an
aggregate of 400,000 shares of Preferred Stock in one or more series and to fix
or alter the designations, preferences and rights, and any qualifications,
limitations or restrictions thereof, of the shares of each such series,
including the number of shares constituting any such series and the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices and liquidation
preferences thereof. 110,000 of these shares of Preferred Stock have been
designated as Series A Preferred Stock and an additional 110,000 shares have
been designated as Exchange Preferred Stock. The creation and issuance of any
additional series of Preferred Stock may have the effect of delaying, deferring
or preventing a change of control of the Company. See "Description of the
Exchange Preferred Stock -- Ranking and -- Certain Covenants."
As of the date of this Prospectus, the only outstanding shares of Preferred
Stock are the 33,000 shares of Series A Preferred Stock issued in the Offerings.
See "Description of the Exchange Preferred Stock."
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Restated Articles contain certain provisions permitted under
Massachusetts law relating to the liability of directors. These provisions
eliminate a director's personal liability for monetary damages resulting from a
breach of fiduciary duty, except in certain circumstances involving certain
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions that involve intentional misconduct or a knowing violation of law.
These provisions do not limit or eliminate the rights of the Company or any
stockholder to seek non-monetary relief, such as an injunction or rescission, in
the event of a breach of a director's fiduciary duty. These provisions will not
alter a director's liability under federal securities laws. The Company's
Restated Articles and By-laws also contain provisions indemnifying the directors
and officers of the Company to the fullest extent permitted by Massachusetts
law. The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of certain of the anticipated federal income tax
consequences of an exchange of the Series A Preferred Stock for Exchange
Preferred Stock and of the purchase, ownership, and disposition of the Exchange
Preferred Stock is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the final, temporary, and proposed regulations
promulgated thereunder, and administrative rulings and judicial decisions now in
effect, all of which are subject to change (possibly with retroactive effect) or
different interpretations. This summary does not purport to deal with all
aspects of federal income taxation that may be relevant to a particular
investor, nor any tax consequences arising under the laws of any state,
locality, or foreign jurisdiction, and it is not intended to be applicable to
all categories of investors, some of which, such as dealers in securities,
banks, insurance companies, tax-exempt organizations, foreign persons, persons
that hold Exchange Preferred Stock as part of a straddle or conversion
transactions or holders subject to the alternative minimum tax, may be subject
to special rules. In addition, the summary is limited to persons that will hold
the Exchange Preferred Stock and Warrants as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code.
ALL INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE
FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE EXCHANGE AND THE
OWNERSHIP AND DISPOSITION OF EXCHANGE PREFERRED STOCK AND WARRANTS.
TAXATION OF HOLDERS ON EXCHANGE
Although the matter is not free from doubt, an exchange of shares of Series
A Preferred Stock for shares of Exchange Preferred Stock should not be a taxable
event to holders of Series A Preferred Stock, and holders should not recognize
any taxable gain or loss as a result of such an exchange. Accordingly, a holder
would have the same adjusted basis and holding period in the Exchange Preferred
Stock as it had in the Series A Preferred Stock immediately before the exchange.
Further, the tax consequences of ownership and disposition of any shares of
Exchange Preferred Stock should be the same as the tax consequences of ownership
and disposition of shares of the Series A Preferred Stock.
ALLOCATION OF PURCHASE PRICE
The purchase of the Series A Preferred Stock with the Warrants and Common
Shares was treated as the purchase of an investment unit for Federal income tax
purposes. In order to determine the issue price for each security, the aggregate
issue price of the Series A Preferred Stock and Warrants and Common Shares was
allocated between each of the securities based on their relative fair market
values on the date of issuance. The issue price of the Exchange Preferred Stock
should be the same as the issue price of the Series A Preferred Stock (adjusted
to take into account any constructive distributions on the Series A Preferred
Stock under Section 305 of the Code, as described below) immediately before the
exchange.
DISTRIBUTIONS ON EXCHANGE PREFERRED STOCK AND EXCESS REDEMPTION PRICE
The amount of any distribution with respect to the Exchange Preferred Stock
will be equal to the amount of cash or the fair market value of shares of
Exchange Preferred Stock distributed. A stockholder's initial tax basis in any
additional shares of Exchange Preferred Stock distributed by the Company will be
equal to the fair market value of such additional shares of Exchange Preferred
Stock on the date of distribution. A stockholder's holding period for such
additional shares of Exchange Preferred Stock will commence on the day following
the date of distribution and will not include such stockholder's holding period
for the shares of Exchange Preferred Stock with respect to which the additional
shares of Exchange Preferred Stock were distributed. The amount of any
distribution with respect to the Exchange Preferred Stock, whether paid in cash
or in additional shares of Exchange Preferred Stock, will be a dividend, taxable
as ordinary income to the recipient thereof, to the extent of the Company's
current or accumulated earnings and profits ("earnings and profits") as
determined under U.S. federal income tax principles. To the extent that the
amount of such a distribution exceeds the current and accumulated earnings and
profits of the Company, such excess will be treated as nontaxable recovery of
the holder's basis in the stock in respect of which the distribution is made (to
the extent thereof), with any remaining excess treated as a gain from the sale
or exchange of such stock.
In addition, under Section 305 of the Code and the Treasury Regulations
authorized thereunder, if the redemption price of preferred stock exceeds its
issue price by more than a de minimus amount, such excess may under certain
circumstances, be taxable as a constructive distribution to the holder (treated
as a dividend to the extent of the Company's current and accumulated earnings
and profits and otherwise subject to the treatment described above for
distributions in excess of current and accumulated earnings and
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profits). A holder of such preferred stock is required to treat such excess as a
constructive distribution received by the holder over the life of the preferred
stock under a constant interest (economic yield) method that takes into account
the compounding of yield. The excess of the liquidation preference over the
issue price of the Exchange Preferred Stock will be treated as a constructive
distribution, as described above, by a holder on a constant yield basis over its
term. In the case of the Exchange Preferred Stock initially issued to the
purchaser, the issue price will be determined as described above under
"--Allocation of Purchase Price." In the case of any additional shares of
Preferred Stock distributed by the Company in lieu of a cash payment, the issue
price generally will equal the fair market value of such shares of Exchange
Preferred Stock on the date of distribution, with the result that the amount of
any redemption premium, and the tax consequences thereof, may need to be
separately determined for each such distribution. Holders should consult their
own tax advisers regarding the application of the redemption premium rules to
their particular situation.
DIVIDENDS TO CORPORATE SHAREHOLDERS
In general, an actual or constructive distribution that is treated as a
dividend for federal income tax purposes and that is made to a corporate
shareholder with respect to the Exchange Preferred Stock will qualify for the
70% dividends-received deduction.
In addition, there are many exceptions and restrictions relating to the
availability of such dividends-received deduction such as restrictions relating
to (i) the holding period of stock the dividends on which are sought to be
deducted, (ii) debt-financed portfolio stock, (iii) dividends treated as
"extraordinary dividends" for purposes of Section 1059 of the Code, and (iv)
taxpayers that pay alternative minimum tax. Corporate shareholders should
consult their own tax advisers regarding the extent, if any, to which such
exceptions and restrictions may apply to their particular factual situation.
REDEMPTION, SALE, OR EXCHANGE OF PREFERRED STOCK
Upon a sale or other disposition (other than a redemption) of the shares of
Exchange Preferred Stock, a holder will generally recognize capital gain or loss
equal to the difference between the sum of the amount of cash and the fair
market of any property received by the holder and such holder's adjusted tax
basis in such shares. Such gain or loss will generally be long-term if the
holding period for such shares is more than eighteen months.
A holder's initial tax basis in the Exchange Preferred Stock will equal its
tax basis in the Series A Preferred Stock, as described above under "Taxation of
Holders on Exchange." Thereafter, such initial tax basis will be (i) increased
by the amount (if any) of any constructive distributions the holder is treated
as having received pursuant to the rules described above under "Distributions on
Exchange Preferred Stock and Excess Redemption Price" and (ii) decreased by the
portion of any (actual or constructive) distribution that is treated as a tax
free recovery of basis as described above under "Distributions on Exchange
Preferred Stock and Excess Redemption Price."
Upon a redemption of the shares of Exchange Preferred Stock in a situation
where the holder has no other interest in the Company, actually or
constructively, following such redemption, the holder will generally recognize
capital gain or loss (except to the extent of cash payments received on the
exchange that are attributable to declared dividends which will be treated in
the same manner as distributions described above). If the holder does continue
to own an interest in the Company, actually or constructively, the redemption
payment could be treated as a dividend subject to the rules described above.
BACKUP WITHHOLDING
In general, a noncorporate holder of Exchange Preferred Stock or Warrant
will be subject to backup withholding at the rate of 31% with respect to
reportable payments of dividends accrued with respect to, or the proceeds of a
sale, exchange, or redemption of, Exchange Preferred Stock or Warrants, if the
holder fails to provide a taxpayer identification number or certification of
foreign or other exempt status or fails to report in full dividend and interest
income. Amounts paid as backup withholding do not constitute an additional tax
and will be credited against the holder's federal income tax liabilities.
THE UNITED STATES FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY OR MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISERS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE EXCHANGE OF SERIES A PREFERRED
STOCK FOR EXCHANGE PREFERRED STOCK AND OF THE OWNERSHIP AND DISPOSITION OF THE
EXCHANGE PREFERRED STOCK
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AND THE WARRANTS, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
EXPERTS
The consolidated historical financial statements of High Voltage Engineering
Corporation and Subsidiaries as of April 27, 1996 and April 26, 1997, and for
each of the fiscal years in the three-year period ended April 26, 1997, included
in this Prospectus and elsewhere in this Registration Statement have been
audited by Grant Thornton LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in auditing and accounting.
The consolidated historical financial statements of PHI Acquisition
Holdings, Inc. and Subsidiaries as of June 30, 1995 and June 28, 1996, and for
each of the years in the two-year period ended June 28, 1996, included in this
Prospectus and elsewhere in this Registration Statement have been audited by
KPMG Peat Marwick LLP, independent auditors, as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in auditing and accounting.
LEGAL MATTERS
Certain legal matters in connection with the Exchange Offer will be passed
upon for the Company by Bingham, Dana & Gould LLP, Boston, Massachusetts.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith will be required to file reports and other
information with the Commission. The Registration Statements filed by the
Company with the Commission with respect to the Exchange Notes and Exchange
Preferred Stock and the exhibits thereto, as well as such reports and other
information to be filed by the Company with the Commission, may be inspected,
without charge, at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as the
regional offices of the Commission at the Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such documents can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, at prescribed rates. In addition, the Company
is required to file electronic versions of these documents with the Commission
through the Commission's Electronic Data Gathering, Analysis, and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site, located at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements that may be considered
"forward-looking." Those forward-looking statements include, among other things,
discussions of the Company's business strategy and expectations concerning the
Company's position in the various industries in which it participates, future
operations, growth, product development and marketing efforts, the issuance of
patents, margins, profitability, liquidity and capital resources, as well as
statements concerning certain products under development, and the acquisition of
PHI and PHI's contribution to the realization of the Company's overall
strategies. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements of the Company expressed or implied by such
forward-looking statements. Prospective investors in the Exchange Preferred
Stock offered hereby are cautioned that although the Company believes that the
assumptions on which the forward-looking statements contained herein are based
are reasonable, any of those assumptions could prove to be inaccurate and, as a
result, the forward-looking statements based on those assumptions also could be
materially incorrect. The uncertainties in this regard include, but are not
limited to, those identified in the section of this Prospectus entitled "Risk
Factors." In light of these and other uncertainties, the inclusion of a
forward-looking statement herein should not be regarded as a representation by
the Company that the Company's plans and objectives will be achieved and
prospective investors in the Exchange Preferred Stock should not place undue
reliance on such forward-looking statements. The Company disclaims any
obligation to publicly announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future events or
developments.
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INDEX TO FINANCIAL STATEMENTS
PAGE
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements -- April 29, 1995, April 27, 1996
and April 26, 1997
Report of Grant Thornton LLP, Independent Certified Public Accountants F-2
Consolidated Balance Sheets............................................... F-3
Consolidated Statements of Operations..................................... F-4
Consolidated Statements of Stockholder's Deficiency....................... F-5
Consolidated Statements of Cash Flows..................................... F-6
Notes to Consolidated Financial Statements................................ F-7
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Financial Statements -- June 30, 1995, June 28, 1996 and
March 28, 1997 (unaudited)
Report of KPMG Peat Marwick LLP, Independent Auditors..................... F-28
Consolidated Balance Sheets............................................... F-29
Consolidated Statements of Operations..................................... F-30
Statement of Stockholders' Equity......................................... F-31
Consolidated Statements of Cash Flows..................................... F-32
Notes to Consolidated Financial Statements................................ F-33
F-1
<PAGE> 101
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholder
High Voltage Engineering Corporation
We have audited the accompanying consolidated balance sheets of High
Voltage Engineering Corporation and Subsidiaries (the Company) as of April 27,
1996 and April 26, 1997 and the related consolidated statements of operations,
stockholder's deficiency, and cash flows for each of the three years in the
period ended April 26, 1997. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on
these consolidated 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 audits 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 consolidated financial position of the
Company as of April 27, 1996 and April 26, 1997 and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended April 26, 1997, in conformity with generally accepted
accounting principles.
Boston, Massachusetts GRANT THORNTON LLP
June 18, 1997 (except for notes N and P
as to which the dates are July 29, 1997 and
July 26, 1997, respectively)
F-2
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HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 27, APRIL 26,
1996 1997
--------- ---------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ........................................ $ 2,107 $ 1,542
Restricted cash .................................................. 4,595 2,210
Accounts receivable -- net of allowance for doubtful accounts .... 33,340 33,333
Inventories ...................................................... 20,972 22,334
Prepaid expenses and other current assets ........................ 1,971 1,164
--------- ---------
Total current assets ....................................... 62,985 60,583
PROPERTY, PLANT AND EQUIPMENT -- Net .................................. 29,222 30,966
ASSETS HELD FOR SALE .................................................. 6,173 5,248
OTHER ASSETS -- Net ................................................... 15,338 16,790
--------- ---------
$ 113,718 $ 113,587
========= =========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
CURRENT LIABILITIES
Current maturities of long-term debt obligations ................. $ 1,909 $ 2,609
Foreign credit line .............................................. 2,753 2,284
Accounts payable ................................................. 18,119 17,199
Accrued interest ................................................. 6,211 8,394
Accrued liabilities .............................................. 11,530 12,000
Advance payments by customers .................................... 6,324 5,294
Federal, foreign and state income taxes payable .................. 997 1,261
Deferred income taxes ............................................ 3,248 2,171
--------- ---------
Total current liabilities ............................... 51,091 51,212
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES ........................ 80,009 80,508
DEFERRED INCOME TAXES ................................................. 1,900 1,834
OTHER LIABILITIES ..................................................... 3,205 2,495
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK ............................................ 10,995 11,474
REDEEMABLE PUT WARRANTS ............................................... -- 2,800
STOCKHOLDER'S DEFICIENCY
Common stock ..................................................... 1 1
Paid-in-capital .................................................. 17,326 17,326
Accumulated deficit .............................................. (50,869) (54,104)
Cumulative foreign currency translation adjustment ............... 60 41
--------- ---------
Total stockholder's deficiency .......................... (33,482) (36,736)
--------- ---------
$ 113,718 $ 113,587
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 103
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Net sales .................................................. $ 116,551 $ 149,100 $ 173,103
Cost of sales .............................................. 73,424 97,386 114,848
--------- --------- ---------
Gross profit ............................................ 43,127 51,714 58,255
Administrative and selling expenses ........................ 26,113 34,915 36,967
Research and development expenses .......................... 8,094 8,071 9,361
Restructuring charge ....................................... 1,294 150 --
Reimbursed environmental and litigation costs-net .......... (2,130) (450) 26
Other ...................................................... 892 1,163 2,234
--------- --------- ---------
Income from operations .................................. 8,864 7,865 9,667
Interest expense ........................................... 8,573 11,225 11,602
Interest income ............................................ (74) (278) (351)
--------- --------- ---------
Income (loss) from continuing operations before income
taxes, discontinued operations and extraordinary item . 365 (3,082) (1,584)
Income taxes (credit) ...................................... 196 (2,619) 526
--------- --------- ---------
Income (loss) from continuing operations before
discontinued operations and extraordinary item ........ 169 (463) (2,110)
Discontinued operations:
Income (loss) from discontinued operations, net of income
taxes ................................................. 607 (135) --
Gain (loss) on disposal of discontinued operations, net
of income taxes ....................................... (331) 1,633 --
--------- --------- ---------
276 1,498 --
Extraordinary loss, net of income taxes .................... -- (422) (259)
--------- --------- ---------
NET INCOME (LOSS) .......................................... 445 613 (2,369)
Preferred dividends ........................................ (415) (446) (479)
Accretion of redeemable put warrants ....................... -- -- (387)
--------- --------- ---------
Net income (loss) available to common stockholders ......... $ 30 $ 167 $ (3,235)
========= ========= =========
Net income (loss) per common share:
Continuing operations ................................... $ (246.00) $ (909.00) $(2,603.67)
Discontinued operations ................................. 276.00 1,498.00 --
Extraordinary item ...................................... -- (422.00) (226.60)
--------- --------- ---------
Net income (loss) ....................................... $ 30.00 $ 167.00 $(2,830.27)
========= ========= =========
Weighted average common stock and dilutive
equivalents outstanding ............................... 1,000 1,000 1,143
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 104
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIENCY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
CURRENCY PENSION
COMMON PAID-IN- ACCUMULATED TRANSLATION LIABILITY
STOCK CAPITAL DEFICIT ADJUSTMENT ADJUSTMENT TOTAL
----- -------- ----------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1994 as restated
(note A) .......................... 1 $ 17,326 $(51,066) $ (915) $ (74) $(34,728)
Net income, as restated ........... 445 445
Preferred stock dividends ......... (415) (415)
Change in foreign currency
translation ..................... 201 201
Liquidation of foreign subsidiary . 526 526
Pension liability adjustment ...... 74 74
-- -------- -------- -------- -------- --------
Balance, April 29, 1995 ........... 1 17,326 (51,036) (188) -- (33,897)
Net income, as restated ........... 613 613
Preferred stock dividends ......... (446) (446)
Change in foreign currency
translation ..................... 248 248
-- -------- -------- -------- -------- --------
Balance April 27, 1996 ............ 1 17,326 (50,869) 60 -- (33,482)
Net loss .......................... (2,369) (2,369)
Preferred stock dividends ......... (479) (479)
Change in fair value of redeemable
put warrants .................... (387) (387)
Change in foreign currency
translation ..................... (19) (19)
-- -------- -------- -------- -------- --------
Balance, April 26, 1997 ........... $1 $ 17,326 $(54,104) $ 41 $ -- $(36,736)
== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 105
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income (loss) ......................................................... $ 445 613 $ (2,369)
Adjustments to reconcile net income to net cash provided
by operating activities:
Extraordinary item, net of income taxes ................................. -- 422 --
Depreciation and amortization ........................................... 4,234 4,134 4,376
Write-off of other assets ............................................... 650 1,200 --
Non-cash interest ....................................................... 2,104 2,533 2,510
Deferred income taxes ................................................... (410) (2,714) (1,143)
Undistributed earnings of affiliate ..................................... (250) (88) (201)
(Gain) loss on sale of discontinued operations .......................... 331 (1,633) --
Other ................................................................... 456 (37) (186)
Change in assets and liabilities, net of effects of business acquisitions
and divestitures:
Accounts receivable ................................................... (1,137) (7,547) 257
Refundable income taxes ............................................... (997) 997 --
Inventories ........................................................... 644 (5,754) (1,482)
Prepaid expenses and other current assets ............................. 147 67 857
Other assets .......................................................... (304) (576) (3,094)
Accounts payable, accrued interest and accrued liabilities ............ 1,670 893 1,868
Advance payments by customers ......................................... 1,965 2,511 (1,030)
Federal, foreign and state income taxes payable ....................... 579 (1,381) 264
-------- -------- --------
Net cash provided by (used in) operating activities ................... 10,127 (6,360) 627
-------- -------- --------
Cash flows from investing activities:
Additions to property, plant and equipment ................................ (9,873) (5,791) (3,516)
Proceeds from sales of discontinued operation ............................. 2,194 11,000 --
Proceeds from sales of assets net of expenses ............................. 950 402 260
Acquisition of Industrias Jorda S.L ....................................... (5,946) -- --
Other ..................................................................... 397 118 190
-------- -------- --------
Net cash provided by (used in) investing activities ................... (12,278) 5,729 (3,066)
-------- -------- --------
Cash flows from financing activities:
Cash overdraft ............................................................ $ 797 $ 2,416 $ (1,306)
Proceeds from the issuance of long-term obligations ....................... 3,628 4,813 66,267
Net proceeds from the issuance of redeemable warrants ..................... -- -- 2,413
Net proceeds/(payments) from foreign credit line .......................... 2,090 663 (469)
Net (increase) decrease in restricted cash ................................ (2,123) (1,696) 2,385
Net payments under senior credit agreement ................................ (2,300) (515) (2,957)
Principal payments on long-term obligations ............................... (871) (3,828) (64,440)
-------- -------- --------
Net cash provided by financing activities ............................... 1,221 1,853 1,893
-------- -------- --------
Effect of foreign exchange rate changes on cash .............................. 391 380 (19)
-------- -------- --------
Net (decrease) increase in cash and cash equivalents .................... (539) 1,602 (565)
Cash and cash equivalents, beginning of year ................................. 1,044 505 2,107
-------- -------- --------
Cash and cash equivalents, end of year ....................................... $ 505 $ 2,107 $ 1,542
======== ======== ========
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest .................................................................. $ 6,542 $ 8,272 $ 7,568
Income taxes .............................................................. 905 408 1,246
Supplemental Schedule of Non-cash Investing and Financing
Activities:
Preferred stock dividends-in-kind and issuable preferred stock
dividends-in-kind ....................................................... $ 415 446 $ 479
Leased asset additions .................................................... 96 172 1,494
Transfer from property, plant and equipment to assets held for sale,
net ..................................................................... 6,195 1,178 (1,378)
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 106
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 29, 1995, APRIL 27, 1996 AND APRIL 26, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies consistently applied in the
preparation of the accompanying financial statements follows:
Financial Statement Presentation
High Voltage Engineering Corporation (the "Company") is a wholly-owned
subsidiary of Letitia Corporation ("Letitia"). The Company's wholly-owned
subsidiaries include Datcon Instrument Company, HIVEC B.V., and Halmar Robicon
Group, Inc.
