<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 17,1997
REGISTRATION NO. 333-33969
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
HIGH VOLTAGE ENGINEERING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MASSACHUSETTS 3625 04-2035796
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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)
---------------------------
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)
---------------------------
WITH A COPY TO:
MICHAEL P. O'BRIEN, ESQ.
BINGHAM DANA LLP
150 FEDERAL STREET
BOSTON, MA 02110
(617) 951-8302
FACSIMILE NO. (617) 951-8736
- --------------------------------------------------------------------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
<PAGE> 2
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. / /
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.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 17, 1997
PROSPECTUS
OFFER TO EXCHANGE 10-1/2% SENIOR NOTES DUE 2004 WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING 10-1/2% SENIOR NOTES DUE 2004
[LOGO] HIGH VOLTAGE ENGINEERING CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
BOSTON 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 up to an aggregate amount of $135,000,000 of its 10-1/2% Senior Notes
Dues 2004 (the "New Notes"), which have been registered under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to a Registration Statement
of which this Prospectus is a part, for a like principal amount of its
outstanding 10-1/2% Senior Notes due 2004 (the "Existing Notes"), of which
$135,000,000 in aggregate principal amount is outstanding as of the date hereof.
The terms of the New Notes are identical in all material respects to the terms
of the Existing Notes, except for certain transfer restrictions and registration
rights relating to the Existing Notes. The New Notes will be issued pursuant to,
and entitled to the benefits of, the Indenture, dated as of August 8, 1997,
between the Company and State Street Bank and Trust Company, as trustee,
governing the Existing Notes. The New Notes and the Existing Notes are
hereinafter sometimes collectively referred to as the "Notes."
The Company will accept for exchange any and all Existing Notes that
are validly tendered on or prior to 5:00 p.m., Boston time, on the date the
Exchange Offer expires, which will be ________ __, 1997, unless the Exchange
Offer is extended (the "Expiration Date"). Including any extension, the Exchange
Offer will expire no later than ________ __, 1997. Tenders of Existing Notes
may be withdrawn at any time prior to 5:00 p.m., Boston time, on the business
day prior to the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of Existing Notes 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 Notes Registration Rights
Agreement (as defined herein). See "Exchange Offer." The Company has agreed to
pay the expenses of the Exchange Offer.
Holders of Existing Notes whose notes are not tendered and accepted in
the Exchange Offer will continue to hold such Existing Notes. Following
consummation of the Exchange Offer, the holders of Existing Notes 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 Existing Notes held
by them.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY HOLDERS OF EXISTING NOTES AND PROSPECTIVE
PURCHASERS OF NEW NOTES.
_______________
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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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$135,000,000 aggregate principal amount of the Existing Notes 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 Existing Notes 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. The New Notes are being offered hereby in
order to satisfy the obligations of the Company under the Notes 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 New Notes
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 New Notes 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 New Notes 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 New
Notes. Eligible holders wishing to accept the Exchange Offer must represent to
the Company that such conditions have been met. Each broker-dealer that receives
New Notes for its own account pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection with any resale of such New
Notes. 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 New Notes received in
exchange for Existing Notes where such Existing Notes 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 New Notes received in exchange
for Existing Notes acquired by such broker-dealers for their own accounts as a
result of market-making or other trading activities. See "Plan of Distribution."
Interest on the Notes will be payable in cash semiannually on each
August 15 and February 15, commencing February 15, 1998. The Notes will be
redeemable at the option of the Company, in whole or in part, at any time on or
after August 15, 2001, at the redemption prices set forth herein, plus accrued
and unpaid interest to the redemption date. In addition, the Company, at its
option, may redeem in the aggregate up to 35% of the original principal amount
of the Notes at any time prior to August 15, 2000, at a redemption price equal
to 110.500% of the aggregate principal amount thereof, plus accrued and unpaid
interest to the redemption date, with the Net Proceeds (as defined herein) of
one or more Qualified Equity Offerings (as defined herein) of HVE, or Letitia
Corporation (HVE's parent) to the extent such proceeds were contributed to HVE
as common equity; provided that at least $87.8 million of the principal amount
of the Notes originally issued remain outstanding after giving effect to any
such redemption and that any such redemption occurs within 60 days following the
closing of any such Qualified Equity Offering. In addition, the Company will
allow each Restricted Subsidiary that is an obligor under an Intercompany Note
to effect a Qualified Subsidiary IPO; provided, among other things, that 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; that the Company will be obligated to make an 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 that any such purchase of Notes occurs within 90 days
following the closing of any such Qualified Subsidiary IPO; that immediately
after giving pro forma effect to such Qualified Subsidiary IPO, the Company
(excluding the EBITDA and the Consolidated Fixed Charges (as defined herein) of
the Restricted Subsidiary effecting the Qualified Subsidiary IPO) could incur
$1.00 of additional Indebtedness (as defined herein) under the covenant set
forth under "Description of the Notes -- Certain Covenants -- Limitation on
Additional Indebtedness," assuming for this purpose only, that the
aforementioned offer to repurchase has been subscribed in full; and that all
remaining Net Proceeds of such Qualified Subsidiary IPO received by HVE will be
deemed an Asset Sale (as defined herein). A Restricted Subsidiary will become an
Unrestricted Subsidiary (as defined herein) upon completion of a Qualified
Subsidiary IPO and the repayment of its Intercompany Note. See "Description of
the Notes -- Offer to Repurchase upon a Qualified Subsidiary IPO."
The Notes will be senior unsecured obligations of the Company ranking
pari passu in right of payment with all existing and future senior indebtedness
of the Company and senior in right of payment to any subordinated indebtedness
of the Company. The Notes will be effectively subordinated to all existing and
future secured indebtedness of the Company,
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including indebtedness under the New Revolving Credit Facility. Despite the
pledge of the Intercompany Notes (as defined herein) to secure the repayment of
the Notes, a bankruptcy court could subordinate such repayments to all existing
and future indebtedness and other liabilities and commitments of any of HVE's
subsidiaries. As of April 26, 1997, pro forma for the Transactions (as defined
herein), 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 Company's ability to make any cash payments with
respect to the Notes may be adversely affected by any inability of its
subsidiaries to make dividend or other payments to the Company.
Upon the occurrence of a Change of Control (as defined herein), each
holder of the Notes will be entitled to require the Company to purchase such
holder's Notes at a purchase price equal to 101% of the principal amount
thereof, plus accrued and unpaid interest to the purchase date. See "Description
of the Notes -- Change of Control Offer." In addition, the Company will be
obligated in certain instances to make an offer to purchase the Notes at a
purchase price in cash equal to 100% of the principal amount thereof, plus
accrued and unpaid interest to the purchase date, with the Available Asset Sale
Proceeds (as defined herein) of certain asset sales. See "Description of the
Notes -- Certain Covenants -- Limitation on Certain Asset Sales."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF EXISTING NOTES 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 New Notes will develop. Whether or not a market for the New Notes should
develop, the New Notes could trade at a discount from their aggregate
liquidation preference. The Company does not intend to list the New Notes on a
national securities exchange or to apply for quotation of the New Notes through
the National Association of Securities Dealers Automated Quotation System. To
the extent Existing Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted shares of Existing
Notes 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 New Notes; however,
it is under no obligation to do so and any market making activities with respect
to the New Notes 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 Adjusted EBITDA (as defined in note (m) on
page 38). 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 Adjusted 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 Adjusted EBITDA of $237.9 million and $25.4 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 a 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 last 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 INTERCONNECT, INC. ("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
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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.
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 a
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 Existing 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 (together with 12-1/2% Series
A Exchange Preferred Stock, the "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
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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.
THE EXCHANGE OFFER
Securities Offered.......... Up to $135,000,000 aggregate principal
amount of 10-1/2% Senior Notes due 2004
(the "New Notes"). The terms of the New
Notes and those of the Existing Notes are
identical in all material respects, except
for certain transfer restrictions relating
to the Existing Notes. See "Description of
the Notes."
The Exchange Offer.......... The New Notes are being offered in exchange
for a like principal amount of Existing
Notes. Existing Notes may be exchanged only
in existing multiples of $1,000. The
issuance of the New Notes is intended to
satisfy obligations of the Company under the
Notes Registration Rights Agreement. For a
description of the procedures for tendering,
see "Exchange Offer -- Procedures for
Tendering Existing Notes."
Expiration Date; Withdrawal. The Exchange Offer will expire at 5:00 p.m.,
New York City time, on December , 1997, or
such later date and time to which it may
be extended in the sole discretion of the
Company (the "Expiration Date"). The tender
of Existing Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to
any time prior to 5:00 p.m., New York City
time, on the business day prior to the
Expiration Date. Any Existing Notes 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."
8
<PAGE> 11
Procedures for Tendering
Existing Notes.............. Each holder of Existing Notes 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 "Exchange Offer -- Procedures
for Tendering Existing Notes."
Use of Proceeds............. There will be no proceeds to the Company
from the exchange of Notes pursuant to the
Exchange Offer.
Certain Federal Income Tax
Consideration............... The exchange pursuant to the Exchange Offer
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 Existing Notes... Upon consummation of the Exchange Offer, the
holders of Existing Notes, if any, will have
no further rights under the Notes
Registration Rights Agreement, except as
provided herein. Holders of Existing Notes
who do not tender their Existing Notes in
the Exchange Offer or whose Existing Notes
are not accepted for exchange will continue
to hold such Existing Notes by their terms,
terminate or cease to 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, be effective as
a result of this Exchange Offer. All
untendered and tendered but unaccepted
Existing Notes will continue to be subject
to the restrictions on transfer provided
therein. To the extent that Existing Notes
are tendered and accepted in the Exchange
Offer, the trading market for untendered and
tendered but unaccepted Existing Notes could
be adversely affected.
Exchange Agent.............. State Street Bank and Trust Company is
serving as the Exchange Agent in connection
with the Exchange Offer.
9
<PAGE> 12
TERMS OF THE NOTES
Except as otherwise indicated, the following description relates both to the
Existing Notes issued pursuant to the Offering and to the New Notes to be issued
in exchange for Existing Notes in connection with the Exchange Offer. The New
Notes will be obligations of the Company evidencing the same indebtedness as the
Existing Notes, and will be entitled to the benefits of the same Indenture. The
form and terms of the New Notes are the same as the form and terms of the
Existing Notes, except that the New Notes have been registered under the
Securities Act and therefore will not bear legends restricting the transfer
thereof. For a more complete description of the Notes see "Description of
Notes." Throughout this Prospectus, references to the "Notes" refer to the New
Notes and the Existing Notes collectively.
Issuer...................... High Voltage Engineering Corporation.
Notes Offered............... $135,000,000 principal amount of 10-1/2%
Senior Notes due 2004.
Maturity Date............... August 15, 2004.
Interest Payment Dates...... Interest will accrue on the Notes from the
date of issuance of the Notes (the "Issue
Date") and will be payable in cash
semiannually on each August 15 and February
15, commencing February 15, 1998.
Optional Redemption......... The Notes will be redeemable, at the option
of the Company, in whole or in part, at any
time on or after, August 15, 2001, at the
redemption prices set forth herein, plus
accrued and unpaid interest to the
redemption date. In addition, the Company,
at its option, may redeem in the aggregate
up to 35% of the original principal amount
of the 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 thereof, plus
accrued and unpaid interest to the
redemption date, with the Net Proceeds of
one or more Qualified Equity Offerings of
HVE, or Letitia Corporation (HVE's parent)
to the extent such proceeds are contributed
to HVE as common equity; provided that at
least $87.8 million of the principal amount
of the Notes originally issued remains
outstanding after giving effect to any such
redemption and that any such redemption
occurs within 60 days following the closing
of any such Qualified Equity Offering. See
"Description of the Notes -- Optional
Redemption."
10
<PAGE> 13
Intercompany Notes.......... At the closing of the Offerings, the
principal amount of the Existing 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 being repaid in connection with
the Refinancing. Amounts allocated to such
Restricted Subsidiaries were evidenced by
Intercompany Notes. The Intercompany Notes
are senior obligations of each Restricted
Subsidiary, have terms substantially similar
to the terms of the Notes and have been
pledged by HVE as security for payment of
principal and interest on the Notes. The
Intercompany Notes 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.
Offer to Repurchase upon a
Qualified Subsidiary IPO.. 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) the Company will be
obligated to make an 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
that any such purchase of Notes occurs
within 90 days following the closing of any
such Qualified Subsidiary IPO; (iii)
immediately after giving pro forma effect to
such Qualified Subsidiary IPO, 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
the covenant set forth under "Description of
the Notes - Certain Covenants -- Limitation
on Additional Indebtedness," and assuming
for purposes of this calculation only, that
the aforementioned offer to repurchase has
been subscribed in full, and (iv) all
remaining Net Proceeds of such Qualified
Subsidiary IPO received by HVE will be
deemed an Unrestricted Subsidiary upon
completion of a Qualified Subsidiary IPO.
See "Description of the Notes - Offer to
Repurchase upon a Qualified Subsidiary IPO."
11
<PAGE> 14
Ranking..................... The Notes are senior unsecured obligations
of the Company ranking pari passu in right
of payment with all existing and future
senior indebtedness of the Company and
senior in right of payment to any
subordinated indebtedness of the Company.
The Notes will be effectively subordinated
to all existing and future secured
indebtedness of the Company, including
indebtedness under the New Revolving Credit
Facility. Despite the pledge of the
Intercompany Notes to secure the repayment
of the Notes, a bankruptcy court could
subordinate such repayments to all existing
and future indebtedness and other
liabilities and commitments of any of HVE's
subsidiaries. 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).
Change of Control........... Upon the occurrence of a Change of Control,
each holder of the Notes will be entitled to
require the Company to purchase such
holder's Notes at a purchase price equal to
101% of the principal amount thereof, plus
accrued and unpaid interest to the purchase
date. There can be no assurance that the e
Company will have sufficient funds or will
be contractually permitted by the New
Revolving Credit Facility to pay the
required purchase price for all Notes
tendered by holders thereof upon the
occurrence of a Change of Control. See
"Description of the Notes -- Change of
Control Offer."
Asset Sale Proceeds......... The Company will be obligated in certain
instances to make an offer to purchase the
Notes at a purchase price in cash equal to
100% of the principal amount thereof, plus
accrued and unpaid interest to the purchase
date, with the Available Asset Sale Proceeds
of certain asset sales. See "Description of
the Notes -- Certain Covenants -- Limitation
on Certain Asset Sales."
12
<PAGE> 15
Certain Covenants........... The Indenture pursuant to which the Notes
have been and will be issued (the
"Indenture") contains covenants for the
benefit of the holders of the Notes that,
among other things, restrict the ability of
HVE and its Restricted Subsidiaries to: (i)
incur additional Indebtedness; (ii) pay
dividends or make certain other restricted
payments; (iii) issue capital stock or
preferred stock of Restricted Subsidiaries;
(iv) make certain investments; (v) create
liens; (vi) enter into transactions with
affiliates; (vii) transfer or repay the
Intercompany Notes; (viii) enter into sale
and lease-back transactions; (ix) merge or
consolidate HVE or any Restricted
Subsidiaries; (x) transfer or sell assets;
(xi) create dividend or other payment
restrictions affecting Restricted
Subsidiaries; and (xii) guarantee certain
indebtedness. These covenants are subject to
a number of important exceptions. See
"Description of the Notes -- Certain
Covenants."
COMPARISON OF NEW NOTES WITH EXISTING NOTES
Freely Transferable......... Generally, the New Notes will be freely
transferable under the Securities Act by
holders thereof other than any holder that
is either an affiliate of the Company or a
broker-dealer that purchased the Notes from
the Company to resell pursuant to Rule 144A
or any other available exemption. The New
Notes otherwise will be substantially
identical in all material respects
(including interest rate and maturity) to
the Existing Notes. See "Exchange Offer."
Registration Rights......... The holders of Existing Notes currently are
entitled to certain registration rights
pursuant to the Notes Registration Rights
Agreement (the "Notes Registration Rights
Agreement"), dated as of August 8, 1997,
between the Company and the Initial
Purchasers. However, upon consummation of
the Exchange Offer, subject to certain
exceptions, holders of Existing Notes who do
not exchange their Existing Notes for New
Notes in the Exchange Offer will no longer
be entitled to registration rights and will
not be able to offer or sell their Existing
Notes, unless such Existing Notes are
subsequently registered under the Securities
Act (which, subject to certain limited
exceptions, the Company will have no
obligation to do), except pursuant to an
exemption from, or in a transaction not
subject to, the Securities Act and
applicable state securities laws. See "Risk
Factors -- Adverse Consequences of Failure
to Adhere to Exchange Offer Procedures."
13
<PAGE> 16
Absence of a Public Market for
the New Notes............... The New Notes are new securities and there
is currently no established market for the
New Notes. Accordingly, there can be no
assurance as to the development or liquidity
of any market for the New Notes. The Company
does not intend to apply for listing on a
securities exchange of the New Notes.
For more complete information regarding the Existing Notes and the New
Notes, including the definitions of certain capitalized terms used above, see
"Description of the Notes."
RISK FACTORS
Holders of Existing Notes and prospective purchasers of New Notes
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. Specifically, and as described in greater detail under
the caption "Risk Factors," prospective purchasers of Notes should consider
carefully:
- HIGH LEVEL OF INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS. The
Company is, and will continue to be, highly leveraged. The level of
the Company's indebtedness could have important consequences to
holders of the New Notes which may be materially adverse. 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 come due. If,
however, 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.
- SUBSIDIARY OPERATIONS; RELIANCE ON SUBSIDIARIES AS PAYMENT SOURCE.
The Company conducts the major portion of its business through its
direct or indirect subsidiaries. The Company's subsidiaries are
separate and distinct legal entities and have no obligations,
contingent or otherwise, to pay any amounts due under the New Notes,
to meet the Company's obligations to other creditors or to make
funds available therefor.
- 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. This
acquisition will require substantial attention from, and place
substantial demands upon, the senior management of the Company.
14
<PAGE> 17
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 and for the three months ended
July 26, 1997 include the results of operations of PHI Acquisition Holdings,
Inc. and subsidiaries for the last twelve months ("LTM") ended March 28,
1997 and for the three months ended June 27, 1997, respectively, 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 July 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 THREE MONTHS ENDED
APRIL 26, 1997 JULY 26, 1997
----------------- ------------------
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales .......................................... $ 237,855 $ 67,367
Gross profit ....................................... 82,235 23,890
Income from operations ............................. 14,623 5,716
Interest expense ................................... 17,137 4,277
Interest income .................................... 418 69
Income taxes ....................................... 2,104 968
Income (loss) from continuing operations before
extraordinary item ............................... (4,200) 540
Preferred dividends ................................ 4,242 1,061
Accretion of redeemable put warrants ............... 2,587 2,200
(Loss) available to common stockholders before
extraordinary item ............................... (11,029) (2,721)
BALANCE SHEET DATA (AT PERIOD END):
Working capital(a) ................................. $ 48,494
Total assets ....................................... 192,209
Total debt (including redeemable put warrants)(b) .. 159,135
Redeemable preferred stock ......................... 29,291
Stockholder's deficiency ........................... (57,445)
OTHER DATA:
Adjusted EBITDA(c) ................................. $ 25,407 $ 7,900
Depreciation and amortization ...................... 7,846 1,936
Capital expenditures ............................... 8,233 1,952
Cash interest expense(d) ........................... 16,408 4,095
Ratio of Adjusted EBITDA to cash interest
expense(d) ....................................... 1.5X 1.9X
Ratio of net debt to Adjusted EBITDA(e) ............ 5.9X
Ratio of net debt and redeemable preferred stock to
Adjusted EBITDA(f) ............................... 7.0X
Ratio of earnings to fixed charges(g)............... -- --
CASH FLOW PROVIDED BY (USED IN):
Operating activities................................ $ (524) $ (2,730)
Investing activities................................ (1,491) (1,884)
Financing activities................................ (4,404) 1,538
</TABLE>
(see footnotes on following page)
15
<PAGE> 18
NOTES TO SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(a) Working capital is defined as total current assets less total current
liabilities.
(b) 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).
(c) Adjusted 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)
$210 of severance payments to a former officer of PHI and $60 of
relocation expenses were included in administrative and selling
expenses in connection with the replacement of such officer of PHI in
Fiscal 1997 and reimbursed environmental and litigation costs -- net
and other and (ii) $166 of severance to a certain former executive of
the Company included in administrative and selling expenses in the
three months ended July 26, 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. Investors should note, however,
that "Adjusted EBITDA" as used in this prospectus may not be
comparable to similarly titled measures presented by other companies
and could be misleading, since not all companies and analysts
calculate such measures in the same fashion.
Investors should note, however, that "Adjusted EBITDA" as used in this
prospectus may not be comparable to similarly titled measures presented
by other companies and could be misleading, since not all companies and
analysts calculate such measures in the same fashion.
(d) For the purpose of computing the ratio of Adjusted EBITDA to cash
interest expense, cash interest expense excludes $0.7 million and $182
of non-cash interest expense comprised of amortization of deferred
financing costs for the fiscal year ended April 26, 1997 and for the
three months ended July 26, 1997, respectively. See "Unaudited Pro
Forma Condensed Consolidated Financial Data" and "Description of Other
Indebtedness."
(e) Net debt represents total debt (including redeemable put warrants) less
unrestricted cash and cash equivalents. The ratio of net debt to
Adjusted EBITDA reflects pro forma net debt as of July 26, 1997 divided
by the fiscal year ended April 26, 1997 Adjusted EBITDA.
(f) The ratio of net debt and redeemable preferred stock to Adjusted
EBITDA reflects net debt and redeemable preferred stock as of July 26,
1997 divided by the fiscal year ended April 26, 1997 Adjusted EBITDA.
(g) 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 earnings
were inadequate to cover fixed charges by $10.6 million in Fiscal 1997
and $2.4 million for the three months ended July 26, 1997,
respectively.
16
<PAGE> 19
RISK FACTORS
Holders of Existing Notes and prospective purchasers of New Notes
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 July 26,
1997, on a pro forma basis after giving effect to the Transactions, the Company
would have had $159.1 million of total indebtedness, mandatorily redeemable
preferred stock with an aggregate liquidation preference of $33.0 million, and a
stockholder's deficit of $57.4 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 $10.6 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. In brief, and subject to
certain exceptions, the Indenture permits the Company to incur additional
indebtedness if there is no Default or Event of Default under the Indenture
and, after giving effect to the incurrence of the additional indebtedness, the
Company would satisfy a specified fixed charge coverage ratio.
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."
EFFECTIVE SUBORDINATION OF THE NOTES
The Notes are senior unsecured obligations of the Company ranking pari
passu in right of payment with all existing and future senior indebtedness of
the Company and senior in right of payment to any subordinated indebtedness of
the Company. The Notes will be effectively subordinated in right of payment to
all existing and future secured indebtedness of the Company, including
indebtedness under the New Revolving Credit Facility. Despite the pledge of the
Intercompany Notes to secure the repayment of the Notes, a bankruptcy court
could subordinate such repayments to all existing and future indebtedness and
other liabilities and commitments of any of HVE's subsidiaries. As of April 26,
1997, pro forma for the Transactions, HVE would have had $146.0 million of
senior indebtedness outstanding (including the Notes), of which $24.3 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 will limit, but not prohibit,
the incurrence of additional indebtedness by the Company. See "Description of
Other Indebtedness"
17
<PAGE> 20
SUBSIDIARY OPERATIONS; RELIANCE ON SUBSIDIARIES AS PAYMENT SOURCE
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 Notes, to meet HVE's obligations to other creditors or
to make funds available therefor. Because the Notes 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 amounts due under the Notes. There can be no
assurance that such payments and distributions will be adequate to fund payments
due under the Notes. The ability of HVE's subsidiaries to make such payments,
advances and transfers will be subject to applicable state law regulating the
payment of dividends. In addition, none of HVE's subsidiaries or Letitia
Corporation (HVE's parent) will be a guarantor under the Notes, and the
Indenture expressly provides that by accepting the Notes, each holder of the
Notes waives and releases the liability of any person or entity other than HVE
relating to the Notes, which waiver and release are part of the consideration
for the Notes. See "Description of Other Indebtedness" and "Description of the
Notes -- Certain Covenants -- Limitation on Additional Indebtedness."
The Intercompany Notes will be unsecured obligations of HVE's
subsidiaries. The principal amount of the Notes has been allocated among HVE and
each of its direct Restricted Subsidiaries, evidenced by the Intercompany Notes,
in consideration for the release of certain obligations of such Restricted
Subsidiaries relating to the indebtedness being repaid in connection with the
Refinancing. Persons seeking to enforce payments under any Intercompany Note
will only have the rights of a general unsecured creditor of the issuer of such
Intercompany Note with respect thereto and, as a result, the benefits which
might be realized in connection with the enforcement of such obligations may be
limited.
POSSIBLE EFFECTS OF FRAUDULENT CONVEYANCE LAWS
Management of the Company believes that the indebtedness of the Company
represented by the Notes is being incurred for proper purposes and in good
faith, and that, based on present forecasts, asset valuations and other
financial information, the Company, after giving effect to the consummation of
the Transactions, is solvent, has sufficient capital for carrying on its
business and will be able to pay its debts as they mature. Notwithstanding
management's belief, if a court of competent jurisdiction in a suit by an unpaid
creditor or a representative of creditors (such as a trustee in bankruptcy or a
debtor-in-possession) were to find that, at the time the Company consummated the
Transactions, including the Merger, the Company (i) intended to hinder, delay or
defraud any existing or future creditor or contemplated insolvency with a design
to prefer one or more creditors to the exclusion in whole or in part of others
or (ii) did not receive fair consideration or reasonably equivalent value for
issuing the Notes, and the Company (a) was insolvent; (b) was rendered insolvent
by reason of the Merger; (c) was engaged or about to engage in a business or
transaction for which its remaining assets constituted unreasonably small
capital to carry on its business; or (d) intended to incur, or believed that it
would incur, debts beyond its ability to pay such debts as they matured, such
court could avoid such indebtedness. A possible consequence of such avoidance
would be the subordination of the indebtedness represented by the Notes to
existing and future indebtedness of the Company. Similarly, despite the pledge
of Intercompany Notes to secure the repayment of the Notes, a bankruptcy court
could subordinate the repayment of the Intercompany Notes to all existing and
future indebtedness and other liabilities and commitments of any of HVE's
subsidiaries.
The measure of insolvency for purposes of the foregoing will vary
depending upon the law of the relevant jurisdiction. Generally, however, a
company would be considered insolvent for purposes of the foregoing if the
present fair salable value of the company's assets is less than the amount that
will be required to pay its probable liability on existing debts as they become
absolute and mature. In rendering its opinion on the validity of the Existing
Notes in connection with the Offering, counsel for each of the Company and the
Initial Purchasers expressed no opinion as to federal or state laws relating to
fraudulent transfers.
18
<PAGE> 21
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 public offering of shares of its
capital stock and any rights, warrants or options to acquire such capital stock
(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, 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."
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<PAGE> 22
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."