The consolidated financial statements include the accounts of the Company
and its domestic and foreign subsidiaries after elimination of material
intercompany transactions and balances.
The Company owns 49% of an affiliated company which is accounted for using
the equity method. Separate disclosure is not presented as the amounts are not
significant.
The accompanying consolidated financial statements for fiscal years 1995
and 1996 have been restated to correct the method of valuing contingent interest
payments (see note E). The effect of the restatement was to decrease net income
for 1995 by $604 ($604.00 per share), decrease net income for fiscal year 1996
by $1,582 ($1,582.00 per share) and also to increase the accumulated deficit at
the beginning of fiscal year 1995 by $2,763.
Nature of Operations
The Company operates a diversified portfolio of specialty industrial
manufacturing businesses with multiple product lines that serve a broad spectrum
of original equipment manufacturers and end-users. Business and customer
concentration is minimal due to the diversified nature of its portfolio of
businesses, with respect to products sold and end-markets served on a world-wide
basis. Examples of end-markets served include process automation, wastewater
treatment, petrochemicals, construction, agriculture, materials handling,
computers, telecommunications, medical equipment, climate control and
scientific, and educational research.
Accounting Period
The Company operates on a 52 or 53 week fiscal period. Each of the fiscal
periods presented are 52 week periods.
Revenue Recognition
Revenue is recognized when goods are shipped and the risk of loss passes to
the customer or in the case of significant long-term contracts on the
percentage-of-completion method. Provisions for estimated losses on long-term
contracts are charged to operations when identified.
When customers, under the terms of specific orders, request that the
Company manufacture, invoice and ship goods on a bill and hold basis, the
Company recognizes revenue based on the completion date required in the order
and actual completion of the manufacturing process. At the time such goods are
ready for delivery, title and risk of ownership pass to the customer.
Accounts receivable include retainages of approximately $504 and $1,279 as
of April 27, 1996 and April 26, 1997, respectively. Bill and hold receivables
were not significant as of April 27, 1996 and April 26, 1997.
F-7
<PAGE> 107
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Allowance for Doubtful Accounts
A summary of activity in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
---------- ---------- ---------
<S> <C> <C> <C>
Balance at beginning of year ......... $ 906 $ 973 $ 1,973
Provision ............................ 166 1,412 813
Charge-offs, net of recoveries ....... (99) (412) (929)
------- ------- -------
Balance at end of year ............... $ 973 $ 1,973 $ 1,857
======= ======= =======
</TABLE>
Cash Equivalents
For purposes of the statements of cash flows, all highly liquid debt
instruments purchased with a maturity of three months or less are considered to
be cash equivalents.
Cash overdrafts included in trade accounts payable were $3,587 and $2,281
at April 27, 1996 and April 26, 1997, respectively.
At April 27, 1996 and April 26, 1997, cash in the amounts of $6,191 and
$2,712, respectively, was in uninsured foreign bank accounts, including $4,595
and $2,210, respectively which was used for collateral for a bank guarantee
facility for customer advances.
Inventories
Inventories are stated at the lower of cost (first-in, first-out or average
cost method) or market.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation and
amortization are provided for in amounts sufficient to relate the cost of
depreciable assets to operations over their estimated service lives. Leasehold
improvements are amortized over the lives of the respective leases or the
service lives of the improvements, whichever is shorter. Leased property under
capital leases is amortized over the lives of the respective leases or over the
service lives of the assets for those leases which substantially transfer
ownership. The straight-line method of depreciation is followed for
substantially all assets for financial reporting purposes, while accelerated
methods are used for tax purposes. Future income taxes resulting from
depreciation temporary differences have been provided for as deferred income
taxes.
Depreciation is based upon the following estimated useful lives:
Building and building improvements................. 30 to 40 years
Leasehold improvements............................. 5 to 20 years
Machinery and equipment............................ 2 to 10 years
Cost in Excess of Net Assets Acquired
The cost in excess of net assets acquired (goodwill) is amortized on a
straight-line basis over the expected period of benefit of forty years. The
Company continually evaluates the carrying value of goodwill. Any impairments
would be recognized when the expected undiscounted future operating cash flows
derived from such goodwill is less than the carrying value.
F-8
<PAGE> 108
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Intangible Assets
Costs incurred to obtain debt financing are amortized over the expected
term of the related debt. Amortization of deferred financing costs is recorded
as interest expense. The costs associated with non-compete and consulting
agreements are amortized over the period to which the agreements relate.
Long-Term Compensation Plan
Costs associated with a Valuation Creation Plan (VCP) which provides
long-term compensation for key individuals are recorded, on a quarterly basis,
based on the formula as defined in the VCP (see note I).
Foreign Currency Activities
Foreign subsidiaries use the local currency as their functional currency.
Assets and liabilities of these entities are translated into U.S. dollars at
rates of exchange in effect at the balance sheet date. The resulting translation
adjustments are accumulated in a separate component of stockholder's deficiency
and are included in operations only upon the sale or liquidation of the
underlying foreign investment. Revenue and expense transactions are translated
at the weighted average exchange rates for the fiscal month in which the
transaction occurred.
The Company may enter into foreign currency forward exchange and option
contracts to manage exposure related to certain foreign currency commitments,
certain foreign currency denominated balance sheet positions and anticipated
foreign currency denominated expenditures. Gains and losses on contracts to
hedge identifiable foreign currency commitments are deferred and accounted for
as part of the related foreign currency transaction. Gains and losses on all
other forward exchange and option contracts are included in income currently.
Transaction gains and losses have not been material.
At April 26, 1997, the Company had forward currency exchange contracts of
$200 maturing May, 1997, $200 maturing June, 1997 and $872 maturing in April,
1998 to sell U.S. dollars for Netherland guilders.
Environmental Expenditures
Costs associated with remediation activities are expensed. Liabilities
relating to probable remedial activities are recorded when the cost of such
activities can be reasonably estimated. The liability is discounted when the
amount and timing of the cash payments for that remediation site are fixed or
reliably determinable. The liabilities are adjusted as further information
develops or circumstances change.
Certain Risks and Concentration
The Company operates in highly competitive and rapidly changing markets and
some competitors have substantially greater sales and financial resources. Entry
into the market by new competition or the development of new technologies could
adversely affect operating results. Significant concentration of credit risk is
with trade receivables, which is somewhat mitigated due to the Company's
diversity of regions and customers.
The Company has manufacturing operations in three foreign countries (Spain,
Ireland and the Netherlands). Risks inherent in foreign operations include
changes in social, political and economic conditions, changes in currency
exchange rates, changes in the laws and policies that govern foreign investments
in countries and to a lesser extent, changes in United States laws and
regulations relating to foreign trade and investment.
F-9
<PAGE> 109
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
Deferred tax assets and liabilities are determined based on the differences
between the financial statement and tax basis of assets and liabilities as
measured by the enacted tax rates which will be in effect when these differences
reverse, subject to a valuation allowance.
Deferred income taxes result from changes in deferred tax assets, deferred
tax liabilities and changes in the valuation allowance. Income tax expense
consists of the taxes payable for the year and deferred income taxes as
discussed above (see note J).
Net Income (Loss) Per Common Share
Net income (loss) per common share has been computed using the weighted
average number of common and dilutive equivalent shares outstanding during each
period presented.
Liquidity
The Company believes that its current financing together with internally
generated funds will be sufficient to fund its operations over the next twelve
months.
Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Advertising
Advertising costs are expensed as incurred. Advertising expense was $1,458,
$1,429 and $1,754 for the fiscal years 1995, 1996 and 1997, respectively.
Research and Development
Research and development costs are charged to operations as incurred.
Fair Value of Financial Instruments
The carrying amount of cash and cash equivalents approximates its fair
value. The fair value of notes receivable is estimated by discounting the
expected future cash flows at interest rates commensurate with the
creditworthiness of the parties to the notes receivable, which approximates its
carrying values.
The carrying amounts of borrowings under short-term revolving credit
agreements, and variable rate long-term debt instruments approximate their fair
value as the floating rates applicable to the financial instruments reflect
changes in overall market interest rates. The fair value of other long-term debt
is estimated using discounted cash flow analysis, based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements. The
fair value of long-term debt refinanced, as discussed in note E, was estimated
at its carrying value. At April 27, 1996, the carrying amount and estimated fair
value of long-term debt was $81,918 and $81,001, respectively. At April 26,
1997, the carrying amount and estimated fair value of long-term debt was $83,117
and $82,196, respectively.
The carrying value of the redeemable warrants is equal to the estimated
fair value.
F-10
<PAGE> 110
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The estimate fair value of forward currency exchange contracts is
calculated using the exchange rate at the Company's year end as quoted by the
respective brokers and at April 26, 1997 was approximately $1,162.
Fair value estimates are subjective in nature and involve uncertainties and
matters of significant judgement and therefore cannot be determined with
precision. Changes in assumptions could significantly affect these estimates.
The Company believes that it is not practical to estimate a fair value
different from these securities' carrying value of its redeemable preferred
stock as these securities are issued to Letitia, a related party, and have
numerous unique features (see note G).
Reclassifications
Certain reclassifications have been made to the fiscal year 1995 and 1996
consolidated financial statements in order to conform with the current year's
presentation.
NOTE B -- INVENTORIES
Inventories consisted of the following as of:
<TABLE>
<CAPTION>
APRIL 27, APRIL 26,
1996 1997
-------- --------
<S> <C> <C>
Raw materials ............................ $13,461 $14,912
Work in process .......................... 4,462 3,977
Finished goods ........................... 3,049 3,445
------- -------
Total .................................... $20,972 $22,334
======= =======
</TABLE>
NOTE C -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following as of:
<TABLE>
<CAPTION>
APRIL 27, APRIL 26,
1996 1997
---------- --------
<S> <C> <C>
Land and land improvements ......................... $ 3,763 $ 5,788
Buildings and building improvements ................ 15,722 16,494
Machinery and equipment ............................ 29,713 30,681
Construction in progress ........................... 789 644
-------- --------
Total ......................................... 49,987 53,607
Less accumulated depreciation and amortization ... (20,765) (22,641)
-------- --------
Total ......................................... $ 29,222 $ 30,966
======== ========
</TABLE>
Property under capital leases is included in these amounts (see note M)
NOTE D -- ASSETS HELD FOR SALE AND OTHER ASSETS
At April 27, 1996 and April 26, 1997, assets held for sale of $6,173 and
$5,248 consisted of several former manufacturing facilities. These properties
are recorded at the lower of the carrying amount or fair value less costs to
sell. It is reasonably possible that the proceeds from the sales of these
properties will differ significantly from the carrying amount and additional
losses may be recorded.
F-11
<PAGE> 111
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Two of the properties are leased to third parties, one lease is for a term
of five years which commenced in March, 1997 with annual payments of $336 in
year one, $360 in year two, $468 in year three, $528 in year four and $567 in
year five. This lease contains a buyout provision. The other lease is also a
five year term which commenced in November, 1995 with annual payments of $120.
During fiscal year 1997, a facility was transferred to fixed assets at its
carrying value of $1,378. The transfer was made because the facility is now
being utilized in the Company's operations.
Other assets consisted of the following as of:
<TABLE>
<CAPTION>
APRIL 27, APRIL 26,
1996 1997
------- -------------------------------
NET NET
CARRYING GROSS ACCUMULATED CARRYING
AMOUNT AMOUNT AMORTIZATION AMOUNT
------- ------- ------------ --------
<S> <C> <C> <C> <C>
Cost in excess of net assets acquired $ 9,711 $11,842 $(2,484) $ 9,358
Deferred financing costs (note E) ... 1,100 4,771 (1,183) 3,588
Covenant not-to-compete (note O) .... 853 1,280 (854) 426
Prepaid consulting agreement (note O) 533 800 (533) 267
Prepaid pension cost (note I) ....... 2,018 2,119 -- 2,119
Notes receivable .................... 947 696 -- 696
Other ............................... 176 699 (363) 336
------- ------- ------- -------
Total .......................... $15,338 $22,207 $(5,417) $16,790
======= ======= ======= =======
</TABLE>
The fiscal year 1996 net carrying amount is net of accumulated amortization
of $3,753. Amortization expense was $931, $1,729 and $1,664 for fiscal years
1995, 1996 and 1997, respectively.
NOTE E -- LONG-TERM OBLIGATIONS AND FOREIGN CREDIT LINE
Long-term obligations consisted of the following as of:
<TABLE>
<CAPTION>
APRIL 27, APRIL 26,
1996 1997
-------- --------
<S> <C> <C>
1996 Senior Credit Agreement ......................... $ -- $ 16,630
1996 Senior Secured Notes ............................ 20,000
1996 Senior Unsecured Notes .......................... -- 7,000
1996 Senior Subordinated Notes (face value $25,000) .. -- 19,374
1995 Senior Credit Agreement ......................... 30,485 --
1995 Senior Subordinated Note ........................ 13,808 --
1995 Junior Subordinated Note ........................ 18,230 --
Capital lease obligations (note M) ................... 9,143 10,382
Mortgage notes payable ............................... 8,271 8,035
Notes payable ........................................ 1,981 1,696
-------- --------
Total (see note P) .............................. 81,918 83,117
Less current maturities ......................... (1,909) (2,609)
-------- --------
Long-term obligations, net of current maturities $ 80,009 $ 80,508
======== ========
</TABLE>
On May 9, 1996, the Company entered into new revolving and long-term credit
agreements. The 1996 Agreements refinanced the 1995 Senior Credit Agreement, the
1995 Senior Subordinated Note, and the 1995 Junior Subordinated Note. In
connection with this refinancing the Company incurred financing costs of
approximately $3,192 (see note D).
F-12
<PAGE> 112
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also recorded an extraordinary loss on this refinancing of $422
and $259, net of income taxes in fiscal years 1996 and 1997, respectively.
1996 Senior Credit Agreement
The 1996 Senior Credit Agreement provides a $20,000 revolving credit
facility ($7,702 outstanding as of April 26, 1997) with principal due at
maturity on April 30, 2001, as well as a $10,000 term loan ($8,928 outstanding
as of April 26, 1997) with principal due in twenty seven (27) equal installments
due quarterly, with the balance due on April 30, 2003. Interest under the
revolving credit facility is computed at the Prime Rate of the bank (8.5% as of
April 26, 1997) which is payable monthly. The interest rate of the term loans
was computed at the Prime Rate of the bank plus 0.75% (9.25% as of April 26,
1997) and is payable quarterly. As of April 26, 1997, letters of credit
outstanding were $2,932.
1996 Senior Secured Notes
The 1996 Senior Secured Notes provides $20,000 in notes with repayments on
May 1, 2001, and 2002 of the lesser of $6,667 or the outstanding balance, and
the remaining amounts due on May 1, 2003. Interest expense is payable
semi-annually at a rate of 10.84% per annum.
1996 Senior Unsecured Notes
The 1996 Senior Unsecured Notes provides $7,000 in notes with repayments in
equal installments of $2,333 on May 1, 2001, 2002, and 2003. Interest expense is
payable semi-annually at a rate of 12.09% per annum.
1996 Senior Subordinated Notes
The 1996 Senior Subordinated Notes ($25,000) provided net proceeds of
$20,520 with repayment of $25,000 (principal including "payment-in-kind"
interest) due at maturity on May 1, 2004. The Senior Subordinated Notes include
warrants to purchase 142.86 shares at $.01 per share of the Company's Common
Stock subject to a dilution adjustment, as defined, which represents 12.5% of
the Company's fully diluted common stock. The warrants expire on May 9, 2004
(see note P). For financial reporting purposes, the Company assigned an initial
estimated fair value of these warrants at $2,413 of the net proceeds. In the
event the Company does not consummate an initial public offering of its common
stock prior to May 1, 2000, the holders of the warrants may "put" the warrants
to the Company at amounts which are the greater of the then appraised value or
by formula as defined in the agreement. Changes in the value of the warrants are
classified as an equity adjustment. It is reasonably possible that the value of
the warrants will differ significantly from the carrying amount and additional
adjustments may be recorded. The effective interest rate of the debt after
giving effect to the discount and warrant valuation is approximately 17.1%.
Interest payments are made quarterly at a rate of 8% of the face value of the
note ($25,000) per annum until May 1, 2000, and at a rate of 14% thereafter.
Collateral and Contingent Interest
Obligations were collateralized under an Intercreditor Agreement which
provided for liens on substantially all of the Company's assets. Under certain
circumstances, the Company may be required to make contingent interest payments
("CIP") to the former 1995 Senior and Junior Subordinated Noteholders based upon
the greater of the fair value of the Company, or formula, both as defined. The
Company has accrued its estimate of amounts due based on an independent
appraisal. It is reasonably possible that the settlement of CIP will differ from
the amounts accrued (see note P).
F-13
<PAGE> 113
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Mortgage Notes Payable
The mortgage notes generally are due June 2004, November 2009, April 2011
and January 2016, and bear interest between 2% and 9.75% (weighted average
interest rate of 6.4% at April 26, 1997). The notes are collateralized by land
and buildings with a net book value of approximately $10,438 as of April 26,
1997. Certain of these mortgages were issued through the Pennsylvania Economic
Development Financing Authority and the Pennsylvania Industrial Development
Authority in conjunction with the construction of a new facility for a
subsidiary of the Company. The subsidiary may prepay the mortgage before
maturity, subject to a prepayment premium ranging from 101% to 105% of the
principal amount thereof.
Foreign Credit Line
At April 26, 1997, the foreign credit line outstanding balance is $2,284.
The borrowing bears interest at 10% per annum, and matures at the earlier of the
collection of the receivables securing the credit line or 120 days.
Restrictive Covenants
The 1996 Credit Agreements, subordinated notes and mortgage notes payable
contain restrictive provisions relating to the maintenance of certain financial
ratios, as defined in the respective agreements, restrictions on the payment of
common stock dividends, leases, capital expenditures, borrowings, the
acquisition or disposition of material subsidiaries and other matters. The
borrowings under certain capital leases contain cross default provisions. The
Company was in violation of certain covenants, which were waived by the
respective lenders.
Aggregate maturities of long-term obligations including discount are as
follows:
<TABLE>
<CAPTION>
FISCAL
<S> <C>
1998.......................................... $ 2,609
1999.......................................... 2,688
2000.......................................... 4,324
2001.......................................... 12,502
2002.......................................... 4,753
Thereafter.................................... 61,867
------
$88,743
=======
</TABLE>
NOTE F -- OTHER LIABILITIES
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
APRIL 27, APRIL 26,
1996 1997
-------- --------
<S> <C> <C>
Environmental cleanup and related litigation costs (note N).. $ 4,472 $ 3,267
Other ....................................................... 876 1,739
------- -------
Total .................................................. 5,348 5,006
Less current portion included in accrued liabilities ... (2,143) (2,511)
------- -------
$ 3,205 $ 2,495
======= =======
</TABLE>
F-14
<PAGE> 114
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE G -- REDEEMABLE PREFERRED STOCK
Redeemable preferred stock was issued to Letitia. The Series B and Series C
Preferred Stock is indirectly owned by a former Junior Subordinated noteholder
(see note P).
Redeemable Preferred Stock consisted of the following:
<TABLE>
<CAPTION>
SHARES ISSUED
AND
ISSUABLE
--------------------
PAR SHARES APRIL 27, APRIL 26,
VALUE AUTHORIZED 1996 1997
----- ---------- --------- ---------
<S> <C> <C> <C> <C>
Series A..................... $1 25,000 -- --
Series B..................... $1 30,000 25,705 25,705
Series C..................... $1 10,000 6,245 6,724
</TABLE>
Changes in Redeemable Preferred Stock (issued and issuable) were as
follows:
<TABLE>
<CAPTION>
SERIES B SERIES C TOTAL
<S> <C> <C> <C>
Balance at April 29, 1995................... $4,750 $5,799 $10,549
Dividends declared.......................... -- 446 446
------ ------ -------
Balance at April 27, 1996................... 4,750 6,245 10,995
Dividends declared.......................... -- 479 479
------ ------ -------
Balance at April 26, 1997................... $4,750 $6,724 $11,474
====== ====== =======
</TABLE>
Dividends and Redemptions
Series A Preferred Stock is authorized but no shares are issued or
outstanding.
Dividends on Series B Preferred Stock are noncumulative and payable when
and as declared by the Board of Directors out of funds legally available for
such purpose. The rate at which dividends may be declared and paid shall not
exceed 17-1/2% per annum of the Liquidation Value (defined below). Dividends of
1,745 shares and 1,903 shares of Series B Preferred Stock were declared during
the fiscal years 1995 and 1996, respectively. This dividend has no effect on the
Liquidation Value of the Series B Preferred Stock and the Company has ceased
declaring dividends in fiscal year 1997.
Dividends on Series C Preferred Stock are cumulative and accrue at a rate
of 7.6% per annum. Dividends through June 1, 2000, are payable in the form of
additional shares of Series C Preferred Stock, and, thereafter, dividends are
payable annually in cash, except to the extent restricted by other agreements of
the Company. Holders of Series C Preferred Stock have preference as to payments
of dividends over holders of Series A and Series B Preferred Stock and Common
Stock.
Redemption Provisions
The Series B Preferred Stock has a mandatory redemption date of March 17,
2008, except to the extent restricted by other agreements, at a redemption price
equal to the Liquidation Value (discussed below) together with all declared, but
unpaid dividends thereon.
The Series C Preferred Stock has a mandatory redemption date of June 2000,
except to the extent restricted by other agreements, at a redemption price of
one thousand dollars per share together with accrued dividends thereon. The
Company may, at its sole option, redeem shares of Series C Preferred Stock using
the same terms as noted on the mandatory redemption date except to the extent
restricted by other agreements.
Voting Rights
Holders of Series B and Series C Preferred Stock have no voting rights
except, as to holders of Series C, if the Company is in arrears in the payment
of dividends in an amount equal to or exceeding two quarterly
F-15
<PAGE> 115
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dividend payments and until all such arrearages are repaid in full, the holders
of the Series C, voting as a class, are entitled to elect one director to the
Board of Directors of the Company.
The consent of the holders of a majority of shares of any outstanding
Series B and Series C Preferred Stock is necessary for effecting certain
significant transactions.
Restrictive Covenants
As long as any shares of Series B or Series C Preferred Stock are
outstanding, no common stock dividend may be paid or declared, nor may any
distribution be made on any other class of preferred or common stock.
Additionally, no shares of any other class of preferred or common stock may be
purchased, redeemed or otherwise acquired unless (a) all dividends on the Series
B and Series C Preferred Stock for all past dividend periods, and for the then
current period, have been paid, or, if declared and unpaid, a sum sufficient for
the payment thereof set apart and all mandatory redemption payments then due
with respect to Series B and Series C Preferred Stock have been made or funds
therefore set apart for payment or (b) the holders of a majority of the shares
of Series B and Series C Preferred Stock, each voting as a class, approve such
dividend, distribution, purchase, redemption or acquisition.
Liquidation Value
The holder of shares of Series B Preferred Stock shall be entitled to
receive the lesser of (a) one thousand dollars per share or (b) $4,750
representing the fair value, as determined by the Board of Directors. The fair
value was determined based on the proceeds received by the Company as a result
of the liquidation of a 1988 investment made with the proceeds of the issuance
of the Series B Preferred Stock, net of all liabilities and expenses, including
taxes, divided by the number of shares of Series B Preferred Stock outstanding,
plus all dividends declared and unpaid. Holders of Series B Preferred Stock have
preferences as to liquidation over holders of Series C Preferred Stock.
In the event of a voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, the holders of Series C Preferred
Stock are entitled to receive all dividends accrued and unpaid to the date of
payment and a liquidation value per share of one thousand dollars prior to any
payment to holders of any junior stock.
NOTE H -- COMMON STOCK
At April 27, 1996 and April 26, 1997, the Company had two thousand shares
of common stock authorized, and one thousand issued and outstanding. Such common
stock has a par value of $.01 per share. The declaration or payment of dividends
is restricted as discussed in notes E and G.
NOTE I -- BENEFIT PLANS
Defined Benefit Plan
The Company and its subsidiaries have a frozen pension plan. The benefit
accruals for certain remaining former employees became frozen in February 1995.
Pension costs are determined in accordance with Statement of Financial
Accounting Standards (SFAS) No. 87, "Employers' Accounting for Pensions."
Service cost is determined using the projected unit credit actuarial cost
method. In fiscal year 1995, a curtailment of the plan occurred and the
remaining prior service costs of $419 was written off. It is the Company's
policy to make annual contributions to the plan in amounts at least equal to the
amounts required by law.
F-16
<PAGE> 116
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Domestic net pension costs are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost ........................... $ 50 $ -- $ --
Interest cost .......................... 1,227 1,227 1,351
Curtailment loss ....................... 419 -- --
-------- -------- --------
1,696 1,227 1,351
======== ======== ========
Return on plan assets:
Actual .............................. $ (685) $ (3,834) $ (2,215)
Deferred ............................ (484) 2,592 763
Unrecognized loss ................... 9 -- --
-------- -------- --------
Net recognized ...................... (1,160) (1,242) (1,452)
-------- -------- --------
Total pension expense (income) .... $ 536 $ (15) $ (101)
======== ======== ========
</TABLE>
The funded status and prepaid net pension cost are as follows:
<TABLE>
<CAPTION>
APRIL 27, APRIL 26,
1996 1997
-------- --------
<S> <C> <C>
Vested and accumulated benefit obligation ............... $ 14,805 $ 16,378
======== ========
Fair value of plan assets ............................... $ 17,179 $ 17,505
Projected benefit obligation ............................ 14,805 16,378
-------- --------
Excess of plan assets over projected benefit obligation . 2,374 1,127
Unrecognized net (gain) loss ............................ (356) 992
-------- --------
Prepaid pension cost -- (note D) ........................ $ 2,018 $ 2,119
======== ========
Assumed discount rate ................................... 8.5% 8.5%
Expected rate of return on plan assets .................. 9.0% 9.0%
</TABLE>
No compensation increases have been assumed due to the plan being frozen.
The plan assets as of April 27, 1996 and April 26, 1997 consisted primarily
of equity securities, pooled real estate funds, guaranteed interest contracts,
fixed income securities and cash equivalents. The plan holds stock in Letitia
who is the sole shareholder of the Company. The plan has valued this stock at
$1,300 (unaudited) as of April 27, 1996 and $2,088 (unaudited) as of April 26,
1997, respectively (see note P).
The Company elected to adopt a revised mortality rate in the current year
to more accurately reflect employees life expectancies.
Multi-Employer Plan
Foreign employees generally participate in a multiemployer pension plan.
Foreign pension expense totaled $138, $163 and $199 in fiscal years 1995, 1996
and 1997, respectively.
Defined Contribution Plans
The Company has a 401(k) savings plan (the "Plan") covering substantially
all U.S. employees. The Plan provides for a Company matching contribution of up
to one thousand eight hundred dollars per year based on
F-17
<PAGE> 117
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the amount of elective deferral selected by the employee, plus a profit sharing
contribution, equal to two percent (2%) of the employees annual salary and
bonus, when applicable.
Contributions to the Plan were $1,449, $1,289 and $1,581 in fiscal years
1995, 1996 and 1997, respectively. The Company provides certain other retirement
benefits, which are not material, to some former officers and former key
management employees which have been provided for in the consolidated financial
statements.
Long-Term Compensation Plan
The Company maintains a Valuation Creation Plan (VCP) which provides
long-term compensation for key individuals. Upon joining the VCP, benefits vest
at twenty percent a year and participants can "cash out", as defined, up to
fifty percent of their vested value anytime with the remainder paid at
retirement or termination. All payments under the VCP are subject to the
availability of general funds of the Company. The VCP is a nonqualified and
non-funded plan. The Company has accrued $720 and $1,266 as of fiscal years 1996
and 1997, respectively and administrative and selling expenses includes $149,
$436 and $698 for fiscal years 1995, 1996 and 1997, respectively related to VCP.
In the event of the sale or certain other changes in ownership of a
subsidiary or division, impacted key individuals would become 100% vested.
Benefits, if any, would be calculated up to that date based upon fair values as
established by the transaction. Such benefits would be charged to operations
immediately and may be greater than that which would have been calculated under
the original terms of the VCP.
An officer of the Company is the beneficiary of an incentive compensation
plan pursuant to which such officer shall be entitled to receive upon
termination of employment or his death certain payments in accordance with a
formula, as defined. The vesting is in equal installments from May 1, 1994
through May 1, 1998. The Company has accrued the estimated vested balance.
NOTE J -- INCOME TAXES
The foreign and domestic components of income (loss) from continuing
operations before income taxes and extraordinary item were as follows:
<TABLE>
<CAPTION>
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Domestic .................... $ 1,171 $(6,795) $(4,020)
Foreign ..................... (806) 3,713 2,436
------- ------- -------
Total .............. $ 365 $(3,082) $(1,584)
======= ======= =======
</TABLE>
F-18
<PAGE> 118
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of income taxes expense (credit) are:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Continuing operations:
Current:
Federal .......................................... $ (28) $ (742) $ --
State ............................................ 288 120 400
Foreign .......................................... 346 717 1,269
------- ------- -------
606 95 1,669
------- ------- -------
Deferred (net of impact of valuation allowance):
Federal .......................................... (560) (3,228) (592)
Foreign .......................................... 150 514 (551)
------- ------- -------
(410) (2,714) (1,143)
------- ------- -------
Total continuing operations .................. $ 196 $(2,619) $ 526
------- ------- -------
Discontinued operations and extraordinary item:
Current:
Federal .......................................... 140 531 (159)
State ............................................ 65 95 --
------- ------- -------
Total discontinued operations and extraordinary item 205 626 (159)
------- ------- -------
Net income taxes (benefit) ............................ $ 401 $(1,993) $ 367
======= ======= =======
</TABLE>
Total income taxes (benefit) from continuing operations differed from
"expected" income tax expense, computed by applying the U.S. Federal statutory
tax rate of 35 percent to income before income tax, as follows:
<TABLE>
<CAPTION>
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
---------- ---------- --------
<S> <C> <C> <C>
Federal statutory rate applied to income before income taxes,
discontinued operations and extraordinary item.................. $ 127 $(1,078) $ (554)
State and local taxes, net of Federal tax benefit................. 199 80 264
Effect of foreign operations...................................... 770 (66) (1,684)
Costs in excess of net assets acquired............................ 423 246 234
Change in valuation reserve....................................... (1,459) 1,669 2,958
Provision (benefit) for Internal Revenue Service ("IRS")
examination..................................................... -- (3,429) (696)
Other items....................................................... 136 (41) 4
------- ------- -------
Income tax expense (benefit) -- continuing operations........ $ 196 $(2,619) $ 526
======= ======= =======
</TABLE>
F-19
<PAGE> 119
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A deferred income tax (expense) benefit results from temporary differences
in the recognition of income and expense for income tax and financial reporting
purposes. The temporary differences which gave rise to the following deferred
income tax assets and liabilities are:
<TABLE>
<CAPTION>
APRIL 27, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Deferred income tax assets:
Accounts receivable ................................ $ 720 $ 1,027
Inventory .......................................... 883 915
Accrued liabilities ................................ 2,518 2,858
Net operating losses ............................... 2,386 2,542
Tax credits ........................................ 193 2,873
Assets held for sale ............................... 580 580
Accrued interest ................................... 815 1,074
Other .............................................. 186 94
-------- --------
Total gross deferred income tax assets ..... 8,281 11,963
Valuation allowance ................................ (6,493) (9,451)
-------- --------
Total net deferred income tax assets ....... 1,788 2,512
Deferred income tax liabilities:
Depreciation ....................................... $ (1,700) $ (2,291)
Reserve for IRS examination ........................ (3,078) (2,382)
Foreign items ...................................... (1,641) (1,090)
Other .............................................. (517) (754)
-------- --------
Total gross deferred income tax liabilities (6,936) (6,517)
-------- --------
Net deferred income tax liability .......... $ (5,148) $ (4,005)
======== ========
</TABLE>
These deferred income tax assets and liabilities are presented as follows
in the consolidated balance sheets:
<TABLE>
<CAPTION>
APRIL 27, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Current deferred tax liability....................... $ 3,248 $ 2,171
Noncurrent deferred tax liability.................... 1,900 1,834
------- -------
$ 5,148 $ 4,005
======= =======
</TABLE>
A valuation allowance against the recoverability of deferred tax assets has
been established because more likely than not the Company will not be able to
utilize certain credits and net operating loss carryforwards in future years.
The Company has offset certain deferred tax liabilities, with deferred tax
assets which are expected to generate offsetting deductions within the same
periods.
A summary of the activity in the allowance for deferred tax assets is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
--------- ---------- --------
<S> <C> <C> <C>
Balance at beginning of period......... $ 6,283 $4,824 $6,493
Net change............................. (1,459) 1,669 2,958
-------- ------ ------
Balance at end of period............... $ 4,824 $6,493 $9,451
======== ====== ======
</TABLE>
F-20
<PAGE> 120
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1995, the IRS completed an examination of the Company's
income tax returns for the years ended December 1986 through April 1991. During
fiscal year 1996, the Company and the IRS reached a proposed settlement of this
liability which was subsequently approved by the Joint Committee on Taxation.
Subsequent to April 26, 1997, the Company and the IRS settled on the interest to
be paid related to the assessment. The amount of the settlement including
interest, as well as the state taxes which are expected to be levied due to this
settlement have been accrued.
At April 26, 1997, the Company has available net operating loss
carryforwards of approximately $6,355 which generally expire in the fiscal year
ending in 2006. Such carryforwards are substantially limited upon an "ownership
change" as defined in the Internal Revenue Code. No such ownership change is
currently anticipated. The Company also has foreign tax credits of $2,584 the
majority of which expire in the fiscal year 2002.
NOTE K -- OTHER STATEMENT OF OPERATIONS ITEMS
Restructuring Charge
For the fiscal years 1995 and 1996, restructuring charges in the amount of
$1,294 and $150, respectively, which have been paid, represents a restructuring
program designed to reduce cost and improve operating processes. The program
included relocation to a new facility in Massachusetts by one of the Company's
operating divisions, (including a facility write-down and related severance
costs of the respective terminated employees), the write-off of the cumulative
foreign currency translation adjustment resulting from the liquidation of a
foreign subsidiary and the closure of a European office.
Other Expense -- Net
Other expense -- net includes the following:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Writedown of assets held for sale (note D) .... $ 815 $ 1,200 $ --
Net gain on disposition of miscellaneous assets (47) (83) (230)
Division relocation and moving costs .......... 124 103 --
Facilities (income) expense (note D) .......... -- (57) 319
Aborted acquisition and offering costs ........ -- -- 2,145
------- ------- -------
Total ............................... $ 892 $ 1,163 $ 2,234
======= ======= =======
</TABLE>
NOTE L -- RELATED-PARTY TRANSACTIONS
Management Fees
Management fees were incurred with respect to services rendered in
connection with financing, merger and acquisitions and various operational and
strategic matters. Management fees were $450, $648 and $781 for fiscal years
1995, 1996 and 1997, respectively.
Transaction Fees
The Company has agreed to pay a related party a transaction fee of 1% of
the gross proceeds of all asset acquisitions and divestitures. Transaction fees
of $102 and $110 (reflected in gain/(loss) on disposal of discontinued
operations) were paid in fiscal years 1995 and 1996. There were no transaction
fees for fiscal year 1997.
F-21
<PAGE> 121
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE M -- LEASES
Capital and Operating Leases
The Company conducts a portion of its operations in facilities under
capital and operating leases and also has capital and operating leases covering
certain machinery and equipment. Certain of the leases contain renewal and
purchase options. Rental expense charged to operations in fiscal years 1995,
1996 and 1997, was approximately $1,256, $1,079, and $1,626, respectively.
Property under capital leases consisted of the following:
<TABLE>
<CAPTION>
APRIL 27, APRIL 26,
1996 1997
--------- ---------
<S> <C> <C>
Land, buildings and improvements............. $ 9,650 $ 9,650
Machinery and equipment...................... 563 2,160
Less accumulated amortization........... (2,288) (2,647)
------- -------
Total.............................. $ 7,925 $ 9,163
======= =======
</TABLE>
At April 26, 1997, the minimum rental commitments for noncancelable leases
that have initial or remaining terms of more than one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
1998.................................................. $ 1,757 $1,581
1999.................................................. 1,777 1,306
2000.................................................. 1,665 837
2001.................................................. 1,451 269
2002.................................................. 1,357 62
Thereafter through 2014............................... 13,805 --
--------- ------
Minimum commitments................................... 21,812 $4,055
======
Less amount representing interest..................... (11,430)
---------
Capital lease obligations (included in long-
term obligations)(note E)............................. $ 10,382
=========
</TABLE>
NOTE N -- LITIGATION, CLAIMS AND ENVIRONMENTAL MATTERS
The Company is obligated to clean-up three sites relating to former
manufacturing facilities and has accrued the estimated costs of remediation (see
note F). Estimated costs are determined by external and internal environmental
remediation experts. The estimated costs of remediation of one site is based on
its estimated present value. The discount rate used was 6%. The gross
undiscounted amount differs from the estimated present value by approximately
$667 as of April 26, 1997. There are no assurances that additional costs will
not be incurred or that significant changes in estimates or changes in
environmental laws will not require additional amounts to be accrued. The
Company believes that it can continue to meet these environmental standards
without material adverse effect on its financial condition. The completion of
the clean-up relating to these sites is estimated at 10 years. The expected
future payments for the environmental liabilities is $985 in fiscal year 1997,
$303 in fiscal year 1998, $259 in fiscal year 1999 through fiscal year 2001 and
$1,469 thereafter.
During fiscal years 1995, 1996 and 1997, the Company recorded operating
cash proceeds of $2,280, $1,500 and $1,100, respectively, from insurance
recoveries related to environmental litigation, remediation and consequential
damages. Such amounts were recorded as Reimbursed Environmental and Litigation
Costs, net
F-22
<PAGE> 122
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of actual legal costs, estimated settlement costs, and changes in cost
remediation estimates. These settlements relate to recoveries of environmental
and legal costs incurred primarily in fiscal years 1995 and prior.
During fiscal year 1996, the Company reached an agreement with the owners
of two separate properties adjacent to the remediation sites on the principal
terms of a settlement and are currently preparing the documentation of such
settlements. The settlement terms principally include a mutual release of claims
for past costs and an undertaking by the Company to perform certain future
remediation work on the site, for which the Company will pay up to the first
$500 in costs and two thirds of any cost over this threshold for the first
property and $200 for the second property. At April 26, 1997, the Company has
accrued the estimated remediation cost with respect to this matter (see note F).
There are no assurances that additional costs will not be incurred or that
significant changes in estimates or changes in environmental laws will not
require additional amounts to be accrued.
In connection with matters referred to above, the Company has posted
financial assurances that the remediation will be completed in the form of
$2,250 letters of credit and a lien of $1,250 on certain real property held for
sale.
In February 1997, the Company commenced litigation seeking damages for
breaches in connection with a aborted acquisition. The other party has filed
counterclaims. The Company believes the case has merit and there are substantial
defenses to these counterclaims. In light of the preliminary stage of the
proceedings, the Company is unable to assess the likelihood of liability arising
from this action, if any, the amount of any damages that may be assessed against
the Company, and the extent to which any assessed liability will be covered by
the Company's insurance; however, the Company believes the counterclaims to be
without merit.
The Company, along with six others, is a defendant in an action commenced
in November 1996 by Chicago-Dubuque Foundry Corporation and its property
insurer, Employers Mutual Casualty Co. in Iowa state court. The suit concerns a
May 1, 1996 fire that destroyed a Chicago-Dubuque facility located in East
Dubuque, Illinois. According to the complaint, defective products sold by one or
more of the defendants (including, it is alleged, the Company's Anderson
division) to Chicago-Dubuque, or incorporated in products sold by others to
Chicago-Dubuque, caused or contributed to the casualty. The plaintiff has not
yet quantified the amount of damages sought, but its property insurer has stated
that damages for property damage will be in excess of $11 million. No estimate
of economic losses caused by business interruption has been made by any
plaintiff. The Company has placed its insurers on notice of the claim and at
least one insurer has retained legal counsel to defend the Company. In light of
the preliminary stage of the proceedings, the Company is unable to assess the
likelihood of liability in this action, the amount of any damages that may be
assessed against the Company, and the extent to which any assessed liability
will be covered by the Company's insurance.
The Company received a sixty (60) day notice of intent to sue on December
11, 1996 from a California citizens group regarding alleged violations of notice
and labeling requirements under California Proposition 65, a "right to know"
provision intended to give consumers clear and reasonable warnings of the
presence of certain potentially hazardous substances in products. The Company
and the citizens group have signed an agreement tolling the deadline for filing
any lawsuit. The relevant regulations provide that violations of Proposition 65
are subject to civil penalties of up to $2,500 per day retroactive to the
beginning of an alleged violation of Proposition 65. The substance contained in
the Company's products and implicated in the notice of intent to sue has been
listed under Proposition 65 since 1988, and the Company has sold products
containing this substance in California since that time. The Company is
currently conducting fact-finding to determine whether it believes a violation
of Proposition 65 has occurred. If a lawsuit is filed, the Company intends to
defend it vigorously; however, the Company believes, based on results in similar
cases and a preliminary review of the relevant facts, that any such suit could
be settled for substantially less than the maximum penalty available under the
statute. The Company does not believe that it is likely that it will incur
material liability as a result of any lawsuit arising in connection with this
matter.
F-23
<PAGE> 123
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Certain other claims, suits and complaints have been filed or are pending
against the Company. In the opinion of the Company, all matters are adequately
covered by insurance or, if not covered, are without merit or are of such kind,
or involve such amounts, as would not have a material effect on the consolidated
financial position of the Company if disposed of unfavorably. If estimates
change, there is no assurances these items will not require additional accruals
by the Company.
NOTE O -- ACQUISITIONS AND DIVESTITURES
Acquisition - Industrias Jorda, S.L. ("Jorda")
During fiscal year 1995, the Company acquired all the outstanding stock of
Jorda, a Spanish corporation, for approximately $1,843 in cash and $2,023 in
seller notes which bear interest at 7.50% and mature in March 2000.
Jorda primarily manufactures and markets electrical and mechanical gauges
and integrated instrument clusters which are sold throughout Europe. The
acquisition has been accounted for under the purchase method of accounting. The
impact on fiscal year 1995 earnings was not significant.
In connection with the acquisition, the Company entered into a non-compete
and consulting agreements in the amount of approximately $1,280 and $800
respectively (see note D). The acquisition of Jorda was financed in part through
the financing of specific accounts receivables of Jorda amounting to
approximately $2,100 at the acquisition date.
Divestitures of Berger Instruments Division and The Shore Instruments & Mfg.
Co., Inc. Subsidiary
During fiscal year 1995, the Company sold the assets of The Shore
Instruments & Mfg. Co., Inc. subsidiary in exchange for cash proceeds totaling
$2,460. The Company recorded a gain on disposal of $572, net of taxes, including
the write-off of $772 in goodwill.
During fiscal year 1995, the Company sold substantially all of the assets
of the Berger Instruments division in exchange for total consideration of
$1,046, consisting of $125 in cash, an interest bearing promissory note for
$846, and a non-interest bearing promissory note for $75. The Company recorded a
loss on disposal of $903, net of taxes. At April 26, 1997, the outstanding
balance of the promissory note, included in other assets, is $532.