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
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<PAGE> 23
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 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 Preferred Stock, in the event of such acceleration.
Acceleration of such indebtedness would have a material adverse effect on the
Company. See "Description of Other 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 Other Indebtedness."
As of the date of this Prospectus, the Company is not in default under
any of the foregoing covenants. However, the Company would not at that date
satisfy conditions to incurring certain types of additional indebtedness or
making or entering onto certain other payments or transactions. The Company has
no present intention and believes that it has no need in the foreseeable future
to incur such indebtedness or make or enter into such payments or transactions.
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
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<PAGE> 24
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 Other
Indebtedness", "Description of the Notes -- Change of Control Offer" and
"Description of Outstanding Capital Stock -- Preferred Stock."
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<PAGE> 25
CONTROL BY PRINCIPAL STOCKHOLDERS
Letitia Corporation beneficially owns 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 the New Notes in exchange for the Existing Notes pursuant
to the Exchange Offer will be made only after a timely receipt by the Company of
such Existing Notes, 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 the Existing
Notes 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 the Existing Notes desiring to tender such the Existing Notes in
exchange for New Notes 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 the Existing Notes for exchange. Existing Notes
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 Existing Notes. To the extent that Existing Notes are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted Existing Notes 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 Notes. There can be no
assurance regarding the future development of a market for the Notes, or the
ability of holders of any of the Notes to sell their Notes, or the price at
which such holders may be able to sell such Notes. If such a market were to
develop, the Notes could trade at prices that may be lower than the initial
offering price for the Notes 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 Notes. The Initial Purchaser is not obligated to
do so, however, and any market-making with respect to the Notes may be
discontinued at any time without notice. Therefore, there can be no assurance as
to the liquidity of any trading market for the Notes, or that an active public
market for the New Notes 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 New Notes on any securities
exchange or stock market. See "Plan of Distribution."
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<PAGE> 26
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.
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<PAGE> 27
THE TRANSACTIONS
THE OFFERINGS
On August 8, 1997, the Company issued $135,000,000 in aggregate
principal amount of Existing 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, to
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.
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INTERCOMPANY NOTES
At the closing of the Offerings, the Company's direct Restricted
Subsidiaries issued Intercompany Notes to the Company in consideration for the
release of certain obligations of such Restricted Subsidiaries relating to the
indebtedness repaid in connection with the Refinancing. The Intercompany Notes
are 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, Inc., a direct, wholly owned subsidiary of HVE which in turn
owns all the capital stock of HVE Europa ("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 Other Indebtedness." The
respective principal amounts of the Intercompany Notes do not limit the amount
of funds that may be generated by a particular Restricted Subsidiary and used by
the Company to make payments on the Notes or for other purposes.
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<PAGE> 29
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>
<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 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 Stock") having identical rights and
preferences to the Series C Preferred Stock. Letitia Corporation caused
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<PAGE> 30
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 $54.5 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
current 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.
28
<PAGE> 31
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the consolidated capitalization of High
Voltage Engineering Corporation and subsidiaries as of July 26, 1997, PHI
Acquisition Holdings, Inc. and subsidiaries as of June 27, 1997, and the
Company pro forma as of July 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) .... 40,062 7,832 (47,894) --
Notes sold in the Offering ......... -- -- 135,000 135,000
Senior Unsecured Notes ............. 7,000 -- (7,000) --
Other debt(e) ...................... 21,635 9,673 (9,673) 21,635
Subordinated Notes(f) .............. 19,741 -- (19,741) --
-------- -------- --------- ---------
Total debt ............... 88,438 17,505 50,692 156,635
-------- -------- --------- ---------
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 6,852 -- (6,852) --
Redeemable put warrants ........... 5,000 -- (2,500) 2,500
Stockholder's Deficiency
Common stock .................. 1 16 (16) 1
Paid-in capital ............... 17,326 6,555 2,200 19,425
(6,555)
(101)
Retained earnings (accumulated
deficit) .................... (57,182) 8,078 (21,850)(g) (76,832)
(8,078)
2,200
Cumulative foreign currency
translation adjustment....... (39) (454) 454 (39)
-------- -------- --------- ---------
Total stockholder's equity
(deficiency) ........... (39,894) 14,195 (31,746) (57,445)
-------- -------- --------- ---------
Total capitalization ..... $ 65,146 $ 31,700 $ 34,135 $ 130,981
======== ======== ========= =========
</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.
29
<PAGE> 32
(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) Reflects the payment of prepayment penalties, the write-off
of purchased in-process research development, the write-off of
deferred financing costs, increase in cost of sales from inventory
revaluation arising from purchase accounting, 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.
30
<PAGE> 33
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 July 26, 1997. The following Unaudited Pro Forma Condensed
Consolidated Statements of Operations for Fiscal 1997 and the three months ended
July 26, 1997 present the results of operations of the Company as if the
Transactions had occurred at the beginning of the periods 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 last twelve months ("LTM") ended March 28, 1997. References in this
Prospectus to the Company's pro forma three months ended July 26, 1997, combine,
on a pro forma basis, the results of High Voltage Engineering Corporation and
subsidiaries for the three months ended July 26, 1997 and PHI Acquisition
Holdings, Inc. and subsidiaries for the three months ended June 27, 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
impact future earnings. Management believes that such adjustments will not have
a material impact on the pro forma financial statements.
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.
31
<PAGE> 34
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JULY 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 ...................... $ 1,393 $ 815 $ 7,237 (c) $ 9,445
Restricted cash ................................ 1,966 -- 1,966
Accounts receivable -- net ..................... 33,043 19,188 52,231
Inventories .................................... 22,669 12,735 1,000 (e) 35,404
(1,000)(d)
Prepaid expenses and other current assets ...... 1,165 387 1,552
-------- ------- -------- --------
Total current assets .................... 60,236 33,125 7,237 100,598
PROPERTY, PLANT AND EQUIPMENT -- Net ............. 30,588 10,236 $ 11,213 (e) 52,037
INVESTMENT IN JOINT VENTURE ...................... -- 1,873 1,873
ASSETS HELD FOR SALE ............................. 5,233 -- 5,233
OTHER ASSETS -- Net .............................. 16,389 626 5,023 (c) 26,300
(5,800)(d)
(2,538)(d)
12,600 (e)
COST IN EXCESS OF NET ASSETS ACQUIRED ............ -- -- 6,168 (e) 6,168
-------- ------- -------- --------
$112,446 $45,860 $ 33,903 $192,209
======== ======= ======== ========
LIABILITIES AND STOCKHOLDER'S (DEFICIENCY) EQUITY
CURRENT LIABILITIES
Current maturities of long-term debt obligations $ 2,626 $ 2,375 $ (1,429)(c) $ 1,197
(2,375)(c)
Foreign credit line ............................ 2,042 -- 2,042
Accounts payable ............................... 15,559 2,274 17,833
Accrued interest ............................... 8,027 125 (1,277)(c) 125
(6,750)(c)
Accrued liabilities ............................ 11,547 9,224 (10,112)(c) 20,771
10,112 (d)
Advance payments by customers .................. 5,373 1,226 6,599
Federal, foreign and state income taxes payable 51 276 327
Deferred income taxes .......................... 2,917 293 3,210
-------- ------- -------- --------
Total current liabilities ............... 48,142 15,793 (11,831) 52,104
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES ... 83,770 15,130 135,000 (c) 153,396
(65,374)(c)
(15,130)(c)
DEFERRED INCOME TAXES ............................ 1,146 -- 7,795 (e) 8,941
OTHER LIABILITIES ................................ 2,680 742 3,422
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK ....................... 11,602 -- 33,000 (c) 29,291
(2,200)(c)
(11,602)(c)
(1,509)(c)
REDEEMABLE PUT WARRANTS .......................... 5,000 -- (2,500)(c) 2,500
STOCKHOLDER'S (DEFICIENCY) EQUITY ................ (39,894) 14,195 2,200 (c) (57,445)
(101)(c)
2,200 (c)
(21,850)(d)
(14,195)(e)
-------- ------- -------- --------
$112,446 $45,860 $ 33,903 $192,209
======== ======= ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Condensed Consolidated Balance Sheet.
32
<PAGE> 35
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JULY 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 June 27, 1997,
the end of PHI's fiscal year.
(c) Reflects the estimated sources and uses of funds for the Transactions,
assuming they had occurred as of July 26, 1997.: Actual use of proceeds
as of the closing date of the Transactions will differ. See "Use of
Proceeds.":
<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)....................... $32,858
Payments to current and former officers of PHI.......................... 4,173
Repayment of existing PHI indebtedness:
Term promissory note-- current maturities............................. 2,375
Term promissory note-- long-term obligations.......................... 5,457
Perkin-Elmer Note-- long-term obligations............................. 9,673 $ 54,536
-------
Estimated Merger expenses............................................... 350
Repayment of HVE's indebtedness:
Senior Term Loan-- current maturities................................... 1,429
Existing Revolving Credit Facility...................................... 11,491
Senior Term Loan........................................................ 7,142
Senior Secured Notes.................................................... 20,000
Senior Unsecured Notes.................................................. 7,000
Subordinated Notes(iii)................................................. 19,741 65,374
-------
Accrued interest........................................................ 1,277
Prepayment penalties and make whole premiums:
Prepayment penalty -- Existing Revolving Credit
Facility......................................................... 400
Make whole premium-- Senior Secured Notes.......................... 2,960
Prepayment penalty-- Senior Unsecured Notes........................ 493
Prepayment penalty-- Subordinated Notes(iii)....................... 6,259 10,112
-------
Redemption of HVE's redeemable preferred stock(iv)......................... 11,602
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................................................. 7,237
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
Summary of estimated fees and expenses:
Estimated Merger Expenses............................................... $ 350
Notes Offering.......................................................... 4,823
New Revolving Credit Facility........................................... 200
Series A Preferred Stock and Warrants................................... 1,509
Common Shares........................................................... 101
-------
$ 6,983
=======
</TABLE>
- ----------
33
<PAGE> 36
(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. (The Company does not
expect any material payment to be required under item (2)
above.)
(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 July 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):
34
<PAGE> 37
<TABLE>
<S> <C> <C>
Charges to historical earnings:
Make whole premiums and prepayment penalties on HVE indebtedness............. $10,112
Write-off of purchased in-process research and development................... 5,800
Write-off of deferred financing costs........................................ 2,538
Increase in cost of sales from inventory revaluation ........................ 1,000
-------
Subtotal............................................................... $19,450
Distributions to fund Letitia Common Stock repurchase........................ 2,400
-------
Total................................................................... $21,850
=======
</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................... $32,858
Payments to current and former officers of PHI.................. 4,173 $37,031
-------
Estimated Merger expenses....................................... 350
Less: Merger adjustments to PHI's historical financial
statements(i):
Elimination of PHI's stockholders' equity.................. 14,195
Increase in intangibles(ii)(iii)........................... 12,600
Write-up of PHI fixed assets(iii).......................... 11,213
Write-up of PHI inventory (iii)............................ 1,000
Deferred tax liability arising from the Merger ............ (7,795) 31,213
------- -------
Cost in excess of net assets acquired................ $ 6,168
=======
</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 impact future earnings. Management
believes that such adjustments will not have a material impact
on the pro forma financial statements.
(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 estimate by management as of March 28,
1997, and current fixed asset additions after such date.
35
<PAGE> 38
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 $ (27)(c) 155,620
1,000 (d)
158 (g)
-------- ------- -------- --------
Gross profit .............................. 58,255 25,111 (1,131) 82,235
Administrative and selling expenses ............ 36,967 10,251 (15)(c) 48,306
308 (e)
618 (f)
177 (g)
Research and development expenses .............. 9,361 7,286 (9)(c) 16,638
Reimbursed environmental and litigation
costs-net .................................... 26 -- 26
Other .......................................... 2,234 408 2,642
-------- ------- -------- --------
Income from operations .................... 9,667 7,166 (2,210) 14,623
Interest expense ............................... 11,602 1,821 3,714 (h) 17,137
Interest income ................................ (351) (67) (418)
-------- ------- -------- --------
Income (loss) from continuing operations
before income taxes and extraordinary
item .................................... (1,584) 5,412 (5,924) (2,096)
Income taxes ................................... 526 1,578 -- (i) 2,104
-------- ------- -------- --------
Income (loss) from continuing operations
before extraordinary item ............... (2,110) 3,834 (5,924) (4,200)
Preferred dividend requirement ............ (479) -- (3,763)(j) (4,242)
Accretion of redeemable put warrants ...... (387) -- (2,200)(k) (2,587)
-------- ------- -------- --------
Income (loss) available to common
stockholders before extraordinary item ....... $ (2,976) $ 3,834 $(11,887) $(11,029)
======== ======= ======== ========
Ratio of earnings to fixed charges(l) .......... -- --
Adjusted EBITDA data(m):
Income from operations ....................... $ 9,667 $ 7,166 $ (2,210) $ 14,623
Reimbursed environmental and litigation
costs-net ................................. 26 -- -- 26
Other ........................................ 2,234 408 -- 2,642
Depreciation and amortization ................ 4,376 2,595 875 7,846
PHI severance and relocation expenses ........ -- 270 -- 270
-------- ------- -------- --------
Adjusted EBITDA ........................... $ 16,303 $10,439 $ (1,335) $ 25,407
======== ======= ======== ========
Cash flow provided by (used in):
Operating activities ......................... $ 627 $ 3,898 $ (5,049) $ (524)
Investing activities ......................... (3,066) 1,575 -- (1,491)
Financing activities ......................... 1,893 (2,534) (3,763) (4,404)
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Statement of Operations.
36
<PAGE> 39
HIGH VOLTAGE ENGINEERING CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JULY 26, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------- ---------------------------
HVE(a) PHI(b) Adjustments Combined
---------- ---------- ----------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net sales ...................................... $44,672 $22,695 $67,367
Cost of sales .................................. 28,762 14,792 $ (77)(c) 43,477
------- ------- ------- -------
Gross profit .............................. 15,910 7,903 77 23,890
Administrative and selling expenses ............ 10,510 3,005 (42)(c) 13,705
77 (e)
155 (f)
Research and development expenses .............. 2,348 2,065 (26)(c) 4,387
Reimbursed environmental and litigation
costs - net .................................. 45 -- 45
Other .......................................... (98) 135 37
------- ------- ------- -------
Income from operations .................... 3,105 2,698 (87) 5,716
Interest expense ............................... 3,625 383 269 (h) 4,277
Interest income ................................ (40) (29) (69)
------- ------- ------- -------
Income (loss) from continuing operations
before income taxes and extraordinary
item .................................... (480) 2,344 (356) 1,508
Income taxes ................................... 270 698 -- (i) 968
------- ------- ------- -------
Income (loss) from continuing operations
before extraordinary item (750) 1,646 (356) 540
Preferred dividends ....................... (128) -- (933)(j) (1,061)
Accretion of redeemable put warrants ...... (2,200) -- -- (2,200)
------- ------- ------- -------
Income (loss) available to common
stockholders before extraordinary item ....... $(3,078) $ 1,646 $(1,289) $(2,721)
======= ======= ======= =======
Ratio of earnings to fixed charges(l) .......... -- --
Adjusted EBITDA data(m):
Income from operations ....................... $ 3,105 $ 2,698 $ (87) $ 5,716
Reimbursed environmental and litigation
costs - net ............................... 45 -- -- 45
Other ........................................ (98) 135 -- 37
Depreciation and amortization ................ 1,196 653 87 1,936
HVE severance expenses ....................... 166 -- 166
------- ------- ------- -------
Adjusted EBITDA ........................... $ 4,414 $ 3,486 $ (0) $ 7,900
======= ======= ======= =======
Cash flow provided by (used in):
Operating activities ......................... $(3,098) $ 637 $ (269) $(2,730)
Invesing activities .......................... (707) (1,177) -- (1,884)
Financing activities ......................... 3,781 (1,310) (933) 1,538
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated
Statement of Operations.
37
<PAGE> 40
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 last twelve months ("LTM") ended March 28, 1997 and the three
months ended June 27, 1997.
(c) Reflects a decrease in depreciation expense resulting from a
preliminary valuation by management, based in part on a preliminary
appraisal, of both the estimated fair value of fixed assets and their
estimated remaining service lives as of April 26, 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 decrease in depreciation expense is
allocated $27 and $77 to cost of sales, $15 and $42 to administrative
and selling expenses and $9 and 26 to research and development,
respectively for the fiscal year ending April 26, 1997 and the three
months ended June 27, 1997. The allocation of the decrease in
depreciation expense is 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 an increase of $1.0 million to cost of sales resulting from
an increase in the value of the inventory based on a preliminary
estimate by management.
(e) Reflects $308 and $77 of estimated amortization of cost in excess of
net assets acquired, totaling $6.2 million, over 20 years resulting
from the Merger for the fiscal year ended April 26, 1997 and three
months ended July 26, 1997, respectively. See note (e) to "Notes to
Unaudited Pro Forma Condensed Consolidated Balance Sheet."
(f) Reflects $618 and $155 of amortization of intangible assets, totaling
$6.8 million, resulting from the Merger for the fiscal year ended April
26, 1997 and three months ended July 26, 1997, respectively. See note
(e) (ii) to "Notes to Unaudited Pro Forma Condensed Consolidated
Balance Sheet."
(g) 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.
(h) Reflects the effect on interest expense resulting from the
Transactions:
<TABLE>
<CAPTION>
APRIL 26, JULY 26,
INTEREST RATE AMOUNT 1997 1997
------------- ---------- -------- --------
<S> <C> <C> <C> <C>
PRO FORMA INTEREST EXPENSE
Calculation:
New Revolving Credit Facility(i).................. 7.22% $ -- $ -- $ --
Notes offered hereby.............................. 10.5% 135,000 14,175 3,544
Mortgage notes, capital leases,
foreign credit line and notes
payable........................................ 2.0%-- 16.4% 21,635 2,108 520
Unused credit facility fee........................ 125 31
-------- ------
Pro forma cash interest
expense...................................... 16,408 4,095
Amortization of deferred financing
costs.......................................... 729 182
-------- ------
Total pro forma interest
expense...................................... 17,137 4,277
Less:
Historical HVE interest expense................... 11,602 3,625
Historical PHI interest expense................... 1,821 383
-------- ------
Total historical interest expense................... 13,423 4,008
-------- ------
Total pro forma interest expense
adjustment........................................ $ 3,714 $ 269
======== ======
</TABLE>
- ---------
38
<PAGE> 41
(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.
(i) 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.
(j) Represents dividends in the amount of $4,242 and $1,061 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 and $128 for the fiscal year ended April 26, 1997 and the
three months ended July 26, 1997.
(k) 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 for the fiscal year ended April 26, 1997.
(l) 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
$10.6 million and $2.5 million, respectively, in Fiscal 1997 and
$2.4 million and $2.8 million for the three months ended July 26, 1997,
respectively.
(m) Adjusted 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
and $166 of severance to a certain former executive of the Company
included in administrative and selling expense in the three months
ended July 26, 1997. See notes F, K and N to "Notes to Consolidated
Financial Statements" of High Voltage Engineering Corporation and
subsidiaries. Adjusted EBITDA is not a measure of performance under
GAAP. While Adjusted 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
Adjusted 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. Investors should note, however, that
"Adjusted EBITDA" as used in this prospectus may not be comparable to
similarly titled measures presented by other companies and could be
misleading, since not all companies and analysts calculate such
measures in the same fashion.
39
<PAGE> 42
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 presented below under the captions
"Statements of Operations Data" and "Balance Sheet Data" as of and for the
three months ended July 27, 1996 and July 26, 1997 are unaudited, but, in the
opinion of management of the Company, reflect all adjustments (consisting only
of normal, recurring adjustments) necessary for fair presentation of results for
such periods are not necessarily indicative of the results that may be expected
for the year ending April 25, 1998.
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." In particular, see the discussion in the second
paragraph under that caption on page 41 of the lack of direct comparability
among data for the years presented below because of an acquisition and certain
divestitures at different points during those years.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
---------------------------------------------------------
May 1, April 30, April 29, April 27, April 26,
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)
======== ======== ======== ======== ========
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)
OTHER DATA:
Adjusted 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 -- -- --
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
======== ======== ======== ======== ========
Adjusted 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 Adjusted EBITDA..................... 10,841 12,246 14,240 15,506 19,470
Corporate overhead .......................................... (1,721) (2,653) (1,994) (2,738) (3,167)
-------- -------- -------- -------- --------
Total Adjusted EBITDA ................................... $ 9,120 $ 9,593 $ 12,246 $ 12,768 $ 16,303
======== ======== ======== ======== ========
Cash flows provided (used in):
Operating activities ........................................ $ 7,806 $ (595) $ 10,127 $ (6,360) $ 627
Investing activities ........................................ (3,464) (114) (12,278) 5,729 (3,066)
Financing activities ........................................ (4,823) (3,655) 1,221 1,853 1,893
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------
July 27, July 26,
1996 1997
--------- ---------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ..................................................... $ 40,381 $ 44,672
Cost of sales ................................................. 26,415 28,762
-------- --------
Gross profit ................................................ 13,966 15,910
Administrative and selling expenses(a) ........................ 9,155 10,510
Research and development expenses ............................. 2,212 2,348
Restructuring charge(b) ....................................... -- --
Reimbursed environmental and litigation costs-net(c) .......... -- 45
Other(d) ...................................................... (8) (98)
-------- --------
Income from operations ...................................... 2,607 3,105
Interest expense .............................................. (2,644) (3,625)
Interest income ............................................... 54 40
Income (loss) from continuing operations before income taxes,
discontinued operations and extraordinary item ............ 17 (480)
Income taxes (credit) ......................................... 7 270
-------- --------
Income (loss) from continuing operations before discontinued
operations and extraordinary item ........................... 10 (750)
Discontinued operations:
Income (loss) from discontinued operations, net of income
taxes ..................................................... -- --
Gain (loss) on disposal of discontinued operations, net of
income taxes .............................................. -- --
-------- --------
Extraordinary gain (loss), net of income taxes ................ (259) --
-------- --------
Net income (loss) ............................................. $ (249) $ (750)
======== ========
BALANCE SHEET DATA (AT PERIOD END):
Working capital ............................................... $ 16,186 $ 12,094
Total assets .................................................. 115,218 112,446
Total debt (including redeemable put warrants) ................ 90,160 93,438
Redeemable preferred stock .................................... 11,114 11,602
Stockholder's deficiency ...................................... (33,970) (39,894)
OTHER DATA:
Adjusted EBITDA(e) ............................................ $ 3,720 $ 4,414
Depreciation and amortization(f) .............................. 1,121 1,196
Capital expenditures(g) ....................................... 793 767
Backlog ....................................................... 76,553 72,645
Ratio of earnings to fixed charges(h) ......................... -- --
OPERATING UNIT DATA:
Net sales:
Robicon(i) .................................................. $ 19,062 $ 21,483
Datcon ...................................................... 8,397 8,975
Anderson(i) ................................................. 4,612 5,401
Natvar ...................................................... 3,743 4,235
General Eastern ............................................. 2,843 3,176
HVE Europa .................................................. 1,724 1,402
-------- --------
Subtotal ................................................ 40,381 44,672
Divested product lines(i) ................................... -- --
-------- --------
Total net sales ......................................... $ 40,381 $ 44,672
======== ========
Adjusted EBITDA:(j)
Robicon ..................................................... $ 1,448 $ 1,949
Datcon ...................................................... 1,089 1,309
Anderson .................................................... 933 1,328
Natvar ...................................................... 482 483
General Eastern ............................................. 419 433
HVE Europa .................................................. (44) 35
-------- --------
Total operating unit Adjusted EBITDA..................... 4,327 5,537
Corporate overhead .......................................... (607) (1,123)
-------- --------
Total Adjusted EBITDA.................................... $ 3,720 $ 4,414
======== ========
Cash Flow provided by (used in):
Operating activities................................ $ (7,093) $ (3,098)
Investing activities................................ (705) (707)
Financing activities................................ 5,941 3,781
</TABLE>
See accompanying Notes to Selected Historical Consolidated Financial Data.
40
<PAGE> 43
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(a) Adjusted EBITDA excludes severance expenses of $246 and $456 and $166
included in administrative and selling expenses in Fiscal 1995, Fiscal
1996, and the three months ended July 26, 1997, 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 THREE MONTHS ENDED
----------------------------------------------------- ---------------------
May 1, April 30, April 29, April 27, April 26, July 27, July 26,
1993 1994 1995 1996 1997 1996 1997
----- --------- --------- --------- --------- -------- --------
<S> <C> <C> <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) -- (71)
Division relocation and moving costs ..... -- 488 124 103 -- -- --
Facilities (income) expense, net ......... -- -- -- (57) 319 (8) (57)
Aborted acquisition and offering costs ... -- -- -- -- 2,145 -- --
Acquisition costs and loss on write-off of
purchased assets ....................... -- 215 -- -- -- -- --
Unreimbursed litigation costs ............ -- -- -- -- -- -- 30
----- ---- ----- ------- ------- ------ ----
Total ............................... $(408) $703 $ 892 $ 1,163 $ 2,234 $ (8) $(98)
===== ==== ===== ======= ======= ====== ====
</TABLE>
(e) Adjusted 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 and $166 to certain former senior executives included in
administrative and selling expenses of HVE in Fiscal 1995, Fiscal 1996,
and for the three months ended July 26, 1997, 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. Adjusted EBITDA is not a measure of performance under
GAAP. While Adjusted 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. Investors should note, however, that "Adjusted EBITDA" as
used in this prospectus may not be comparable to similarly titled
measures presented by other companies and could be misleading, since
not all companies and analysts calculate such measures in the same
fashion.
(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, $2.5 million, $173 and $2.8 million in
Fiscal 1993, Fiscal 1995, Fiscal 1996, Fiscal 1997 and the three months
ended July 27, 1996 and July 26, 1997, respectively.
41
<PAGE> 44
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.
(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) Adjusted EBITDA has not been adjusted to exclude divested product
lines.
42
<PAGE> 45
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, June 28, 1996 and June 27, 1997, have been derived from the audited
consolidated financial statements of PHI Acquisition Holdings, Inc. and its
subsidiaries (referred to herein collectively as "PHI"). The information
presented below should be read in conjunction with PHI's consolidated financial
statements and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
JUNE 30, JUNE 28, JUNE 27,
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................... $54,764 $58,074 $67,819
Cost of sales ............................... 34,244 35,740 42,740
------- ------- -------
Gross profit .............................. 20,520 22,334 25,079
Administrative and selling expenses(a) ...... 9,374 10,046 10,678
Research and development expenses ........... 6,197 6,333 7,902
Equity in earnings of joint venture(b) ...... (337) (206) 11
------- ------- -------
Operating income .......................... 5,286 6,161 6,488
Interest expense ............................ (1,855) (1,827) (1,693)
Interest income ............................. 89 137 48
------- ------- -------
Income before income taxes ................ 3,520 4,471 4,843
Income tax expense .......................... 812 1,496 1,403
------- ------- -------
Net income .................................. $ 2,708 $ 2,975 $ 3,440
======= ======= =======
BALANCE SHEET DATA (AT PERIOD END):
Working capital ............................. $14,123 $16,037 $17,332
Total assets ................................ 39,252 41,772 45,860
Total debt .................................. 19,668 18,315 17,505
Stockholders' equity ........................ 8,836 11,412 14,195
OTHER DATA:
Adjusted EBITDA(c) .......................... $ 7,064 $ 8,180 $ 9,538
Depreciation, amortization and other non-cash
transactions .............................. 2,115 2,225 2,769
Capital expenditures ........................ 2,596 2,814 3,309
Backlog ..................................... 13,345 17,797 17,177
CASH FLOW PROVIDED BY (USED FOR):
Operating activities ........................ $ 3,561 $(2,881) $ 4,378
Investing activities ........................ (2,844) 682 (2,113)
Financing activities ........................ 449 (1,370) (1,774)
</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.
43
<PAGE> 46
(c) Adjusted 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. Adjusted EBITDA is not
a measure of performance under GAAP. While Adjusted 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 Adjusted EBITDA is customarily used as a
measurement in evaluating companies. Investors should note, however,
that "Adjusted EBITDA" as used in this prospectus may not be comparable
to similarly titled measures presented by other companies and could be
misleading, since not all companies and analysts calculate such
measures in the same fashion.
44
<PAGE> 47
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 Adjusted EBITDA (as defined in note (e) on page 40), 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
Adjusted EBITDA (as defined in note (e) on page 40) 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 Adjusted EBITDA of
$237.9 million and $25.4 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
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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.
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."
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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
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 a 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.
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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 Adjusted EBITDA. PHI increased net sales and Adjusted EBITDA (as
defined in note (c) on page 43) 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, respectively, for the LTM period ended March 28, 1997. PHI's Adjusted
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
Three Months Ended July 26, 1997 Compared to Three Months Ended July 27, 1996
Net sales increased $4.3 million, or 10.6% from $40.4 million in the
first quarter of Fiscal 1997 to $44.7 million in first quarter of Fiscal 1998.
This increase was primarily attributable to: (i) a $2.4 million, or 12.7%,
increase in sales at Robicon due to the continued growth in sales of medium
voltage VFDs, (ii) an increase of $0.8 million, or 17.1%, at Anderson due to
strong growth the uninteruptible power supply markets, as well as the
telecommunications and networking equipment markets in both the U.S. and Europe
compared to a weak year ago period, (iii) an increase of $0.6 million, or 6.9%,
at Datcon due to higher shipments of clusters in Europe, and (iv) an increase of
$0.5 million, or 13.1%, at Natvar due to increased medical product shipments.
Gross profit increased $1.9 million, or 13.9%, from $14.0 million in
the first quarter of Fiscal 1997 to $15.9 million in first quarter of Fiscal
1998. The increase was primarily attributable to higher shipments at Robicon,
Anderson, Datcon and Natvar. The gross margin rate increased 1.0%, from 34.6%
to 35.6%, as a result of the higher shipments discussed above, as well as
productivity improvements at Datcon.
Administrative and selling expenses at the Company increased $1.4
million over the year ago quarter, or 14.8%, as a result of higher corporate
expenses including higher severance costs, increased incentive compensation
accrual, and increased costs incurred in connection with preparing for The
Transactions ($600,000), as well as higher sales commissions due to higher
shipments ($300,000), higher advertising and promotion costs ($300,000), and
higher expenses at Natvar invested to increase new business and upgrade
Natvar's information technology capability ($200,000). Administrative and
selling expenses increased as a percent of sales from 22.7% to 23.5% during the
periods compared, as a result of the higher corporate expenses.
Research and development expenses increased $136,000, or 6.1%, from
$2.2 million to $2.3 million which was primarily attributable to new product
investments at Datcon.
Depreciation and amortization increased from $1.1 million to
$1.2 million as a result of continued capital investment in automation at
Anderson during Fiscal 1997 and the three months ended July 26, 1997.
As a result of the factors discussed above, Adjusted EBITDA as defined
in Note (e) to "Notes to Selected Historical Consolidated Financial Data,"
increased $694,000, or 18.7%, from $3.7 in the first quarter of Fiscal 1997, to
$4.4 million in the first quarter of Fiscal 1998.
As a result of the above items, HVE's income from operations increased
$498,000, or 19.1%, from $2.6 million in the first quarter of Fiscal 1997 to
$3.1 million in the first quarter of Fiscal 1998.
Interest expense increased $1.0 million, or 37.1%, to $3.6 million in
the first quarter of Fiscal 1998 due to an accrual of $1.0 million related to
CIP expense. Income Tax provisions increased $263,000 in the first quarter of
Fiscal 1998 to $270,000 to record income tax expense related to foreign income.
Income from continuing operations before extraordinary items decreased
$760,000 to a loss of $750,000 in the first quarter of Fiscal 1998.
Extraordinary losses on debt extinguishment, net of income taxes, in the amount
of $259,000 were recorded in the first quarter of Fiscal 1997.
The foregoing factors contributed to an increase in net loss of
$501,000, from a loss of $249,000 in the first quarter of Fiscal 1997, to a
loss of $750,000 in the first quarter of Fiscal 1998.
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.
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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%.
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
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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 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.
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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.
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 and $35,200,000 in Units consisting of Series A
Preferred Stock, Common Stock and Warrants to purchase Common Stock
(collectively, the "Offerings"). A portion of the net proceeds of the Offerings
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
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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 July 26,
1997, the Company would have had total indebtedness (including redeemable put
warrants) of $159.1 million and mandatorily redeemable preferred stock with an
aggregate liquidation preference of $33.0 million.
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.
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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.
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 Adjusted
EBITDA (as defined in note (m) on page [39]). 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 Adjusted 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 Adjusted EBITDA of $237.9 million and $25.4 million, respectively,
in Fiscal 1997. For information regarding the Company's consolidated net sales,
operating income, identifiable assets and other information by industry segment,
see Note R to the Company's consolidated financial statements, at page [F-27].
For information regarding international and export sales, see Note Q to the
Company's consolidated financial statements, beginning at page [F-25].
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. No
customer or group of affiliated customers accounted for 10% or
more of the Company's consolidated revenues in Fiscal 1997.
- 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.
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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:
- 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
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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 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
According to an article in SCIENTIFIC AMERICAN (September 1990),
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 a 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
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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 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
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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.
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
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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 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
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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 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.
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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.
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
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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
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.
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HVE EUROPA
HVE Europa is a 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 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.
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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 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. The Company's research
and development expenses were $8.1 million, $8.1 million and $9.4 million for
the fiscal years 1995, 1996 and 1997, respectively. PHI's research and
development expenses were $6.2 million, $6.3 million and $7.9 million for the
fiscal years 1995, 1996 and 1997, respectively. Substantially all research and
development expenses of both the Company and PHI related to company-sponsored
research. Pro forma for the Merger, the Company incurred research and
development expenses of $16.6 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 and expire in 2014. In addition,
PHI holds key patents relating to its Auger, ESCA and TOF-SIMS surface analysis
instruments that issued between 1991 and 1995 and expire between 2009 and 2014,
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
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<PAGE> 69
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>
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 42,400 Leased(a)
assembly
Sterling, Massachusetts Plastic injection molding and 31,000 Leased(a)
assembly
Leominster, Massachusetts Technical center (design and 10,000 Leased(a)
tooling)
Fermoy, Ireland Plastic injection molding and 8,500 Leased
assembly
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>
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<PAGE> 70
- ----------
(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.
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
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<PAGE> 71
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
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.
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<PAGE> 72
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. The Company is seeking total
damages in the range of $50.1 to $64.1 million. 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 September 1997, TVM and Mr.
Morris moved to amend their counterclaim to add, inter alia, a claim for
fraudulent inducement. TVM and Mr. Morris are seeking actual damages in an
amount $789,000 plus an unspecified amount of punitive and consequential
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> 73
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.
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<PAGE> 74
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 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
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<PAGE> 75
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.
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.
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.
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<PAGE> 76
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.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
--------------------------------------------------------
NAME AND PRINCIPAL POSITION FISCAL OTHER ANNUAL ALL OTHER
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 1996 141,327 125,597 --
Europa 1995 116,003 41,039 --
Jody E. Kurtzhalts ........ 1997 $168,750 $ 40,000 $51,480 $4,098
President of Robicon 1996 165,000 18,250 $31,492 $3,548
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.
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<PAGE> 77
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.
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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<PAGE> 78
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.
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<PAGE> 79
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") 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> 80
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 ....................................... -- --
CIBC Woody Gund Securities Corp. (4) ..................... 6.3%
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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<PAGE> 81
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 up to $135.0 million
aggregate principal amount of New Notes for a like aggregate principal amount of
Existing Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to all of the Existing Notes; the total
aggregate principal amount of Existing Notes and New Notes will in no event
exceed $135.0 million.
PURPOSE OF THE EXCHANGE OFFER
Pursuant to the Offering, which closed on August 8, 1997, the Company
issued $135.0 million aggregate principal amount of Existing Notes. The issuance
of the Existing Notes 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 Existing Notes, the
Company entered into the Notes Registration Rights Agreement, which requires it,
at its cost, (i) within 45 days after the date of original issue of the Existing
Notes, to file a registration statement (the "Notes Exchange Offer Registration
Statement") with the Commission with respect to a registered offer to exchange
the Existing Notes for the New Notes, which will have terms substantially
identical in all material respects to the Existing Notes (except that the
Existing Notes 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
Notes Exchange Offer Registration Statement to be declared effective under the
Securities Act. Upon the Notes Exchange Offer Registration Statement being
declared effective, the Company will offer the New Notes in exchange for
surrender of the Existing Notes. 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 Existing
Notes. For each $1,000 principal amount of outstanding Existing Notes
surrendered to the Company pursuant to the Exchange Offer, the holder who
surrendered such Existing Notes will receive $1,000 principal amount of New
Notes. Under existing Commission interpretations, the New Notes 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 New
Notes 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 Notes 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 Notes Exchange Offer is not consummated within 180 days of
the date of the Notes Registration Rights Agreement, the Company will, at its
own expense, (a) as promptly as practicable, file a Shelf Registration Statement
covering resales of the Existing Notes (the "Notes Shelf Registration
Statement"), (b) use its best efforts to cause the Notes Shelf Registration
Statement to be declared effective under the Act and (c) use its best efforts to
keep effective the Notes Shelf Registration Statement until two years after its
effective date. The Company will, in the event of the Notes Shelf Registration
Statement, provide to each holder of the Existing Notes copies of the prospectus
which is a part of the Notes Shelf Registration Statement, notify each such
holder when the Notes Shelf Registration Statement for the Existing Notes has
become effective and take certain other actions as are required to permit
unrestricted resales of the Existing Notes. A holder of the Existing Notes that
sells such Notes pursuant to the Notes 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 Securities Act in connection with
such sales and will be bound by the provisions of the Notes 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 interest shall become payable in respect of the Existing Notes as
follows:
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<PAGE> 82
If (i) the Exchange Offer Registration Statement or Shelf
Registration Statement is not filed within 45 days of the Issue Date,
or, if required to be filed on behalf of the holders, the Notes Shelf
Registration Statement is not filed within 30 days following delivery
of notice of a Notes Shelf Registration Statement;
(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 New Notes
for all Existing Notes 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 of such events referred to in clauses (i) through (iii) above is a
"Registration Default"), the sole remedy available to holders of the Existing
Notes will be the immediate assessment of additional interest ("Additional
Interest") as follows: the per annum interest rate on the Existing Notes will
increase by 50 basis points; and the per annum interest 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 interest rate
of 200 basis points per annum in excess of the interest rate on the cover of
this Prospectus. All Additional Interest will be payable to holders of the
Existing Notes in cash on each August 15 and February 15, commencing with the
first such date occurring after any such Additional Interest commences to
accrue, until such Registration Default is cured. After the date on which such
Registration Default is cured, the interest rate on the Existing Notes will
revert to the interest rate originally borne by the Existing Notes (as shown on
the cover of this Prospectus).
The Exchange Offer is being made by the Company to satisfy its
obligations under the Notes Registration Rights Agreement. Pursuant to the
Notes Registration Rights Agreement, the Company has agreed to use its best
efforts to consummate the Exchange Offer no less than 30 and no more than
60 days after the date of the Exchange Offer is mailed to the holders of the
Old Notes.
The summary herein of certain provisions of the Notes 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 Notes
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., Boston time, on December
, 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
Existing Notes 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. Boston
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 Existing Notes
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 Existing Notes 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 Existing Notes as promptly as practicable.
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<PAGE> 83
PROCEDURES FOR TENDERING EXISTING NOTES
The tender to the Company of Existing Notes 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.
A holder of Existing Notes 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 Existing Notes 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., Boston 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 EXISTING NOTES, 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 EXISTING NOTES 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 Existing Notes surrendered for
exchange pursuant thereto are tendered (i) by a registered holder of the
Existing Notes 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 Existing Notes are registered in the name of a
person other than a signer of the Letter of Transmittal, the Existing Notes
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 Existing Notes 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 Existing Notes by causing such
book-entry transfer facility to transfer such Existing Notes into the Exchange
Agent's account with respect to the Existing Notes in accordance with the
book-entry transfer facility's procedures for such transfer. Although delivery
of Existing Notes 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 Existing Notes 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 Existing Notes are registered and, if possible the certificate number or
numbers of the Certificate or certificates representing the Existing Notes to be
tendered, and stating that the tender is being made thereby and guaranteeing
that within three business days after the Expiration Date the Existing Notes in
proper form for transfer (or a confirmation of book-entry transfer of such
Existing Notes 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 Existing Notes 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
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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 Existing Notes (or a confirmation of book-entry transfer of
such Existing Notes 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 New
Notes in exchange for Existing Notes 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 Existing Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Existing Notes 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 Existing Notes not properly tendered or reject
any particular shares of Existing Notes 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 Existing Notes either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender Existing Notes 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 Existing Notes 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 Existing Notes for exchange, nor shall any of them incur
any liability for failure to give such notification.
If the Letter of Transmittal or any Existing Notes 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 New Notes for its own account will represent
to the Company that, among other things, the New Notes acquired pursuant to the
Exchange Offer are being obtained in the ordinary course of such holder's
business that such holder is not engaging in nor does such holder intend to
engage in a distribution of such New Notes, that such holder has no arrangement
or understanding with any person to participate in the distribution of such New
Notes 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
New Notes for its own account in exchange for Existing Notes 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
Existing Notes.
In addition, the Company reserves the right in its sole discretion to
(a) purchase or make offers for any Existing Notes 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 Existing Notes 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 Existing Notes may be withdrawn at any time prior to at any
time prior to 5:00 p.m., Boston 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 at any time prior to 5:00 p.m., Boston 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 Existing Notes to be withdrawn (the "Depositor"), (ii) identify the
Existing Notes to be withdrawn (including the certificate number of numbers of
the certificate or certificates representing such Existing Notes and the
aggregate principal amount of such Existing Notes), (iii) be signed by the
holder in the same manner as the original signature on the Letter of Transmittal
by which such Existing Notes were tendered (including any required
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<PAGE> 85
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Transfer Agent with respect to the Existing Notes to register the
transfer of such Existing Notes into the name of the person withdrawing the
tender and (iv) specify the name in which any such Existing Notes 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 Existing Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no New Notes will be issued with respect thereto unless the
Existing Notes so withdrawn are validly retendered. Any Existing Notes 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 Existing Notes may be retendered by following one
of the procedures described above under "-- Procedures for Tendering Existing
Notes" at any time prior to the Expiration Date.
ACCEPTANCE OF EXISTING NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will accept, promptly after the Expiration Date, all Existing
Notes properly tendered and will issue the New Notes 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 Existing Notes for exchange when the Company has given oral or
written notice thereof to the Exchange Agent.
In all cases, issuance of the New Notes in exchange for Existing Notes
pursuant to the Exchange Offer will be made only after timely receipt by the
Company of such Existing Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Existing Notes are
not accepted for exchange for any reason set forth in the terms and conditions
of the Exchange Offer, such unaccepted Existing Notes 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 EXISTING NOTES
Holders of Existing Notes whose Existing Notes are not tendered or are
tendered but not accepted in the Exchange Offer will continue to hold such
Existing Notes 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 Existing Notes 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 Existing Notes held by them. To the
extent that Existing Notes are tendered and accepted in the Exchange Offer, the
trading market for untendered and tendered but unaccepted Existing Notes 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 New Notes in exchange for, any
Existing Notes, and may terminate or amend the Exchange Offer, if at any time
before the acceptance of such Existing Notes 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
New Notes issued pursuant to the Exchange Offer in exchange for the
Existing Notes to be offered for resale, resold and otherwise
transferred by holders thereof (other than (i) a broker-dealer who
purchases such New Notes 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 New Notes 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 New Notes.
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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 Existing Notes and
return any Existing Notes that have been tendered to the holders thereof, (ii)
extend the Exchange Offer and retain all Existing Notes tendered prior to the
Expiration Date, subject to the rights of such holders of tendered shares of
Existing Notes to withdraw their tendered Existing Notes, or (iii) waive such
termination event with respect to the Exchange Offer and accept all properly
tendered Existing Notes 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 Existing Notes, 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
Existing Notes, if the Exchange Offer would otherwise expire during such period.
In addition, the Company will not accept for exchange any Existing
Notes tendered, and no New Notes will be issued in exchange for any such
Existing Notes, 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 principal amount
of Existing Notes 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:
State Street Bank and Trust Company
225 Franklin Street
Boston, Massachusetts 02110-2804
By Facsimile:
(617) 664-5742
By Telephone:
(617) 664-5311
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.
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
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accepted from or on behalf of) holders of Existing Notes 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 Existing Notes pursuant to the Exchange Offer. If, however,
certificates representing New Notes or Existing Notes 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 Existing Notes
tendered, or if tendered Existing Notes 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 New Notes 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 New Notes will be amortized by the Company
over the term of the New Notes under generally accepted accounting principles.
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<PAGE> 88
PLAN OF DISTRIBUTION
Based on no action letters issued by the staff of the Commission to
third parties, the Company believes that the New Notes issued pursuant to the
Exchange Offer in exchange for Existing Notes may be offered for resale, resold
and otherwise transferred by holders thereof (other than (i) a broker-dealer who
purchases such New Notes 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 New Notes 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 New
Notes. Any holder of Existing Notes who tenders in the Exchange Offer for the
purpose of participating in a distribution of the New Notes 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 New Notes acquired by such
holders will not be freely transferable except in compliance with the Securities
Act.
Each broker-dealer that receives New Notes for its own account in
exchange for Existing Notes 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 New Notes. 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 New
Notes. 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 New Notes by
broker-dealers. New Notes 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 New Notes 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 New Notes. Any broker-dealer
that resells New Notes that were received by it for its own account pursuant to
the Exchange Offer and any person that participates in the distribution of such
New Notes may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New Notes 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 New Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
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<PAGE> 89
DESCRIPTION OF THE NOTES
Except as otherwise indicated, the following description relates both
to the Existing Notes issued in the Offering and the New Notes to be issued in
exchange for the Existing Notes in the Exchange Offer. The form and terms of the
New Notes are the same as the form and terms of the Existing Notes, except that
the New Notes have been registered under the Securities Act and therefore will
not bear legends restricting the transfer thereof. The New Notes will be
obligations of the Company evidencing the same indebtedness as the Existing
Notes and will be entitled to the benefits of the 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"). The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") as in effect
on the date of the Indenture. The Notes are subject to all such terms, and
holders of the Notes are referred to the Indenture and the Trust Indenture Act
for a statement of them. The following is a summary of the material terms and
provisions of the Notes. This summary does not purport to be a complete
description of the Notes and is subject to the detailed provisions of, and
qualified in its entirety by reference to, the Notes and the Indenture
(including the definitions contained therein). A copy of the form of Indenture
may be obtained from the Company by any holder or prospective investor upon
request. In addition, the Company has filed the Indenture with the Commission as
an exhibit to the Registration Statement of which this Prospectus is a part.
Definitions relating to certain capitalized terms are set forth under " --
Certain Definitions" and throughout this description. Capitalized terms that are
used but not otherwise defined herein have the meanings assigned to them in the
Indenture and such definitions are incorporated herein by reference. As used in
this description, the "Company" means HVE only.
GENERAL
The Notes are limited in aggregate principal amount to $135,000,000.
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 Indenture, the Notes, the Intercompany Notes and the agreement
governing the pledge of the Intercompany Notes to the Trustee, as collateral
agent, are governed by the laws of the Commonwealth of Massachusetts.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on August 15, 2004. The Notes will 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.
OPTIONAL REDEMPTION
The Notes will be 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:
<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
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<PAGE> 90
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.
In the event of redemption of fewer than all of the Notes, the Trustee
shall select by lot or in such other manner as it shall deem fair and equitable
the Notes to be redeemed. The Notes will be redeemable in whole or in part 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 Registrar of the Notes. On and after any redemption date,
interest will cease to accrue on the Notes or portions thereof called for
redemption unless the Company shall fail to redeem any such Note.
INTERCOMPANY NOTES
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 Subsidiaries 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 under " -- Offer to Repurchase Upon a Qualified Subsidiary IPO" and
" -- Limitation on Transfer of Intercompany Notes; Repayment of Intercompany
Notes;" and (v) are pledged by the Company as collateral on the Notes. See "The
Transactions -- Intercompany Notes."
OFFER TO REPURCHASE UPON A QUALIFIED SUBSIDIARY IPO
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 " -- Limitation on Certain Asset Sales" covenant.
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CERTAIN COVENANTS
The Indenture contains, among others, the following covenants. Except
as otherwise specified, all of the covenants described below appear in the
Indenture.
Limitation on Additional Indebtedness
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); provided that the Company may incur
Indebtedness if (i) after giving effect to the incurrence of such Indebtedness
and the receipt and application of the proceeds thereof, the Company's
consolidated Fixed Charge Coverage Ratio (determined on a pro forma basis for
the last four fiscal quarters of the Company for which financial statements are
available at the date of determination) is at least 2.00 to 1, and (ii) 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; and, provided, further,
that any Restricted Subsidiary may incur Indebtedness if (i) after giving effect
to the incurrence of such Indebtedness and the receipt and application of the
proceeds thereof, such Restricted Subsidiary's Fixed Charge Coverage Ratio
(determined on a pro forma basis for the last four fiscal quarters of such
Restricted Subsidiary for which financial statements are available at the date
of determination) is at least 2.50 to 1, and (ii) 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. For purposes of computing the Fixed Charge
Coverage Ratio, (A) if the Indebtedness which is the subject of a determination
under this provision is Acquired Indebtedness, or Indebtedness incurred in
connection with the simultaneous acquisition (by way of merger, consolidation or
otherwise) of any Person, business, property or assets (an "Acquisition"), then
such ratio shall be determined by giving effect (on a pro forma basis, as if the
transaction had occurred at the beginning of the four-quarter period) to both
the incurrence or assumption of such Acquired Indebtedness or such other
Indebtedness by the Company and the inclusion in the Company's or such
Restricted Subsidiary's EBITDA of the EBITDA of the acquired Person, business,
property or assets, (B) if any Indebtedness to be incurred (x) bears a floating
rate of interest, the interest expense on such Indebtedness shall be calculated
as if the rate in effect on the date of determination had been the applicable
rate for the entire period (taking into account on a pro forma basis any
Interest Rate Agreement applicable to such Indebtedness if such Interest Rate
Agreement has a remaining term as at the date of determination in excess of 12
months), (y) bears, at the option of the Company or a Subsidiary, a fixed or
floating rate of interest, the interest expense on such Indebtedness shall be
computed by applying, at the option of the Company or such Subsidiary, either a
fixed or floating rate and (z) was incurred under a revolving credit facility,
the interest expense on such Indebtedness shall be computed based upon the
average daily balance of such Indebtedness during the applicable period, (C) for
any quarter prior to the date hereof included in the calculation of such ratio,
such calculation shall be made on a pro forma basis, giving effect to the PHI
Acquisition, the issuance of the Notes and the use of the net proceeds therefrom
as if the same had occurred at the beginning of the four-quarter period used to
make such calculation and (D) for any quarter included in the calculation of
such ratio prior to the date that any Asset Sale was consummated, or that any
Indebtedness was incurred, or that any Acquisition was effected, by the Company
or any of its Restricted Subsidiaries, such calculation shall be made on a pro
forma basis, giving effect to each Asset Sale, incurrence of Indebtedness or
Acquisition, as the case may be, and the use of any proceeds therefrom, as if
the same had occurred at the beginning of the four-quarter period used to make
such calculation.
Notwithstanding the foregoing, the Company and its Restricted
Subsidiaries may incur Permitted Indebtedness.
The Company will not, directly or indirectly, in any event incur any
Indebtedness which by its terms (or by the terms of any agreement governing such
Indebtedness) is subordinated to any other Indebtedness of the Company unless
such Indebtedness is also by its terms (or by the terms of any agreement
governing such Indebtedness) made expressly subordinate to the Notes to the same
extent and in the same manner as such Indebtedness is subordinated pursuant to
subordination provisions that are most favorable to the holders of any other
Indebtedness of the Company.
Limitation on Restricted Payments
The Company will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:
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(a) 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;
(b) immediately after giving pro forma effect to such
Restricted Payment, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under the covenant set
forth under " -- Limitation on Additional Indebtedness"; and
(c) immediately after giving effect to such Restricted
Payment, the aggregate of all Restricted Payments declared or made
after the Issue Date does 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), (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 and (3) $2,500,000. For purposes of
determining under this clause (c) the amount expended for Restricted
Payments, cash distributed shall be valued at the face amount thereof
and property other than cash shall be valued at its fair market value.
The provisions of this covenant shall not prohibit (i) the payment of
any distribution within 60 days after the date of declaration thereof, if at
such date of declaration such payment would comply with the provisions of the
Indenture, (ii) the retirement of any shares of Capital Stock of the Company or
subordinated Indebtedness 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), (iii) the redemption or retirement of Indebtedness
of the Company subordinated to the Notes in exchange for, by conversion into, or
out of the Net Proceeds of, a substantially concurrent sale or incurrence of
Indebtedness (other than any Indebtedness owed to a Subsidiary) of the Company
that is contractually subordinated in right of payment to the Notes to at least
the same extent as the Subordinated Indebtedness being redeemed or retired, (iv)
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, (v) so long as no
Default or Event of Default shall have occurred and be continuing, the payment
of cash dividends on the Series A Preferred Stock when such dividends are
required to be paid in cash in accordance with the Restated Articles, (vi)
payment from the net proceeds of the Offerings, of up to $2.25 million to
Letitia Corporation to be used to repurchase from the High Voltage Engineering
Corporation Retirement Plan shares of Letitia Common Stock within 60 days of the
Issue Date for not more than $2.25 million, and fund a proportional accrual
relating to the Subordinated Notes Warrants of up to $150,000, (vii) so long as
no Default or Event of Default shall have occurred and be continuing, the
exchange of Warrants for Subsidiary Warrants or Common Shares of Subsidiary
Shares in the event of a Qualified Subsidiary IPO, (viii) payments required to
effect the reclassification of an Unrestricted Subsidiary as a Restricted
Subsidiary in compliance with " -- Offer to Repurchase upon a Qualified
Subsidiary IPO," and (ix) 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 pursuant to clauses (i),
(v) and (vii) shall reduce amounts otherwise available for Restricted Payments.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by the covenant " -- Limitation on Restricted Payments"
were computed, which calculations may be based upon the Company's latest
available financial statements, and that no Default or Event of Default exists
and is continuing and no Default or Event of Default will occur immediately
after giving effect to any Restricted Payments.