Divestiture of Specialty Connector Company Division
During fiscal year 1996, the Company sold substantially all of the assets
of the Specialty Connector Company division in exchange for cash proceeds
totaling $11,000. The Company recorded a gain on disposal of $1,633, net of
taxes.
Revenues applicable to discontinued operations were approximately $18,791
and $6,900 for the years ended April 29, 1995 and April 27, 1996, respectively.
NOTE P -- SUBSEQUENT EVENTS
Proposed Acquisition
On May 7, 1997, the Company signed an Agreement and Plan of Merger
("Agreement") among the Company, PHI Acquisition Holdings, Inc. ("PHI") and
Chase Venture Capital Associates, L.P., the principal shareholder of PHI
Acquisition Holdings, Inc., that provided subject to financing, the Company will
acquire PHI through a merger of a wholly-owned subsidiary of the Company with
and into PHI Acquisition Holdings, Inc. Under the Agreement, the current
shareholders of PHI will receive in exchange for their stock an aggregate of
$55.5 million in cash plus an amount of income tax refunds, if any, the Company
receives after the closing of the Merger of taxes paid by PHI for periods prior
to the closing of the Merger. In addition, in
F-24
<PAGE> 124
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the event that the closing of the Agreement occurs on or after August 1, 1997,
the former shareholders of PHI shall be entitled to receive an amount in cash
equal to the amount, if any, by which the cash and cash equivalents on the
closing date exceed the cash and cash equivalents of PHI on July 31, 1997.
The $55.5 million paid to the shareholders of PHI will be reduced by the
payment of PHI's debt, certain transaction costs, and contractual payments to
the current and former Chief Executive Officers of PHI.
Proposed Financing
In connection with the proposed acquisition described above, the Company
plans a Rule 144A offering in the amount of $170.2 million consisting of $135.0
million of Senior Notes, due in 2004 and $35.2 million representing 33,000 units
consisting of 33,000 shares of Series A Senior Redeemable Preferred Stock,
warrants to purchase 82.7429 shares of common stock of the Company and 82.7429
shares of common stock of the Company. The Company will also enter into a $25
million revolving credit facility. Both of these proposed financings will close
simultaneously with the proposed acquisition and will be needed to finance the
acquisition, repay certain indebtedness and all existing redeemable Preferred
Stock, repurchase certain existing put warrants, make distributions to Letitia,
extinguish BBC CIP Agreement, pay fees and for general corporate purposes. Upon
consummation of the Rule 144A offering, the Company will charge historical
earnings for premiums, penalties and deferred financing costs related to the
retired indebtedness and purchased research and development acquired in the
acquisition of PHI.
Under the terms of the CIP Agreements, the consent of the CIP holder is
required for consummation of certain transactions, and the Company has sought
such consent. By agreement, dated July 26, 1997, the Company, Letitia and
BancBoston Capital, Inc. ("BBC"), a CIP holder, agreed to the termination of CIP
obligations and other rights in return, effective on the closing of the Rule
144A offering, for a cash payment of $6,750. As a result of the Agreement, the
Company will record a charge of approximately $951 during the three months ended
July 26, 1997.
NOTE Q -- FOREIGN SALES
International sales represented 20%, 26% and 27% of the Company's net sales
in fiscal years 1995, 1996 and 1997, respectively. These sales represented the
combined total of export sales made by United States operations and all sales
made by foreign operations.
Export sales made by United States operations were less than 10% of the
Company's net sales for fiscal years 1995 and 1996, and 13% for fiscal year
1997.
F-25
<PAGE> 125
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the Company's sales and selected operating
data in different geographic areas:
<TABLE>
<CAPTION>
ADJUSTMENTS
UNITED AND
STATES EUROPE ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
FISCAL 1995
Sales to unaffiliated customers.................. $ 104,397 $ 12,154 $116,551
Transfers between geographic locations........... 1,547 84 $ (1,631) --
--------- -------- -------- -------
Net sales........................................ 105,944 12,238 (1,631) 116,551
Income from operations........................... 9,598 (734) 8,864
Identifiable assets.............................. 88,295 17,679 105,974
FISCAL 1996
Sales to unaffiliated customers.................. $ 122,952 $ 26,148 $149,100
Transfers between geographic locations........... 1,939 103 $ (2,042) --
--------- -------- -------- -------
Net sales........................................ 124,891 26,251 (2,042) 149,100
Income from operations........................... 4,362 3,503 7,865
Identifiable assets.............................. 90,771 22,947 113,718
FISCAL 1997
Sales to unaffiliated customers.................. $ 149,065 $ 24,038 $173,103
Transfers between geographic locations........... 1,660 76 $ (1,736) --
--------- -------- -------- -------
Net sales........................................ 150,725 24,114 (1,736) 173,103
Income from operations........................... 7,999 1,668 9,667
Identifiable assets.............................. 94,293 19,294 113,587
</TABLE>
Identifiable assets by geographic area are those assets used in the
Company's operations in each area.
Net assets for European operations amounted to approximately $15,874 as of
April 26, 1997. Included in net assets of European operations were intercompany
payables to affiliated companies amounting to approximately $9,721 as of April
26, 1997.
Insofar as can be reasonably determined, there are no foreign-exchange
restrictions that materially affect the financial position or the operating
results of the Company and its subsidiaries.
F-26
<PAGE> 126
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE R -- SEGMENT DATA
The Company operates in six industry segments. Information concerning
operations in these businesses is as follows (all amounts are from continuing
operations only):
<TABLE>
<CAPTION>
DEPRECIATION
OPERATING IDENTIFIABLE AND CAPITAL
NET SALES INCOME (LOSS) ASSETS AMORTIZATION EXPENDITURES
--------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
YEAR END APRIL 29, 1995
High power electric conversion
products ................... $ 40,406 $ 1,060 $ 30,132 $ 588 $ 6,978
Electrical power connectors .. 19,579 2,041 13,679 891 496
Engine monitoring
instruments ................ 21,514 2,839 21,295 605 492
Disposable medical and
surgical tubing ............ 16,828 2,512 7,657 369 906
Humidity measurement
instruments ................ 10,176 965 4,360 221 195
Corporate and other .......... 8,048 (553) 28,851 406 68
-------- -------- -------- -------- --------
Consolidated ............ $116,551 $ 8,864 $105,974 $ 3,080 $ 9,135
======== ======== ======== ======== ========
YEAR END APRIL 27, 1996
High power electric conversion
products ................... $ 56,145 $ (265) $ 40,580 $ 569 $ 1,142
Electrical power connectors .. 21,509 4,628 13,659 612 1,090
Engine monitoring
instruments ................ 32,514 2,378 21,338 1,474 492
Disposable medical and
surgical tubing ............ 17,101 1,024 9,885 532 2,666
Humidity measurement
instruments ................ 12,093 1,456 5,133 225 379
Corporate and other .......... 9,738 (1,356) 23,123 172 190
-------- -------- -------- -------- --------
Consolidated ............ $149,100 $ 7,865 $113,718 $ 3,584 $ 5,959
======== ======== ======== ======== ========
YEAR END APRIL 26, 1997
High power electric conversion
products ................... $ 83,096 $ 5,592 $ 41,849 $ 591 $ --
Electrical power connectors .. 21,554 1,907 15,049 833 1,794
Engine monitoring
instruments ................ 32,482 2,676 20,457 1,662 1,261
Disposable medical and
surgical tubing ............ 15,227 531 8,938 797 360
Humidity measurement
instruments ................ 12,256 1,662 4,827 254 287
Corporate and other .......... 8,488 (2,701) 22,467 239 1,308
-------- -------- -------- -------- --------
Consolidated ............ $173,103 $ 9,667 $113,587 $ 4,376 $ 5,010
======== ======== ======== ======== ========
</TABLE>
F-27
<PAGE> 127
INDEPENDENT AUDITORS' REPORT
The Board of Directors
PHI Acquisition Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of PHI
Acquisition Holdings, Inc. and subsidiaries as of June 28, 1996 and June 30,
1995, and the related consolidated statements of operations, stockholders'
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 PHI
Acquisition Holdings, Inc. and subsidiaries as of June 28, 1996 and June 30,
1995, and the results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
Minneapolis, Minnesota KPMG Peat Marwick LLP
August 9, 1996
F-28
<PAGE> 128
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1995, JUNE 28, 1996, AND MARCH 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
(UNAUDITED)
1995 1996 1997
------------ ------------ ------------
ASSETS
<S> <C> <C> <C>
Current assets:
Cash ............................................... $ 4,469,000 $ 437,900 $ 2,647,000
Trade accounts receivable, net of allowance for
doubtful accounts of $275,000 in 1995, $246,800 in
1996, and $176,000 in 1997 ....................... 8,237,000 14,663,000 13,337,000
Inventories, net (note 2) .......................... 11,745,000 13,539,500 15,901,000
Other receivable ................................... 188,000 -- --
Prepaid expenses and other current assets .......... 1,132,400 714,300 336,000
Deferred income tax asset .......................... -- 54,500 288,000
------------ ------------ ------------
Total current assets ........................ 25,771,400 29,409,200 32,509,000
------------ ------------ ------------
Property, plant, and equipment, net (note 3) ......... 10,994,000 9,753,000 9,850,000
Investment in joint venture .......................... 2,463,000 2,044,000 1,896,000
Other non-current assets ............................. 24,000 566,000 531,000
Deferred income tax asset ............................ -- -- 44,000
------------ ------------ ------------
Total assets ................................ $ 39,252,400 $ 41,772,200 $ 44,830,000
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 8) .... $ 1,417,000 $ 2,250,000 $ 2,250,000
Accounts payable ................................... 1,876,500 2,390,900 3,208,390
Income tax payable ................................. -- 770,200 1,245,000
Accrued expenses (note 4) .......................... 1,474,000 1,531,800 1,509,000
Accrued wages and benefits ......................... 3,257,000 2,606,000 2,879,000
Warranty accrual ................................... 1,363,000 1,128,000 954,000
Installation reserve ............................... 29,000 297,000 304,000
Deferred revenues (note 5) ......................... 1,909,000 2,298,000 2,623,000
Other current liabilities .......................... -- 100,000 100,000
Deferred income tax liability ...................... 323,000 -- --
------------ ------------ ------------
Total current liabilities ................... 11,648,500 13,371,900 15,072,390
Pension liability .................................... 457,000 705,000 660,000
Long-term debt, less current installments (note 8) ... 10,250,000 7,269,000 6,145,000
Note payable to seller (note 9) ...................... 8,001,000 8,796,000 9,456,000
Other long-term liabilities .......................... -- 101,000 --
Deferred income tax liability ........................ 59,700 117,000 --
------------ ------------ ------------
Total liabilities ........................... 30,416,200 30,359,900 31,333,390
------------ ------------ ------------
Stockholders' equity:
Capital stock (note 11) ............................ 16,526 16,504 16,504
Additional paid-in capital (note 11) ............... 7,033,474 7,096,906 7,519,906
Retained earnings .................................. 1,663,200 4,638,500 6,432,200
Foreign currency translation adjustment ............ 123,000 (339,610) (472,000)
------------ ------------ ------------
Total stockholders' equity .................. 8,836,200 11,412,300 13,496,610
Commitments and contingencies
(notes 6, 7, 8, 9, 12, and 13)
------------ ------------ ------------
Total liabilities and stockholders' equity .. $ 39,252,400 $ 41,772,200 $ 44,830,000
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-29
<PAGE> 129
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996,
AND THE NINE-MONTH PERIOD ENDED MARCH 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
NINE
MONTHS
ENDED
MARCH 28,
FISCAL FISCAL 1997
1995 1996 (UNAUDITED)
------------ ------------ ------------
<S> <C> <C> <C>
Net sales .................................... $ 54,764,000 $ 58,074,000 $ 45,124,000
Cost of sales ................................ 34,244,000 35,740,500 27,948,000
------------ ------------ ------------
Gross profit ....................... 20,520,000 22,333,500 17,176,000
------------ ------------ ------------
Selling, general, and administrative expenses:
Selling and marketing ...................... 7,071,000 7,349,500 5,588,000
General and administrative ................. 2,303,000 2,696,400 2,085,000
Research and development ................... 6,197,000 6,332,600 5,837,000
------------ ------------ ------------
Total operating expenses ........... 15,571,000 16,378,500 13,510,000
------------ ------------ ------------
Equity in earnings of joint venture .......... 337,000 206,000 124,000
------------ ------------ ------------
Operating income ................... 5,286,000 6,161,000 3,790,000
------------ ------------ ------------
Interest expense ........................... (1,855,000) (1,827,000) (1,310,000)
Interest income ............................ 89,000 137,000 19,000
------------ ------------ ------------
Income before income taxes ......... 3,520,000 4,471,000 2,499,000
Income tax expense (note 6) .................. 812,300 1,495,700 705,300
------------ ------------ ------------
Net income ......................... $ 2,707,700 $ 2,975,300 $ 1,793,700
------------ ------------ ------------
Net income per share ............... $ 2.14 $ 2.22 $ 1.34
------------ ------------ ------------
Weighted average shares outstanding .......... 1,266,965 1,337,511 1,337,394
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-30
<PAGE> 130
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
THE YEARS ENDED JUNE 28, 1996, JUNE 30, 1995, AND
THE NINE-MONTH PERIOD ENDED MARCH 28, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C PREFERRED STOCK
------------------ ----------------- ----------------- ------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
------- ------- ------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1994........... 398,070 $ 3,981 398,070 $3,981 203,860 $2,038 600,000 $6,000
Net income for the fiscal year
ended June 30, 1995.........
Gain (loss) on currency
translation.................
Sales of common and preferred
stock....................... 206,410 2,064
Repurchase of common and
preferred stock............. (206,410) (2,064)
Shares issued upon conversion
of convertible note......... 52,632 526
------- ------- ------- ------ ------- ------ ------- ------
Balance June 30, 1995........... 191,660 1,917 398,070 3,981 462,902 4,628 600,000 6,000
Net income for the fiscal year
ended June 28, 1996.........
Gain (loss) on currency
translation.................
Repurchase of common and
preferred stock............. (1,430) (13) (857) (9)
Compensation expense
associated with granting of
options.....................
------- ------- ------- ------ ------- ------ ------- ------
Balance, June 28, 1996.......... 191,660 1,917 398,070 3,981 461,472 4,615 599,143 5,991
Net income for the nine
months ended March 28,
1997 (unaudited)............
Gain (loss) on currency
translation (unaudited).....
Compensation expense
associated with granting of
options (unaudited).........
------- ------- ------- ------ ------- ------ ------- ------
Balance, March 28, 1997
(Unaudited)................... 191,660 $ 1,917 398,070 $3,981 461,472 $4,615 599,143 $5,991
======= ======= ======= ====== ======= ====== ======= ======
<CAPTION>
ADDITIONAL ADDITIONAL RETAINED FOREIGN
PAID-IN PAID-IN EARNINGS CURRENCY TOTAL
CAPITAL CAPITAL (ACCUMULATED TRANSLATION STOCKHOLDERS'
COMMON PREFERRED DEFICIT) ADJUSTMENT EQUITY
---------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Balance, July 1, 1994........... $ 990,000 $5,994,000 $(1,044,500) $ 62,000 $ 6,017,500
Net income for the fiscal year
ended June 30, 1995......... 2,707,700 2,707,700
Gain (loss) on currency
translation................. 61,000 61,000
Sales of common and preferred
stock....................... 2,064
Repurchase of common and
preferred stock............. (2,064)
Shares issued upon conversion
of convertible note......... 49,474 50,000
---------- ---------- ----------- ---------- ------------
Balance June 30, 1995........... 1,039,474 5,994,000 1,663,200 123,000 8,836,200
Net income for the fiscal year
ended June 28, 1996......... 2,975,300 2,975,300
Gain (loss) on currency
translation................. (462,610) (462,610)
Repurchase of common and
preferred stock............. (6,953) (9,615) (16,590)
Compensation expense
associated with granting of
options..................... 80,000 80,000
---------- ---------- ----------- ---------- ------------
Balance, June 28, 1996.......... 1,112,521 5,984,385 4,638,500 (339,610) 11,412,300
Net income for the nine
months ended March 28,
1997 (unaudited)............ 1,793,700 1,793,700
Gain (loss) on currency
translation (unaudited)..... (132,390) (132,390)
Compensation expense
associated with granting of
options (unaudited)......... 423,000 423,000
---------- ---------- ----------- ---------- ------------
Balance, March 28, 1997
(Unaudited)................... $1,535,521 $5,984,385 $ 6,432,200 $ (472,000) $ 13,496,610
========== ========== =========== ========== ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-31
<PAGE> 131
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996 AND
THE NINE-MONTH PERIOD ENDED MARCH 29, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
(UNAUDITED)
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash provided by operating activities:
Net income ...................................... $ 2,707,700 $ 2,975,300 $ 1,793,700
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Depreciation, amortization, and other noncash
transactions ............................... 2,115,000 2,225,000 2,116,000
Net (gain) or loss on disposal of fixed assets (238,000) (1,167,000) (706,000)
Cumulative translation adjustment ............ 61,000 (463,000) (132,390)
Deferred income taxes ........................ 603,200 (320,200) (340,500)
Changes in operating assets and liabilities:
Trade accounts receivable .................. (1,294,000) (6,426,000) 1,326,000
Inventories ................................ (1,100,000) (1,794,500) (2,361,500)
Other receivable ........................... (21,000) 188,000 0
Prepaid expenses and other current assets .. (694,400) 217,100 324,300
Other noncurrent assets .................... 0 (341,000) 35,000
Accounts payable ........................... 46,500 514,400 817,490
Income tax payable ......................... (5,000) 770,200 474,800
Accrued expenses ........................... (218,000) 57,800 (22,800)
Accrued wages and benefits ................. 1,105,000 (651,000) 273,000
Warranty reserve ........................... 322,000 (235,000) (174,000)
Installation reserve ....................... 2,000 268,000 7,000
Deferred revenues .......................... (30,000) 389,000 325,000
Other current liabilities .................. 0 100,000 0
Other long-term liabilities ................ 0 101,000 (101,000)
Pension liability .......................... 260,000 248,000 (45,000)
----------- ----------- -----------
Net cash (used) provided by operating
activities ............................ 3,622,000 (3,343,900) 3,609,100
----------- ----------- -----------
Cash used in investing activities:
Proceeds from sale of land ...................... -- 1,440,000 --
Net proceeds from sale of Demo Systems .......... 366,000 1,637,000 1,040,000
Purchase of property, plant, and equipment ...... (2,596,000) (2,813,600) (2,124,000)
Investment in joint venture ..................... (614,000) 419,000 148,000
----------- ----------- -----------
Net cash (used) provided by investing
activities ................................. (2,844,000) 682,400 (936,000)
----------- ----------- -----------
Cash used in financing activities:
Purchase of common and preferred stock .......... -- (16,600) --
Proceeds from issuance of note payable .......... 50,000 0 --
Increase in note payable to seller (note 9) ..... 732,000 795,000 660,000
Repayments of note payable ...................... (333,000) (2,148,000) (1,124,000)
----------- ----------- -----------
Net cash (used) provided in financing
activities ................................. 449,000 (1,369,600) (464,000)
----------- ----------- -----------
Net (decrease) increase in cash and cash
equivalents ..................................... 1,227,000 (4,031,100) 2,209,100
Cash and cash equivalents at beginning of period .. 3,242,000 4,469,000 437,900
----------- ----------- -----------
Cash and cash equivalents at end of period ........ $ 4,469,000 $ 437,900 $ 2,647,000
=========== =========== ===========
Supplemental disclosure of cash information:
Cash paid during the period for interest ........ $ 1,043,000 $ 809,000 $ 661,000
Cash paid during the period for income taxes .... 922,000 375,000 625,000
Supplemental schedule of noncash investing and
financing activities:
Conversion of note payable to Class C common
stock ........................................ 52,632 -- --
</TABLE>
See accompanying notes to the consolidated financial statements.
F-32
<PAGE> 132
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 1996, AND JUNE 30, 1995
AND MARCH 28, 1997 (UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
PHI Acquisition Holdings, Inc. (PHI or the Company) was formed on March 10,
1994 to acquire certain assets and assume certain liabilities of the Physical
Electronics Division of the Perkin Elmer Corporation (Perkin Elmer). Physical
Electronics, Inc. (Physical Electronics), a wholly owned subsidiary of PHI, was
also formed on March 10, 1994 to serve as the operating company under PHI.
Physical Electronics designs, manufactures, installs, and services surface
analysis instrument systems and ultrahigh vacuum equipment in North America,
Japan, and Europe.
The consolidated financial statements include the accounts of PHI, Physical
Electronics, and Physical Electronics' wholly owned subsidiaries, Physical
Electronics GmbH, Physical Electronics S.A.R.L., and Physical Electronics FSC,
Inc. All significant intercompany accounts have been eliminated in
consolidation.
UNAUDITED INTERIM INFORMATION
The financial statements and related footnote information as of March 28,
1997 and for the nine-month period ended March 28, 1997 are unaudited. In the
opinion of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation of such unaudited periods have been
included herein.
INVESTMENT IN JOINT VENTURE
The Company owns a 50% interest in a joint venture which operates in Japan.
The joint venture is responsible for sales and service of the Company's products
in Japan.
FISCAL YEAR END
The Company's fiscal year end is the Friday closest to June 30. The period
end for the nine months of fiscal 1997 was March 28, the year end for fiscal
1996 was June 28, and for 1995 was June 30.
INVENTORIES
As of March 28, 1997, June 28, 1996, and June 30, 1995, inventory is stated
at lower of cost (first in, first out method) or market.
CREDIT CONCENTRATIONS
The Company extends unsecured credit to customers in North America, Europe,
and to its joint venture in Japan. Other international customers normally
provide irrevocable letters of credit.
PROPERTY AND EQUIPMENT
Property and equipment are stated at fair market value at the date of
acquisition. Depreciation and amortization is computed on a straight-line basis
over the estimated useful lives of the assets. Maintenance, repairs, and minor
renewals are expensed as incurred.
The Company maintains a laboratory used primarily for demonstrations of the
Company's products to potential customers. Investment in the Company's products
used in this laboratory is capitalized and depreciated over its useful life. In
the normal course of business, the Company replaces older technology as new
technology is introduced at which time product is sold and revenue and cost of
sales are recognized.
F-33
<PAGE> 133
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation and amortization is computed using the following estimated
useful lives:
<TABLE>
<CAPTION>
USEFUL LIVES
------------
<S> <C>
Buildings and leasehold improvements..................... 5-40 years
Machinery and equipment.................................. 3-15 years
</TABLE>
INCOME TAXES
The Company accounts for income taxes under provisions of Financial Account
Standard No. 109, Accounting for Income Taxes (Statement No. 109). Under
Statement No. 109, deferred income taxes are recognized for the temporary
differences between the financial statement carrying amounts and the tax basis
of existing assets and liabilities. Deferred taxes are measured using enacted
tax rates expected to be in effect when those temporary differences are expected
to be included in future taxable income.
REVENUE RECOGNITION
Revenue is recognized upon shipment or upon delivery, depending upon
negotiated terms of sale.
Revenue from service contracts and customer training is recognized over the
terms of the contracts and as the training services are performed.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
FOREIGN CURRENCY TRANSLATION
Exchange adjustments resulting from foreign currency transactions are
generally recognized in net earnings, whereas adjustments resulting from the
translation of financial statements, if material, are reflected as a separate
component of stockholders' equity. Net foreign currency transaction gains or
losses are not significant.
STATEMENTS OF CASH FLOWS
For purposes of the statements of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
ACCOUNTING ESTIMATES
The presentation 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
disclosures 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.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments are recorded on its consolidated
balance sheet. The carrying amount for cash, accounts receivable, accounts
payable, and accrued expenses approximates fair value due to the immediate or
short-term maturity of these financial instruments. The fair value of notes
receivable and notes payable approximate their carrying value.
F-34
<PAGE> 134
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK-BASED EMPLOYEE COMPENSATION
The Company follows the provisions of APB Opinion No. 25, Accounting for
Stock Issued to Employees, in accounting for all of its stock-based employee
compensation arrangements. Under the guidelines of Opinion 25, compensation cost
for stock-based employee compensation plans is recognized based on the
difference, if any, between the quoted or estimated market price of the stock on
the date of grant and the amount an employee must pay to acquire the stock. The
Company plans to implement the disclosure requirements of Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation, in fiscal
year 1997 and to retain its current accounting method for stock-based employee
compensation.
NET INCOME PER SHARE
Net income per share has been calculated using the weighted average of
common stock outstanding and dilutive common stock equivalents determined by the
treasury stock method.
RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform to the 1997
presentation. Such reclassifications had no impact on net earnings and
stockholders' equity.
(2) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, JUNE 28, MARCH 28,
1995 1996 1997
------------ ------------ ------------
<S> <C> <C> <C>
Raw materials and subassemblies..... $ 7,451,000 $ 9,806,500 $ 9,789,000
Work-in-process..................... 3,533,000 3,733,000 6,112,000
Finished goods...................... 761,000 -- --
------------ ------------ ------------
$ 11,745,000 $ 13,539,500 $ 15,901,000
============ ============ ============
</TABLE>
(3) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is summarized as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, JUNE 28, MARCH 28,
1995 1996 1997
------------ ----------- ------------
<S> <C> <C> <C>
Land................................... $ 1,913,000 $ 556,000 $ 556,000
Buildings and leasehold improvements... 4,002,000 4,012,000 4,025,000
Machinery and equipment................ 7,232,000 9,095,000 10,370,000
Less accumulated depreciation.......... (2,153,000) (3,910,000) (5,101,000)
------------ ----------- ------------
$ 10,994,000 $ 9,753,000 $ 9,850,000
============ =========== ============
</TABLE>
F-35
<PAGE> 135
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, JUNE 28, MARCH 28,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Commissions ....................... $ 65,000 $ 233,000 $ 52,000
Audit and tax fees ................ 117,000 126,000 104,000
Interest payable .................. -- 148,000 130,000
Sales and real estate taxes ....... 141,000 252,000 122,000
Customer deposits ................. 430,000 342,000 800,000
Acquisition costs ................. 221,000 -- --
Other ............................. 500,000 430,800 301,000
---------- ---------- ----------
$1,474,000 $1,531,800 $1,509,000
========== ========== ==========
</TABLE>
(5) DEFERRED REVENUES
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, JUNE 28, MARCH 28,
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Service contracts ................. $1,455,000 $1,862,000 $2,259,000
Customer training ................. 454,000 436,000 364,000
---------- ---------- ----------
Total deferred revenue ...... $1,909,000 $2,298,000 $2,623,000
========== ========== ==========
</TABLE>
(6) INCOME TAXES
Income tax expense for the periods ended June 28, 1996, and June 30, 1995
and the nine months ended March 28, 1997 consists of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
1997 (unaudited):
Current ............... $ 983,900 $ 115,700 $ 1,099,600
Deferred .............. (335,200) (59,100) (394,300)
----------- ----------- -----------
$ 648,700 56,600 705,300
----------- ----------- -----------
1996:
Current ............... 1,625,000 191,200 1,816,200
Deferred .............. (272,400) (48,100) (320,500)
----------- ----------- -----------
$ 1,352,600 143,100 1,495,700
----------- ----------- -----------
1995:
Current ............... 807,000 142,400 949,400
Deferred .............. (116,500) (20,600) (137,100)
----------- ----------- -----------
$ 690,500 $ 121,800 $ 812,300
=========== =========== ===========
</TABLE>
The provision for income taxes differs from the amount computed by applying
the statutory U.S. federal income tax rate to the income or loss before income
taxes due to the impact of state income taxes, the change in the valuation
reserve, and the impact of the purchase price allocation which occurred on May
20, 1994.
F-36
<PAGE> 136
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of the expected federal income taxes at the statutory rate
of 34% with the provision of income taxes is as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
NINE
MONTHS
TWELVE MONTHS ENDED ENDED
------------------------------- ---------
1995 1996 1997
----------- ----------- ---------
<S> <C> <C> <C>
Expected federal tax expense .............. $ 1,196,800 $ 1,518,400 $ 849,700
State income tax expense, net of federal
effect .................................. 140,800 171,400 84,700
Permanent differences ..................... (314,682) (64,600) (145,900)
Differences due to general business credits -- (131,900) (100,000)
Purchase accounting adjustment ............ (281,000) -- --
Other ..................................... 70,382 2,400 16,800
----------- ----------- ---------
$ 812,300 $ 1,495,700 $ 705,300
=========== =========== =========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, JUNE 28, MARCH 28,
1995 1996 1997
--------- --------- ---------
<S> <C> <C> <C>
Current deferred asset (liability):
Inventories ............................. $ 42,000 $ 150,100 $ 258,800
Warranty accrual ........................ 387,300 325,500 232,800
Accrued expenses ........................ (147,000) 272,000 364,200
Deferred revenue ........................ (605,300) (977,700) (902,200)
Net operating loss carryforward ......... 41,700 -- --
Other assets ............................ -- 408,100 486,400
Other liabilities ....................... -- (123,500) (152,000)
--------- --------- ---------
Total current gross deferred tax asset
(liabilities) ...................... (281,300) (54,500) 288,000
Less valuation allowance .................. (41,700) -- --
--------- --------- ---------
Net current deferred tax asset
(liability) ........................ $(323,000) $ (54,500) $ 288,000
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 30, JUNE 28, MARCH 28,
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Noncurrent deferred tax asset (liability):
Differences in tax and adjusted book basis in
plant and equipment ...................... $(59,700) $(116,700) $(116,700)
Employee stock options ...................... -- -- 160,700
-------- --------- ---------
Net noncurrent deferred tax asset
(liability) ............................ $(59,700) $(116,700) $ 44,000
======== ========= =========
</TABLE>
Certain of the temporary differences noted above arose due to differences in
the tax and book purchase price allocation which occurred on May 20, 1994.
The activity related to the valuation allowance is as follows:
<TABLE>
<S> <C>
Valuation allowance at June 30, 1995 .................... $ 41,700
Decrease in valuation allowance ......................... (41,700)
--------
Valuation allowance at June 30, 1996 .................... $ --
========
</TABLE>
F-37
<PAGE> 137
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has a net operating loss carryover for tax purposes of
approximately $0 and $104,000, at June 28, 1996 and June 30, 1995, respectively.
A valuation allowance for the tax asset related to any benefit for the
carryforward was established at July 1, 1994.
(7) CREDIT AGREEMENT
The Company has a $17,000,000 credit agreement with First Bank National
Association with a $12,000,000 note payable and a $5,000,000 line of credit. The
line of credit and the note payable to bank (note 8) are secured by
substantially all of the Company's assets and have the same restrictive
covenants and termination date. Such covenants restrict debt and lease
financing, annual capital expenditures, dividends, management's compensation,
and the sale of assets, and requires the Company to meet certain financial
results and financial ratios as defined in the agreement. Borrowings under the
line of credit are subject to borrowing base restrictions and bear interest,
payable monthly, at either 2.0% over the bank's reference rate or 3.0% over
LIBOR. The Company has the potential to have decreases in the interest rate
based on future operations. On March 28, 1997, June 28, 1996, and June 30, 1995,
the effective rate was 8.59%, 7.98%, and 9.05%, respectively. At March 28, 1997,
June 28, 1996, and June 30, 1995, the balance outstanding on the line of credit
was $0, $261,000, and $61,650, respectively.
(8) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
(UNAUDITED)
JUNE 28, JUNE 30, MARCH 28,
1995 1996 1997
------------ ----------- -----------
<S> <C> <C> <C>
Note payable to bank with interest payable monthly.
Principal due in three installments during fiscal
1995 and in quarterly installments thereafter
through June 30, 2000. The installments range from
approximately $333,000 to $875,000. The agreement
has the same interest rate and covenants as the
line of credit (note 7) .......................... $ 11,667,000 $ 9,519,000 $ 8,395,000
Less current installments .......................... (1,417,000) (2,250,000) (2,250,000)
------------ ----------- -----------
Long-term debt, less current installments ........ $ 10,250,000 $ 7,269,000 $ 6,145,000
============ =========== ===========
</TABLE>
The minimum annual maturities of long-term debt as of July 1, 1996 are as
follows:
<TABLE>
<S> <C>
1997 ................................................... $2,250,000
1998 ................................................... 2,500,000
1999 ................................................... 3,125,000
2000 ................................................... 1,644,000
----------
$9,519,000
==========
</TABLE>
(9) NOTE PAYABLE TO SELLER
In connection with the business acquisition described in note 1, the Company
entered into a convertible subordinated promissory note with Perkin Elmer. The
outstanding balance of $9,456,000 is due on May 20, 2001. The accrued interest
compounds annually at a rate of 10%. Interest payments begin 100 days following
the end of the fiscal year ending June 30, 1998, and are made annually
thereafter. The note is convertible into 253,843 shares of Class B common stock
of the Company upon consummation of a sale of the business or after May 21,
1997.
F-38
<PAGE> 138
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) LEASES
As of June 30, 1996, minimum annual lease payments, under noncancelable
operating leases with initial and remaining lease payments in excess of one year
are as follows:
<TABLE>
<S> <C>
1997 ............................................. $ 588,000
1998 ............................................. 351,000
1999 ............................................. 257,000
----------
Total minimum lease payments ........... $1,196,000
==========
</TABLE>
Rental expense for all operating leases for the nine-month period ended
March 28, 1997, the years ended June 28, 1996, and June 30, 1995 were $801,000,
$829,000, and $583,000, respectively.
(11) CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL
Capital stock consists of the following:
<TABLE>
<CAPTION>
JUNE 28, JUNE 30,
1995 1996
---------- ----------
<S> <C> <C>
Class A common stock; $.01 par value. Authorized 1,000,000 shares;
issued and outstanding 191,660 shares in 1997, 191,660 shares in
1996, 191,660 shares in 1995, and 398,070 shares in 1994 ........ $ 1,917 $ 1,917
---------- ----------
Class B common stock; $.01 par value. Authorized 1,000,000 shares;
issued and outstanding 398,070 shares ........................... $ 3,981 $ 3,981
---------- ----------
Class C common stock; $.01 par value. Authorized 1,000,000 shares;
issued and outstanding 461,472 shares in 1997, 461,472 shares in
1996, 462,902 shares in 1995, and 203,860 in 1994 ............... $ 4,628 $ 4,615
---------- ----------
Additional paid-in capital on common stock ........................ $1,039,474 $1,112,521
========== ==========
Series A 10% redeemable cumulative preferred stock; $.01 par value.
Authorized 700,000 shares; issued and outstanding 599,143 shares
in 1997, 599,143 shares in 1996, 600,000 shares in 1995, and
600,000 shares in 1994 .......................................... $ 6,000 $ 5,991
---------- ----------
Additional paid-in capital on preferred stock ..................... $5,994,000 $5,984,385
========== ==========
</TABLE>
The Class A, B, and C common stock have the same powers, preferences, and
rights except for the following: Voting, Class A and B common stock each have
one vote per share. Class C common stock has no voting rights. As to the board
of directors, Class A common stockholders have the right to elect 3 directors
and Class B common stockholders have the right to elect 4 directors. Class C
common stockholders do not have the right to participate in any director
elections. The designations, voting powers, and preferences of the preferred
stock shall be established by resolution of the board of directors.
(12) EMPLOYEE BENEFITS
Prior to May 20, 1994, employees participated in the Perkin Elmer pension
plan. Active participation in this plan ended on May 20, 1994 with the
participants' accrued benefits remaining in the Perkin Elmer plan. On July 1,
1994 PHI implemented a 401(k) plan. In lieu of a pension plan, the Company
contributes an amount equal to 2% of the employee's compensation to their
respective 401(k) account. In addition, employees can contribute up to 15% of
their eligible compensation to the plan. The Company will match 100% of each
employee's contribution up to 3% of the employee's eligible compensation. Total
expense under this plan was $642,000 in 1997.
F-39
<PAGE> 139
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) PENSION PLAN
The Company's wholly-owned subsidiary, Physical Electronics, GmbH, has a
defined benefit pension plan which is covered by a group insurance policy. The
plan covers 18 employees. The benefits are based upon the number of years
service and the employee's past compensation.
The following table sets forth the plan's funded status as of June 28, 1996,
and the net periodic pension expense for the year then ended. The Company
adopted FASB #87 treatment in the year ended June 28, 1996.
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested ............................................. $399,371
Nonvested .......................................... 109,997
--------
Accumulated benefit obligation .................. 509,368
Effect of projected future salary increases .......... 196,198
--------
Projected benefit obligation .................... 705,566
Plan assets at market value .......................... --
--------
Unfunded status ................................. 705,566
Unamortized transition amount ........................ 213,509
Unrecognized net gain ................................ --
Unrecognized prior service cost ...................... --
--------
Pension liability ............................... $492,057
========
Asset value of group insurance policy ................ $103,822
========
</TABLE>
Net pension expense includes the following components:
<TABLE>
<CAPTION>
YEAR-ENDED
JUNE 28,
1996
----------
<S> <C>
Service cost -- benefits earned during the period ..... $ 79,449
Interest cost on projected benefit obligation ......... 51,832
Actual gain of plan assets ............................ --
Amortization of transition amount ..................... 12,448
Amortization of unrecognized service cost ............. --
Amortization of unrecognized net gain ................. --
--------
Net pension expense ................................. $143,729
========
</TABLE>
Measurement of the 1996 projected benefit obligation was based on a 7.0%
discount rate and a 4% long-term rate of compensation increase.
(14) EMPLOYEE STOCK PURCHASE AND STOCK OPTION PLAN
On May 16, 1994, the Company established an Employee Stock Purchase and
Stock Option Plan. The plan gives key employees rights to acquire specific
numbers of Class C common stock at $1 per share and Series A preferred stock at
$10 per share. The plan also includes a feature to provide employees with
options to purchase additional Class C common stock. The Plan was modified on
October 28, 1994 to increase the number of shares.
F-40
<PAGE> 140
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The rights to acquire Class C common stock and Series A preferred stock
exist for the various participants in two distinct offering periods. The first
offering period began May 16, 1994 and ended on November 15, 1994. The second
offering period began on June 2, 1995 and ended June 16, 1995. The two tables
below summarize the activity related to the rights to acquire stock.
To fund this plan, the Company acquired Class A common shares from its
majority shareholder, retired those shares, and issued Class C common shares to
plan participants.
Class C common stock activity under this plan is summarized as follows:
<TABLE>
<CAPTION>
SHARES
AVAILABLE FOR
PURCHASE
-------------
<S> <C>
Establishment of plan ................................................ 271,429
Shares purchased ..................................................... (129,570)
--------
Shares available for purchase on May 20, 1994 .............. 141,859
Shares purchased ..................................................... --
--------
Shares available for purchase on July 1, 1994 .............. 141,859
Increase in number of shares available as a result of October 28, 1994
amendment .......................................................... 100,571
Shares purchased ..................................................... (242,130)
--------
Shares not purchased at expiration of plan ........................... 300
--------
Shares available for purchase on June 30, 1995 ............. --
========
</TABLE>
Series A preferred stock activity under this plan is summarized as follows:
<TABLE>
<CAPTION>
SHARES
AVAILABLE FOR
PURCHASE
-------------
<S> <C>
Establishment of plan ................................................ 162,857
Shares purchased ..................................................... (77,743)
--------
Shares available for purchase on May 20, 1994 .............. 85,114
Shares purchased ..................................................... --
--------
Shares available for purchase on July 1, 1994 .............. 85,114
Increase in number of shares available as a result of October 28, 1994
amendment .......................................................... 60,463
Shares purchased ..................................................... (145,274)
--------
Shares not purchased at expiration of plan ........................... 303
--------
Shares available for purchase on June 30, 1995 ............. --
========
</TABLE>
All preferred shares purchased under this plan were acquired by the Company
from its majority shareholder.
The stock options awarded under this plan will be based upon the operating
results for each of the five fiscal years 1995 through 1999. During the year
ended June 28, 1996, the Company granted 22,223 options and recognized $80,000
compensation expense which represents the difference between fair market value
and exercise prices at the date of grant.
F-41
<PAGE> 141
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Class C common stock option activity under this plan is summarized as
follows:
<TABLE>
<CAPTION>
OPTION PRICE AVAILABLE
PER SHARE OUTSTANDING FOR GRANT
------------ ----------- ---------
<S> <C> <C> <C>
Establishment of plan ...................... $1.00 -- 111,115
Options granted ............................ -- -- --
----- ------ -------
Options available for grant at July 1, 1994 1.00 -- 111,115
Options granted ............................ -- -- --
----- ------ -------
Options available for grant at June 30, 1995 1.00 -- 111,115
Options granted ............................ 1.00 22,223 88,892
----- ------ -------
Options available for grant at June 28, 1996 $1.00 -- 88,892
===== ====== =======
</TABLE>
In connection with the Charles Evans & Associates acquisition, a stock
option plan was established which gives certain key employees the right to
purchase up to 58,480 shares of Class C common stock at $1 per share. 11,696
options were granted during the year ended June 28, 1996 and the Company
recognized $28,000 compensation expense.
(15) FOREIGN SALES
International sales represented 52%, 54%, and 48% of the Company's net sales
for the nine-month period ended March 28, 1997, and the years ended June 28,
1996 and June 30, 1995, respectively. These sales represented the combined total
of export sales made by United States operations and all sales made by foreign
operations.
Export sales made by United States operations were 43%, 43%, and 37% of the
Company's net sales for the nine-month period ended March 28, 1997, and the
years ended June 28, 1996 and June 30, 1995, respectively.
F-42
<PAGE> 142
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes the Company's sales and selected operating
data in different geographic areas (amounts in thousands):
<TABLE>
<CAPTION>
EUROPE,
UNITED AFRICA,
STATES INDIA ELIMINATIONS CONSOLIDATED
------ ------- ------------ ------------
<S> <C> <C> <C> <C>
Fiscal 1995:
Sales to unaffiliated customers ........... $46,472 8,292 -- 54,764
Transfers between geographic locations .... 2,283 -- (2,283) --
Net sales ................................. 48,755 8,292 (2,283) 54,764
Income from operations .................... 4,751 535 -- 5,286
Identifiable assets ....................... 38,699 2,788 (2,235) 39,252
Fiscal 1996:
Sales to unaffiliated customers ........... 46,381 11,693 -- 58,074
Transfers between geographic locations .... 5,348 -- (5,348) --
Net sales ................................. 51,729 11,693 (5,348) 58,074
Income (loss) from operations ............. 6,265 (104) -- 6,161
Identifiable assets ....................... 40,054 4,643 (2,925) 41,772
Nine months ended March 28, 1997 (unaudited):
Sales to unaffiliated customers ........... 36,270 8,854 -- 45,124
Transfers between geographic locations .... 4,804 -- (4,804) --
Net sales ................................. 41,074 8,854 (4,804) 45,124
Income (loss) from operations ............. 3,890 (52) -- 3,838
Identifiable assets ....................... 43,003 4,507 (2,632) 44,878
</TABLE>
(16) EVENTS (UNAUDITED) SUBSEQUENT TO THE DATE OF THE INDEPENDENT AUDITORS'
REPORT
During the nine months ended March 28, 1997, the Company granted 22,623 and
11,696 options under Option Plan A and Option Plan B, respectively and
recognized aggregate compensation expense of $423,000.
On April 17, 1997, the Company reacquired 50,000 shares of Class C common
stock at $11.47 per share and 30,000 shares of preferred stock at $13.01 per
share from a former executive of the Company.
On May 7, 1997, the Company signed a purchase agreement with High Voltage
Engineering Corporation (HVE) for the sale of all shares of common and preferred
stock of the Company to HVE.