Limitations on Investments
The Company will not, and will not permit any of its Restricted
Subsidiaries to, make any Investment other than (i) a Permitted Investment or
(ii) an Investment that is made as a Restricted Payment in compliance with the "
- -- Limitation on Restricted Payments" covenant, after the Issue Date.
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Limitations on Liens
The Company will not, and will not permit any of its Restricted
Subsidiaries to, create, incur or otherwise cause or suffer to exist or become
effective any Liens of any kind (other than Permitted Liens and other than a
pledge of the Intercompany Notes to the Trustee as security for the Notes) 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, unless (i) if such Lien secures Indebtedness which
is pari passu with the Notes, then the Notes are secured on an equal and ratable
basis with the obligations so secured until such time as such obligation is no
longer secured by a Lien or (ii) if such Lien secures Indebtedness which is
subordinated to the Notes, any such Lien shall be subordinated to a Lien on such
property or asset or shares of stock or debt granted to the Holders of the Notes
to the same extent as such subordinated Indebtedness is subordinated to the
Notes; provided, however, that in no event will the Company create, incur or
otherwise cause or suffer to exist or become effective any Liens of any kind on
any of the Intercompany Notes other than a pledge of the Intercompany Notes to
the Trustee as security for the Notes.
Limitation on Transactions with Affiliates
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, 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 (i) such Affiliate Transaction is between or among the Company and
its Wholly-Owned Subsidiaries; or (ii) the terms of such Affiliate Transaction
are fair and reasonable to the Company or such Restricted Subsidiary, as the
case may be, and the terms of such Affiliate Transaction are at least as
favorable as the terms which could be obtained by the Company or such Restricted
Subsidiary, as the case may be, in a comparable transaction made on an arm's-
length basis between unaffiliated parties. In any Affiliate Transaction
involving an amount or having a value in excess of $1.0 million which is not
permitted under clause (i) above, the Company must obtain a resolution of the
Board of Directors certifying that such Affiliate Transaction complies with
clause (ii) above. In transactions with a value in excess of $3.0 million which
are not permitted under clause (i) above, the Company must obtain a written
opinion as to the fairness of such a transaction from an independent investment
banking firm selected by the Company.
The foregoing provisions will not apply to (i) any Restricted Payment
that is not prohibited by the provisions described under " -- Limitation on
Restricted Payments" contained herein or (ii) any transaction, approved by the
Board of Directors of the Company, with an officer or director of the Company or
of any Subsidiary in his or her capacity as officer or director entered into in
the ordinary course of business, including compensation and employee benefit
arrangements with any officer or director of the Company or of any Subsidiary
that are customary for public companies in the manufacturing industry.
Limitation on Certain Asset Sales
The Company will not, and will not permit any of its Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or its
Restricted Subsidiaries, as the case may be, receives consideration at the time
of such sale or other disposition at least equal to the fair market value
thereof (as determined in good faith by the Company's Board of Directors, and
evidenced by a board resolution); (ii) not less than 85% of the consideration
received by the Company or its Subsidiaries, as the case may be, is in the form
of cash or cash equivalents (those equivalents allowed under "Temporary Cash
Investments"); and (iii) subject to the Company's obligations with respect to
the Intercompany Notes in the event of a Qualified Subsidiary IPO, the Asset
Sale Proceeds received by the Company or such Restricted Subsidiary are applied
(a) first, to the extent the Company elects, or is required, to prepay, repay or
purchase debt under any then existing Indebtedness of the Company or any
Restricted Subsidiary ranking pari passu to the Notes within 180 days following
the receipt of the Asset Sale Proceeds from any Asset Sale, provided that any
such repayment shall result in a permanent reduction of the commitments
thereunder in an amount equal to the principal amount so repaid; (b) second, to
the extent of the balance of Asset Sale Proceeds after application as described
above, to the extent the Company elects, to an investment in assets (including
Capital Stock or other securities purchased in connection with the acquisition
of Capital Stock or property of another person) used or useful in businesses
similar or ancillary to the business of the Company or any Restricted Subsidiary
as conducted at the time of such Asset Sale, provided that such investment
occurs or the Company or a Restricted Subsidiary enters into contractual
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commitments to make such investment, subject only to customary conditions (other
than the obtaining of financing), on or prior to the 181st day following receipt
of such Asset Sale Proceeds and Asset Sale Proceeds contractually committed are
so applied within 360 days following the receipt of such Asset Sale Proceeds
(the "Reinvestment Date"); and (c) third, if on the Reinvestment Date with
respect to any Asset Sale, the Available Asset Sale Proceeds exceed $10 million,
the Company shall apply an amount equal to Available Asset Sale Proceeds to an
offer to repurchase the Notes, at a purchase price in cash equal to 100% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of repurchase (an "Excess Proceeds Offer"). If an Excess Proceeds Offer is not
fully subscribed, the Company may retain the portion of the Available Asset Sale
Proceeds not required to repurchase Notes and the Available Asset Sale Proceeds
shall be reset to zero.
If the Company is required to make an Excess Proceeds Offer, the
Company shall mail, within 30 days following the Reinvestment Date, a notice to
the Holders stating, among other things: (1) that such Holders have the right to
require the Company to apply the Available Asset Sale Proceeds to repurchase
such Notes at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase; (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) the calculations used in determining the amount of
Available Asset Sale Proceeds to be applied to the repurchase of such Notes.
Limitation on Disposition of Assets
The Company will not, and will not permit any Restricted Subsidiary of
the Company to, sell, convey, lease, transfer or otherwise contribute or dispose
of any of its assets or property or the proceeds from the sale or other
disposition of any such assets or property (including any shares of Capital
Stock of any Restricted Subsidiary of the Company) existing on the Issue Date
(each referred to for the purpose of this covenant as a "disposition") to any
other Subsidiary of the Company, other than (a) de minimis dispositions made in
the ordinary course of business, (b) intercompany loans and cash equity
contributions (other than the Intercompany Notes), including, without
limitation, any such loans or contributions for the purpose of effecting the
payment of any tax owed by any such Subsidiary to any governmental entity), (c)
dispositions of trade or other receivables and assets relating to trade and (d)
dispositions permitted by the covenant " -- Limitation on Restricted Payments."
Limitation on Preferred Stock of Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary to issue any
Preferred Stock (except Preferred Stock issued to the Company or a Restricted
Subsidiary) or permit any Person (other than the Company or a Restricted
Subsidiary) to hold any such Preferred Stock unless the Company or such
Restricted Subsidiary would be entitled to incur or assume Indebtedness under
the covenant described under " -- Limitation on Additional Indebtedness" in the
aggregate principal amount equal to the aggregate liquidation value of the
Preferred Stock to be issued.
Limitation on Capital Stock of Restricted Subsidiaries
The Company will not (i) sell, pledge, hypothecate or otherwise convey
or dispose of any Capital Stock of a Restricted Subsidiary or (ii) permit any of
its Restricted Subsidiaries to issue any Capital Stock, other than to the
Company or a Wholly-Owned Subsidiary of the Company. The foregoing restrictions
shall not apply to the issuance and sale of Capital Stock of a Restricted
Subsidiary that is an obligor under an Intercompany Note in compliance with
"Offer to Repurchase upon a Qualified Subsidiary IPO," an Asset Sale made in
compliance with " -- Limitation on Certain Asset Sales" or the issuance of
Preferred Stock in compliance with the covenant described under " -- Limitation
on Preferred Stock of Restricted Subsidiaries."
Limitation on Transfer of Intercompany Notes; Repayment of Intercompany Notes
With the exception of the pledge of the Intercompany Notes to the
Trustee as security for the Notes, the Company will not sell, pledge,
hypothecate or otherwise convey or dispose of any Intercompany Note except in
accordance with " -- Offer to Repurchase upon a Qualified Subsidiary IPO." The
Company shall agree not to reduce the principal amount of any Intercompany Note
or otherwise amend or modify the terms of any Intercompany Note as in effect on
the Issue Date.
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Limitation on Business of HIVEC Holdings; Capital Stock of Foreign Subsidiaries
HIVEC Holdings shall not engage in any trade or business, incur any
Indebtedness other than Permitted Indebtedness, incur any liabilities other than
nominal expenses necessary to maintain its corporate existence, hold any assets
other than the capital stock of HIVEC, B.V., or sell, pledge, encumber or
transfer or cause or permit the sale, pledge, encumbrance or transfer of Capital
Stock of any of its direct or indirect Subsidiaries. Datcon shall not sell,
pledge, encumber or transfer the Capital Stock of any of its direct or indirect
foreign subsidiaries. Notwithstanding the foregoing, by May 31, 1998, the
Company shall cause HIVEC Holdings and HIVEC, B.V. to: (i) transfer (directly or
indirectly) to Datcon all of the capital stock of Industrias Jorda that is not
held by Datcon (or a direct or indirect subsidiary of Datcon); and (ii) transfer
(directly or indirectly) all of the asset of Anderson Ireland (as defined
herein) to Anderson (or a direct or indirect subsidiary of Anderson) ((i) and
(ii) together, the "Foreign Realignment").
Limitation on Sale and Lease-Back Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale and Lease-Back Transaction unless (i) the consideration
received in such Sale and Lease-Back Transaction is at least equal to the fair
market value of the property sold, as determined by a board resolution of the
Company and (ii) the Company could incur the Attributable Indebtedness in
respect of such Sale and Lease-Back Transaction in compliance with the covenant
described under " -- Limitation on Additional Indebtedness."
Limitation on Dividend and Other Payment Restrictions Affecting Subsidiaries
The Company will not, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction on the ability of any
Restricted Subsidiary to meet its principal and interest obligations on the
Notes (a)(i) through the payment of dividends or make any other distributions to
the Company or any of its Restricted Subsidiaries (A) on its Capital Stock or
(B) with respect to any other interest or participation in, or measured by, its
profits, or (ii) through the payment of any Indebtedness owed to the Company or
any of its Restricted Subsidiaries, (b) through the making of loans or advances
or capital contributions to the Company or any of its Restricted Subsidiaries or
(c) through the transfer of any of its properties or assets to the Company or
any of its Restricted Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of (i) encumbrances or restrictions existing on the
Issue Date, (ii) the Indenture and the Notes, (iii) applicable law, (iv) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries or of any Person that becomes a
Restricted Subsidiary as in effect at the time of such acquisition or such
Person becoming a Restricted Subsidiary (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition of such
Person becoming a Restricted Subsidiary), which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property of assets of the Person (including any
Subsidiary of the Person), so acquired, (v) customary non-assignment provisions
in leases or other agreements entered into in the ordinary course of business
and consistent with past practices, (vi) Refinancing Indebtedness; provided that
such restrictions are in the aggregate no more restrictive than those contained
in the agreements governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded or (vii) customary restrictions in
security agreements or mortgages securing Indebtedness of the Company or a
Restricted Subsidiary to the extent such restrictions restrict the transfer or
encumbrance of the property subject to such security agreements and mortgages.
Guarantees of Certain Indebtedness
The Company will not permit any of its Restricted Subsidiaries,
directly or indirectly, to Guarantee any Indebtedness of the Company or a
Guarantor (except as permitted under clause (i) of the definition of "Permitted
Indebtedness" below) unless, in the case of a domestic Restricted Subsidiary,
such Restricted Subsidiary simultaneously executes and delivers to the Trustee a
supplemental indenture, in form reasonably satisfactory to the Trustee,
providing for the Guarantee by such Restricted Subsidiary of the payment of the
obligations of the Company under the Notes in the manner set forth under " --
Guarantees." Neither the Company nor any such Guarantor shall be required to
make a notation on the Notes to reflect any such Guarantee. Nothing in this
covenant shall be construed to permit any Restricted Subsidiary of the Company
to incur Indebtedness otherwise prohibited by the " -- Limitation on Additional
Indebtedness" covenant.
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Payments for Consent
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes which so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
CHANGE OF CONTROL OFFER
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 (as hereinafter defined)
(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 Offer 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 the Trustee
and to each Holder of the Notes, at the address appearing in the register
maintained by the Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to
this covenant and that all Notes 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 nor
more than 60 days from the date such notice is mailed (the "Change of
Control Payment Date"));
(3) that any Note not tendered will continue to accrue
interest;
(4) that, unless the Company defaults in the payment of the
Change of Control Purchase Price, any Notes accepted for payment
pursuant to the Change of Control Offer shall cease to accrue interest
after the Change of Control Payment Date;
(5) that Holders accepting the offer to have their Notes
purchased pursuant to a Change of Control Offer will be required to
surrender the Notes to the Paying Agent at the address specified in the
notice prior to the close of business on the second Business Day
preceding the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their acceptance
if the Paying Agent 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 principal amount of the Notes delivered for
purchase, and a statement that such Holder is withdrawing his election
to have such Notes purchased;
(7) that Holders whose Notes are being purchased only in part
will be issued new Notes equal in principal amount to the unpurchased
portion of the Notes surrendered, provided that each Note purchased and
each such new Note issued shall be in an original principal amount in
denominations of $1,000 and integral multiples thereof;
(8) any other procedures that a Holder must follow to accept a
Change of Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Notes or portions thereof so tendered, and
(iii) deliver or cause to be delivered to the Trustee Notes so accepted together
with an Officers' Certificate stating the Notes or portions thereof tendered to
the Company. The Paying Agent shall promptly mail to each Holder of Notes so
accepted payment in an amount equal to the purchase price for such
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Notes, and the Company shall execute and issue, and the Trustee shall promptly
authenticate and mail to such Holder, a new Note equal in principal amount to
any unpurchased portion of the Notes surrendered; provided that each such new
Note shall be issued in an original principal amount in denominations of $1,000
and integral multiples thereof.
The Indenture will provide that, (A) if the Company or any Subsidiary
thereof has issued any outstanding (i) Indebtedness that is subordinated in
right of payment to the Notes or (ii) Preferred Stock, and the Company or such
Subsidiary is required to make a Change of Control Offer or to make a
distribution with respect to such subordinated Indebtedness or Preferred Stock
in the event of a Change of Control, the Company shall not consummate any such
offer or distribution with respect to such subordinated Indebtedness or
Preferred Stock until such time as the Company shall have paid the Change of
Control Purchase Price in full to the holders of Notes that have accepted the
Company's Change of Control Offer and shall otherwise have consummated the
Change of Control Offer made to holders of the Notes and (B) the Company will
not issue Indebtedness that is subordinated in right of payment to the Notes or
Preferred Stock with change of control provisions requiring the payment of such
Indebtedness or Preferred Stock prior to the payment of the Notes in the event
of a Change in Control under the Indenture.
In the event that a Change of Control occurs and the holders of Notes
exercise their right to require the Company to purchase Notes, 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.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company will not and will not permit any Restricted Subsidiary to
consolidate with, merge with or into, or transfer all or substantially all of
its assets (as an entirety or substantially as an entirety in one transaction or
a series of related transactions), to any Person unless: (i) the Company or the
Restricted Subsidiary, as the case may be, shall be the continuing Person, or
the Person (if other than the Company or the Restricted Subsidiary) formed by
such consolidation or into which the Company or the Restricted Subsidiary, as
the case may be, is merged or to which the properties and assets of the Company
or the Restricted Subsidiary, as the case may be, are transferred shall be a
corporation organized and existing under the laws of the United States or any
state thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of the obligations of the Company or the
Restricted Subsidiary, as the case may be, under the Notes and the Indenture,
and the obligations under the Indenture shall remain in full force and effect;
(ii) immediately before and immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing; and (iii)
immediately after giving effect to such transaction on a pro forma basis the
Company or such Person could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under the covenant set forth under " --
Limitation on Additional Indebtedness;" provided that a Person that is a
Restricted Subsidiary may merge into the Company or another Person that is a
Restricted Subsidiary without complying with this clause (iii).
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
GUARANTEES
Under the circumstances described above in "Guarantees of Certain
Indebtedness", the Company's payment obligations under the Notes may in the
future be jointly and severally guaranteed (a "Guarantee") on a senior unsecured
basis by existing or future domestic Restricted Subsidiaries of the Company as
guarantors (each, a "Guarantor"). It is not expected that any Restricted
Subsidiary of the Company will initially execute and deliver the Indenture as a
Guarantor. Each Guarantor will guarantee to each holder of the Notes and the
Trustee, the full and prompt performance of the obligations of the Company under
the Notes, including the payment of principal of premium, if any, on and
interest on the Notes pursuant to its Guarantee. Any of the Company's Restricted
Subsidiaries which become Unrestricted Subsidiaries pursuant to the terms and
provisions of the Indenture shall be released from their obligations under the
Guarantees.
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The obligations of each Guarantor will be limited to the maximum amount
as will, after giving effect to all other contingent and fixed liabilities of
such Guarantor (including, without limitation, any guarantees of other
Indebtedness) and after giving effect to any collections from or payments made
by or on behalf of any other Guarantor in respect of the obligations of such
other Guarantor under its Guarantee or pursuant to its contribution obligations
under the Indenture, result in the obligations of such Guarantor under the
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. Each Guarantor that makes a payment or distribution under
a Guarantee shall be entitled to a contribution from each other Guarantor in a
pro rata amount based on the Adjusted Net Assets of each Guarantor.
A Guarantor shall be released from all of its obligations under its
Guarantee if all or substantially all of its assets are sold or all of its
Capital Stock is sold, in each case in a transaction in compliance with the
covenant described under " -- Limitation on Certain Asset Sales," the Guarantor
merges with or into or consolidates with, or transfers all or substantially all
of its assets to, the Company or another Guarantor in a transaction in
compliance with " -- Merger, Consolidation or Sale of Assets," or, in the case
of a Restricted Subsidiary that is an obligor under an Intercompany Note, upon
the consummation of a Qualified Subsidiary IPO, complying with "Offer to
Repurchase upon a Qualified Subsidiary IPO" and, in each case, such Guarantor
has delivered to the Trustee an Officers' Certificate and an opinion of counsel,
each stating that all conditions precedent herein provided for relating to such
transaction have been complied with.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of
Default":
(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;
(vi) certain events involving bankruptcy, insolvency or
reorganization of the Company or any Restricted Subsidiary thereof;
(vii) the failure of the Company to cause up to $2.25 million
of the proceeds of the Offerings to be applied, as completely as
possible, to the repurchase of Letitia Common Stock held by the High
Voltage Engineering Corporation Retirement Plan within 60 days of the
Issue Date; or
(viii) the failure of the Company to cause the Foreign
Realignment to occur.
The Indenture provides that the Trustee may withhold notice to the
Holders of the Notes of any default (except in payment of principal or premium,
if any, or interest on the Notes) if the Trustee considers it to be in the best
interest of the Holders of the Notes to do so.
The Indenture provides that 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
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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.
The holders of a majority in principal amount of the Notes then
outstanding shall have the right to waive any existing default or compliance
with any provision of the Indenture or the Notes and to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
subject to certain limitations specified in the Indenture.
No Holders of any Note will have any right to institute any proceeding
with respect to the Indenture or for any remedy thereunder, unless such Holders
shall have previously given to the Trustee written notice of a continuing Event
of Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as a trustee,
and unless the Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted on such Note
on or after the respective due dates expressed in such Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides the Company may elect either (a) to defease and
be discharged from any and all obligations with respect to the Notes (except for
the obligations to register the transfer or exchange of such Notes, to replace
temporary or mutilated, destroyed, lost or stolen Notes, to maintain an office
or agency in respect of the Notes and to hold monies for payment in trust)
("defeasance") or (b) to be released from its obligations with respect to the
Notes under certain covenants contained in the Indenture and described above
under " -- Certain Covenants" ("covenant defeasance"), upon the deposit with the
Trustee (or other qualifying trustee), in trust for such purpose, of money
and/or U.S. Government Obligations which through the payment of principal and
interest in accordance with their terms will provide money, in an amount
sufficient to pay the principal of, premium, if any, and interest on the Notes,
on the scheduled due dates therefor or on a selected date of redemption in
accordance with the terms of the Indenture. Such a trust may only be established
if, among other things, the Company has delivered to the Trustee an opinion of
counsel (as specified in the Indenture) (i) to the effect that neither the trust
nor the Trustee will be required to register as an investment company under the
Investment Company Act of 1940, as amended, and (ii) describing either a private
ruling concerning the Notes or a published ruling of the Internal Revenue
Service, to the effect that holders of the Notes or persons in their positions
will not recognize income, gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to federal
income tax on the same amount and in the same manner and at the same times, as
would have been the case if such deposit, defeasance and discharge had not
occurred.
MODIFICATION OF INDENTURE
From time to time, the Company and the Trustee may, without the consent
of holders of the Notes, amend the Indenture or the Notes or supplement the
Indenture for certain specified purposes, including providing for uncertificated
Notes in addition to certificated Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not materially and adversely
affect the rights of any holder. The Indenture contains provisions permitting
the Company and the Trustee, with the consent of holders of at least a majority
in principal amount of the outstanding Notes, to modify or supplement the
Indenture or the Notes, except that no such modification shall, without the
consent of each holder affected thereby, (i) reduce the amount of Notes whose
holders must consent to an amendment, supplement, or waiver to the Indenture or
the Notes, (ii) reduce the rate of or change the time for payment of interest on
any Note, (iii) reduce the principal of or premium on or change the stated
maturity of any Note, (iv) make any Note payable in money other than that stated
in the Note or change the place of payment from New York, New York, (v) change
the amount or time of any payment required by the Notes or reduce the premium
payable upon any redemption of Notes, or change the time before which no such
redemption may be made, (vi)
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waive a default on the payment of the principal of, interest on, or redemption
payment with respect to any Note, or (vii) take any other action otherwise
prohibited by the Indenture to be taken without the consent of each holder
affected thereby.
REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting
requirements of the Exchange Act, it will continue to furnish the information
required thereby to the Commission and to the holders of the Notes, the
Indenture provides that 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 Notes 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 Notes, without costs to such holders,
copies of such reports and documents.
COMPLIANCE CERTIFICATE
The Company will deliver to the Trustee on or before 100 days after the
end of the Company's fiscal year and on or before 50 days after the end of each
of the first, second and third fiscal quarters in each year an Officers'
Certificate stating whether or not the signers know of any Default or Event of
Default that has occurred. If they do, the certificate will describe the Default
or Event of Default and its status.
THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent
with regard to the Notes. The Indenture provides that, except during the
continuance of an Event of Default, the Trustee will perform only such duties as
are specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with
the Indenture. The Registrar under such Indenture may require a Holder, among
other things, to furnish appropriate endorsements and transfer documents, and to
pay any taxes and fees required by law or permitted by the Indenture. The
Registrar is not required to transfer or exchange any Note selected for
redemption. Also, the Registrar is not required to transfer or exchange any Note
for a period of 15 days before selection of the Notes to be redeemed.
The registered Holder of a Note may be treated as the owner of it for
all purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in
the covenants contained in the Indenture. Reference is made to the Indenture for
the full definition of all such terms as well as any other capitalized terms
used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or assumed in connection with the acquisition of assets from such
Person.
"Adjusted Net Assets" of a Guarantor at any date shall mean the lesser
of (x) the amount by which the fair value of the property of such Guarantor
exceeds the total amount of liabilities, including, without limitation,
contingent liabilities (after giving effect to all other fixed and contingent
liabilities), but excluding liabilities under the Guarantee, of such Guarantor
at such date and (y) the amount by which the present fair salable value of the
assets of such Guarantor at such date exceeds the amount that will be required
to pay the probable liability of such Guarantor on its debts (after giving
effect to all other fixed and contingent liabilities and after giving effect to
any collection from any subsidiary of such Guarantor in respect of the
obligations of such Subsidiary under the Guarantee), excluding Indebtedness in
respect of the Guarantee, as they become absolute and matured.
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"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; or (e) any
of the Intercompany Notes; 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; and provided, further that any sale of capital stock of
any Restricted Subsidiary pursuant to a Qualified Subsidiary IPO shall be an
Asset Sale only to the extent provided under " -- Offer to Repurchase upon a
Qualified Subsidiary IPO."
"Asset Sale Proceeds" means, with respect to any Asset Sale, (i) cash
received by the Company or any Restricted Subsidiary from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such Asset
Sale, (b) payment of all brokerage commissions, underwriting and other fees and
expenses related to such Asset Sale, (c) provision for minority interest holders
in any Restricted Subsidiary as a result of such Asset Sale and (d) deduction of
appropriate amounts to be provided by the Company or a Restricted Subsidiary as
a reserve, in accordance with GAAP, against any liabilities associated with the
assets sold or disposed of in such Asset Sale and retained by the Company or a
Restricted Subsidiary after such Asset Sale, including, without limitation,
pension and other post employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and
other noncash consideration received by the Company or any Restricted Subsidiary
from such Asset Sale or other disposition, but only upon the liquidation or
conversion of such notes or noncash consideration into cash.
"Attributable Indebtedness" under the Indenture in respect of a Sale
and Lease-Back Transaction means, as at the time of determination, the greater
of (i) the fair value of the property subject to such arrangement (as determined
by the Board of Directors) and (ii) the present value of the obligation
(discounted at a rate of 10%, compounded annually) of the lessee for rental
payments during the remaining term of the lease included in such Sale and
Lease-Back Transaction (including any period for which such lease has been
extended).
"Available Asset Sale Proceeds" means, with respect to any Asset Sale,
the aggregate Asset Sale Proceeds from such Asset Sales that have not been
applied in accordance with clauses (iii)(a) or (iii)(b), and which has not yet
been the basis for an Excess Proceeds Offer in accordance with clause (iii)(c)
of the first paragraph of " -- Limitation on Certain Asset Sales."
"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
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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, and the Permitted
Holders beneficially own, in the aggregate, a lesser percentage of the total
voting power of the Company or Parent, as the case may be, than such other
Person and do not have the right or ability by 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 (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 Fixed Charges" means, with respect to any Person and with
respect to any determination date, the sum of a Person's (i) Consolidated
Interest Expense, plus (ii) the product of (x) the aggregate amount of all
dividends paid on Disqualified Capital Stock of the Company or on each series of
preferred stock of each Subsidiary of such Person (other than dividends paid or
payable in additional shares of preferred stock or to the Company or any of its
Wholly-Owned Subsidiaries) times (y) a fraction, the numerator of which is one
and the denominator of which is one minus the then current effective combined
federal, state and local tax rate of such Person (expressed as a decimal), in
each case, for the prior four full fiscal quarter period for which financial
results are available.
"Consolidated Interest Expense" means, with respect to any Person, for
any period, the aggregate amount of interest which, in conformity with GAAP,
would be set forth opposite the caption "interest expense" or any like caption
on an income statement for such Person and its Restricted Subsidiaries on a
consolidated basis (including, but not limited to, Redeemable Dividends, whether
paid or accrued, on Subsidiary Preferred Stock (as defined below in these
"Certain Definitions"), imputed interest included in Capitalized Lease
Obligations, all commissions, discounts and other fees and charges owed with
respect to letters of credit and bankers' acceptance financing, the net costs
associated with hedging obligations, amortization of other financing fees and
expenses, the interest portion of any deferred payment obligation, amortization
of discount or premium, if any, and all other non-cash interest expense) plus,
without duplication, all net capitalized interest for such period and all
interest paid under any guarantee of Indebtedness (including a guarantee of
principal, interest or any combination thereof) of any Person, plus, without
duplication, the amount of all dividends or distributions paid on Disqualified
Capital Stock (other than dividends paid or payable in shares of Capital Stock
of the Company) and, minus: (i) amortization of deferred financing costs and
expenses; (ii) prepayment penalties on outstanding indebtedness of the Company
retired on the Issue Date; (iii) accrual, redemption or payment of Contingent
Interest Payments, and (iv) any accretions with respect to any of the Warrants.
"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
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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, between the Company,
Robicon and Datcon and BancBoston Capital, Inc. ("BancBoston"), as amended, and
that Agreement for Additional Contingent Interest Payments (Quest), dated as of
June 29, 1995, between the Company, Robicon and Datcon and BancBoston.
"Disqualified Capital Stock" means any Capital Stock of the Company or
a Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes, for cash or securities constituting
Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock
shall be deemed to include (i) any Preferred Stock of a Restricted Subsidiary of
the Company and (ii) any Preferred Stock of the Company, with respect to either
of which, under the terms of such Preferred Stock, by agreement or otherwise,
such Restricted Subsidiary or the Company is obligated to pay current dividends
or distributions in cash during the period prior to the maturity date of the
Notes; provided, however, that Preferred Stock of the Company or any Restricted
Subsidiary thereof that is issued with the benefit of provisions requiring a
change of control offer to be made for such Preferred Stock in the event of a
change of control of the Company or Restricted Subsidiary, which provisions have
substantially the same effect as the provisions of the Indenture described under
"Change of Control," shall not be deemed to be Disqualified Capital Stock solely
by virtue of such provisions; and, provided, further, that the Series A
Preferred Stock shall be deemed not to be Disqualified Capital Stock.
"EBITDA" means, for any Person, for any period, an amount equal to (a)
the sum of (i) Consolidated Net Income for such period, plus (ii) the provision
for taxes for such period based on income or profits to the extent such income
or profits were included in computing Consolidated Net Income and any provision
for taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period (but only including Redeemable
Dividends in the calculation of such Consolidated Interest Expense to the extent
that such Redeemable Dividends have been included in the calculation of
Consolidated Net Income), plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net
Income for such period, minus (b) all non-cash items increasing Consolidated Net
Income for such period, all for such Person and its Subsidiaries determined in
accordance with GAAP, except that with respect to the Company each of the
foregoing items shall be determined on a consolidated basis with respect to the
Company and its Restricted Subsidiaries only; and provided, however, that, for
purposes of calculating EBITDA during any fiscal quarter, cash income from a
particular Investment of such Person shall be included only (x) if cash income
has actually been received by such Person with respect to such Investment, or
(y) if the cash income derived from such Investment is attributable to Temporary
Cash Investments.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fixed Charge Coverage Ratio" of any Person means, with respect to any
determination date, the ratio of (i) EBITDA for such Person's prior four
full-fiscal quarters for which financial results have been reported prior to the
determination date to (ii) Consolidated Fixed Charges of such Person for such
period.
"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
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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 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.
"Investments" means, directly or indirectly, any advance (other than
advances to employees and directors of the Company and its Restricted
Subsidiaries in the ordinary course of business of the Company and its
Restricted Subsidiaries), account receivable (other than an account receivable
arising in the ordinary course of business), loan or capital contribution to (by
means of transfers of property to others, payments for property or services for
the account or use of others or otherwise), the purchase of any stock, bonds,
notes, debentures, partnership or joint venture interests or other securities
of, the acquisition, by purchase or otherwise, of all or substantially all of
the business or assets or stock or other evidence of beneficial ownership of,
any Person or the making of any investment in any Person. Investments shall
exclude extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices.
"Issue Date" means the date the Notes are first issued by the Company
and authenticated by the Trustee under the Indenture.
"Lien" means with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Investment" means the excess of (i) the aggregate amount of all
Investments in Unrestricted Subsidiaries made by the Company on or after the
Issue Date (in the case of an Investment made other than in cash, the amount
shall be the fair market value of such Investment as determined in good faith by
the board of directors of the Company) over (ii) the sum of (A) the aggregate
amount returned in cash on such Investments whether through interest payments,
principal payments, dividends or other distributions and (B) the net cash
proceeds received by the Company from the disposition of all or any portion of
such
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Investments (other than to a Subsidiary of the Company); provided, however, that
with respect to all Investments made in an Unrestricted Subsidiary the sum of
clauses (A) and (B) above with respect to such Investments shall not exceed the
aggregate amount of all such Investments made in such Unrestricted Subsidiary.
"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 Trustee of any such refunding, replacement, restructuring or
refinancing of the New Revolving Credit Facility.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by the Chairman of the Board, the Chief Executive Officer,
the Deputy Chairman of the Board, the President, the Chief Operating Officer or
any Vice President and the Chief Financial Officer or any Treasurer of such
Person that shall comply with applicable provisions of the Indenture.
"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 any of them or their spouses,
lineal descendants or other family members.
"Permitted Indebtedness" means:
(i) Indebtedness of the Company or any Restricted Subsidiary
arising under or in connection with the New Revolving Credit Facility
in an amount not to exceed $25,000,000 less any mandatory prepayments
actually made thereunder (to the extent, in the case of payments of
revolving credit indebtedness, that the corresponding commitments have
been permanently reduced);
(ii) Indebtedness under the Notes and the Guarantees, if
applicable;
(iii) (A) Indebtedness of foreign Restricted Subsidiaries
outstanding under one or more working capital facilities not to exceed
the aggregate of 85% of eligible accounts receivable and 60% of
eligible inventory of each such Restricted Subsidiary and (B)
additional Indebtedness of such Restricted Subsidiaries not to exceed
$2,000,000 in aggregate principal amount outstanding at any one time;
(iv) Indebtedness not covered by any other clause of this
definition which is outstanding on the date of the Indenture;
(v) Indebtedness of the Company to any Restricted Subsidiary
and Indebtedness of any Restricted Subsidiary to the Company or another
Restricted Subsidiary;
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(vi) Purchase Money Indebtedness and Capitalized Lease
Obligations incurred to acquire property in the ordinary course of
business which Indebtedness and Capitalized Lease Obligations do not in
the aggregate exceed $5,000,000;
(vii) Interest Rate Agreements;
(viii) additional Indebtedness of the Company not to exceed
$2,000,000 in principal amount outstanding at any time; and
(ix) Refinancing Indebtedness.
"Permitted Investments" means, for any Person, Investments made on or
after the date of the Indenture consisting of:
(i) Investments by the Company, or by a Restricted Subsidiary
thereof, in the Company or a Restricted Subsidiary, provided that any
such Investment is permitted under clauses (a), (b) or (c) of the " --
Limitation on Disposition of Assets" covenant;
(ii) Temporary Cash Investments;
(iii) Investments by the Company, or by a Restricted
Subsidiary thereof, in a Person, if as a result of such Investment (a)
such Person becomes a Restricted Subsidiary of the Company or (b) such
Person is merged, consolidated or amalgamated with or into, or
transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Restricted Subsidiary thereof;
(iv) Existing Investments in a Restricted Subsidiary which
becomes an Unrestricted Subsidiary after a Qualified Subsidiary IPO;
provided, however, that investments by the Company in a Restricted
Subsidiary in anticipation of a Qualified Subsidiary IPO shall not be
considered Permitted Investments;
(v) reasonable and customary loans made to employees in
connection with their relocation not to exceed $1,000,000 in the
aggregate at any one time outstanding;
(vi) an Investment that is made by the Company or a Restricted
Subsidiary thereof in the form of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are
issued by a third party to the Company or Restricted Subsidiary solely
as partial consideration for the consummation of an Asset Sale that is
otherwise permitted under the covenant described under " -- Limitation
on Certain Asset Sales"; and
(vii) other Investments that do not exceed $1,000,000 at any
time outstanding plus, the aggregate amount returned in cash on or with
respect to Investments made pursuant to this clause (vii) not to exceed
the aggregate amount invested by the Company therein.
"Permitted Liens" means (i) Liens on property or assets of, or any
shares of stock of or secured debt of, any corporation existing at the time such
corporation becomes a Restricted Subsidiary of the Company or at the time such
corporation is merged into the Company or any of its Restricted Subsidiaries;
provided that such Liens are not incurred in connection with, or in
contemplation of, such corporation becoming a Restricted Subsidiary of the
Company or merging into the Company or any of its Restricted Subsidiaries, (ii)
Liens securing Refinancing Indebtedness; provided that any such Lien does not
extend to or cover any Property, shares or debt other than the Property, shares
or debt securing the Indebtedness so refunded, refinanced or extended, (iii)
Liens in favor of the Company or any of its Restricted Subsidiaries, (iv) Liens
securing industrial revenue bonds, (v) Liens to secure Purchase Money
Indebtedness that is otherwise permitted under the Indenture; provided that (a)
any such Lien is created solely for the purpose of securing Indebtedness
representing, or incurred to finance, refinance or refund, the cost (including
sales and excise taxes, installation and delivery charges and other direct costs
of, and other direct expenses paid or charged in connection with, such purchase
or construction) of such Property, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such costs, and (c) such Lien does
not extend to or cover any Property other than such item of Property and any
improvements on such item, (vi) statutory liens or landlords', carriers',
warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other like
Liens arising in the ordinary course of
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business which do not secure any Indebtedness and with respect to amounts not
yet delinquent or being contested in good faith by appropriate proceedings, if a
reserve or other appropriate provision, if any, as shall be required in
conformity with GAAP shall have been made therefor, (vii) other Liens securing
obligations incurred in the ordinary course of business which obligations do not
exceed $1,000,000 in the aggregate at any one time outstanding, (viii) any
extensions, substitutions, replacements or renewals of the foregoing, (ix) Liens
for taxes, assessments or governmental charges that are being contested in good
faith by appropriate proceedings, (x) Liens securing Capitalized Lease
Obligations permitted to be incurred under clause (vi) of the definition of
"Permitted Indebtedness"; provided that such Lien does not extend to any
property other than that subject to the underlying lease; (xi) Liens to secure
Indebtedness consisting of Interest Rate Agreements; and (xii) Liens securing
the New Revolving Credit Facility.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
"PHI Acquisition" means the acquisition of PHI Acquisition Holdings,
Inc. by the Company and Lauren Corporation pursuant to an Agreement and Plan of
Merger dated as of May 7, 1997.
"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 the holders
of other Capital Stock issued by such Person.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"Purchase Money Indebtedness" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"Qualified Equity Offering" means a public offering by the Company or
Parent of shares of its common stock (however designated and whether voting or
non-voting) and any and all rights, warrants or options to acquire such common
stock.
"Qualified Subsidiary IPO" means a public offering by a Restricted
Subsidiary that is an obligor under an Intercompany Note of shares of its
Capital Stock (however designated and whether voting or non-voting) and any and
all rights, warrants or options to acquire such Capital Stock.
"Redeemable Dividend" means, for any dividend or distribution with
regard to Disqualified Capital Stock, the quotient of the dividend or
distribution divided by the difference between one and the maximum statutory
federal income tax rate (expressed as a decimal number between 1 and 0) then
applicable to the issuer of such Disqualified Capital Stock.
"Refinancing Indebtedness" means Indebtedness that refunds, refinances
or extends any Indebtedness of the Company or any Restricted Subsidiary
outstanding on the Issue Date or other Indebtedness permitted to be incurred by
the Company or its Restricted Subsidiaries pursuant to the terms of the
Indenture, but only to the extent that (i) the Refinancing Indebtedness is
subordinated to the Notes to at least the same extent as the Indebtedness being
refunded, refinanced or extended, if at all, (ii) the Refinancing Indebtedness
is scheduled to mature either (a) no earlier than the Indebtedness being
refunded, refinanced or extended, or (b) after the maturity date of the Notes,
(iii) the portion, if any, of the Refinancing Indebtedness that is scheduled to
mature on or prior to the maturity date of the Notes has a weighted average life
to maturity at the time such Refinancing Indebtedness is incurred that is equal
to or greater than the weighted average life to maturity of the portion of the
Indebtedness being refunded, refinanced or extended that is scheduled to mature
on or prior to the maturity date of the Notes, (iv) such Refinancing
Indebtedness is in an aggregate principal amount that is equal to or less than
the sum of (a) the aggregate principal amount then outstanding under the
Indebtedness being refunded, refinanced or extended, (b) the amount of accrued
and unpaid interest, if any, and premiums owed, if any, not in excess of
preexisting prepayment provisions on such Indebtedness being refunded,
refinanced or extended and (c) the amount of customary fees, expenses and costs
related to the incurrence of such Refinancing Indebtedness, and (v) such
Refinancing Indebtedness is incurred by the same Person that initially incurred
the Indebtedness being refunded, refinanced or extended, except that the Company
may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness
of any Wholly-Owned Subsidiary of the Company and any Wholly-
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Owned Subsidiary of the Company which becomes a Guarantor may incur Refinancing
Indebtedness to refund, refinance or extend Indebtedness of the Company.
"Restricted Payment" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any Restricted Subsidiary of the Company or any payment made to
the direct or indirect holders (in their capacities as such) of Capital Stock of
the Company or any Restricted Subsidiary of the Company (other than (x)
dividends or distributions payable solely in Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to purchase
Capital Stock (other than Disqualified Capital Stock), and (y) in the case of
Subsidiaries of the Company, dividends or distributions payable to the Company
or to a Wholly-Owned Subsidiary of the Company), (ii) the purchase, redemption
or other acquisition or retirement for value of any Capital Stock of the Company
or any of its Restricted Subsidiaries (other than Capital Stock owned by the
Company or a Wholly-Owned Subsidiary of the Company, excluding Disqualified
Capital Stock), (iii) the making of any principal payment on, or the purchase,
defeasance, repurchase, redemption or other acquisition or retirement for value,
prior to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Indebtedness which is subordinated in right of payment to the
Notes (other than subordinated Indebtedness acquired in anticipation of
satisfying a scheduled sinking fund obligation, principal installment or final
maturity, in each case due within one year of the date of acquisition), (iv) the
making of any Investment or guarantee of any Investment in any Person other than
a Permitted Investment, (v) any designation of a Restricted Subsidiary as an
Unrestricted Subsidiary on the basis of the amount of the Net Investment by the
Company therein (other than in connection with a Qualified Subsidiary IPO), (vi)
the redemption of or the making of any Contingent Interest Payments, (vii)
forgiveness of any Indebtedness of an Affiliate of the Company to the Company or
a Restricted Subsidiary and (viii) the exchange of Warrants for Subsidiary
Warrants or Common Shares for Subsidiary Shares. For purposes of determining the
amount expended for Restricted Payments, cash distributed or invested shall be
valued at the face amount thereof and property other than cash shall be valued
at its fair market value.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the direct or indirect Subsidiaries
of the Company existing as of the Issue Date. The Board of Directors of the
Company may designate any Unrestricted Subsidiary or any Person to be acquired
that is to become a Subsidiary as a Restricted Subsidiary if immediately after
giving effect to such action (and treating any Acquired Indebtedness as having
been incurred at the time of such action), the Company could have incurred at
least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
pursuant to the " -- Limitation on Additional Indebtedness" covenant, provided,
however, that the foregoing Indebtedness incurrence condition shall not apply to
the designation as a Restricted Subsidiary of the Subsidiary ("Anderson
Ireland") to which is to be transferred the assets and liabilities of the
Fermoy, Ireland division of HIVEC, B.V. that is associated with the business of
Anderson.
"Sale and Lease-Back Transaction" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal property, which property has been or is
to be sold or transferred by the Company or such Restricted Subsidiary to such
Person in contemplation of such leasing.
"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.
"Subsidiary Warrants" means warrants of a Subsidiary that may be issued
in exchange for the Warrants in connection with a Qualified Subsidiary IPO.
"Temporary Cash Investments" means (i) Investments in marketable,
direct obligations issued or guaranteed by the United States of America, or of
any governmental agency or political subdivision thereof, maturing within 365
days of the date of
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purchase; (ii) Investments in certificates of deposit issued by a bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia, in each case having capital, surplus and undivided profits
totaling more than $500,000,000 and rated at least A by Standard & Poor's
Corporation and A-2 by Moody's Investors Service, Inc., maturing within 365 days
of purchase; or (iii) Investments not exceeding 365 days in duration in money
market funds that invest substantially all of such funds' assets in the
Investments described in the preceding clauses (i) and (ii).
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary and (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; provided that, other than a Restricted Subsidiary
which may be classified as an Unrestricted Subsidiary upon consummation of a
Qualified Subsidiary IPO in compliance with " -- Offer to Repurchase upon a
Qualified Subsidiary IPO," a Subsidiary may be so classified as an Unrestricted
Subsidiary only if (x) the Restricted Subsidiary to be so designated has total
assets of $1,000 or less or (y) immediately after giving effect to such
designation, the Company could incur at least $1.00 of additional Indebtedness
pursuant to the first paragraph under " -- Limitation on Additional
Indebtedness"; and provided, further, that the Company could make a Restricted
Payment in an amount equal to the greater of the fair market value (as
determined by the Board of Directors in good faith) and book value of such
Restricted Subsidiary pursuant to the " -- Limitation on Restricted Payments"
covenant and such amount is thereafter treated as a Restricted Payment for the
purpose of calculating the aggregate amount available for Restricted Payments
thereunder. The Trustee shall be given prompt notice by the Company of each
resolution adopted by the Board of Directors of the Company under this
provision, together with a copy of each such resolution adopted.
"Warrants" means the warrants issued in connection with the Series A
Preferred Stock.
"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 OTHER INDEBTEDNESS
The Company has certain other 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 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 will 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.
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 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.
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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 1,082.7429 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 also comprising
in the aggregate 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.
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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 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 of these 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.
The Company issued an aggregate of 33,000 shares of Series A Preferred
Stock with a liquidation preference of $1,000 per share on August 8, 1997 in the
Offerings. Pursuant to a registration statement filed by the Company, the
Company is offering to exchange the outstanding shares of Series A Preferred
Stock for shares of Exchange Preferred Stock pursuant to an exchange offer (the
"Preferred Stock Exchange Offer"). The terms of the Series A Preferred Stock are
substantially identical to the terms of the Exchange Preferred Stock, except
that the shares of Series A Preferred Stock have not been registered under the
Securities Act and contain terms restricting the transfer of such shares.
The Exchange Preferred Stock when issued in exchange for the Series A
Preferred Stock in accordance with the terms of the Preferred Stock Exchange
Offer will be fully paid and nonassessable.
The Series A Preferred Stock and 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 Series A Preferred Stock and
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 Series A Preferred Stock and 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 Series A Preferred Stock and
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 Series A Preferred Stock and Exchange
Preferred Stock to satisfy dividend payments on outstanding shares of Series A
Preferred Stock and 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.
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Holders of Series A Preferred Stock and 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 Series A
Preferred Stock and Series A Preferred Stock and Exchange Preferred Stock at a
rate per annum equal to 12-1/2% of the liquidation preference per share of
Series A Preferred Stock and 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 Series A Preferred Stock or 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 Series A Preferred Stock or 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 Series A Preferred Stock and Exchange Preferred Stock. After the date on
which such dividend default is cured, the dividend rate on the Series A
Preferred Stock and Exchange Preferred Stock will revert to the dividend rate
originally borne by the Series A Preferred Stock and Exchange Preferred Stock.
After August 15, 2002, dividends must be paid in cash.
The Series A Preferred Stock and 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, 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>
The Series A Preferred Stock and 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.
Upon any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, holders of the Series A Preferred Stock and 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 Series A Preferred Stock and Exchange Preferred
Stock are not paid in full, the holders of the Series A Preferred Stock and
Exchange 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.
Holders of the Series A Preferred Stock and Exchange Preferred Stock
will have no voting rights with respect to general corporate matters except as
provided by law or upon the occurrence of certain events as set forth in the
Restated Articles.
112
<PAGE> 115
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.
The Restated Articles impose certain restrictions on the ability of
Company to declare or pay dividends or make distributions with respect to, or
purchase, or redeem or exchange, any capital stock of the Company other than the
Series A Preferred Stock and 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.
113
<PAGE> 116
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of certain of the anticipated federal income
tax consequences of an exchange of the Existing Notes for New Notes and of the
purchase, ownership, and disposition of the New Notes 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 New
Notes 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 New Notes 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 NEW NOTES.
TAXATION OF HOLDERS ON EXCHANGE
Although the matter is not free from doubt, an exchange of Existing
Notes for New Notes should not be a taxable event to holders of Existing Notes,
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 New Notes as it had in the Existing Notes immediately before the
exchange. Further, the tax consequences of ownership and disposition of any New
Notes should be the same as the tax consequences of ownership and disposition of
Existing Notes.
MARKET DISCOUNT
If a holder purchases a Note for an amount that is less than its
principal amount, the amount of the difference will be treated as "market
discount" for federal income tax purposes, unless such difference is less than a
specified de minimis amount. Under the market discount rules, a holder will be
required to treat any principal payment on, or any gain on the sale, exchange,
retirement or other disposition of, a Note as ordinary income to the exchange of
the market discount which has not previously been included in income and is
treated as having accrued on such a Note at the time of such payment or
disposition. In addition, the holder may be required to defer, until the
maturity of the Note or its earlier disposition in a taxable transaction, the
deduction of all or a portion of the interest expense on any indebtedness
incurred or continued to purchase or carry such Note.
Any market discount will be considered to accrue ratably during the
period from the date of acquisition to the maturity date of the Note, unless the
holder elects to accrue on a constant interest method. A holder of a Note may
elect to include market discount in income currently as it accrues (on either a
ratable or constant interest method), in which case the rule described above
regarding deferral of interest deductions will not apply. This election to
include market discount in income currently, once made, applies to all market
discount obligations acquired on or after the first taxable year to which the
election applies and may not be revoked without the consent of the Internal
Revenue Service (the "IRS").
AMORTIZABLE BOND PREMIUM
A holder that purchases a Note for an amount in excess of the sum of
its principal amount will be considered to have purchased the Note at a
"premium." A holder generally may elect to amortize the premium over the
remaining term of the Note on a constant yield method. The amount amortized in
any year will be treated as a reduction of the holder's interest income from the
Note. Bond premium on a Note held by a holder that does not make such an
election will decrease the gain or increase the loss otherwise recognized on
disposition of the Note. The election to amortize premium on a constant yield
method once made applies to all debt obligations held or subsequently acquired
by the electing holder on or after the first day of the first taxable year to
which the election applies and may not be revoked without the consent of the
IRS.
114
<PAGE> 117
SALE, EXCHANGE AND RETIREMENT OF NOTES
A holder's tax basis in a Note will, in general, be the holder's cost
therefor, increased by market discount previously included in income by the
holder and reduced by any amortized premium. Upon the sale, exchange or
retirement of a Note, a holder will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange or retirement
(less any accrued interest, which will be taxable as such) and the adjusted tax
basis of the Note. Except as described above with respect to market discount,
such gain or loss will be capital gain or loss and will, as a general rule, be
long-term capital gain or loss if at the time of sale, exchange or retirement
the Note has been held for more than eighteen months. Under current law,
long-term capital gains of individuals are, under certain circumstances, taxed
at lower rates than items of ordinary income. The deductibility of capital
losses is subject to limitations.
BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest and premium paid on Notes and to the proceeds of
sale of a Note made to holders other than certain exempt recipients (such as
corporations). A 31% backup withholding tax will apply to such payments 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.
Any amounts withheld under the backup withholding rules will be allowed
as a refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
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 EXISTING NOTES FOR
NEW NOTES AND OF THE OWNERSHIP AND DISPOSITION OF THE NEW NOTES, 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 28, 1996 and June 27, 1997, and for
each of the years in the three-year period ended June 27, 1997, 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 LLP, Boston, Massachusetts.
115
<PAGE> 118
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 New 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 New Notes 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 New Notes should not place undue reliance on such forward-looking
statements.