F-43
<PAGE> 143
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERS
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary ..................................................... 5
Risk Factors ........................................................... 14
The Company ............................................................ 20
The Transactions ....................................................... 21
Use of Proceeds ........................................................ 23
Capitalization ......................................................... 25
Unaudited Pro Forma Condensed Consolidated Financial Data .............. 27
Selected Historical Consolidated Financial Data ........................ 35
Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................ 40
Business ............................................................... 49
Management ............................................................. 65
Certain Relationships and Related Transactions ......................... 70
Principal Stockholders ................................................. 72
Exchange Offer ......................................................... 73
Plan of Distribution ................................................... 80
Description of the Exchange Preferred Stock ............................ 81
Description of Certain Indebtedness .................................... 89
Description of Outstanding Capital Stock ............................... 93
Certain Federal Income Tax Considerations .............................. 95
Experts ................................................................ 97
Legal Matters .......................................................... 97
Available Information .................................................. 97
Special Note Regarding Forward-Looking Statements ...................... 97
Index to Financial Statements .......................................... F-1
================================================================================
================================================================================
[LOGO]
HIGH VOLTAGE
ENGINEERING
CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING
SHARES OF 12-1/2% SERIES A SENIOR
REDEEMABLE PREFERRED STOCK FOR
SHARES OF 12-1/2% SERIES A EXCHANGE
SENIOR REDEEMABLE PREFERRED STOCK
------------
PROSPECTUS
------------
, 1997
================================================================================
100
<PAGE> 144
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 67 of the Massachusetts Business Corporation Law (the "MBCL")
grants a Massachusetts corporation the power to indemnify any director, officer,
employee or other agent to the extent specified in or authorized by (i) the
articles of organization, (ii) a by-law adopted by the stockholders or (iii) a
vote adopted by the holders of a majority of the shares of stock entitled to
vote at an election of directors. No indemnification may be provided, however,
for any person with respect to any matter as to which he shall have been
adjudicated in any proceeding not to have acted in good faith in the reasonable
belief that his action was in the best interest of the corporation.
The Restated Articles of Organization of the Company and the Amended
and Restated By-laws of the Company, copies of which are filed as Exhibits 3.1
and 3.2, provide for indemnification of officers and directors of the Company
and certain other persons against liabilities and expenses incurred by any of
them in certain stated proceedings and under certain stated conditions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of exhibits filed as a part of this
registration statement:
EXHIBIT
2.1 Agreement and Plan of Merger, dated as of May 7, 1997, by and between
PHI Acquisition Holdings, Inc. and Chase Venture Capital Associates,
L.P.*
3.1 Restated Articles of Organization of the Registrant.*
3.2 Amended and Restated By-laws of the Registrant.*
4.1 Article IV of the Restated Articles of the Registrant (included in
Exhibit 3.1).*
4.2 Specimen Series A Exchange Senior Redeemable Preferred Stock
Certificate.**
4.3 Preferred Stock Registration Rights Agreement, by and between
Registrant and CIBC Wood Gundy Securities Corp. and Painewebber
Incorporated.
4.4 Indenture, dated as of August 8, 1997, by and between Registrant and
State Street Bank and Trust Company.*
<PAGE> 145
-2-
5.1 Opinion of Bingham, Dana & Gould LLP, as to legality of securities
being registered.**
10.1 Senior Secured Revolving Credit Agreement, dated as of August 8, 1997,
by and between the Registrant and Fleet National Bank. *
10.2 Lease Agreement, dated as of November 10, 1988, by and between
Corporate Property Associates 8, L.P. and Datcon Instrument Company
(Lancaster, PA).*
10.3 Lease Agreement, dated as of November 10, 1988, by and between
Corporate Property Associates 8, L.P. and the Registrant (Sterling,
MA).*
10.4 Installment Sale Agreement, dated as of September 23, 1994, by and
between Monroeville Area Industrial Development Corporation and Halimar
Robicon Group, Inc.(New Kensington, PA).*
10.5 Lease with Option to Purchase, dated as of July 15, 1996, by and
between Raija Olkkola & Joseph Grammel, Co-Trustees of THO Trust and
Registrant. (Sterling, MA).*
10.6 Amendment to Lease Agreement, dated as of May 8, 1996, by and between
Corporate Property Associates 8, L.P. and the Registrant (Sterling,
MA).*
10.7 Value Creation Plan of the Registrant.**
10.8 Employment Agreement, dated December 1, 1992, by and between Registrant
and Paul Snyder.*
21.1 List of Subsidiaries.**
23.1 Consent of Bingham, Dana & Gould LLP, counsel to Registrant (included
in Exhibit 5.1).**
23.2 Consent of Grant Thornton LLP.
23.3 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney (included in signature page to Registration
Statement).
27 Financial Data Schedule.
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of exchange agency agreement between the Exchange Agent and the
Registrant.**
- ---------------------
* Incorporated by reference from the Exhibits to Registrant's
Registration Statement on Form S-4 with respect to its 10 1/2% Series Notes due
2004.
** To be filed by amendment.
(b) All schedules have been omitted because either they are not
required, are not applicable, or the information is otherwise set forth in the
Consolidated Financial Statements and notes thereto.
<PAGE> 146
-3-
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) (Section 2304.424(b) of
this chapter) if, in the aggregate, the changes in volume and price
represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the
<PAGE> 147
-4-
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
<PAGE> 148
-5-
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Boston, Commonwealth of
Massachusetts, on this 19 day of August, 1997.
HIGH VOLTAGE ENGINEERING CORPORATION
By: /s/ Joseph W. McHugh, Jr.
---------------------------------
Joseph W. McHugh, Jr.,
Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Clifford
Press, Laurence S. Levy, Joseph W. McHugh, Jr. and Ronald R. Fortier, and each
of them severally, acting alone and without the other, his true and lawful
attorney-in-fact with the authority to execute in the name of each such person,
and to file with the Securities and Exchange Commission, together with any
exhibits thereto and other documents therewith, any and all amendments
(including without limitation post-effective amendments) to this Registration
Statement necessary or advisable to enable the Registrant to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission in respect thereof, which amendments
may make such other changes in the Registration Statement as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
<PAGE> 149
- 6 -
SIGNATURES
<TABLE>
<CAPTION>
Signature Title Date
--------- -----
<S> <C> <C>
/s/ Laurence S. Levy Chief Executive Officer and August 19, 1997
- ------------------------------ Director
Laurence S. Levy
/s/ Clifford Press President and Director August 19, 1997
- ------------------------------
Clifford Press
/s/ Paul H. Snyder Director August 19, 1997
- ------------------------------
Paul H. Snyder
/s/ Edward Levy Director August 19, 1997
- ------------------------------
Edward Levy
/s/ H. Cabot Lodge III Director August 19, 1997
- ------------------------------
H. Cabot Lodge III
/s/ Joseph W. McHugh, Jr. Vice President and Chief August 19, 1997
- ------------------------------ Financial Officer
Joseph W. McHugh, Jr. (principal financial and
accounting officer)
</TABLE>
<PAGE> 150
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- --------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of May 7, 1997, by and between
PHI Acquisition Holdings, Inc. and Chase Venture Capital Associates,
L.P.*
3.1 Restated Articles of Organization of the Registrant.*
3.2 Amended and Restated By-laws of the Registrant.*
4.1 Article IV of the Restated Articles of the Registrant (included in
Exhibit 3.1).*
4.2 Specimen Series A Exchange Senior Redeemable Preferred Stock
Certificate.**
4.3 Preferred Stock Registration Rights Agreement, by and between
Registrant and CIBC Wood Gundy Securities Corp. and Painewebber
Incorporated.
4.4 Indenture, dated as of August 8, 1997, by and between Registrant and
State Street Bank and Trust Company.*
5.1 Opinion of Bingham, Dana & Gould LLP, as to legality of securities
being registered.**
10.1 Senior Secured Revolving Credit Agreement, dated as of August 8, 1997,
by and between the Registrant and Fleet National Bank. *
10.2 Lease Agreement, dated as of November 10, 1988, by and between
Corporate Property Associates 8, L.P. and Datcon Instrument Company
(Lancaster, PA).*
10.3 Lease Agreement, dated as of November 10, 1988, by and between
Corporate Property Associates 8, L.P. and the Registrant (Sterling,
MA).*
10.4 Installment Sale Agreement, dated as of September 23, 1994, by and
between Monroeville Area Industrial Development Corporation and
Halimar Robicon Group, Inc.(New Kensington, PA).*
10.5 Lease with Option to Purchase, dated as of July 15, 1996, by and
between Raija Olkkola & Joseph Grammel, Co-Trustees of THO Trust and
Registrant. (Sterling, MA).*
10.6 Amendment to Lease Agreement, dated as of May 8, 1996, by and between
Corporate Property Associates 8, L.P. and the Registrant (Sterling,
MA).*
10.7 Value Creation Plan of the Registrant.**
10.8 Employment Agreement, dated December 1, 1992, by and between
Registrant and Paul Snyder.*
21.1 List of Subsidiaries.**
</TABLE>
<PAGE> 151
<TABLE>
<CAPTION>
-2-
Exhibit
Number Description Page
- --------------------------------------------------------------------------------------------
<S> <C>
23.1 Consent of Bingham, Dana & Gould LLP, counsel to Registrant (included
in Exhibit 5.1).**
23.2 Consent of Grant Thornton LLP.
23.3 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney (included in signature page to Registration
Statement).
27 Financial Data Schedule.
99.1 Form of Letter of Transmittal.**
99.2 Form of Notice of Guaranteed Delivery.**
99.3 Form of exchange agency agreement between the Exchange Agent and the
Registrant.**
</TABLE>
- ---------------------
* Incorporated by reference from the Exhibits to Registrant's Registration
Statement on Form S-4 with respect to its 10 1/2% Series Notes due 2004.
** To be filed by amendment.
(b) All schedules have been omitted because either they are not required,
are not applicable, or the information is otherwise set forth in the
Consolidated Financial Statements and notes thereto.
<PAGE> 1
EXHIBIT 4.3
================================================================================
PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT
Dated as of August 8, 1997
by and among
HIGH VOLTAGE ENGINEERING CORPORATION
and
CIBC WOOD GUNDY SECURITIES CORP. and
PAINEWEBBER INCORPORATED,
as Initial Purchasers
================================================================================
<PAGE> 2
TABLE OF CONTENTS
-----------------
Page
----
1. Definitions...................................................... 1
2. Exchange Offer................................................... 5
3. Shelf Registration............................................... 8
4. Additional Dividends............................................. 10
5. Registration Procedures.......................................... 12
6. Registration Expenses............................................ 22
7. Indemnification.................................................. 24
8. Rules 144 and 144A............................................... 28
9. Underwritten Registrations....................................... 28
10. Miscellaneous.................................................... 29
(a) Remedies.................................................. 29
(b) No Inconsistent Agreements................................ 29
(c) Adjustments Affecting Registrable Shares.................. 29
(d) Amendments and waivers.................................... 29
(e) Notices................................................... 30
(f) Successors and Assigns.................................... 31
(g) Counterparts.............................................. 31
(h) Headings.................................................. 31
(i) Governing Law............................................. 31
(j) Severability.............................................. 31
(k) Entire Agreement.......................................... 31
(l) Shares Held by the Company or Its Affiliates.............. 32
<PAGE> 3
PREFERRED STOCK REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT"), dated as
of August 7, 1997, by and among HIGH VOLTAGE ENGINEERING CORPORATION, a
Massachusetts corporation (the "COMPANY"), and CIBC WOOD GUNDY SECURITIES CORP.
and PAINEWEBBER INCORPORATED (together, the "INITIAL PURCHASERS").
This Agreement is entered into in connection with the Securities Purchase
Agreement, dated as of August 5, 1997, by and among the Company and the Initial
Purchasers (the "PURCHASE AGREEMENT") relating to the sale by the Company to the
Initial Purchasers of $135,000,000 aggregate principal amount of 10 1/2% Senior
Notes due 2004 of the Company (the "NOTES") and 33,000 Units (the "UNITS"), each
Unit consisting of (i) one share of the Company's 12-1/2% Series A Senior
Redeemable Preferred Stock (the "PREFERRED SHARES"), (ii) one warrant entitling
the holder thereof to purchase .00250736 shares of Common Stock, par value $0.01
per share, of the Company (the "WARRANTS") and (iii) .00250736 shares of Common
Stock, par value $0.01 per share, of the Company (the "Common Shares" and,
together with the Notes, Units, Preferred Shares and Warrants, the
"SECURITIES").
In order to induce the Initial Purchasers to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement for the benefit of the Initial Purchasers. The execution and
delivery of this Agreement is a condition to the Initial Purchasers, obligation
to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
-----------
As used in this Agreement, the following terms shall have the following
meanings:
ADDITIONAL DIVIDENDS: See Section 4.
ADVICE: See Section 5.
APPLICABLE PERIOD: See Section 2(b).
CLOSING: See Purchase Agreement.
<PAGE> 4
-2-
COMPANY: See the introductory paragraph to this Agreement.
EFFECTIVENESS DATE: The 135th day after the Issue Date.
EFFECTIVENESS PERIOD: See Section 3.
EVENT DATE: See Section 4(b).
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
EXCHANGE OFFER: See Section 2(a).
EXCHANGE REGISTRATION STATEMENT: See Section 2(a).
EXCHANGE SHARES: See Section 2(a).
FILING DATE: The 45th day after the Issue Date.
HOLDER: Any holder of a Registrable Share or Registrable Shares.
INDEMNIFIED PERSON: See Section 7(c).
INDEMNIFYING PERSON: See Section 7(c).
INITIAL PURCHASERS: See the introductory paragraph of this Agreement.
INITIAL SHELF REGISTRATION: See Section 3(a).
INSPECTORS: See Section 5(o).
ISSUE DATE: The date on which the Preferred Shares are sold to the
Purchaser pursuant to the Purchase Agreement.
NASD: See Section 5(s).
NOTES: See the introductory paragraphs of this Agreement.
PARTICIPANT: See Section 7(a).
PARTICIPATING BROKER-DEALER: See Section 2(b).
<PAGE> 5
-3-
PERSON: An individual, corporation, partnership, joint venture,
association, joint stock company, trust, unincorporated organization or other
legal entity.
PREFERRED SHARES: See the introductory paragraphs to this Agreement.
PRIVATE EXCHANGE: See Section 2(a).
PRIVATE EXCHANGE SHARES: See Section 2(b).
PROSPECTUS: The prospectus included in any Registration Statement
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Shares covered by such Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
PURCHASE AGREEMENT: See the introductory paragraphs to this Agreement.
RECORDS: See Section 5(o).
REGISTRABLE SHARES: The Preferred Shares upon original issuance of the
Preferred Shares to the Initial Purchasers under the Purchase Agreement
(including the Option Shares) and at all times subsequent thereto and, if
issued, the Private Exchange Shares, until in the case of such Preferred Shares
or Private Exchange Shares, as the case may be, (i) a Registration Statement
covering such Preferred Shares or Private Exchange Shares, as the case may be,
has been declared effective by the SEC and such Preferred Shares or Private
Exchange Shares, as the case may be, have been disposed of in accordance with
such effective Registration Statement, (ii) such Preferred Shares or Private
Exchange Shares, as the case may be, are sold in compliance with Rule 144, (iii)
in the case of any Preferred Share, such Preferred Share has been exchanged for
an Exchange Share or Exchange Shares pursuant to an Exchange Offer or (iv) such
Preferred Shares or Private Exchange Shares, as the case may be, cease to be
outstanding.
<PAGE> 6
-4-
REGISTRATION DEFAULT: See Section 4(a).
REGISTRATION STATEMENT: Any registration statement of the Company,
including, but not limited to, the Exchange Registration Statement, which covers
any of the Registrable Shares pursuant to the provisions of this Agreement,
including the Prospectus, amendments and supplements to such registration
statement, including post-effective amendments, all exhibits, and all material
incorporated by reference or deemed to be incorporated by reference in such
registration statement.
RESTATED ARTICLES: Prior to the Closing, the Certificate of Vote of
Directors Establishing a Series of a Class of Stock duly adopted by the Board of
Directors of the Company setting forth the rights, preferences and priorities of
the Preferred Shares and filed with, and accepted for filing, so as to be
effective, by, the Secretary of State of Massachusetts prior to the Closing,
and, after the Closing, the Restated Articles of Organization duly adopted by
the Board of Directors of the Company setting forth the rights, preferences and
priorities of the Preferred Shares and filed with, and accepted for filing, by
the Secretary of State of Massachusetts.
RULE 144: Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or any similar rule (other than Rule 144A) or regulation
hereafter adopted by the SEC.
RULE 144A: Rule 144A under the Securities Act, as such Rule may be
amended from time to time, or any similar rule (other than Rule 144) or
regulation hereafter adopted by the SEC.
RULE 415: Rule 415 under the Securities Act, as such Rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by the
SEC.
SEC: The Securities and Exchange Commission.
SECURITIES: See the introductory paragraphs to this Agreement.
SECURITIES ACT: The Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated thereunder.
SHELF NOTICE: See Section 2(c).
SHELF REGISTRATION: See Section 3(b).
<PAGE> 7
-5-
SUBSEQUENT SHELF REGISTRATION: See Section 3(b).
TRANSFER AGENT: The Transfer Agent for the Preferred Shares, the Exchange
Preferred Shares and/or the Private Exchange Preferred Shares, as the context
may require.
UNDERWRITTEN REGISTRATION OR UNDERWRITTEN OFFERING: A registration in
which securities of the Company are sold to an underwriters) for reoffering to
the public.
UNITS: See the introductory paragraphs to this Agreement.
WARRANTS: See the introductory paragraphs to this Agreement.
2. EXCHANGE OFFER
(a) To the extent not prohibited by any applicable law or applicable
interpretation of the SEC, the Company agrees to use its best efforts to file
with the SEC as soon as practicable, but in no event later than the Filing Date,
an offer to exchange (the "EXCHANGE OFFER") any and all of the Registrable
Shares for a like aggregate liquidation value of preferred equity securities of
the Company which are substantially identical to the Preferred Shares (the
"EXCHANGE SHARES") (and which are entitled to the benefits of the Restated
Articles), except that the Exchange Shares shall have been registered pursuant
to an effective Registration Statement under the Securities Act. The Exchange
Offer will be registered under the Securities Act on the appropriate form (the
"EXCHANGE REGISTRATION Statement") and will comply with all applicable tender
offer rules and regulations under the Exchange Act. The Company agrees to use
its best efforts to (x) cause the Exchange Registration Statement to become
effective under the Securities Act on or before the Effectiveness Date; (y) keep
the Exchange Offer open for at least 30 days (or longer if required by
applicable law) after the date that notice of the Exchange Offer is mailed to
Holders; and (z) consummate the Exchange Offer on or prior to the 60th day
following the date on which the Exchange Registration Statement is declared
effective. Each Holder who participates in the Exchange Offer will be required
to represent that any Exchange Shares received by it will be acquired in the
ordinary course of its business, that at the time of the consummation of the
Exchange Offer such Holder will have no arrangement or understanding with any
person to participate in the distribution of the Exchange Shares, and that such
Holder is not an affiliate of the Company within the meaning of Rule 405 under
the Securities Act or if it is an affiliate, that it will comply with the
<PAGE> 8
-6-
registration and prospectus delivery requirements of the Securities Act, to the
extent applicable. Upon consummation of the Exchange Offer in accordance with
this Section 2, the provisions of this Agreement shall continue to apply,
MUTATIS MUTANDIS, solely with respect to Exchange Shares held by Participating
Broker-Dealers (as defined below), and the Company shall have no further
obligation to register Registrable Shares pursuant to Section 3 of this
Agreement.
(b) The Company shall include within the Prospectus contained in the
Exchange Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchasers, which shall contain a summary
statement of the positions taken or policies made by the Staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Shares received by such broker-dealer in the Exchange Offer (a "PARTICIPATING
BROKER-DEALER"), whether such positions or policies have been publicly
disseminated by the Staff of the SEC or such positions or policies, in the
reasonable judgment of the Initial Purchasers, represent the prevailing views of
the Staff of the SEC. Such "Plan of Distribution" section shall also allow the
use of the prospectus by all persons subject to the prospectus delivery
requirements of the Securities Act, including all Participating Broker-Dealers,
and include a statement describing the means by which Participating
Broker-Dealers may resell the Exchange Shares.
The Company shall use its best efforts to keep the Exchange Registration
Statement effective and to amend and supplement the Prospectus contained
therein, in order to permit such Prospectus to be lawfully delivered by all
persons subject to the prospectus delivery requirements of the Securities Act
for such period of time as such persons must comply with such requirements in
order to resell the Exchange Shares, PROVIDED that such period shall not exceed
90 days (or such longer period if extended pursuant to the last paragraph of
Section 5) (the "APPLICABLE PERIOD").
If, prior to consummation of the Exchange Offer, either of the Initial
Purchasers holds any Preferred Shares acquired by it and having, or which are
reasonably likely to be determined to have, the status of an unsold allotment in
the initial distribution, the Company upon the request of such Initial Purchaser
shall, simultaneously with the delivery of the Exchange Shares in the Exchange
Offer, issue and deliver to such Initial Purchaser, in exchange (the "PRIVATE
EXCHANGE") for the Preferred Shares held by such Initial Purchaser, a like
liquidation value of preferred equity securities of the Company that are
identical in all material respects to the Exchange Shares (the "PRIVATE EXCHANGE
<PAGE> 9
-7-
SHARES") (and which are issued pursuant to the same certificate of designation
as the Exchange Shares). The Private Exchange Shares shall bear the same CUSIP
number as the Exchange Shares.
Dividends on the Exchange Shares and any Private Exchange Shares will
accrue from the later of (A) the last dividend payment date on which dividends
were paid on the Preferred Shares surrendered in exchange therefor or, (B) if no
dividends have been paid on the Preferred Shares, from the Issue Date.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) utilize the services of a depositary for the Exchange offer with
an address in Boston, Massachusetts; and
(iii) permit Holders to withdraw tendered Preferred Shares at any time
prior to the close of business, New York time, on the last business day on
which the Exchange Offer shall remain open.
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Company shall:
(i) accept for exchange all Preferred Shares tendered and not validly
withdrawn pursuant to the Exchange offer or the Private Exchange, as the
case may be;
(ii) deliver to the Transfer Agent for cancellation all Preferred
Shares so accepted for exchange; and
(iii) cause the Transfer Agent to countersign and deliver promptly to
each Holder of Preferred Shares, Exchange Shares or Private Exchange
Shares, as the case may be, equal in liquidation value to the Preferred
Shares of such Holder so accepted for exchange.