116
<PAGE> 119
INDEX TO FINANCIAL STATEMENTS
PAGE
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements
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
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> 120
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
August 8, 1997, respectively)
F-2
<PAGE> 121
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 27, APRIL 26, JULY 26,
1996 1997 1997
--------- --------- --------
ASSETS (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents ........................................ $ 2,107 $ 1,542 $ 1,393
Restricted cash .................................................. 4,595 2,210 1,966
Accounts receivable -- net of allowance for doubtful accounts .... 33,340 33,333 33,043
Inventories ...................................................... 20,972 22,334 22,669
Prepaid expenses and other current assets ........................ 1,971 1,164 1,165
--------- --------- --------
Total current assets ....................................... 62,985 60,583 60,236
PROPERTY, PLANT AND EQUIPMENT -- Net .................................. 29,222 30,966 30,588
ASSETS HELD FOR SALE .................................................. 6,173 5,248 5,233
OTHER ASSETS -- Net ................................................... 15,338 16,790 16,389
--------- --------- --------
$ 113,718 $ 113,587 $112,446
========= ========= ========
LIABILITIES AND STOCKHOLDER'S DEFICIENCY
CURRENT LIABILITIES
Current maturities of long-term debt obligations ................. $ 1,909 $ 2,609 $ 2,626
Foreign credit line .............................................. 2,753 2,284 2,042
Accounts payable ................................................. 18,119 17,199 15,559
Accrued interest ................................................. 6,211 8,394 8,027
Accrued liabilities .............................................. 11,530 12,000 11,547
Advance payments by customers .................................... 6,324 5,294 5,373
Federal, foreign and state income taxes payable .................. 997 1,261 51
Deferred income taxes ............................................ 3,248 2,171 2,917
--------- --------- --------
Total current liabilities ............................... 51,091 51,212 48,142
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES ........................ 80,009 80,508 83,770
DEFERRED INCOME TAXES ................................................. 1,900 1,834 1,146
OTHER LIABILITIES ..................................................... 3,205 2,495 2,680
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK ............................................ 10,995 11,474 11,602
REDEEMABLE PUT WARRANTS ............................................... -- 2,800 5,000
STOCKHOLDER'S DEFICIENCY
Common stock ..................................................... 1 1 1
Paid-in-capital .................................................. 17,326 17,326 17,326
Accumulated deficit .............................................. (50,869) (54,104) (57,182)
Cumulative foreign currency translation adjustment ............... 60 41 (39)
--------- --------- --------
Total stockholder's deficiency .......................... (33,482) (36,736) (39,894)
--------- --------- --------
$ 113,718 $ 113,587 $112,446
========= ========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 122
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
-------------------------------------- ------------------------
APRIL 29, APRIL 27, APRIL 26, JULY 27, JULY 26,
1995 1996 1997 1996 1997
--------- --------- ---------- --------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales .................................................. $ 116,551 $ 149,100 $ 173,103 $ 40,381 $ 44,672
Cost of sales .............................................. 73,424 97,386 114,848 26,415 28,762
--------- --------- ---------- --------- ----------
Gross profit ............................................ 43,127 51,714 58,255 13,966 15,910
Administrative and selling expenses ........................ 26,113 34,915 36,967 9,155 10,510
Research and development expenses .......................... 8,094 8,071 9,361 2,212 2,348
Restructuring charge ....................................... 1,294 150 -- -- --
Reimbursed environmental and litigation costs-net .......... (2,130) (450) 26 -- 45
Other ...................................................... 892 1,163 2,234 (8) (98)
--------- --------- ---------- --------- ----------
Income from operations .................................. 8,864 7,865 9,667 2,607 3,105
Interest expense ........................................... 8,573 11,225 11,602 2,644 3,625
Interest income ............................................ (74) (278) (351) (54) (40)
--------- --------- ---------- --------- ----------
Income (loss) from continuing operations before income
taxes, discontinued operations and extraordinary item . 365 (3,082) (1,584) 17 (480)
Income taxes (credit) ...................................... 196 (2,619) 526 7 270
--------- --------- ---------- --------- ----------
Income (loss) from continuing operations before
discontinued operations and extraordinary item ........ 169 (463) (2,110) 10 (750)
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) (259) --
--------- --------- ---------- --------- ----------
NET INCOME (LOSS) .......................................... 445 613 (2,369) (249) (750)
Preferred dividends ........................................ (415) (446) (479) (119) (128)
Accretion of redeemable put warrants ....................... -- -- (387) -- (2,200)
--------- --------- ---------- --------- ----------
Net income (loss) available to common stockholders ......... $ 30 $ 167 $ (3,235) $ (368) $ (3,078)
========= ========= ========== ========= ==========
Net income (loss) per common share:
Continuing operations ................................... $ (246.00) $ (909.00) $(2,603.67) $ (95.36) $(2,692.91)
Discontinued operations ................................. 276.00 1,498.00 -- -- --
Extraordinary item ...................................... -- (422.00) (226.60) (226.60) --
--------- --------- ---------- --------- ----------
Net income (loss) ....................................... $ 30.00 $ 167.00 $(2,830.27) $ (321.96) $(2,692.91)
========= ========= ========== ========= ==========
Weighted average common stock and dilutive
equivalents outstanding ............................... 1,000 1,000 1,143 1,143 1,143
========= ========= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 123
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)
Three Months Ended July 26, 1997 (Unaudited):
Net loss ...................................... (750) (750)
Preferred stock dividends ..................... (128) (128)
Change in fair value of redeemable
put warrants ................................ (2,200) (2,200)
Change in foreign currency
translation.................................. (80) (80)
-- -------- -------- -------- -------- --------
Balance, July 26, 1997 ........................ $1 $ 17,326 $(57,182) $ (39) $ -- $(39,894)
== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 124
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
---------------------------------- -------------------
APRIL 29, APRIL 27, APRIL 26, JULY 27, JULY 26,
1995 1996 1997 1996 1997
--------- --------- --------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income (loss) ........................................... $ 445 613 $ (2,369) $ (249) $ (750)
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 1,093 1,222
Write-off of other assets ................................. 650 1,200 -- -- --
Non-cash interest ......................................... 2,104 2,533 2,510 323 1,461
Deferred income taxes ..................................... (410) (2,714) (1,143) 215 58
Undistributed earnings of affiliate ....................... (250) (88) (201) -- (31)
(Gain) loss on sale of discontinued operations ............ 331 (1,633) -- -- --
Other ..................................................... 456 (37) (186) (13) --
Change in assets and liabilities, net of effects of
business acquisitions and divestitures:
Accounts receivable ..................................... (1,137) (7,547) 257 1,033 253
Refundable income taxes ................................. (997) 997 -- -- --
Inventories ............................................. 644 (5,754) (1,482) (2,032) (335)
Prepaid expenses and other current assets ............... 147 67 857 455 (1)
Other assets ............................................ (304) (576) (3,094) (2,972) (24)
Accounts payable, accrued interest and accrued
liabilities ............................................. 1,670 893 1,868 (2,737) (3,820)
Advance payments by customers ........................... 1,965 2,511 (1,030) (992) 79
Federal, foreign and state income taxes payable ......... 579 (1,381) 264 (1,217) (1,210)
-------- -------- -------- -------- -------
Net cash provided by (used in) operating activities ..... 10,127 (6,360) 627 (7,093) (3,098)
-------- -------- -------- -------- -------
Cash flows from investing activities:
Additions to property, plant and equipment .................. (9,873) (5,791) (3,516) (725) (756)
Proceeds from sales of discontinued operation ............... 2,194 11,000 -- -- --
Proceeds from sales of assets net of expenses ............... 950 402 260 20 --
Acquisition of Industrias Jorda S.L ......................... (5,946) -- -- -- --
Other ....................................................... 397 118 190 -- 49
-------- -------- -------- -------- -------
Net cash provided by (used in) investing activities ..... (12,278) 5,729 (3,066) (705) (707)
-------- -------- -------- -------- -------
Cash flows from financing activities:
Cash overdraft .............................................. 797 2,416 (1,306) (1,436) 631
Proceeds from the issuance of long-term obligations ......... 3,628 4,813 66,267 65,922 --
Net proceeds from the issuance of redeemable warrants ....... -- -- 2,413 2,413 --
Net proceeds/(payments) from foreign credit line ............ 2,090 663 (469) 557 (242)
Net (increase) decrease in restricted cash .................. (2,123) (1,696) 2,385 (120) 244
Net proceeds/(payments) under senior credit agreement ....... (2,300) (515) (2,957) 1,363 5,218
Principal payments on long-term obligations ................. (871) (3,828) (64,440) (62,758) (2,070)
-------- -------- -------- -------- -------
Net cash provided by financing activities ................. 1,221 1,853 1,893 5,941 3,781
-------- -------- -------- -------- -------
Effect of foreign exchange rate changes on cash ................ 391 380 (19) 65 (125)
-------- -------- -------- -------- -------
Net (decrease) increase in cash and cash equivalents ...... (539) 1,602 (565) (1,792) (149)
Cash and cash equivalents, beginning of year ................... 1,044 505 2,107 2,107 1,542
-------- -------- -------- -------- -------
Cash and cash equivalents, end of year ......................... $ 505 $ 2,107 $ 1,542 $ 315 $ 1,393
======== ======== ======== ======== =======
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest .................................................... $ 6,542 $ 8,272 $ 7,568 $ 2,258 $ 3,132
Income taxes ................................................ 905 408 1,246 342 937
Supplemental Schedule of Non-cash Investing and Financing
Activities:
Preferred stock dividends-in-kind and issuable preferred
stock dividends-in-kind ................................... $ 415 446 $ 479 $ 119 $ 128
Leased asset additions ...................................... 96 172 1,494 -- 10
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> 125
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)
(Information as of July 26, 1997 and for the three months ended
July 27, 1996 and July 26, 1997 is unaudited)
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.
Interim Consolidated Condensed Financial Statements
The consolidated balance sheet as of July 26, 1997, the consolidated
statements of operations, consolidated statement of stockholder's deficiency
and the consolidated statement of cash flows for the three months ended July
27, 1996 and July 26, 1997 are unaudited and, in the opinion of management of
the Company, include all adjustments (consisting only of normal recurring
adjustments) necessary for a fair presentation of the results for those interim
periods. The results of operations for the three months ended July 27, 1996 and
July 26, 1997 are not necessarily indicative of the results to be expected for
the full year.
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> 126
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> 127
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> 128
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> 129
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, JULY 26,
1996 1997 1997
-------- -------- --------
(unaudited)
<S> <C> <C> <C>
Raw materials ............................ $13,461 $14,912 $14,094
Work in process .......................... 4,462 3,977 5,652
Finished goods ........................... 3,049 3,445 2,923
------- ------- -------
Total .................................... $20,972 $22,334 $22,669
======= ======= =======
</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> 130
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, JULY 26,
1996 1997 1997
--------- --------- --------
(UNAUDITED)
<S> <C> <C> <C>
1996 Senior Credit Agreement ......................... $ -- $16,630 $20,062
1996 Senior Secured Notes ............................ -- 20,000 20,000
1996 Senior Unsecured Notes .......................... -- 7,000 7,000
1996 Senior Subordinated Notes (face value $25,000) .. -- 19,374 19,741
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 10,213
Mortgage notes payable ............................... 8,271 8,035 7,786
Notes payable ........................................ 1,981 1,696 1,594
------- ------- -------
Total (see note P) .............................. 81,918 83,117 86,396
Less current maturities ......................... (1,909) (2,609) (2,626)
------- ------- -------
Long-term obligations, net of current maturities $80,009 $80,508 $83,770
======= ======= =======
</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> 131
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> 132
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> 133
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> 134
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> 135
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> 136
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> 137
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> 138
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> 139
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> 140
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> 141
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> 142
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 such matters
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
Acquisition
On August 8, 1997, the Company closed a Purchase and Sale Agreement
("Agreement") among the Company, PHI Acquisition Holdings, Inc. ("PHI") and
Chase Venture Capital Associates, L.P., the principal shareholder of PHI
Acquisition Holdings, Inc., whereby, the Company acquired 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 received in
exchange for their stock an aggregate of $54.5 million 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.
F-24
<PAGE> 143
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The $54.5 million was reduced by the payment of PHI's debt, certain
transaction costs, and contractual payments to the current and former Chief
Executive Officers of PHI.
Financing
In connection with the acquisition described above, the Company completed
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 also entered into a $25
million revolving credit facility. Both of these financings closed
simultaneously with the acquisition, and were used 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 was
required for consummation of certain transactions. 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 recorded interest expense 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> 144
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> 145
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> 146
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 27, 1997 and June 28,
1996, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the years in the three-year period ended June
27, 1997. 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 27, 1997 and June 28,
1996, and the results of their operations and their cash flows for each of the
years in the three-year period ended June 27, 1997, in conformity with generally
accepted accounting principles.
Minneapolis, Minnesota KPMG Peat Marwick LLP
August 20, 1997
F-28
<PAGE> 147
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 28, 1996 AND JUNE 27, 1997
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Current assets:
Cash ............................................... $ 437,900 $ 815,000
Trade accounts receivable, net of allowance for
doubtful accounts of $246,800 in 1996 and
$44,000 in 1997 ................................. 14,663,000 19,188,000
Inventories, net (note 2) .......................... 13,539,500 12,735,000
Prepaid expenses and other current assets .......... 714,300 387,000
Deferred income tax asset .......................... 54,500 --
----------- -----------
Total current assets ........................ 29,409,200 33,125,000
----------- -----------
Property, plant, and equipment, net (note 3) ......... 9,753,000 10,236,000
Investment in joint venture .......................... 2,044,000 1,873,000
Other non-current assets ............................. 566,000 582,000
Deferred income tax asset ............................ -- 44,000
----------- -----------
Total assets ................................ $41,772,200 $45,860,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of long-term debt (note 8) .... $ 2,250,000 2,375,000
Accounts payable ................................... 2,390,900 2,274,000
Income tax payable ................................. 770,200 276,000
Accrued expenses (note 4) .......................... 1,531,800 2,378,000
Accrued wages and benefits ......................... 2,606,000 4,027,000
Warranty accrual ................................... 1,128,000 1,120,000
Installation reserve ............................... 297,000 292,000
Deferred revenues (note 5) ......................... 2,298,000 2,658,000
Other current liabilities .......................... 100,000 100,000
Deferred income tax liability ...................... -- 293,000
----------- -----------
Total current liabilities ................... 13,371,900 15,793,000
Pension liability .................................... 705,000 742,000
Long-term debt, less current installments (note 8) ... 7,269,000 5,457,000
Note payable to seller (note 9) ...................... 8,796,000 9,673,000
Other long-term liabilities .......................... 101,000 --
Deferred income tax liability ........................ 117,000 --
----------- -----------
Total liabilities ........................... 30,359,900 31,665,000
----------- ------------
Stockholders' equity:
Capital stock (note 11) ............................ 16,504 15,704
Additional paid-in capital (note 11) ............... 7,096,906 6,555,296
Retained earnings .................................. 4,638,500 8,078,000
Foreign currency translation adjustment ............ (339,610) (454,000)
----------- -----------
Total stockholders' equity .................. 11,412,300 14,195,000
Commitments and contingencies
(notes 7, 8, 9, 10, 12, and 13)
----------- -----------
Total liabilities and stockholders' equity .. $41,772,200 $45,860,000
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-29
<PAGE> 148
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996
AND JUNE 27, 1997
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net sales .................................... $54,764,000 $58,074,000 $67,819,000
Cost of sales ................................ 34,244,000 35,740,500 42,740,000
----------- ----------- -----------
Gross profit ....................... 20,520,000 22,333,500 25,079,000
----------- ----------- -----------
Selling, general, and administrative expenses:
Selling and marketing ...................... 7,071,000 7,349,500 7,823,000
General and administrative ................. 2,303,000 2,696,400 2,855,000
Research and development ................... 6,197,000 6,332,600 7,902,000
----------- ----------- -----------
Total operating expenses ........... 15,571,000 16,378,500 18,580,000
----------- ----------- -----------
Equity in earnings (loss) of joint venture ... 337,000 206,000 (11,000)
----------- ----------- -----------
Operating income ................... 5,286,000 6,161,000 6,488,000
----------- ----------- -----------
Interest expense ........................... (1,855,000) (1,827,000) (1,693,000)
Interest income ............................ 89,000 137,000 48,000
----------- ----------- -----------
Income before income taxes ......... 3,520,000 4,471,000 4,843,000
Income tax expense (note 6) .................. 812,300 1,495,700 1,403,500
----------- ----------- -----------
Net income ......................... $ 2,707,700 $ 2,975,300 $ 3,439,500
----------- ----------- -----------
Net income per share ............... $ 2.14 $ 2.22 $ 2.59
----------- ----------- -----------
Weighted average shares outstanding .......... 1,266,965 1,337,511 1,327,668
=========== =========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-30
<PAGE> 149
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
THE YEARS ENDED JUNE 28, 1996, JUNE 30, 1995, AND
JUNE 27, 1997
<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 fiscal year
ended June 27, 1997 ........
Gain (loss) on currency
translation (unaudited).....
Compensation expense
associated with granting of
options (unaudited).........
Repurchase of common and
preferred stock............. (50,000) (500) (30,000) (300)
Preferred dividend paid.......
------- ------- ------- ------ ------- ------ ------- ------
Balance, June 27, 1997 ......... 191,660 $ 1,917 398,070 $3,981 411,472 $4,115 569,143 $5,691
======= ======= ======= ====== ======= ====== ======= ======
<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 fiscal year
ended June 27, 1997 ........ 3,439,500 3,439,500
Gain (loss) on currency
translation ................ (114,390) (114,390)
Compensation expense
associated with granting of
options .................... 421,390 421,390
Repurchase of common and
preferred stock............. (573,000) (299,700) (873,500)
Preferred dividend paid....... (90,300) (90,300)
---------- ---------- ----------- ---------- ------------
Balance, June 27, 1997 ......... $ 960,911 $5,594,385 $ 8,078,000 $ (454,000) $ 14,195,000
========== ========== =========== ========== ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-31
<PAGE> 150
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996 AND
JUNE 27, 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash provided by operating activities:
Net income ...................................... $ 2,707,700 $ 2,975,300 $ 3,439,500
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 2,769,390
Net (gain) or loss on disposal of fixed assets (238,000) (1,167,000) (510,000)
Deferred income taxes ........................ 603,200 (320,200) 186,500
Changes in operating assets and liabilities:
Trade accounts receivable .................. (1,294,000) (6,426,000) (4,525,000)
Inventories ................................ (1,100,000) (1,794,500) 804,500
Other receivable ........................... (21,000) 188,000 0
Prepaid expenses and other current assets .. (694,400) 217,100 327,300
Other noncurrent assets .................... 0 (341,000) (53,000)
Accounts payable ........................... 46,500 514,400 (116,900)
Income tax payable ......................... (5,000) 770,200 (494,200)
Accrued expenses ........................... (218,000) 57,800 846,200
Accrued wages and benefits ................. 1,105,000 (651,000) 1,421,000
Warranty reserve ........................... 322,000 (235,000) (8,000)
Installation reserve ....................... 2,000 268,000 (5,000)
Deferred revenues .......................... (30,000) 389,000 360,000
Other current liabilities .................. 0 100,000 0
Other long-term liabilities ................ 0 101,000 (101,000)
Pension liability .......................... 260,000 248,000 37,000
----------- ----------- -----------
Net cash (used) provided by operating
activities ............................ 3,561,000 (2,880,900) 4,378,290
----------- ----------- -----------
Cash used in investing activities:
Proceeds from sale of land ...................... -- 1,440,000 0
Net proceeds from sale of Demo Systems .......... 366,000 1,637,000 1,025,000
Purchase of property, plant, and equipment ...... (2,596,000) (2,813,600) (3,309,000)
Investment in joint venture ..................... (614,000) 419,000 171,000
----------- ----------- -----------
Net cash (used) provided by investing
activities ................................. (2,844,000) 682,400 (2,113,000)
----------- ----------- -----------
Cash used in financing activities:
Purchase of common and preferred stock .......... -- (16,600) (963,800)
Proceeds from issuance of note payable .......... 50,000 0 0
Increase in note payable to seller (note 9) ..... 732,000 795,000 877,000
Repayments of note payable ...................... (333,000) (2,148,000) (1,687,000)
----------- ----------- -----------
Net cash (used) provided in financing
activities ................................. 449,000 (1,369,600) (1,773,800)
----------- ----------- -----------
Effect of foreign exchange rate changes on cash ... 61,000 (463,000) (114,390)
Net (decrease) increase in cash and cash
equivalents ..................................... 1,227,000 (4,031,100) 377,100
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 $ 815,000
=========== =========== ===========
Supplemental disclosure of cash information:
Cash paid during the period for interest ........ $ 1,043,000 $ 809,000 $ 839,000
Cash paid during the period for income taxes .... 922,000 375,000 1,676,000
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> 151
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1995, JUNE 28, 1996
AND JUNE 27, 1997
(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.
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 fiscal
year end for 1997 was June 27, for fiscal 1996 was June 28, and for 1995 was
June 30.
INVENTORIES
As of June 27, 1997 and June 28, 1996, 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 are 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> 152
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> 153
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
IMPAIRMENT OF LONG-LIVED ASSETS
In fiscal year 1997, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to be Disposed Of, which prescribes accounting and
reporting standards when circumstances indicate that the carrying amount of an
asset may not be recoverable. No cumulative effect adjustment occurred as a
result of this change in accounting principle.
STOCK BASED COMPENSATION
The Company accounts for its employee stock options under the
intrinsic-value method of APB Option No. 25 and, accordingly, compensation costs
are recognized in the financial statements when options are granted to
employees below the fair market value of the underlying stock. In fiscal year
1997, the Company adopted the provisions of SFAS No. 123, Accounting for Stock
Based Compensation. Pro forma information is presented reflecting compensation
costs under SFAS No. 123 in note 14.
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 income and
stockholders' equity.
(2) INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
JUNE 28, JUNE 27,
1996 1997
------------ ------------
<S> <C> <C>
Raw materials and subassemblies..... $ 9,806,500 $ 9,133,000
Work-in-process..................... 3,733,000 3,602,000
------------ ------------
$ 13,539,500 $ 12,735,000
============ ============
</TABLE>
(3) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment is summarized as follows:
<TABLE>
<CAPTION>
JUNE 28, JUNE 27,
1996 1997
------------ -----------
<S> <C> <C>
Land................................... $ 556,000 $ 556,000
Buildings and leasehold improvements... 4,012,000 4,137,000
Machinery and equipment................ 9,095,000 11,238,000
Less accumulated depreciation.......... (3,910,000) (5,695,000)
------------ -----------
$ 9,753,000 $10,236,000
============ ===========
</TABLE>
F-35
<PAGE> 154
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) ACCRUED EXPENSES
Accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
JUNE 28, JUNE 27,
1996 1997
---------- ----------
<S> <C> <C>
Commissions ....................... $ 233,000 $ 264,000
Audit and tax fees ................ 126,000 171,000
Interest payable .................. 148,000 125,000
Sales and real estate taxes ....... 252,000 78,000
Customer deposits ................. 342,000 1,226,000
Other ............................. 430,800 514,000
---------- ----------
$1,531,800 $2,378,000
========== ==========
</TABLE>
(5) DEFERRED REVENUES
<TABLE>
<CAPTION>
JUNE 28, JUNE 27,
1996 1997
---------- ----------
<S> <C> <C>
Service contracts ................. $1,862,000 $2,151,000
Customer training ................. 436,000 507,000
---------- ----------
Total deferred revenue ...... $2,298,000 $2,658,000
========== ==========
</TABLE>
(6) INCOME TAXES
Income tax expense for the years ended June 27, 1997, June 28, 1996 and
June 30, 1995 consists of the following:
<TABLE>
<CAPTION>
FEDERAL STATE TOTAL
----------- ----------- -----------
<S> <C> <C> <C>
1995:
Current ............... 807,000 142,400 949,400
Deferred .............. (116,500) (20,600) (137,100)
----------- ----------- -----------
$ 690,500 $ 121,800 $ 812,300
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
----------- ----------- -----------
1997 (unaudited):
Current ............... $ 1,085,200 $ 127,700 $ 1,212,900
Deferred .............. 162,000 28,600 190,600
----------- ----------- -----------
$ 1,247,200 156,300 1,403,500
=========== =========== ===========
</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> 155
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>
1995 1996 1997
----------- ----------- ----------
<S> <C> <C> <C>
Expected federal tax expense .............. $ 1,196,800 $ 1,518,400 $1,668,700
State income tax expense, net of federal
effect .................................. 140,800 171,400 179,900
Permanent differences ..................... (314,682) (64,600) (72,400)
Differences due to general business credits -- (131,900) (376,000)
Purchase accounting adjustment ............ (281,000) -- --
Other ..................................... 70,382 2,400 3,300
----------- ----------- ----------
$ 812,300 $ 1,495,700 $1,403,500
=========== =========== ==========
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets (liabilities) are as follows:
<TABLE>
<CAPTION>
JUNE 28, JUNE 28,
1996 1997
--------- -----------
<S> <C> <C>
Current deferred asset (liability):
Inventories ............................. $ 150,100 $ 258,800
Warranty accrual ........................ 325,500 343,600
Accrued expenses ........................ 272,000 317,300
Deferred revenue ........................ (977,700) (1,385,000)
Net operating loss carryforward ......... -- --
Other assets ............................ 408,100 130,600
Other liabilities ....................... (123,500) 41,700
--------- -----------
Total current gross deferred tax asset
(liabilities) ...................... 54,500 (293,000)
Less valuation allowance .................. -- --
--------- -----------
Net current deferred tax asset
(liability) ........................ $ 54,500 $ (293,000)
========= ===========
</TABLE>
<TABLE>
<CAPTION>
JUNE 28, JUNE 27,
1996 1997
--------- ---------
<S> <C> <C>
Noncurrent deferred tax asset (liability):
Differences in tax and adjusted book basis in
plant and equipment ...................... $(117,000) $(116,700)
Employee stock options ...................... -- 160,700
--------- ---------
Net noncurrent deferred tax asset
(liability) ............................ $(117,000) $ 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> 156
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 June 27, 1997 and June 27, 1996, the effective
rate was 9.36% and 7.98%, respectively. At June 27, 1997 and June 27, 1996, the
balance outstanding on the line of credit was $0 and $261,000, respectively.
(8) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 28, JUNE 30,
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 $ 7,832,000
Less current installments .......................... (1,417,000) (2,250,000) (2,375,000)
------------ ----------- -----------
Long-term debt, less current installments ........ $ 10,250,000 $ 7,269,000 $ 5,457,000
============ =========== ===========
</TABLE>
The minimum annual maturities of long-term debt as of June 27, 1997 are as
follows:
<TABLE>
<S> <C>
1998 ................................................... $2,375,000
1999 ................................................... 2,937,000
2000 ................................................... 2,520,000
----------
$7,832,000
==========
</TABLE>
(9) NOTE PAYABLE
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 $9,673,000 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> 157
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) LEASES
As of June 27, 1997, 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 years ended June 27, 1997,
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, JUNE 27,
1995 1996 1997
---------- ---------- ----------
<S> <C> <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 ............................................ $ 1,917 $ 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 $ 3,981
---------- ---------- ----------
Class C common stock; $.01 par value. Authorized 1,000,000 shares;
issued and outstanding 462,902 shares in 1995, 461,472 shares in
1996 and 411,472 shares in 1997 ................................. $ 4,628 $ 4,615 $ 4,115
---------- ---------- ----------
Additional paid-in capital on common stock ........................ $1,039,474 $1,112,521 $ 960,911
========== ========== ==========
Series A 10% redeemable cumulative preferred stock; $.01 par value.
Authorized 700,000 shares; issued and outstanding 600,000 shares
in 1995, 599,143 shares in 1996 and 569,143 shares in 1997....... $ 6,000 $ 5,991 $ 5,691
---------- ---------- ----------
Additional paid-in capital on preferred stock ..................... $5,994,000 $5,984,385 $5,594,385
========== ========== ==========
</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.
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 $10.00 per
share plus $3.01 of accrued dividends per share from a former executive of the
Company.
(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) accounts. 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 $843,000, $835,000 and $643,000 in 1997, 1996 and
1995, respectively.
F-39
<PAGE> 158
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 20 employees. The benefits are based upon the number of years of
service and the employee's past compensation.
The following table sets forth the plan's funded status as of June 27, 1997,
and the net periodic pension expense for the year then ended. The Company
adopted FASB #87 treatment in the year ended June 27, 1997.
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested ............................................. $394,115
Nonvested .......................................... 123,975
--------
Accumulated benefit obligation .................. 518,090
Effect of projected future salary increases .......... 202,334
--------
Projected benefit obligation .................... 720,424
Plan assets at market value .......................... 188,188
--------
Unfunded status ................................. 532,236
Unamortized transition amount ........................ 165,425
Unrecognized net gain ................................ 44,339
Unrecognized prior service cost ...................... --
--------
Pension liability ............................... $742,000
========
</TABLE>
Net pension expense includes the following components:
<TABLE>
<CAPTION>
YEAR-ENDED
JUNE 27,
1997
----------
<S> <C>
Service cost -- benefits earned during the period ..... $ 72,630
Interest cost on projected benefit obligation ......... 47,383
Actual gain of plan assets ............................ --
Amortization of transition amount ..................... 11,380
Amortization of unrecognized service cost ............. --
Amortization of unrecognized net gain ................. --
--------
Net pension expense ................................. $131,393
========
</TABLE>
Measurement of the 1997 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> 159
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. A total of
371,700 shares of Class C common stock and 223,017 shares of Series A preferred
stock were purchased during the two offering periods. As of June 27, 1997, no
shares of Class C common stock or Series A preferred stock are available for
purchase under the Plan.
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. All preferred shares purchased under this plan were acquired
by the Company from its majority stockholder.
The stock options awarded under this plan will be based upon the operating
results for each of the five fiscal years 1995 through 1999 and vest over five
years starting on May 20, 1994. During the year ended June 28, 1996, the Company
granted 22,223 options and recognized $52,000 of compensation expense, which
represents the difference between fair market value and exercise prices at the
date of grant. During the year ended June 27, 1997, the Company granted 22,623
options and recognized $279,000 of compensation expense.
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 of compensation expense. During the year ended June 27, 1997,
the Company granted 11,696 options of Class C common stock and recognized
approximately $144,000 of compensation expense.
Class C common stock option activity under the Employee Stock Purchase
Plan, Stock Option Plan, and the Charles Evans & Associates Acquisition Plan
and summarized as follows:
<TABLE>
<CAPTION> Option Price Number
per share of shares
------------ ---------
<S> <C> <C>
Outstanding at June 30, 1995....................................... $ -- 0
Granted.......................................................... 1.00 33,919
Exercised........................................................ -- --
Terminated....................................................... 1.00 (400)
----- ------
Outstanding at June 28, 1996....................................... 33,519
Granted.......................................................... 1.00 34,319
Exercised........................................................ -- --
----- ------
Outstanding at June 27, 1997....................................... $1.00 67,838
</TABLE>
At June 27, 1997, the remaining contractual life of all options was 7 years.
The per share fair value of stock options granted during 1996 and 1997 was
$3.40 and $16.98 on the date of grant using the Minimal Value Method with the
following assumptions: 1997 -- risk free interest rate of 6.5% and an expected
life of 5 years; 1996 -- risk free interest rate of 6.0%, and an expected life
of 5 years.
Had the company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net income
would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION> 1995 1996 1997
----- ---- ----
<S> <C> <C> <C>
Net income........................................ As reported $2,707,700 $2,975,300 $3,439,500
Pro forma 2,707,700 2,929,200 3,107,300
---------- ---------- ----------
Net income per share.............................. As reported $ 2.14 $ 2.22 $ 2.59
Pro forma 2.14 2.19 2.34
(Continued)
</TABLE>
F-41
<PAGE> 160
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(15) FOREIGN SALES
International sales represented 52%, 54%, and 48% of the Company's net sales
for the years ended June 27, 1997, 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 44%, 43% and 37% of the
Company's net sales for the years ended June 27, 1997, June 28, 1996 and June
30, 1995, respectively.
F-42
<PAGE> 161
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
Fiscal 1997:
Sales to unaffiliated customers ........... 56,434 11,385 -- 67,819
Transfers between geographic locations .... 6,243 -- (6,243) --
Net sales ................................. 62,677 11,385 (6,243) 67,819
Income (loss) from operations ............. 6,964 (476) -- 6,488
Identifiable assets ....................... 44,408 4,738 (3,286) 45,860
</TABLE>
(16) SUBSEQUENT EVENTS
On August 8, 1997, PHI Acquisition Holdings, Inc. was merged with Lauren
Corporation, a wholly-owned subsidiary of High Voltage Engineering Corporation
(HVE) through the acquisition agreement between HVE and PHI. Immediately after
the acquisition, PHI Acquisition Holdings, Inc. was merged with and into
Physical Electronics, Inc. and is a direct, wholly-owned subsidiary of HVE.
Immediately prior to and in conjunction with the acquisition, the Company
granted a total of 101,757 options under the Employee Stock Purchase Plan and
Stock Option Plan and the Charles Evans & Associates Acquisition Plan. All
outstanding options of the Company became fully vested and option holders were
required to surrender all rights of such options in exchange for a cash payment
made by HVE based upon the difference between the fair market price and
exercise price. As a result of this transaction, the Company recognized
$2,371,000 of compensation expense.
On August 8, 1997, the unpaid principal and accrued interest of the First
Bank National Association note payable and unpaid principal and accrued
interest of the Perkin Elmer promissory note were paid in full by HVE.
F-43
<PAGE> 162
================================================================================
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............................................................ 17
The Company............................................................. 24
The Transactions........................................................ 25
Use of Proceeds......................................................... 27
Capitalization.......................................................... 29
Unaudited Pro Forma Condensed Consolidated
Financial Data.......................................................... 31
Selected Historical Consolidated Financial Data......................... 40
Management's Discussion and Analysis of Financial
Condition and Results of Operations..................................... 45
Business................................................................ 54
Management.............................................................. 71
Certain Relationships and Related Transactions.......................... 76
Principal Stockholders.................................................. 78
Exchange Offer.......................................................... 79
Plan of Distribution.................................................... 86
Description of the Notes................................................ 87
Description of Other Indebtedness....................................... 108
Description of Outstanding Capital Stock................................ 110
Certain Federal Income Tax Considerations............................... 114
Experts................................................................. 115
Legal Matters........................................................... 115
Available Information................................................... 116
Special Note Regarding Forward-Looking Statements....................... 116
Index to Financial Statements........................................... F-1
================================================================================
================================================================================
[LOGO]
HIGH VOLTAGE
ENGINEERING
CORPORATION
OFFER TO EXCHANGE 10-1/2% SENIOR NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
10-1/2% SENIOR NOTES DUE 2004, OF WHICH
$135,000,000 IN PRINCIPAL AMOUNT IS OUTSTANDING
ON THE DATE HEREOF.
----------------
PROSPECTUS
----------------
, 1997
================================================================================
<PAGE> 163
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 Indenture, dated as of August 8, 1997, by and between Registrant
and State Street Bank and Trust Company.*
4.2 Form of Exchange Note.
4.3 Notes Registration Rights Agreement, by and between Registrant
and CIBC Wood Gundy Securities Corp. and Painewebber
Incorporated.*
5.1 Opinion of Bingham Dana 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*.
<PAGE> 164
-2-
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).*
25 Statement of Eligibility of Trustee.*
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.**
- ---------------------
* Previously filed
** 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> 165
-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> 166
-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.
The undersigned registrant hereby undertakes to file an application
for the purpose of determining the eligibility of the trustee to act under
subsection (a) of Section 310 of the Trust Indenture Act ("Act") in accordance
with the rules and regulations prescribed by the Commission under section
305(b)(2) of the Act.
<PAGE> 167
-5-
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Amendment No. 1 to its Registration Statement (File
No. 333-33969) to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Boston, Commonwealth of Massachusetts, on this
17th day of October, 1997.
HIGH VOLTAGE ENGINEERING CORPORATION
By: /s/ Joseph W. McHugh, Jr.
---------------------------------
Joseph W. McHugh, Jr.,
Vice President and Chief
Financial Officer
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement (File No. 333-33963) has been signed
below by the following persons in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Laurence S. Levy* Chief Executive Officer and Director October 17, 1997
- -------------------------------
Laurence S. Levy
/s/ Clifford Press* President and Director October 17, 1997
- -------------------------------
Clifford Press
</TABLE>
<PAGE> 168
-6-
<TABLE>
<S> <C> <C>
/s/ Paul H. Snyder* Director October 17, 1997
- -------------------------------
Paul H. Snyder
/s/ Edward Levy* Director October 17, 1997
- -------------------------------
Edward Levy
Director October 17, 1997
/s/ H. Cabot Lodge III*
- -------------------------------
H. Cabot Lodge III
/s/ Joseph W. McHugh, Jr. Vice President and Chief October 17, 1997
- ------------------------------- Financial Officer
Joseph W. McHugh, Jr. (principal financial and
accounting officer)
*/s/ Joseph W. McHugh, Jr.
--------------------------
Joseph W. McHugh, Jr.
Attorney-in-Fact
</TABLE>
<PAGE> 169
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
- -------
Number Description Page
- -------------------------------------------------------------------------------
<S> <C> <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 Indenture, dated as of August 8, 1997, by and between Registrant
and State Street Bank and Trust Company.*
4.2 Form of Exchange Note.
4.3 Notes Registration Rights Agreement, by and between Registrant and
CIBC Wood Gundy Securities Corp. and PaineWebber Incorporated.*
5.1 Opinion of Bingham Dana 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 LLP, counsel to Registrant (included in
Exhibit 5.1).**
23.2 Consent of Grant Thornton LLP.
23.3 Consent of KPMG Peat Marwick LLP.
</TABLE>
<PAGE> 170
-2-
<TABLE>
<CAPTION>
Exhibit
- -------
Number Description Page
- --------------------------------------------------------------------------------
<S> <C> <C>
24.1 Power of Attorney (included in signature page to Registration
Statement as originally filed).*
25 Statement of Eligibility of Trustee.*
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>
* Previously filed.
** To be filed by amendment.
<PAGE> 1
EXHIBIT 4.2
[FORM OF FACE OF NOTE]
CUSIP [ ]
HIGH VOLTAGE ENGINEERING CORPORATION
No. [ ]
$ , ,000
10 1/2% SENIOR NOTE DUE 2004
HIGH VOLTAGE ENGINEERING CORPORATION, a Massachusetts corporation (the
"Company"), for value received, promises to pay to
or registered assigns the principal sum of $ , ,000 dollars on August 15, 2004.
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
<PAGE> 2
F-2
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
HIGH VOLTAGE ENGINEERING CORPORATION
By:_________________________________
Title:
By:_________________________________
Title:
Dated:
Certificate of Authentication
This is one of the 10 1/2% Senior Notes due 2004 referred to in the
within-mentioned Indenture.
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By:_________________________________
Authorized Signatory
<PAGE> 3
F-3
[FORM OF REVERSE OF NOTE]
High Voltage Engineering Corporation
10 1/2% SENIOR NOTE DUE 2004
1. INTEREST. High Voltage Engineering Corporation, a Massachusetts
corporation (the "Company"), promises to pay, until the principal hereof is paid
or made available for payment, interest on the principal amount set forth on the
face hereof at a rate of 10 1/2% per annum. Interest hereon will accrue from and
including the most recent date to which interest has been paid or, if no
interest has been paid, from and including August 8, 1997 to but excluding the
date on which interest is paid. Interest shall be payable in arrears on each
February 15 and August 15 commencing February 15, 1998. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. The Company
shall pay interest on overdue principal and on overdue interest (to the full
extent permitted by law) at a rate of 10 1/2% per annum.
2. METHOD OF PAYMENT. The Company will pay interest hereon (except
defaulted interest) to the Persons who are registered Holders at the close of
business on February 1 or August I next preceding the interest payment date
(whether or not a Business Day). Holders must surrender Notes to a Paying Agent
to collect principal payments. The Company will pay principal and interest in
money of the United States of America that at the time of payment is legal
tender for payment of public and private debts. Interest may be paid by check
mailed to the Holder entitled thereto at the address indicated on the register
maintained by the Registrar for the Notes.
3. PAVING AGENT AND REGISTRAR. Initially, STATE STREET BANK AND TRUST
COMPANY (the "Trustee") will act as a Paying Agent and Registrar. The Company
may change any Paying Agent or Registrar without notice. Neither the Company nor
any of its Affiliates may act as Paying Agent or Registrar.
<PAGE> 4
F-4
4. INDENTURE. The Company issued the Notes under an Indenture dated as of
August 8, 1997 (the "Indenture") by and between the Company and the Trustee.
This is one of an issue of Notes of the Company issued, or to be issued, under
the Indenture. The terms of the Notes include those stated in the Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S. Code ss.ss. 77aaa-77bbbb), as amended from time to time. The Notes are
subject to all such terms, and Holders are referred to the Indenture and such
Act for a statement of them. Capitalized and certain other terms used herein and
not otherwise defined have the meanings set forth in the Indenture. The Notes
are obligations of the Company limited in aggregate principal amount to
$120.0 million.
5. OPTIONAL REDEMPTION. The Company, at its option, may redeem the Notes,
in whole or in part, at any time on or after August 15, 2001 upon not less than
30 nor more than 60 days, notice, at the redemption prices (expressed as
percentages of principal amount), set forth below, 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:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
<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 on or prior to August 15, 2000 at a redemption price equal to 110.500% of
the aggregate principal amount thereof, plus accrued and unpaid interest thereon
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 $87.75 million of the
principal amount of Notes originally issued remains outstanding immediately
after the occurrence of any such redemption
<PAGE> 5
F-5
and that any such redemption occurs within 60 days following the closing of any
such Qualified Equity Offering.
6. NOTICE OF REDEMPTION. Notice of redemption will be mailed at least
30 days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at his registered address. On and after the Redemption
Date, unless the Company defaults in making the redemption payment, interest
ceases to accrue on Notes or portions thereof called for redemption.
7. OFFERS TO PURCHASE. The Indenture provides that upon the occurrence of
a Change of Control, Asset Sale or a Qualified Subsidiary IPO, and subject to
further limitations contained therein, the Company shall make an offer to
purchase outstanding Notes in accordance with the procedures set forth in the
Indenture.
8. COLLATERAL. As provided in the Indenture and subject to certain
limitations set forth therein, the Company has secured a portion of its
Obligations under the Indenture with a first priority Lien on the Collateral.
Each Holder, by accepting a Note, agrees to be bound by the terms of the Pledge
Agreement, as the same may be amended from time to time. The Liens created
under the Pledge Agreement shall be released upon the terms and subject to the
conditions set forth in the Indenture and the Pledge Agreement. Each Holder, by
accepting a Note, agrees that a release of Collateral in accordance with the
terms of the Pledge Agreement will not he deemed for any purpose to be an
impairment of the security under the Indenture or the Pledge Agreement upon
receipt of an Opinion of Counsel stating that such release is authorized and
permitted under the Indenture and the Pledge Agreement.
9. REGISTRATION RIGHTS. Pursuant to a Registration Rights Agreement by
and between the Company and CIBC Wood Gundy Securities Corp. and PaineWebber
Incorporated, as Initial Purchasers of the Notes, the Company will be obligated
to consummate an exchange offer pursuant to which the Holder of this Note shall
have the right to
<PAGE> 6
F-6
exchange this Note for notes of a separate series issued under the Indenture (or
a trust indenture substantially identical to the Indenture in accordance with
the terms of the Registration Rights Agreement) which have been registered under
the Securities Act, in like principal amount and having substantially identical
terms as the Notes. The Holders shall be entitled to receive certain additional
interest payments in the event such exchange offer is not consummated and upon
certain other conditions, all pursuant to and in accordance with the terms of
the Registration Rights Agreement.
10. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. A
Holder may transfer or exchange Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay to it any taxes and fees required
by law or permitted by the Indenture. The Registrar need not register the
transfer of or exchange any Notes or portion of a Note selected for redemption,
or register the transfer of or exchange any Notes for a period of 15 days before
a mailing of notice of redemption.
11. PERSONS DEEMED OWNERS. The registered Holder of this Note may be
treated as the owner of this Note for all purposes.
12. UNCLAIMED MONEY. If money for the payment of principal or interest
remains unclaimed for two years, the Trustee will pay the money back to the
Company at its written request. After that, Holders entitled to the money must
look to the Company for payment as general creditors unless an "abandoned
property" law designates another Person.
13. AMENDMENT, SUPPLEMENT, WAIVER, ETC. Subject to certain exceptions, the
Indenture or the Notes may be modified, amended or supplemented by the Company,
the Guarantors, if any, and the Trustee with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding and any
existing default or
<PAGE> 7
F-7
compliance with any provision may be waived in a particular instance with the
consent of the Holders of a majority in principal amount of the Notes then
outstanding. Without the consent of Holders, the Company, the Guarantors, if
any, and the Trustee may amend the Indenture or the Notes or supplement the
Indenture for certain specified purposes, including providing for uncertificated
Notes in addition to certificated Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not materially and adversely
affect the rights of any Holder.
14. RESTRICTIVE COVENANTS. The Indenture imposes certain limitations on
the ability of the Company and its Restricted Subsidiaries to, among other
things, incur additional Indebtedness, make payments in respect of their Capital
Stock or certain Indebtedness, make certain Investments, create or incur liens,
enter into transactions with Affiliates, enter into agreements restricting the
ability of Restricted Subsidiaries to pay dividends and make distributions,
enter into sale and leaseback transactions and on the ability of the Company to
merge or consolidate with any other Person or transfer all or substantially all
of the Company's or any Guarantor's assets. Such limitations are subject to a
number of important qualifications and exceptions. Pursuant to Section 4.04 of
the Indenture, the Company must annually report to the Trustee on compliance
with such limitations.
15. SUCCESSOR CORPORATION. When a successor corporation assumes all the
obligations of its predecessor under the Notes and the Indenture and the
transaction complies with the terms of Article 5 of the Indenture, the
predecessor corporation will, except as provided in Article 5, be released from
those obligations.
16. DEFAULTS AND REMEDIES. Events of Default are set forth in the
Indenture. Subject to certain limitations in the Indenture, if an Event of
Default (other than an Event of Default specified in Section 6.01(6) or (7) of
the Indenture with respect to the Company) occurs and is continuing, the Trustee
or the Holders of not less than 25% in aggregate principal amount
<PAGE> 8
F-8
of the outstanding Notes may, by written notice to the Trustee and the Company,
and the Trustee upon the request of the Holders of not less than 25% in
aggregate principal amount of the outstanding Notes shall, declare all principal
of and accrued interest on all Notes to be immediately due and payable;
PROVIDED, HOWEVER, that after such acceleration but before judgment or decree
based on such acceleration is obtained by the Trustee, the Holders of a majority
in aggregate principal amount of the outstanding Notes may rescind and annul
such acceleration and its consequences if all existing Events of Default, other
than the nonpayment of principal, premium or interest that has become due solely
because of the acceleration, have been cured or waived and if the rescission
would not conflict with any judgment or decree. If an Event of Default specified
in Section 6.01(6) or (7) of the Indenture occurs with respect to the Company,
the principal amount of and interest on, all Notes shall IPSO FACTO become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any Holder. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders notice of any continuing default (except a
default in payment of principal or interest) if it determines that withholding
notice is in their interests.
17. TRUSTEE DEALINGS WITH COMPANY. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not Trustee.
18. NO RECOURSE AGAINST OTHERS. No director, officer, employee
incorporator or stockholder, of the Company or any Guarantor shall have any
liability for any obligations of the Company or the Guarantors, if any, under
the Notes, the Indenture or the Guarantees, if any, or for a claim based on, in
respect of, or by reason of, such obligations or their creation. Each Holder of
Notes
<PAGE> 9
F-9
by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Notes.
19. DISCHARGE. The Company's obligations pursuant to the Indenture will be
discharged, except for obligations pursuant to certain sections thereof, subject
to the terms of the Indenture, upon the payment of all the Notes or upon the
irrevocable deposit with the Trustee of United States dollars or U.S. Government
Obligations sufficient to pay when due principal of and interest on the Notes to
maturity or redemption, as the case may be.
20. AUTHENTICATION. This Note shall not be valid until the Trustee signs
the certificate of authentication on the other side of this Note.
21. GOVERNING LAW. THE INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF MASSACHUSETTS, AS APPLIED
TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF MASSACHUSETTS, 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 MASSACHUSETTS IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THE INDENTURE OR THE NOTES.
22. ABBREVIATIONS. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TENANT (= tenants
by the entireties), JT TEN (= joint tenants with right of survivorship and not
as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to
Minors Act).
<PAGE> 10
F-10
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
High Voltage Engineering Corporation
401 Edgewater Place, Suite 680
Wakefield, Massachusetts 01880
Attention: President
<PAGE> 11
F-11
ASSIGNMENT
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Agent to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
<PAGE> 12
F-12
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased by the
Company pursuant to Section 4.10, Section 4.19 or Section 4.22 of the Indenture,
check the appropriate box:
[ ] Section 4.10 [ ] Section 4.19 [ ] Section 4.22
If you want to have only part of the Note purchased by the Company pursuant
to Section 4.10, Section 4.19 or Section 4.22 of the Indenture, state the amount
you elect to have purchased:
$___________________
(multiple of $1,000)
Date:_________________________
Your Signature:______________________________
(Sign exactly as your name appears on the
face of this Note)
____________________
Signature Guaranteed
<PAGE> 1
EXHIBIT 21.1
<TABLE>
<CAPTION>
Subsidiaries
JURISDICTION OF DIRECT("D")
COMPANY NAME AND ADDRESS(1) D/B/A ORGANIZATION /INDIRECT ("I")
- --------------------------- ----- --------------- ---------------
<S> <C> <C> <C>
Anderson Interconnect, Inc. Massachusetts D
13 Pratts Junction Road
Sterling, MA 01564-0579
Halmar Robicon Group, Inc. Robicon Pennsylvania D
500 Hunt Valley Drive
New Kensington, PA 15068
Datcon Instrument Company Pennsylvania D
1811 Rohrerstown Road
Lancaster, PA 17601
Physical Electronics, Inc. Delaware D
6509 Flying Cloud Drive
Eden Prairie, MN 55344
HIVEC Holdings, Inc. Delaware D
401 Edgewater Drive, Suite
680
Wakefield, MA 01880-6210
HVEC, Inc. California D
401 Edgewater Drive, Suite
680
Wakefield, MA 01880-6210
HIVEC B.V. Anderson Ireland, The Netherlands I
Amersterdamseweg 63 HIVEC Ireland
3812 RR Amersfoort
P.O. Box 99, 3800AB
Amersfoort
The Netherlands
High Voltage Engineering The Netherlands I
Europa B.V.
Amersterdamseweg 63
3812 RR Amersfoort
P.O. Box 99, 3800AB
Amersfoort
The Netherlands
Aproma A.G. The Netherlands I
Amersterdamseweg 63
3812 RR Amersfoort
P.O. Box 99, 3800AB
Amersfoort
The Netherlands
Crisrolo S.L. Spain I
c/ Valencia 229
Barcelona, Spain
</TABLE>
- ---------------
(1) High Voltage Engineering Corporation is located at 401 Edgewater Place,
Suite 680, Wakefield, MA 01880-6210. It does business under the names High
Voltage Engineering Corporation, General Eastern Instruments Co. and Natvar.
High Voltage Engineering Corporation is organized under the laws of
Massachusetts.
<PAGE> 2
-2-
Industrias Jorda, S.L. Spain I
c/ Progreso 32
Rubi, Barcelona
Spain
<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 August 8, 1997, respectively) accompanying
the financial statements of High Voltage Engineering Corporation and
Subsidiaries contained in the Amendment No. 1 to Form S-4 Registration
Statement. We consent to the use of the aforementioned report in the Amendment
No. 1 to Form S-4 Registration Statement, and to the use of our name as it
appears under the caption "Experts".
/s/ Grant Thornton LLP
GRANT THORNTON LLP
Boston, Massachusetts
October 17, 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 20, 1996 in the
Prospectus Offer to exchange 10 1/2% Senior Notes due 2004, which have been
registered under the Securities Act of 1933, as amended, for any and all of its
outstanding 10 1/2% Senior Notes due 2004 of High Voltage Engineering
Corporation on Amendment No. 1 to Form S-4 relating to the consolidated balance
sheets of PHI Acquisition Holdings, Inc. and subsidiaries as of June 27, 1997
and June 28, 1996 and the related statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended June
27, 1997 and to the reference to our firm under the heading "Experts."
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 17, 1997
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
HIGH VOLTAGE ENGINEERING CORPORATION
OFFER TO EXCHANGE ITS
10 1/2% SENIOR NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
10 1/2% SENIOR NOTES DUE 2004
PURSUANT TO THE PROSPECTUS DATED ______________________, 199_
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., BOSTON TIME, ON ________________,
199_, UNLESS EXTENDED (THE "EXPIRATION DATE"). THE EXCHANGE OFFER WILL NOT BE
EXTENDED BEYOND _________________, 199_. NOTES TENDERED IN THE EXCHANGE OFFER
MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
Deliver To the Exchange Agent:
State Street Bank and Trust Company
255 Franklin Street
Boston, Massachusetts 02110-2804
By Facsimile:
(617) 664-5742
Confirm by Telephone:
(617) 664-5311
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING
THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED.
<PAGE> 2
-2-
The undersigned hereby acknowledges receipt and review of the Prospectus
dated ________________, 1997 (the "PROSPECTUS") of High Voltage Engineering
Corporation (the "Company") and this Letter of Transmittal (the "Letter of
Transmittal"), which together describe the Company's offer (the "Exchange
Offer") to exchange its 10 1/2% Senior Notes due 2004 (the "New Notes"), which
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), pursuant to a Registration Statement of which the Prospectus
is a part, for a like principal amount of its issued and outstanding 10 1/2%
Senior Notes due 2004 (the "Existing Notes"). Capitalized terms used but not
defined herein have the respective meaning given to them in the Prospectus.
The Company reserves the right, at any time or from time to time, to
extend the Exchange Offer at its discretion, in which event the term "Expiration
Date" shall mean the latest time and date in which the Exchange Offer is
extended. The Company shall notify the Holders of the Existing Notes of any
extension by oral or written notice prior to 9:00 A.M., Boston time, on the next
business day after the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by a Holder of Existing Notes
either if original Existing Notes are to be forwarded herewith or if delivery of
Existing Notes, if available, is to be made by book-entry transfer to the
account maintained by the Exchange Agent at The Depository Trust Company (the
"Book-Entry Transfer Facility") pursuant to the procedures set forth in the
Prospectus under the caption "The Exchange Offer-Procedures for Tendering
Existing Notes." Holders of Existing Notes whose Existing Notes are not
immediately available, or who are unable to deliver their Existing Notes and all
other documents required by this Letter of Transmittal to the Exchange Agent on
or prior to the Expiration Date, or who are unable to complete the procedure for
book-entry transfer on a timely basis, must tender their Existing Notes
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer-Procedures for Tendering Existing Notes."
See Instruction 1. Delivery of documents to the Book-Entry Transfer Facility
does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name Existing Notes are registered on the books of the Company or any
other person who has obtained a properly completed bond power from the
registered Holder. The undersigned has completed, executed and delivered this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer. Holders who wish to tender their Existing
Notes must complete this Letter of Transmittal in its entirety.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE
FOLLOWED. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE
PROSPECTUS AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the Existing Notes to which this Letter of Transmittal
relates. If the space below is inadequate, list the registered numbers and
principal amounts on a separate signed schedule and affix the list to this
Letter of Transmittal.
<PAGE> 3
-3-
DESCRIPTION OF EXISTING NOTES TENDERED
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NAME(S) AND ADDRESS(ES
OF AGGREGATE
REGISTERED HOLDER(S), TENDERED
EXACTLY AS NAME(S) PRINCIPAL PRINCIPAL
APPEAR(S) AMOUNT AMOUNT
ON EXISTING NOTES REGISTERED REPRESENTED TENDERED
(PLEASE FILL IN, IF BLANK) NUMBER(S)* BY NOTE(S) TOTAL
- -------------------------- ---------- ----------- ---------
<S> <C> <C> <C>
</TABLE>
* Need not be completed by book-entry Holders.