The Exchange Shares and the Private Exchange Shares shall be issued
pursuant to the Restated Articles, will vote and consent together on all matters
with the Preferred Shares as one class to the extent the Preferred Shares have
voting rights pursuant to the Restated Articles or as provided by applicable
law, and will not have the right to vote or
<PAGE> 10
-8-
consent as a class separate from the Preferred Shares on any matter except as
otherwise provided in the Restated Articles or under applicable law.
(c) If (1) prior to the consummation of the Exchange Offer, the Company
or Holders of at least a majority in aggregate liquidation value of the
Registrable Shares reasonably determine in good faith that (i) the Exchange
Shares would not, upon receipt, be tradeable by such Holders which are not
affiliates (within the meaning of the Securities Act) of the Company without
restriction under the Securities Act and without restrictions under applicable
state securities laws, or (ii) after conferring with counsel, the SEC is
unlikely to permit the consummation of the Exchange offer prior to 60 days after
the Effectiveness Date (in which case the Company may withdraw the Exchange
Registration Statement, if filed, or elect not to file it, if not already
filed), (2) subsequent to the Exchange Date if the Initial Purchasers shall not
have sold all of the Registrable Securities initially purchased by it to
unaffiliated investors and if the Initial Purchasers so requests, or (3) the
Exchange Offer is commenced and not consummated within 195 days of the Issue
Date, then the Company shall promptly deliver to the Holders written notice
thereof (the "SHELF NOTICE") and shall file an Initial Shelf Registration
pursuant to Section 3. Following the delivery of a Shelf Notice to the Holders
of Registrable Shares, the Company shall not have any further obligation to
conduct the Exchange Offer or the Private Exchange under this Section 2.
3. Shelf Registration
------------------
If a Shelf Notice is delivered as contemplated by Section 2(c), then:
(a) INITIAL SHELF REGISTRATION. The Company shall prepare and file with
the SEC a Registration Statement for an offering to be made on a continuous
basis pursuant to Rule 415 covering all of the Registrable Shares (the "INITIAL
SHELF REGISTRATION"). The Company shall use its best efforts to file with the
SEC the Initial Shelf Registration within 30 days of the delivery of the Shelf
Notice. The Initial Shelf Registration shall be on Form S-1 or another
appropriate form permitting registration of such Registrable Shares for resale
by such Holders in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). Except to the extent required
by any agreement to which the Company is a party, the Company shall not permit
any securities other than the Registrable Shares to be included in the Initial
Shelf Registration or any Subsequent Shelf Registration (as defined below). The
Company shall use its best efforts to cause the Initial Shelf Registration to be
declared effective under the Securities Act on or prior to
<PAGE> 11
-9-
the Effectiveness Date and to keep the Initial Shelf Registration continuously
effective under the Securities Act until two years from the Issue Date (the
"EFFECTIVENESS PERIOD"), or such shorter period ending when (i) all Registrable
Shares covered by the Initial Shelf Registration have been sold in the manner
set forth and as contemplated in the Initial Shelf Registration or (ii) a
Subsequent Shelf Registration covering all of the Registrable Shares has been
declared effective under the Securities Act.
(b) SUBSEQUENT SHELF REGISTRATIONS. If the Initial Shelf Registration or
any Subsequent Shelf Registration ceases to be effective for any reason at any
time during the Effectiveness Period (other than because of the sale of all of
the securities registered thereunder), the Company shall use its best efforts to
obtain the prompt withdrawal of any order suspending the effectiveness thereof,
and in any event shall within 45 days of such cessation of effectiveness amend
the Shelf Registration in a manner reasonably expected to obtain the withdrawal
of the order suspending the effectiveness thereof, or file an additional "shelf"
Registration Statement pursuant to Rule 415 covering all of the Registrable
Shares (a "SUBSEQUENT SHELF REGISTRATION"). In the event that the Company
becomes eligible to use any form other than S-1 for a Subsequent Shelf
Registration, if permitted under applicable law, the Company shall be entitled
to cause a Subsequent Shelf Registration to be substituted for the Initial Shelf
Registration. If a Subsequent Shelf Registration is filed, the Company shall use
its best efforts to cause the Subsequent Shelf Registration to be declared
effective as soon as practicable after such filing and to keep such Registration
Statement continuously effective for a period equal to the number of days in the
Effectiveness Period less the aggregate number of days during which the Initial
Shelf Registration or any Subsequent Shelf Registration was previously
continuously effective. As used herein the term "SHELF REGISTRATION" means the
Initial Shelf Registration and any Subsequent Shelf Registration.
(c) SUPPLEMENTS AND AMENDMENTS. The Company shall promptly supplement and
amend the Shelf Registration if required by the rules, regulations or
instructions applicable to the registration form used for such Shelf
Registration, if required by the Securities Act, or if requested by the Holders
of a majority in aggregate liquidation value of the Registrable Shares covered
by such Registration Statement or by any underwriters) of such Registrable
Shares.
<PAGE> 12
-10-
4. Additional Dividends
--------------------
(a) The Company and the Initial Purchasers agree that the Holders of
Registrable Shares will suffer damages if the Company fails to fulfill its
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly, in
lieu of any other damages that might be obtainable, the Company agrees to pay
additional dividends on the Preferred Shares ("ADDITIONAL DIVIDENDS") under the
circumstances set forth below:
(i) if the Exchange Offer Registration Statement has not been filed on
or prior to the Filing Date or the Initial Shelf Registration has not been
filed within 30 days following the delivery of a Shelf Notice prior to the
filing date;
(ii) if the Exchange Offer Registration Statement or the Initial Shelf
Registration has not been declared effective on or prior to the
Effectiveness Date; and
(iii) if either (A) if applicable, the Company has not exchanged the
Exchange Shares for all Preferred Shares validly tendered in accordance
with the terms of the Exchange Offer on or prior to 195 days after the
Issue Date or (B) if applicable, the Exchange Offer Registration Statement
ceases to be effective at any time prior to the time that the Exchange
Offer is consummated or (C) if applicable, the Shelf Registration Statement
has been declared effective and such Shelf Registration Statement ceases to
be effective at any time prior to the earlier of the date on which all
Registrable Shares covered by the Shelf Registration have been sold in the
manner set forth and as contemplated in the Shelf Registration on the
second anniversary of the Issue Date;
(each such event referred to in clauses W through (iii) above is a "REGISTRATION
DEFAULT"), the sole remedy available to holders of the Preferred Shares will be
the immediate accrual of Additional Dividends as follows: the per annum dividend
rate on the Preferred Shares will increase by 0.5% upon the occurrence of the
first Registration Default; and the per annum dividend rate will increase by an
additional 0.25% for each subsequent 90-day period during which any Registration
Default remains uncured, up to a maximum additional dividend rate of 2.00% per
annum for all Registration Defaults, PROVIDED, HOWEVER, that (1) upon the filing
of the Exchange Registration Statement or the Initial Shelf Registration (in the
case of (i) above), (2) upon the effectiveness of the Exchange Registration
Statement or a Shelf Registration (in the case of
<PAGE> 13
-11-
(ii) above) or (3) upon the exchange of Exchange Shares for all Preferred Shares
tendered (in the case of (iii)(A) above), or upon the effectiveness of the
Exchange Registration Statement which had ceased to remain effective (in the
case of (iii)(B) above), or upon the effectiveness of the Shelf Registration
which had ceased to remain effective (in the case of (iii)(C) above), any
Additional Dividends on the Preferred Shares as a result of such clause (i),
(ii) or (iii) (or the relevant subclause thereof), as the case may be, shall
cease to accrue and the dividend rate on the Preferred Shares will revert to the
dividend rate originally borne by the Preferred Shares.
(b) The Company shall notify the Holders within three business days after
each and every date on which an event occurs in respect of which any Additional
Dividend is required to be paid (an "EVENT DATE"). Any amounts of Additional
Dividends due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be
payable in cash or in additional Preferred Shares as contemplated by the
Restated Articles semiannually on each February 1 and August 4 to the Holders of
record on the January 15 and July 15 immediately preceding such dates),
commencing with the first such date occurring after any such Additional Dividend
commences to accrue. The amount of an Additional Dividend will be determined by
multiplying the applicable Additional Dividend rate by the principal amount of
the Registrable Shares, multiplied by a fraction, the numerator of which is the
number of days such Additional Dividend rate was applicable during such period
(determined on the basis of a 360-day year comprised of twelve 30-day months),
and the denominator of which is 360.
5. Registration Procedures
-----------------------
In connection with the registration of any Registrable Shares or Private
Exchange Shares pursuant to Section 2 or 3 hereof, the Company shall effect such
registrations to permit the sale of such Registrable Shares or Private Exchange
Shares in accordance with the intended method or methods of disposition thereof,
and pursuant thereto the Company shall:
(a) Prepare and file with the SEC, prior to the Filing Date, a
Registration Statement or Registration Statements as prescribed by Section
2 or 3, and to use its best efforts to cause each such Registration
Statement to become effective and remain effective as provided herein,
PROVIDED that, if (1) such filing is pursuant to Section 3, or (2) a
Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-
<PAGE> 14
-12-
Dealer who seeks to sell Exchange Shares during the Applicable Period,
before filing any Registration Statement or Prospectus or any amendments or
supplements thereto, the Company shall, if requested by any Holder of
Registrable Securities, furnish to and afford the Holders of the
Registrable Shares and each such Participating Broker-Dealer, as the case
may be, covered by such Registration Statement, their counsel and the
managing underwriter(s), if any, a reasonable opportunity to review copies
of all such documents (including copies of any documents to be incorporated
by reference therein and all exhibits thereto) proposed to be filed (at
least 5 business days prior to such filing). The Company shall not file any
Registration Statement or Prospectus or any amendments or supplements
thereto in respect of which the Holders must be afforded an opportunity to
review prior to the filing of such document, if the Holders of a majority
in aggregate liquidation value of the Registrable Shares covered by such
Registration Statement, or such Participating Broker-Dealer, as the case
may be, their counsel, or the managing underwriter(s), if any, shall
reasonably object; PROVIDED, HOWEVER, during any delay in meeting the time
frames contemplated in Section 4 hereof as a result of the actions of any
Holder of Registrable Shares, no Additional Dividends shall accrue or be
payable to such Holder.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement,
as the case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable
Period, as the case may be; cause the related Prospectus to be supplemented
by any Prospectus supplement required by applicable law, and as so
supplemented to be filed pursuant to Rule 424 (or any similar provisions
then in force) under the Securities Act; and comply with the provisions of
the Securities Act, the Exchange Act and the rules and regulations of the
SEC promulgated thereunder applicable to them with respect to the
disposition of all securities covered by such Registration Statement as so
amended or in such Prospectus as so supplemented and with respect to the
subsequent resale of any securities being sold by a Participating
Broker-Dealer covered by any such Prospectus; the Company shall be deemed
not to have used its best efforts to keep a Registration Statement
effective during the Applicable Period if it voluntarily takes any action
that would result in selling Holders of the Registrable Shares covered
thereby or Participating Broker-Dealers seeking to sell Exchange Shares not
being able to sell such Registrable Shares or such Exchange
<PAGE> 15
-13-
Shares during that period unless such action is required by applicable law
or unless the Company complies with this Agreement, including without
limitation, the provisions of clause 5(c)(v) below.
(c) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Shares during the
Applicable Period, notify the selling Holders of Registrable Shares, or
each such Participating Broker-Dealer, as the case may be, their counsel
and the managing underwriters), if any, promptly (but in any event within
two business days), and confirm such notice in writing, (i) when a
Prospectus or any Prospectus supplement or post-effective amendment thereto
has been filed, and, with respect to a Registration Statement or any
post-effective amendment thereto, when the same has become effective
(including in such notice a written statement that any Holder may, upon
request, obtain, without charge, one conformed copy of such Registration
Statement or post-effective amendment thereto including financial
statements and schedules, documents incorporated or deemed to be
incorporated by reference and exhibits), (ii) of the issuance by the SEC of
any stop order suspending the effectiveness of a Registration Statement or
of any order preventing or suspending the use of any preliminary prospectus
or the initiation of any proceedings for that purpose, (iii) if at any time
when a prospectus is required by the Securities Act to be delivered in
connection with sales of the Registrable Shares the representations and
warranties of the Company contained in any agreement (including any
underwriting agreement) contemplated by Section 5(n) below cease to be true
and correct, (iv) of the receipt by the Company of any notification with
respect to the suspension of the qualification or exemption from
qualification of a Registration Statement or any of the Registrable Shares
or the Exchange Shares to be sold by any Participating Broker-Dealer for
offer or sale in any jurisdiction, or the initiation or threatening of any
proceeding for such purpose, (v) of the happening of any event or any
information becoming known to the Company that makes any statement made in
such Registration Statement or related Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in
any material respect or that requires the making of any changes in, or
amendments or supplements to, such Registration Statement, Prospectus or
documents so that, in the case of the
<PAGE> 16
-14-
Registration Statement, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading, and
that in the case of the Prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, and (vi) of
the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Shares during the
Applicable Period, use its best efforts to prevent the issuance of any
order suspending the effectiveness of a Registration Statement or of any
order preventing or suspending the use of a Prospectus or suspending the
qualification (or exemption from qualification) of any of the Registrable
Shares or the Exchange Shares to be sold by any Participating
Broker-Dealer, for sale in any jurisdiction, and, if any such order is
issued, to use its best efforts to obtain the withdrawal of any such order
at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriter(s), if any, or the Holders of a
majority in aggregate liquidation value of the Registrable Shares being
sold in connection with an underwritten offering, (i) promptly incorporate
in a Prospectus supplement or post-effective amendment thereto such
information as the managing underwriters), if any, or such Holders or
counsel reasonably request to be included therein, (ii) make all required
filings of such Prospectus supplement or such post-effective amendment
thereto as soon as practicable after the Company has received notification
of the matters to be incorporated in such prospectus supplement or
post-effective amendment thereto and (iii), if applicable, supplement or
make amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Shares during the
Applicable Period, furnish
<PAGE> 17
-15-
to each selling Holder of Registrable Shares and to each such Participating
Broker-Dealer who so requests and to counsel and the managing
underwriters), if any, without charge, one conformed copy of the
Registration Statement or Registration Statements and each post-effective
amendment thereto, including financial statements and schedules, and, if
requested, all documents incorporated or deemed to be incorporated therein
by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Shares during the
Applicable Period, deliver to each selling Holder of Registrable Shares, or
each such Participating Broker-Dealer, as the case may be, their counsel,
and the managing underwriter or underwriters, if any, without charge, as
many copies of the Prospectus or Prospectuses (including each form of
preliminary prospectus) and each amendment or supplement thereto and any
documents incorporated by reference therein as such Persons may reasonably
request; and, subject to the last paragraph of this Section 5, the Company
hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders of Registrable Shares or
each such Participating Broker-Dealer, as the case may be, and the managing
underwriter or underwriters or agents, if any, and dealers (if any), in
connection with the offering and sale of the Registrable Shares covered by
or the sale by Participating Broker-Dealers of the Exchange Shares pursuant
to such Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Shares or any delivery
of a Prospectus contained in the Exchange Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Shares during the
Applicable Period, to use its best efforts to register or qualify, and to
cooperate with the selling Holders of Registrable Shares or each such
Participating Broker-Dealer, as the case may be, the managing underwriter
or underwriters, if any, and their respective counsel in connection with
the registration or qualification (or exemption from such registration or
qualification) of such Registrable Shares for offer and sale under the
state securities or "blue sky" laws of such jurisdictions within the United
States as any selling Holder, Participating Broker-Dealer, or the managing
underwriter or
<PAGE> 18
-16-
underwriters, if any, reasonably request in writing, PROVIDED that where
Exchange Shares held by Participating Broker-Dealers or Registrable Shares
are offered other than through an underwritten offering, the Company agrees
to cause its counsel to perform "blue sky" investigations and file
registrations and qualifications required to be filed pursuant to this
Section 5(h); keep each such registration or qualification (or exemption
therefrom) effective during the period such Registration Statement is
required to be kept effective and do any and all other acts or things
reasonably necessary or advisable to enable the disposition in such
jurisdictions of the Exchange Shares held by Participating Broker-Dealers
or the Registrable Shares covered by the applicable Registration Statement;
PROVIDED that the Company shall not be required to (A) qualify generally to
do business in any jurisdiction where it is not then so qualified, (B) take
any action that would subject it to general service of process in any such
jurisdiction where it is not then so subject or (C) subject itself to
taxation in excess of a nominal dollar amount in any such jurisdiction.
(i) If a Shelf Registration is filed pursuant to Section 3, cooperate
with the selling Holders of Registrable Shares and the managing underwriter
or underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Shares to be sold, which
certificates shall not bear any restrictive legends and, if requested by
the selling Holders, shall be in a form eligible for deposit with The
Depository Trust Company; and enable such Registrable Shares to be in such
denominations and registered in such names as the managing underwriter or
underwriters, if any, or Holders may reasonably request and are consistent
with the terms of the Restated Articles under which the Registrable Shares
are issued.
(j) Use its best efforts to cause the Registrable Shares covered by
the Registration Statement to be registered with or approved by such other
United States governmental agencies or authorities as may be necessary to
enable the seller or sellers thereof or the managing underwriter or
underwriters, if any, to consummate the disposition of such Registrable
Shares, except as may be required solely as a consequence of the nature of
such selling Holder's business, in which case the Company will cooperate in
all reasonable respects with the filing of such Registration Statement and
the granting of such approvals at such seller's cost and expense.
<PAGE> 19
-17-
(k) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Shares during the
Applicable Period, upon the occurrence of any event contemplated by
paragraph 5(c)(v) or 5(c)(vi) above, as promptly as reasonably practicable
prepare and (subject to Section 5(a) above) file with the SEC, at the
expense of the Company, a supplement or post-effective amendment to the
Registration Statement or a supplement to the related Prospectus or any
document incorporated or deemed to be incorporated therein by reference, or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Shares being sold thereunder or to the
purchasers of the Exchange Shares to whom such Prospectus will be delivered
by a Participating Broker-Dealer, any such Prospectus will not contain an
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,
in light of the circumstances under which they were made, not misleading.
(l) Use its best efforts to cause the Registrable Shares covered by a
Registration Statement or the Exchange Shares sold by a Participating
Broker-Dealer during the Applicable Period, as the case may be, to the
rated with the appropriate rating agencies, if so requested by the Holders
of a majority in aggregate principal amount of Registrable Shares covered
by such Registration Statement or the managing underwriter or underwriters,
if any.
(m) Prior to the effective date of the first Registration Statement
relating to the Registrable Shares, (i) provide the Holders with printed
certificates for the Registrable Shares in a form eligible for deposit with
The Depository Trust Company if the Holders so request and (ii) provide a
CUSIP number for the Registrable Shares.
(n) In connection with an underwritten offering of Registrable Shares
pursuant to a Shelf Registration, enter into an underwriting agreement as
is customary in underwritten offerings of preferred equity securities
similar to the Preferred Shares and take all such other actions as are
reasonably requested by the managing underwriter(s), if any, in order to
expedite or facilitate the registration or the disposition of such
Registrable Shares and, in such connection, (i) make such reasonable
representations and
<PAGE> 20
-18-
warranties to the managing underwriter or underwriters on behalf of any
underwriters, with respect to the business of the Company and its
subsidiaries and the Registration Statement, Prospectus and documents, if
any, incorporated or deemed to be incorporated by reference therein, in
each case, as are customarily made by issuers to underwriters in
underwritten offerings of preferred equity securities, and confirm the same
if and when requested; (ii) obtain opinions of counsel to the Company and
updates thereof in form and substance reasonably satisfactory to the
managing underwriter or underwriters, addressed to the managing underwriter
or underwriters covering the matters customarily covered in opinions
requested in underwritten offerings of preferred equity securities and such
other matters as may be reasonably requested by underwriters; (iii) obtain
"cold comfort" letters and updates thereof in form and substance reasonably
satisfactory to the managing underwriter or underwriters from the
independent certified public accountants of the Company (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements and financial data are, or are required to be, included in the
Registration Statement), addressed to the managing underwriter or
underwriters on behalf of any underwriters, such letters to be in customary
form and covering matters of the type customarily covered in "cold comfort"
letters in connection with underwritten offerings of preferred equity
securities and such other matters as reasonably requested by the managing
underwriter or underwriters; and (iv) if an underwriting agreement is
entered into, the same shall contain indemnification provisions and
procedures no less favorable than those set forth in Section 7 hereof (or
such other provisions and procedures acceptable to Holders of a majority in
aggregate liquidation value of Registrable Shares covered by such
Registration Statement and the managing underwriter or underwriters or
agents) with respect to all parties to be indemnified pursuant to said
Section. The above shall be done at each closing under such underwriting
agreement, or as and to the extent required thereunder.
(o) If (1) a Shelf Registration is filed pursuant to Section 3, or (2)
a Prospectus contained in an Exchange Registration Statement filed pursuant
to Section 2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Shares during the
Applicable Period, make available for inspection by any selling Holder of
such Registrable Shares being sold, or each such Participating
Broker-Dealer, as the
<PAGE> 21
-19-
case may be, the managing underwriter or underwriters participating in any
such disposition of Registrable Shares who held at least 5.0% of the
outstanding Registrable Shares, if any, and any attorney, accountant or
other agent retained by any such selling Holder or each such Participating
Broker-Dealer, as the case may be (collectively, the "INSPECTORS"), at the
offices where normally kept, during reasonable business hours, subject to
customary confidentiality undertakings, all financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries (collectively, the "RECORDS") as shall be reasonably necessary
to enable them to exercise any applicable due diligence responsibilities,
and cause the officers, directors and employees of the Company and its
subsidiaries to supply all information in each case reasonably requested by
any such Inspector in connection with such Registration Statement. Records
which the Company determines, in good faith, to be confidential and any
Records which it notifies the Inspectors are confidential shall not be
disclosed by the Inspectors unless (i) the disclosure of such Records is
necessary to avoid or correct a material misstatement or material omission
in such Registration Statement and the Company fails to promptly correct
such material misstatement or omission after notice thereof, (ii) the
release of such Records is ordered pursuant to a subpoena or other order
from a court of competent jurisdiction or (iii) the information in such
Records has been made generally available to the public. Each selling
Holder of such Registrable Shares and each such Participating Broker-Dealer
or underwriter will be required to agree that information obtained by it as
a result of such inspections shall be deemed confidential and shall not be
used by it for any purpose other than discharging due diligence
responsibilities. Each selling Holder of such Registrable Shares and each
such Participating Broker-Dealer will be required to further agree that it
will, upon learning that disclosure of such Records is sought in a court of
competent jurisdiction, give notice to the Company and allow the Company to
undertake appropriate action to prevent disclosure of the Records deemed
confidential at its expense.