Unless otherwise indicated, any tendering Holder of Existing Notes will be
deemed to have tendered the entire aggregate principal amount represented
by such Existing Notes. All tenders must be in integral multiples of
$1,000.
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE
BOOK-ENTRY TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY
ELIGIBLE INSTITUTIONS ONLY):
Name of Tendering Institution:__________________________________________________
Account Number:_________________________________________________________________
Transaction Code Number:________________________________________________________
[ ] CHECK HERE IF TENDERED EXISTING NOTES ARE BEING DELIVERED PURSUANT TO A
NOTICE OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING
(FOR USE BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s) of Existing Notes:______________________________
Date of Execution of Notice of Guaranteed Delivery:_____________________________
Window Ticket Number (if available):____________________________________________
Name of Eligible Institution that Guaranteed Delivery:__________________________
Account Number (if delivered by book-entry transfer):___________________________
<PAGE> 4
-4-
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:___________________________________________________________________________
Address:________________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New Notes.
If the undersigned is a broker-dealer that will receive New Notes for its own
account in exchange for Existing Notes, it acknowledges that the Existing Notes
were acquired as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such New Notes; however, by so acknowledging and by delivering a prospectus,
the undersigned will not be deemed to admit that it is an "underwriter" within
the meaning of the Securities Act.
<PAGE> 5
-5-
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to the Company for exchange the principal amount of
Existing Notes indicated above. Subject to and effective upon the acceptance for
exchange of the principal amount of Existing Notes tendered in accordance with
this Letter of Transmittal, the undersigned hereby exchanges, assigns and
transfers to the Company all right, title and interest in and to the Existing
Notes tendered for exchange hereby. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent, the agent and attorney-in-fact of
the undersigned (with full knowledge that the Exchange Agent also acts as the
agent of the Company in connection with the Exchange Offer) with respect to the
tendered Existing Notes with full power of substitution to (i) deliver such
Existing Notes, or transfer ownership of such Existing Notes on the account
books maintained by the Book-Entry Transfer Facility, to the Company and deliver
all accompanying evidences of transfer and authenticity, and (ii) present such
Existing Notes for transfer on the books of the Company and receive all benefits
and otherwise exercise all rights of beneficial ownership of such Existing
Notes, all in accordance with the terms of the Exchange Offer. The power of
attorney granted in this paragraph shall be deemed to be irrevocable and coupled
with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, assign and transfer the Existing
Notes tendered hereby and to acquire the New Notes issuable upon the exchange of
such tendered Existing Notes, and that the Company will acquire good and
unencumbered title thereto, free and clear of all liens, restrictions, charges
and encumbrances and not subject to any adverse claim, when the same are
accepted for exchange by the Company.
The undersigned acknowledges that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the
"Commission") that the New Notes issued in exchange for the Existing Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder 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 New Notes are acquired in
the ordinary course of such Holders' business and such Holders are not engaging
in and do not intend to engage in a distribution of the New Notes and have no
arrangement or understanding with any person to participate in a distribution of
such New Notes. The undersigned hereby further represents to the Company that
(i) any New Notes acquired in exchange for Existing Notes tendered hereby are
being acquired in the ordinary course of business of the person receiving such
New Notes, whether or not the undersigned, (ii) neither the undersigned nor any
such other person is engaging in or intends to engage in a distribution of the
New Notes, (iii) neither the undersigned nor any such other person has an
arrangement or understanding with any person to participate in the distribution
of such New Notes, and (iv) neither the Holder nor any such other person is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Company or,
if it is an affiliate, it will comply with the registration and prospectus
delivery requirements of the Securities Act to the extent applicable.
If the undersigned or the person receiving the New Notes is a
broker-dealer that is receiving New Notes for its own account in exchange for
Existing Notes that were acquired as a result of market-making activities or
other trading activities, the undersigned acknowledges that it or such other
person will deliver a prospectus in connection with any resale of such New
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that the undersigned or such other
person is an "underwriter" within the meaning of the Securities Act. The
undersigned
<PAGE> 6
-6-
acknowledges that if the undersigned is participating in the Exchange Offer for
the purpose of distributing the New Notes (i) the undersigned cannot rely on the
position of the staff of the Commission in certain no-action letters and, in the
absence of an exemption therefrom, must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with a
secondary resale transaction of the New Notes, in which case the registration
statement must contain the selling security holder information required by Item
507 or Item 508, as applicable, of Regulation S-K of the Commission, and (ii)
failure to comply with such requirements in such instance could result in the
undersigned incurring liability under the Securities Act for which the
undersigned is not indemnified by the Company.
If the undersigned or the person receiving the New Notes is an
"affiliate" (as defined in Rule 405 under the Securities Act), the undersigned
represents to the Company that the undersigned understands and acknowledges that
the New Notes may not be offered for resale, resold or otherwise transferred by
the undersigned or such other person without registration under the Securities
Act or an exemption therefrom.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the Existing
Notes tendered hereby, including the transfer of such Existing Notes on the
account books maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered Existing Notes when, as and if the
Company gives oral or written notice thereof to the Exchange Agent. Any tendered
Existing Notes that are not accepted for exchange pursuant to the Exchange Offer
for any reason will be returned, without expense, to the undersigned at the
address shown below or at a different address as may be indicated herein under
"Special Delivery Instructions" as promptly as practicable after the Expiration
Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned acknowledges that the Company's acceptance of properly
tendered Existing Notes pursuant to the procedures described under the caption
"The Exchange Offer -- Procedures for Tendering Existing Notes" in the
Prospectus and in the instructions hereto will constitute a binding agreement
between the undersigned and the Company upon the terms and subject to the
conditions of the Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions,"
please issue the New Notes issued in exchange for the Existing Notes accepted
for exchange and return any Existing Notes not tendered or not exchanged, in the
name(s) of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please mail or deliver the New Notes issued in exchange
for the Existing Notes accepted for exchange and any Existing Notes not tendered
or not exchanges (and accompanying documents, as appropriate) to the undersigned
at the address shown below the undersigned's signatures). In the event that both
"Special Issuance Instructions" and "Special Delivery Instructions" are
completed, please issue the New Notes issued in exchange for the Existing Notes
accepted for exchange in the name(s) of, and return any Existing Notes not
tendered or not exchanged to, the person(s) so indicated. The undersigned
recognizes that the Company has no obligation pursuant to the "Special Issuance
Instructions" and "Special Delivery Instructions" to transfer any Existing Notes
from the name of the registered holder(s) thereof if the Company does not accept
for exchange any of the Existing Notes so tendered for exchange.
<PAGE> 7
-7-
PLEASE SIGN HERE WHETHER OR NOT
EXISTING NOTES ARE BEING PHYSICALLY TENDERED HEREBY
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9 ON REVERSE SIDE)
x _____________________________________________________________ _______________
Date
x _____________________________________________________________ _______________
Date
Area Code and Telephone Number:_________________________________________________
The above lines must be signed by the registered Holder(s) of Existing
Notes as name(s) appear(s) on the Existing Notes or on a security position
listing, or by person(s) authorized to become registered Holder(s) by a properly
completed bond power from the registered Holder(s), a copy of which must be
transmitted with this Letter of Transmittal. If Existing Notes to which this
Letter of Transmittal relate are held of record by two or more joint Holders,
then all such Holders must sign this Letter of Transmittal. If signature is by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
then such person must (i) set forth his or her full title below and (ii) unless
waived by the Company, submit evidence satisfactory to the Company of such
person's authority so to act. See Instruction 5 regarding the completion of this
Letter of Transmittal, printed below.
Name(s) ___________________________________________________________________
___________________________________________________________________
(Please Type or Print)
___________________________________________________________________
(Please Type or Print)
Capacity: ___________________________________________________________________
Address: ___________________________________________________________________
___________________________________________________________________
(Include Zip Code)
MEDALLION SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 5)
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution:_____________________________
(Authorized Signature)
____________________________________________________________________________
(Title)
____________________________________________________________________________
(Name of Firm)
____________________________________________________________________________
(Address, Include Zip Code)
____________________________________________________________________________
(Area Code and Telephone Number)
Dated:________________________________________________________________, 199_
<PAGE> 8
-8-
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if Existing Notes in a principal amount not tendered,
or New Notes issued in exchange for Existing Notes accepted for exchange, are to
be issued in the name of someone other than the undersigned, or (ii) if Existing
Notes tendered by book-entry transfer which are not exchanged are to be returned
by credit to an account maintained by at the Book-Entry Transfer Facility.
Issue New Notes and/or Existing Notes to:
Name(s):_________________________________________________________
(Please Type or Print)
_________________________________________________________________
(Please Type or Print)
Address:_________________________________________________________
_________________________________________________________________
(Include Zip Code)
_________________________________________________________________
(Tax Identification or Social Security No.)
(Complete Substitute Form W-9)
[ ] Credit unexchanged Existing Notes delivered by book-entry transfer
to the Book-Entry Transfer Facility set forth below:
_________________________________________________________________
Book-Entry Transfer Facility Account Number, if applicable)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY if Existing Notes in a principal amount not tendered, or
New Notes issued in exchange for Existing Notes accepted for exchange, are to be
mailed or delivered to someone other than the undersigned, or to the undersigned
at an address other than that shown below the undersigned's signature.
Mail or deliver New Notes and/or Existing Notes to:
Name:____________________________________________________________
(Please Type or Print)
Address:_________________________________________________________
_________________________________________________________________
(Include Zip Code)
_________________________________________________________________
(Tax Identification or Social Security No.)
<PAGE> 9
-9-
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF
THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND EXISTING NOTES OR
BOOK-ENTRY CONFIRMATIONS. All physically delivered Existing Notes or any
confirmation of a book-entry transfer to the Exchange Agent's account at the
Book-Entry Transfer Facility of Existing Notes tendered by book-entry transfer
(a "Book-Entry Confirmation"), as well as a properly completed and duly executed
copy of this Letter of Transmittal or facsimile hereof, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein prior to 5:00 p.m., Boston time, on the
Expiration Date. The method of delivery of the tendered Existing Notes, this
Letter of Transmittal and all other required documents to the Exchange Agent is
at the election and risk of the Holder and, except as otherwise provided below,
the delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. Instead of delivery by mail, it is recommended that the Holder
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure delivery to the Exchange Agent before the Expiration Date.
No Letter of Transmittal or Existing Notes should be sent to the Company.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their
Existing Notes and (a) whose Existing Notes are not immediately available, or
(b) who cannot deliver their Existing Notes, this Letter of Transmittal or any
other documents required hereby to the Exchange Agent prior to the Expiration
Date or (iii) who are unable to complete the procedure for book-entry transfer
on a timely basis, must tender their Existing Notes according to the guaranteed
delivery procedures set forth in the Prospectus. Pursuant to such procedures:
(i) such tender must be made by or through a firm which is a member of a
registered national securities exchange or of the National Association of
Securities Dealers Inc. or a commercial bank or a trust company having an office
or correspondent in the United States (an "Eligible Institution"); (ii) prior to
the Expiration Date, the Exchange Agent must have received from the Eligible
Institution a properly completed and duly executed Notice of Guaranteed Delivery
(by facsimile transmission, mail or hand delivery) setting forth the name and
address of the Holder of the Existing Notes, the registration number(s) of such
Existing Notes and the principal amount of Existing Notes tendered, stating that
the tender is being made thereby and guaranteeing that, within [THREE (3)]
Nasdaq trading days after the Expiration Date, this Letter of Transmittal (or
facsimile hereof) together with the Existing Notes (or a Book-Entry
Confirmation) in proper form for transfer, must be received by the Exchange
Agent within [THREE (3)] Nasdaq trading days after the Expiration Date; and
(iii) the certificates for all physically tendered shares of Existing Notes, in
proper form for transfer, or Book-Entry Confirmation, as the case may be, and
all other documents required by this Letter are received by the Exchange Agent
within [THREE (3)] Nasdaq trading days after the date of execution of the Notice
of Guaranteed Delivery.
Any Holder of Existing Notes who wishes to tender Existing Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00
p.m.,Boston time, on the Expiration Date. Upon request of the Exchange Agent, a
Notice of Guaranteed Delivery will be sent to Holders who wish to tender their
Existing Notes according to the guaranteed delivery procedures set forth above.
See "Exchange Offer -- Procedures for Tendering Notes" section of
the Prospectus.
3. TENDER BY HOLDER. Only a Holder of Existing Notes may tender such
Existing Notes in the Exchange Offer. Any beneficial Holder of Existing Notes
who is not the registered Holder and who wishes to tender should arrange with
the registered Holder to execute and deliver this Letter of Transmittal on his
behalf or must, prior to completing and executing this Letter of Transmittal and
delivering his Existing Notes, either make appropriate arrangements to register
ownership of the Existing Notes in such Holder's name or obtain a properly
completed bond power from the registered Holder.
<PAGE> 10
-10-
4. PARTIAL TENDERS. Tenders of Existing Notes will be accepted only
in integral multiples of $1,000. If less than the entire principal amount of any
Existing Notes is tendered, the tendering Holder should fill in the principal
amount tendered in the third column of the box entitled "Description of Existing
Notes" above. The entire principal amount of Existing Notes delivered to the
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
If the entire principal amount of all Existing Notes is not tendered, then
Existing Notes for the principal amount of Existing Notes not tendered and New
Notes issued in exchange for any Existing Notes accepted will be sent to the
Holder at his or her registered address, unless a different address is provided
in the appropriate box on this Letter of Transmittal, promptly after the
Existing Notes are accepted for exchange.
5. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS; MEDALLION GUARANTEE OF SIGNATURES. If this Letter of Transmittal
(or facsimile hereof) is signed by the record Holder(s) of the Existing Notes
tendered hereby, the signature must correspond with the name(s) as written on
the face of the Existing Notes without alteration, enlargement or any change
whatsoever. If this Letter of Transmittal is signed by a participant in the
Book-Entry Transfer Facility, the signature must correspond with the name as it
appears on the security position listing as the Holder of the Existing Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of Existing Notes listed and tendered hereby and
the New Notes issued in exchange therefor is to be issued (or any untendered
principal amount of Existing Notes is to be reissued) to the registered Holder,
the said Holder need not and should not endorse any tendered Existing Notes, nor
provide a separate bond power. In any other case, such Holder must either
properly endorse the Existing Notes tendered or transmit a properly completed
separate bond power with this Letter of Transmittal, with the signatures on the
endorsement or bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a
person other than the registered Holder or Holders of any Existing Notes listed,
such Existing Notes must be endorsed or accompanied by appropriate bond powers,
in each case signed as the name of the registered Holder or Holders appears on
the Existing Notes.
If this Letter of Transmittal (or facsimile hereof) or any Existing
Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, or 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, evidence satisfactory to the Company
of their authority so to act must be submitted with this Letter of Transmittal.
Endorsements on Existing Notes or signatures on bond powers required by
this Instruction 5 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered holder(s) of the Existing Notes tendered herewith (or
by a participant in the Book-Entry Transfer Facility whose name appears on a
security position listing as the owner of the tendered Existing Notes) and the
issuance of New Notes (and any Existing Notes not tendered or not accepted) are
to be issued directly to such registered holder(s) (or, if signed by a
participant in the Book-Entry Transfer Facility, any New Notes or Existing Notes
not tendered or not accepted are to be deposited to such participant's account
at such Book-Entry Transfer Facility) and neither the box entitled "Special
Delivery Instructions" nor the box entitled "Special Registration Instructions"
has been completed, or (ii) such Existing Notes are tendered for the account of
an Eligible Institution. In all other cases, all signatures on this Letter of
Transmittal must be guaranteed by an Eligible Institution.
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering holders
should indicate, in the applicable box or boxes, the name and address (or
account at the Book-Entry
<PAGE> 11
-11-
Transfer Facility) to which New Notes or substitute Existing Notes for principal
amounts not tendered or not accepted for exchange are to be issued or sent, if
different from the name and address of the person signing this Letter of
Transmittal. In the case of issuance in a different name, the taxpayer
identification or social security number of the person named must also be
indicated.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of Existing Notes pursuant to the Exchange Offer. if,
however, New Notes or Existing Notes for principal amounts 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 Existing
Notes tendered hereby, or if tendered Existing Notes are registered in the name
of any person other than the person signing this Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of Existing Notes
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 this Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE EXISTING NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. TAX IDENTIFICATION NUMBER. Federal income tax law required that a
holder of any Existing Notes which are accepted for exchange must provide the
Company (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual in his or her social
security number. If the Company is not provided with the correct TIN, the Holder
may be subject to a $50 penalty imposed by Internal Revenue Service. (If
withholding results in an over-payment of taxes, a refund may be obtained.)
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
To prevent backup withholding, each tendering holder must provide such
holder's correct TIN by completing the Substitute Form W-9 set forth herein,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN), and that (i) the holder has not been notified by the Internal Revenue
Service that such holder is subject to backup withholding as a result of failure
to report all interest or dividends or (ii) the Internal Revenue Service has
notified the holder that such holder is no longer subject to backup withholding.
If the Existing Notes are registered in more than one name or are not in the
name of the actual owner, see the enclosed "Guidelines for Certification of
Taxpayer Identification Number of Substitute Form W-9" for information on which
TIN to report.
The Company reserves the right in its sole discretion to take whatever
steps are necessary to comply with the Company's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), and acceptance of tendered Existing
Notes will be determined by the Company, in its sole discretion, which
determination will be final and binding. The Company reserves the right to
reject any and all Existing Notes not validly tendered or any Existing Notes,
the Company's acceptance of which would, in the opinion of the Company or its
counsel, be unlawful. The Company also reserves the right to waive any
conditions of the Exchange Offer or defects or irregularities in tenders of
Existing Notes as to any ineligibility of any holder who seeks to tender
Existing Notes in the Exchange Offer. The interpretation of the terms and
conditions of the Exchange Offer (includes this Letter of Transmittal and the
instructions hereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of
Existing Notes must be cured within such time as the Company shall determine.
The Company will use reasonable efforts to give notification of defects or
<PAGE> 12
-12-
irregularities with respect to tenders of Existing Notes, but shall not incur
any liability for failure to give such notification.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive, in whole or part, any of the conditions to the Exchange Offer set forth
in the Prospectus.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular or
contingent tender of Existing Notes on transmittal of this Letter of Transmittal
will be accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED EXISTING NOTES. Any Holder
whose Existing Notes have been mutilated, lost, stolen or destroyed should
contact the Exchange Agent at the address indicated above for further
instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for
assistance or for additional copies of the Prospectus or this Letter of
Transmittal may be directed to the Exchange Agent at the address or telephone
number set forth on the cover page of this Letter of Transmittal. Holders may
also contact their broker, dealer, commercial bank, trust company or other
nominee for assistance concerning the Exchange Offer.
14. ACCEPTANCE OF TENDERED EXISTING NOTES AND ISSUANCE OF NEW NOTES;
RETURN OF EXISTING NOTES. Subject to the terms and conditions of the Exchange
Offer, the Company will accept for exchange all validly tendered Existing Notes
as soon as practicable after the Exchange Date and will issue New Notes therefor
as soon as practicable thereafter. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted tendered Existing Notes when, as and if
the Company has given written and oral notice thereof to the Exchange Agent. If
any tendered Existing Notes are not exchanged pursuant to the Exchange Offer for
any reason, such unexchanged Existing Notes will be returned, without expense,
to the undersigned at the address shown above (or credited to the undersigned's
account at the Book-Entry Transfer Facility designated above) or at a different
address as may be indicated under the box entitled "Special Delivery
Instructions."
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "Exchange
Offer -- Withdrawal Rights."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE
HEREOF (TOGETHER WITH THE EXISTING NOTES) WHICH MUST BE DELIVERED BY BOOK-ENTRY
TRANSFER OR IN ORIGINAL HARD COPY FROM) OR THE NOTICE OF GUARANTEED DELIVERY
MUST BE RECEIVED BY THE EXCHANGE AGENT PRIOR TO THE EXPIRATION TIME.
<PAGE> 13
-13-
(TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5))
PAYOR'S NAME: HIGH VOLTAGE ENGINEERING CORPORATION
<TABLE>
<S> <C> <C>
SUBSTITUTE Part I-Taxpayer Identification Part II- For Payees
FORM W-9 No.-For All Accounts Exempt from Backup
Withholding (see
enclosed Guidelines)
DEPARTMENT OF THE Enter your taxpayer identification
TREASURY INTERNAL number in the appropriate box. For most
REVENUE SERVICE individuals and sole proprietors, this is Social Security Number
your Social Security number. For other
entities, it is your Employer Identification
Number. OR If you do not have a number,
see How to Obtain a TIN in the enclosed
Guidelines.
PAYER'S REQUEST FOR Note: If the account is in more than one
TAXPAYER name, see Employer identification number
IDENTIFICATION NO. the chart on page 2 of the enclosed
Guidelines to determine what number to enter.
</TABLE>
Certification--Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and either (a) I
have mailed or delivered an application to receive a taxpayer
identification number to the appropriate Internal Revenue Service Center or
Social Security Administration Office or (b) I intend to mail or deliver an
application in the near future. I understand that if I do not provide a
taxpayer identification number within sixty (60) days, 31% of all
reportable payments made to me thereafter will be withheld until I provide
a number;
(2) I am not subject to backup withholding either because (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal Revenue
Service ("IRS") that I am subject to backup withholding as a result of a
failure to report all interest or dividends, or (c) the IRS has notified me
that I am no longer subject to backup withholding; and
(3) Any other information provided on this form is true, correct and complete.
SIGNATURE_____________________________________ DATE_______________ 199_
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU WITH RESPECT TO THE NEW NOTES. PLEASE REVIEW
THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
<PAGE> 1
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
for
Tender of 10 1/2% Senior Notes due 2004
in Exchange for
10 1/2% Senior Notes due 2004
HIGH VOLTAGE ENGINEERING CORPORATION
This form or one substantially equivalent hereto must be used by a
holder to accept the Exchange Offer of High Voltage Engineering Corporation, a
Delaware corporation (the "Company"), who wishes to tender 10 1/2% Senior Notes
due 2004 (the "Existing Notes") to the Exchange Agent pursuant to the guaranteed
delivery procedures described in "The Exchange Offer -- Guaranteed Delivery
Procedures" of the Company's Prospectus, dated ________, 1997 (the "Prospectus")
and in Instruction 2 to the related Letter of Transmittal. Any holder who wishes
to tender Existing Notes pursuant to such guaranteed delivery procedures must
ensure that the Exchange Agent receives this Notice of Guaranteed Delivery prior
to the Expiration Date (as defined below) of the Exchange Offer. Capitalized
terms used but not defined here have the meanings ascribed to them in the
Prospectus or the Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., BOSTON TIME, ON _________,
1997, UNLESS EXTENDED (THE "EXPIRATION DATE"). EXISTING NOTES TENDERED IN
THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION
DATE.
The Exchange Agent for the Exchange Offer is:
State Street Bank and Trust Company
255 Franklin Street
Boston, MA 02110
Attention: John F. Snugden, Jr.
By Facsimile:
(617) 664-5742
Confirm by Telephone:
(617) 664-5311
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN
AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO,
SUCH SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED BOX
ON THE LETTER OF TRANSMITTAL FOR GUARANTEE OF SIGNATURES.
<PAGE> 2
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject to the
conditions set forth in the Prospectus and the related Letter of Transmittal,
receipt of which is hereby acknowledged, the principal amount of Existing Notes
set forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Existing Notes listed below:
<TABLE>
<S> <C> <C>
Certificate Number(s) (if known) of Existing Notes Aggregate Principal Aggregate Principal
Account Number at the Book-Entry Facility Amount Represented Amount Tendered
</TABLE>
PLEASE SIGN AND COMPLETE
<TABLE>
<S> <C>
Signatures of Registered Holder(s) or Date: __________________________________
Authorized Signatory: ____________________________
__________________________________________________ Address:________________________________
__________________________________________________ ________________________________________
Name(s) of Registered Holder(s): _________________ Area Code and Telephone No._____________
</TABLE>
This Notice of Guaranteed Delivery must be signed by the Holder(s)
exactly as their name(s) appear on certificates for Existing Notes or on a
security position listing as the owner of Existing Notes, or by person(s)
authorized to become Holder(s) by endorsements and documents transmitted with
this Notice of Guaranteed Delivery. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer or other period acting in a
fiduciary or representative capacity, such person must provide the following
information.
Please print name(s) and address(es)
Name(s):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Capacity:
________________________________________________________________________________
Address(es):
________________________________________________________________________________
________________________________________________________________________________
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<PAGE> 3
GUARANTEE
(Not to be used for signature guarantee)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934,
guarantees deposit with the Exchange Agent of the Letter of Transmittal (or
facsimile thereof), together with the Existing Notes tendered hereby in proper
form for transfer (or confirmation of the book-entry transfer of such Existing
Notes into the Exchange Agent's account at the Book-Entry Transfer Facility
described in the Prospectus under the caption "The Exchange Offer -- Guaranteed
Delivery Procedures" and in the Letter of Transmittal and any other required
documents, all by 5:00 p.m., Boston time, within five Nasdaq trading days
following the Expiration Date.
<TABLE>
<S> <C>
NAME OF FIRM: _______________________________ _______________________________________
AUTHORIZED SIGNATURE
ADDRESS: ____________________________________ NAME: _________________________________
_____________________________________________ TITLE: ________________________________
(INCLUDE ZIP CODE)
AREA CODE AND TELEPHONE NUMBER:
_____________________________________________ DATE: ___________________________, 1995
</TABLE>
DO NOT SEND EXISTING NOTES WITH THIS FORM. ACTUAL SURRENDER OF EXISTING NOTES
MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND
DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
-3-
<PAGE> 4
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY. A properly completed
and duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by the
Exchange Agent at its address set forth herein prior to the Expiration Date. The
method of delivery of this Notice of Guaranteed Delivery and any other required
documents to the Exchange Agent is at the election and sole risk of the holder,
and the delivery will be deemed made only when actually received by the Exchange
Agent. If delivery is by mail, registered mail with return receipt requested,
properly insured, is recommended. As an alternative to delivery by mail, the
holders may wish to consider using an overnight or had delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. For a
description of the guaranteed delivery procedures, see Instruction 2 of the
Letter of Transmittal.
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Existing Notes
referred to herein, the signature must correspond with the name(s) written on t
he face of the Existing Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Existing Notes, the signature must correspond with
the name shown on the security position listing as the owner of the Existing
Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Existing Notes listed or a participant of the
Book-Entry Transfer Facility, this Notice of Guaranteed Delivery must be
accompanied by appropriate bond powers, signed as the name of the registered
holder(s) appears on the Existing Notes or signed as the name of the participant
shown on the Book-Entry Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. REQUESTS FOR ASSISTANT OR ADDITIONAL COPIES. Questions and requests
for assistance and request for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
-4-