(p) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earnings statements
satisfying the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder (or any similar rule promulgated under the Securities Act)
no later than 45 days after the end of any 12-month period (or 90 days
after the end of any 12-month period if such period is a fiscal year) (i)
commencing at
<PAGE> 22
-20-
the end of any fiscal quarter in which Registrable Shares are sold to
underwriters in a firm commitment or best efforts underwritten offering and
(ii) if not sold to underwriters in such an offering, commencing on the
first day of the first fiscal quarter of the Company after the effective
date of a Registration Statement, which statements shall cover said
12-month periods.
(q) Upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Company in a form customary for
underwritten offerings of preferred equity securities similar to the
Preferred Shares, addressed to the Holders of Registrable Shares
participating in the Exchange Offer or the Private Exchange, as the case
may be, and which includes an opinion that the Company has duly issued the
Exchange Shares and the Private Exchange Shares, as the case may be.
(r) If an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Shares by Holders to the Company (or to
such other Person as directed by the Company) in exchange for the Exchange
Shares or the Private Exchange Shares, as the case may be, the Company
shall mark, or cause to be marked, on such Registrable Shares that such
Registrable Shares are being cancelled in exchange for the Exchange Shares
or the Private Exchange Shares, as the case may be; in no event shall such
Registrable Shares be marked as paid or otherwise satisfied.
(s) Cooperate with each seller of Registrable Shares covered by any
Registration Statement and the managing underwriters), if any,
participating in the disposition of such Registrable Shares and their
respective counsel in connection with any filings required to be made with
the National Association of Securities Dealers, Inc. (the "NASD").
(t) Use its reasonable best efforts to take all other steps necessary
to effect the registration of the Registrable Shares covered by a
Registration Statement contemplated hereby.
The Company may require each seller of Registrable Shares or
Participating Broker-Dealer as to which any registration is being effected to
furnish to the Company such information regarding such seller or Participating
Broker-Dealer and the distribution of such Registrable Shares or Exchange Shares
to be sold by such Participating Broker-Dealer, as the case may be, as the
Company may, from time to time,
<PAGE> 23
-21-
reasonably request. The Company may exclude from such registration the
Registrable Shares of any seller or Participating Broker-Dealer who fails to
furnish such information within a reasonable time after receiving such request,
and during any delay in meeting the time frames contemplated by Section 4 hereof
as a result of a delay in receiving any such information, no Additional Interest
shall accrue or be payable.
Each Holder of Registrable Shares and each Participating Broker-Dealer
agrees by acquisition of such Registrable Shares or Exchange Shares to be sold
by such Participating Broker-Dealer, as the case may be, that, upon receipt of
any notice from the Company of the happening of any event of the kind described
in Section 5(c)(ii), 5(c)(iv), 5(c)(v) or 5(c)(vi), such Holder will forthwith
discontinue disposition of such Registrable Shares covered by such Registration
Statement or Prospectus or Exchange Shares to be sold by such Holder or
Participating Broker-Dealer, as the case may be, until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by Section
5(k), or until it is advised in writing (the "ADVICE") by the Company that the
use of the applicable Prospectus may be resumed, and has received copies of any
amendments or supplements thereto. In the event the Company shall give any such
notice, each of the Effectiveness Period and the Applicable Period shall be
extended by the number of days during such periods from and including the date
of the giving of such notice to and including the date when each seller of
Registrable Shares covered by such Registration Statement or Exchange Shares to
be sold by such Holder or Participating Broker-Dealer, as the case may be, shall
have received (x) the copies of the supplemented or amended Prospectus
contemplated by Section 5(k) or (y) the Advice.
6. Registration Expenses
---------------------
(a) All fees and expenses incident to the performance of or compliance
with this Agreement by the Company shall be borne by the Company, whether or not
the Exchange Offer or a Shelf Registration is filed or becomes effective,
including, without limitation, (i) all registration and filing fees (including,
without limitation, (A) fees with respect to filings required to be made with
the NASD in connection with one underwritten offering and (B) fees and expenses
of compliance with state securities or "blue sky" laws (including, without
limitation, reasonable fees and disbursements of counsel in connection with
"blue sky" qualifications of the Registrable Shares or Exchange Shares and
determination of the eligibility of the Registrable Shares or Exchange Shares
for investment under the laws of such jurisdictions (x) where the holders of
Registrable Shares are located, in the case of the Exchange
<PAGE> 24
-22-
Shares, or (y) as provided in Section 5(h), in the case of Registrable Shares or
Exchange Shares to be sold by a Participating Broker-Dealer during the
Applicable Period)), such expenses, together with expenses in connection with
any related filing, not to exceed $10,000 in the aggregate, (ii) printing
expenses (including, without limitation, expenses of printing certificates for
Registrable Shares or Exchange Shares in a form eligible for deposit with The
Depository Trust Company and of printing prospectuses if the printing of
prospectuses is reasonably requested by the managing underwriter or
underwriters, if any, or, in respect of Registrable Shares or Exchange Shares to
be sold by any Participating Broker-Dealer during the Applicable Period, by the
Holders of a majority in aggregate liquidation value of the Registrable Shares
included in any Registration Statement or of such Exchange Shares, as the case
may be), (iii) reasonable messenger, telephone and delivery expenses, (iv) fees
and disbursements of counsel for the Company and reasonable fees and
disbursements of one special counsel for the sellers of Registrable Shares under
the Shelf Registration (subject to the provisions of Section 6(b)), (v) fees and
disbursements of all independent certified public accountants referred to in
Section 5(n)(iii) (including, without limitation, the expenses of any special
audit and "cold comfort" letters required by or incident to such performance),
(vi) rating agency fees, (vii) Securities Act liability insurance, if the
Company desires such insurance, (viii) fees and expenses of all other Persons
retained by the Company, (ix) internal expenses of the Company (including,
without limitation, all salaries and expenses of officers and employees of the
Company performing legal or accounting duties), (x) the expense of any annual or
special audit, (xi) the fees and expenses incurred in connection with the
listing of the securities to be registered on any securities exchange, (xii) the
reasonable fees and disbursements of underwriters, if any, customarily paid by
issuers or sellers of securities, and (xiii) the expenses incurred by the
Company relating to printing, word processing and distributing all Registration
Statements, underwriting agreements, securities sales agreements and any other
documents necessary in order to comply with this Agreement.
(b) In connection with any Shelf Registration hereunder, the Company
shall reimburse the Holders of the Registrable Shares being registered in such
registration for the actual reasonable fees and disbursements of not more than
one counsel (in addition to appropriate local counsel) chosen by the Holders of
a majority in aggregate liquidation value of the Registrable Shares to be
included in such Registration Statement and other reasonable out-of-pocket
expenses of the Holders of Registrable Shares incurred in connection with the
registration of the Registrable Shares, subject to a maximum of $25,000.
Notwithstanding anything to the contrary contained herein, the Company shall not
have
<PAGE> 25
-23-
any obligation to pay any underwriting fees, discounts or commissions
attributable to the sale of Registrable Shares.
7. Indemnification
---------------
(a) The Company agrees to indemnify and hold harmless each Holder of
Registrable Shares and each Participating Broker-Dealer selling Exchange Shares
during the Applicable Period, the officers and directors of each such person,
and each person, if any, who controls any such person within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act (each,
a "Participant"), from and against any and all losses, claims, damages and
liabilities (including, without limitation, the reasonable legal fees and other
expenses actually incurred in connection with any suit, action or proceeding or
any claim asserted) caused by, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus,
or caused by, arising out of or based upon any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading, except insofar as such losses, claims, damages or
liabilities are caused by any untrue statement or omission or alleged untrue
statement or omission made in reliance upon and in conformity with information
relating to any Participant furnished to the Company in writing by such
Participant expressly for use therein; PROVIDED that the foregoing indemnity
with respect to any preliminary prospectus shall not inure to the benefit of any
Participant (or to the benefit of any person controlling such Participant) from
whom the person asserting any such losses, claims, damages or liabilities
purchased Registrable Shares or Exchange Shares if such untrue statement or
omission or alleged untrue statement or omission made in such preliminary
prospectus is eliminated or remedied in the related Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) and a copy of the related Prospectus (as so amended or supplemented)
shall have been furnished to such Participant at or prior to the sale of such
Registrable or Exchange Shares, as the case may be, to such person or at a time
the Company had notified persons under the last paragraph of Section 5 hereof to
cease using such Registration Statement or Prospectus.
(b) Each Participant will be required to agree, severally and not
jointly, to indemnify and hold harmless the Company, its directors and officers
and each person who controls the Company within the meaning of
<PAGE> 26
-24-
Section 15 of the Securities Act or Section 20 of the Exchange Act to the same
extent as the foregoing indemnity from the Company to each Participant, but only
with reference to information relating to such Participant furnished to the
Company in writing by such Participant expressly for use in any Registration
Statement or Prospectus, any amendment or supplement thereto, or any preliminary
prospectus. The liability of any Participant under this paragraph (b) shall in
no event exceed the proceeds received by such Participant from sales of
Registrable Shares giving rise to such obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any person in respect of which indemnity may be sought pursuant to either
paragraph (a) or (b) of this Section 7, such person (the "INDEMNIFIED PERSON")
shall promptly notify the person against whom such indemnity may be sought (the
"INDEMNIFYING PERSON") in writing, and the Indemnifying Person, upon request of
the Indemnified Person, shall retain one counsel reasonably satisfactory to the
Indemnified Person to represent the Indemnified Person and any others the
Indemnifying Person may reasonably designate in such proceeding and shall pay
the reasonable fees and expenses actually incurred by such counsel related to
such proceeding. In any such proceeding, any Indemnified Person shall have the
right to retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such Indemnified Person unless (i) the Indemnifying Person
and the Indemnified Person shall have mutually agreed in writing to the
contrary, (ii) the Indemnifying Person has failed within a reasonable time to
retain counsel reasonably satisfactory to the Indemnified Person or (iii) the
named parties in any such proceeding (including any impleaded parties) include
both the Indemnifying Person and the Indemnified Person and representations of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
Indemnifying Person shall not, in connection with any proceeding or related
proceeding in the same jurisdiction, be liable for the fees and expenses of more
than one separate law firm (in addition to any local counsel) for all
Indemnified Persons, and that all such fees and expenses shall be reimbursed as
they are incurred. Any such separate firm for the Participants and such control
persons of Participants shall be designated in writing by Participants who sold
a majority in interest of Registrable Shares sold by all such Participants and
any such separate firm for the Company, its directors, officers and such control
persons of the Company shall be designated in writing by the Company. The
Indemnifying Person 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
<PAGE> 27
-25-
judgment for the plaintiff, the Indemnifying Person agrees to indemnify any
Indemnified Person from and against any loss or liability by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an Indemnified Person shall have requested an Indemnifying Person to reimburse
the Indemnified Person for reasonable fees and expenses actually incurred by
counsel as contemplated by the third sentence of this paragraph, the
Indemnifying Person 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 Person of the
aforesaid request and (ii) such Indemnifying Person shall not have reimbursed
the Indemnified Person in accordance with such request prior to the date of such
settlement; PROVIDED, HOWEVER, that the Indemnifying Person shall not be liable
for any settlement effected without its consent pursuant to this sentence if the
Indemnifying Party is contesting, in good faith, the request for reimbursement.
No Indemnifying Person shall, without the prior written consent of the
Indemnified Person, effect any settlement of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party and indemnity could have been sought hereunder by such Indemnified Person,
unless such settlement includes an unconditional release of such Indemnified
Person from all liability on claims that are the subject matter of such
proceeding.
If the indemnification provided for in paragraphs (a) and (b) of this
Section 7 is unavailable to an Indemnified Person in respect of any losses,
claims, damages or liabilities referred to therein, then each Indemnifying
Person under such paragraphs, in lieu of indemnifying such Indemnified Person
thereunder, shall contribute to the amount paid or payable by such Indemnified
Person as a result of such losses, claims, damages or liabilities in such
proportion as is appropriate to reflect the relative fault of the Company on the
one hand and the Participants on the other in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
Company on the one hand and the Participants on the other shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Participants and the
parties, relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The parties shall agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by PRO RATA allocation
(even if the Participants were treated as one entity for such
<PAGE> 28
-26-
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by an Indemnified Person as a result of the losses,
claims, damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set forth
above, any reasonable legal or other expenses actually incurred by such
Indemnified Person in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Shares or
Exchange Shares exceeds the amount of any damages that such Participant has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. 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 indemnity and contribution agreements contained in this Section 7
will be in addition to any liability which the Indemnifying Persons may
otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A
------------------
The Company covenants that it will file the reports required to he filed
by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder in a timely manner and, if at any time
the Company is not required to file such reports, it will, upon the request of
any Holder of Registrable Shares, make publicly available other information of a
like nature so long as necessary to permit sales pursuant to Rule 144 or Rule
144A under the Securities Act. The Company further covenants that so long as any
Registrable Shares remain outstanding to make available to any Holder of
Registrable Shares in connection with any sale thereof, the information required
by Rule 144A(d)(4) under the Securities Act in order to permit resales of such
Registrable Shares pursuant to (a) such Rule 144A, or (b) any similar rule or
regulation hereafter adopted by the SEC unless at such time the Registrable
Shares are fully salable under Rule 144 or any successor provision.
9. Underwritten Registrations
--------------------------
If any of the Registrable Shares covered by any Shelf Registration are to
be sold in an underwritten offering, the investment banker or
<PAGE> 29
-27-
investment bankers and manager or managers that will manage the offering will be
selected by the Holders of a majority in aggregate principal amount of such
Registrable Securities included in such offering and shall be reasonably
acceptable to the Company.
No Holder of Registrable Shares may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Shares on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous
-------------
(a) REMEDIES. In the event of a breach by the Company of any of its
obligations under this Agreement, other than the occurrence of an event which
requires payment of Additional Dividends, each Holder of Registrable Shares, in
addition to being entitled to exercise all rights provided herein or, in the
case of the Initial Purchasers, in the Purchase Agreement or granted by law,
including recovery of damages, will be entitled to a specific performance of its
rights under this Agreement. In the event of a breach by the Company of any of
its obligations under this Agreement, other than the occurrence of an event
which requires payment of Additional Dividends, the Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of any of the provisions of this Agreement and hereby further
agrees that, in the event of any action for specific performance in respect of
such breach, it shall waive the defense that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. Except for the old Warrant Agreement (as
defined in the Purchase Agreement), the Company has not, as of the date hereof,
and the Company shall not, after the date of this Agreement, enter into any
agreement with respect to any of its securities that is inconsistent in all
material respects with the rights granted to the Holders of Registrable Shares
in this Agreement or otherwise conflicts with the provisions hereof in all
material respects. Except for the Old Warrant Agreement (as defined in the
Purchase Agreement), the Company has not entered and will not enter into any
agreement with respect to any of its securities which will grant to any Person
piggyback rights with respect to a Registration Statement.
<PAGE> 30
-28-
(c) ADJUSTMENTS AFFECTING REGISTRABLE SHARES. The Company shall not,
directly or indirectly, take any action with respect to the Registrable Shares
as a class that would adversely affect, in any material respect, the ability of
the Holders of Registrable Shares to include such Registrable Shares in a
registration undertaken pursuant to this Agreement.
(d) AMENDMENTS AND WAIVERS. The provisions of this Agreement, including
the provisions of this sentence, may not be amended, modified or supplemented,
and waivers or consents to departures from the provisions hereof may not be
given, unless the Company has obtained the written consent of Holders of at
least a majority of the then outstanding aggregate liquidation value of
Registrable Shares. Notwithstanding the foregoing, a waiver or consent to depart
from the provisions hereof with respect to a matter that relates exclusively to
the rights of Holders of Registrable Shares whose securities are being sold
pursuant to a Registration Statement and that does not directly or indirectly
affect, impair, limit or compromise the rights of other Holders of Registrable
Shares may be given by Holders of at least a majority in aggregate liquidation
value of the Registrable Shares being sold by such Holders pursuant to such
Registration Statement, PROVIDED that the provisions of this sentence may not be
amended, modified or supplemented except in accordance with the provisions of
the immediately preceding sentence.
(e) NOTICES. All notices and other communications provided for or
permitted hereunder shall he made in writing by hand-delivery, registered
first-class mail, next day air courier or telecopier:
(i) if to a Holder of Registrable Shares, CIBC Wood Gundy
Securities Corp., 425 Lexington Avenue, 3rd Floor, New York, New York
10017, with a copy to Cahill Gordon & Reindel, 80 Pine Street, New York,
New York 10005, Attention: Roger Meltzer, Esq.; and
(ii) if to the Company, High Voltage Engineering Corporation, 401
Edgewater Place, Suite 680, Wakefield, Massachusetts 01880, Attn:
President, Tel: (617) 224-1001, Fax: (617) 224-1011, with a copy to
Bingham, Dana & Gould LLP, 150 Federal Street, Boston, Massachusetts
02110-1726, Attn: Michael P. O'Brien, Esq., Tel: (617) 951-8000, Fax:
(617) 951-8736.
All such notices and communications shall he deemed to have been duly
given: (i) when delivered by hand, if personally delivered; (ii) five business
days after being deposited in the mail, postage prepaid, if mailed; (iii) one
business day after being timely delivered to a next-day
<PAGE> 31
-29-
air courier; and (iv) when receipt is acknowledged by the addressee, if
telecopied.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties, including
without limitation and without the need for an express assignment, subsequent
Holders of Registrable Shares.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS MADE
AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE
JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(j) SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, illegal,
void or unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and impaired
or invalidated, and the parties hereto shall use commercially reasonable efforts
to find and employ an alternative means to achieve the same or substantially the
same result as that contemplated by such term, provision, covenant or
restriction.
(i) ENTIRE AGREEMENT. This Agreement, together with the Purchase
Agreement, is intended by the parties as a final expression of their agreement,
and is intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein.
<PAGE> 32
-30-
(l) SHARES HELD BY THE COMPANY OR ITS AFFILIATES. Whenever the consent or
approval of Holders of a specified percentage of Registrable Shares is required
hereunder, Registrable Shares held by the Company or its affiliates (as such
term is defined in Rule 405 under the Securities Act) shall not be counted in
determining whether such consent or approval was given by the Holders of such
required percentage.
IN WITNESS WHEREOF, the parties have executed this Preferred Stock
Registration Rights Agreement as of the date first written above.
HIGH VOLTAGE ENGINEERING
CORPORATION
By: /s/ Clifford Press
------------------------------------
Name: Clifford Press
Title: President
CIBC WOOD GUNDY SECURITIES CORP.
PAINEWEBBER INCORPORATED
By: CIBC WOOD GUNDY SECURITIES
CORP.
By: /s/ Brian Gerson
------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We have issued our report dated June 18, 1997 (except for notes N and P as to
which the dates are July 29, 1997 and July 26, 1997, respectively) accompanying
the financial statements of High Voltage Engineering Corporation and
Subsidiaries contained in the Registration Statement and Prospectus. We consent
to the use of the aforementioned report in the Registration Statement and
Prospectus, and to the use of our name as it appears under the caption
"Experts".
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Boston, Massachusetts
August 18, 1997
<PAGE> 1
Exhibit 23.3
------------
Independent Auditors' Consent
The Board of Directors
PHI Acquisition Holdings, Inc.:
We consent to the inclusion of our report dated August 9, 1996 in the
Prospectus Offer to exchange all outstanding shares of 12 1/2% Series A Senior
Redeemable Preferred Stock for shares of 12 1/2% Series A Exchange Senior
Redeemable Preferred Stock of High Voltage Engineering Corporation on Form S-4
relating to the consolidated balance sheets of PHI Acquisition Holdings, Inc.
and subsidiaries as of June 28, 1996 and June 30, 1995, and the related
statements of operations, stockholders' equity and cash flows for the years
then ended and to the reference to our firm under the heading "Experts."
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 18, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
HISTORICAL CONSOLIDATED FINANCIAL STATEMENTS OF HIGH VOLTAGE ENGINEERING
CORPORATION AND SUBSIDIARIES AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> APR-26-1997
<PERIOD-END> APR-26-1997
<CASH> 3,752
<SECURITIES> 0
<RECEIVABLES> 33,333
<ALLOWANCES> 1,857
<INVENTORY> 22,334
<CURRENT-ASSETS> 60,583
<PP&E> 53,607
<DEPRECIATION> 22,641
<TOTAL-ASSETS> 113,587
<CURRENT-LIABILITIES> 51,212
<BONDS> 80,508
11,474
0
<COMMON> 1
<OTHER-SE> (36,737)
<TOTAL-LIABILITY-AND-EQUITY> 113,587
<SALES> 173,103
<TOTAL-REVENUES> 173,103
<CGS> 114,848
<TOTAL-COSTS> 114,848
<OTHER-EXPENSES> 48,588
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,602
<INCOME-PRETAX> (1,584)
<INCOME-TAX> 526
<INCOME-CONTINUING> (2,110)
<DISCONTINUED> 0
<EXTRAORDINARY> (259)
<CHANGES> 0
<NET-INCOME> (2,369)
<EPS-PRIMARY> (2,830.27)
<EPS-DILUTED> (2,830.27)
</TABLE>
