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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1997
REGISTRATION NO. 333-33963
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HIGH VOLTAGE ENGINEERING CORPORATION
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 3625 04-2035796
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
401 EDGEWATER PLACE, SUITE 680
WAKEFIELD, MA 01880
(617) 224-1001
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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JOSEPH W. MCHUGH, JR.,
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
HIGH VOLTAGE ENGINEERING CORP.
401 EDGEWATER PLACE
WAKEFIELD, MA 01880
(617) 224-1001
(Name, address, including zip code, and telephone number, including
area code, of agent for service)
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WITH A COPY TO:
MICHAEL P. O'BRIEN, ESQ.
BINGHAM DANA LLP
150 FEDERAL STREET
BOSTON, MA 02110
(617) 951-8302
FACSIMILE NO. (617) 951-8736
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Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this Registration Statement.
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If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement is
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED NOVEMBER 10, 1997
PROSPECTUS
OFFER TO EXCHANGE ALL OUTSTANDING SHARES OF
12-1/2% SERIES A SENIOR REDEEMABLE PREFERRED STOCK
FOR SHARES OF
12-1/2% SERIES A EXCHANGE SENIOR REDEEMABLE PREFERRED STOCK
OF
HIGH VOLTAGE ENGINEERING CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
BOSTON TIME, ON THE 30TH DAY AFTER THE EFFECTIVE DATE OF THE
REGISTRATION STATEMENT OF WHICH THIS PROSPECTUS IS A PART, UNLESS EXTENDED
__________________
High Voltage Engineering Corporation ("HVE" or, together with its subsidiaries,
the "Company") hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying letter of transmittal (the "Letter
of Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange shares of its 12-1/2% Series A Exchange Senior Redeemable Preferred
Stock, liquidation preference $1,000 per share (the "Exchange Preferred Stock"),
for any and all of the outstanding shares of 12-1/2% Senior Redeemable Preferred
Stock, liquidation preference $1,000 per share (the "Series A Preferred Stock"),
of the Company. The terms of the Exchange Preferred Stock are substantially
identical to the terms of the Series A Preferred Stock, except that the shares
of Exchange Preferred Stock will have been registered under the Securities Act
of 1933, as amended (the "Securities Act") and will not contain terms
restricting the transfer of such shares.
The Company will accept for exchange any and all shares of Series A
Preferred Stock that are validly tendered on or prior to 5:00 p.m., Boston time,
on the date the Exchange Offer expires, which will be the 30th day after the
effective date of the Registration Statement of which this Prospectus is a part
unless the Exchange Offer is extended (the "Expiration Date"). Including any
extension, the Exchange Offer will expire no later than the 60th day after the
effective date of the Registration Statement of which this Prospectus is a part.
Tenders of shares of Series A Preferred Stock 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 number of shares of Series A
Preferred Stock being tendered for exchange. However, the Exchange Offer is
subject to certain conditions which may be waived by the Company and to the
terms and provisions of the Preferred Stock Registration Rights Agreement (as
defined herein). See "Exchange Offer." The Company has agreed to pay the
expenses of the Exchange Offer.
Holders of shares of Series A Preferred Stock whose shares of Series A
Preferred Stock are not tendered and accepted in the Exchange Offer will
continue to hold such shares of Series A Preferred Stock. Following consummation
of the Exchange Offer, the holders of shares of Series A Preferred Stock will
continue to be subject to the existing restrictions upon transfer thereof and,
except as provided herein, the Company will have no further obligation to such
holders to provide for the registration under the Securities Act of the shares
of Series A Preferred Stock held by them.
_____________________
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN RISKS
ASSOCIATED WITH AN INVESTMENT IN THE EXCHANGE PREFERRED STOCK.
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THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THIS EXCHANGE OFFER AND
NO UNDERWRITER IS BEING UTILIZED IN CONNECTION WITH THE EXCHANGE OFFER.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE
_____________________
The date of this Prospectus is November __, 1997.
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33,000 shares of the Series A Preferred Stock were issued and sold on
August 8, 1997 in a transaction not registered under the Securities Act, in
reliance upon the exemption provided in Section 4(2) of the Securities Act.
Accordingly, the Series A Preferred Stock may not be offered, resold or
otherwise pledged, hypothecated or transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. Shares of Exchange Preferred Stock are being
offered hereby in order to satisfy the obligations of the Company under the
Preferred Stock Registration Rights Agreement. See "Exchange Offer -- Purpose of
the Exchange Offer." Based on no-action letters issued by the staff of the
Securities and Exchange Commission (the "Commission") to third parties, the
Company believes shares of Exchange Preferred Stock to be issued pursuant to the
Exchange Offer may be offered for sale, resold and otherwise transferred by
holders thereof (other than (i) a broker-dealer who purchases such shares of
Exchange Preferred Stock directly from the Company to resell pursuant to Rule
144A or any other available exemption under the Securities Act or (ii) a person
that is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such shares of Exchange
Preferred Stock are acquired in the ordinary course of such holders' business
and such holders have no arrangements with any person to participate in the
distribution of such shares of Exchange Preferred Stock. Eligible holders
wishing to accept the Exchange Offer must represent to the Company that such
conditions have been met. Each broker-dealer that receives shares of Exchange
Preferred Stock for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such shares of Exchange Preferred Stock. The Letter of Transmittal states that
by so acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of shares of Exchange
Preferred Stock received in exchange for shares of Series A Preferred Stock
where such shares of Series A Preferred Stock were acquired by such
broker-dealer as a result of market-making activities or other trading
activities. For a period of 90 days following the consummation of the Exchange
Offer, the Company has agreed to use its best efforts to make this Prospectus
available to broker-dealers who have identified themselves as such for use in
connection with resales by such broker-dealers of shares of Exchange Preferred
Stock received in exchange for shares of Series A Preferred Stock acquired by
such broker-dealers for their own accounts as a result of market-making or other
trading activities. See "Plan of Distribution."
Dividends on the Exchange Preferred Stock will be payable semiannually
on each August 15 and February 15, commencing February 15, 1998, at a rate per
annum of 12-1/2% of the liquidation preference per share. Holders of Series A
Preferred Stock whose shares of Series A Preferred Stock are accepted for
exchange will be deemed to have waived the right to receive any payment in
respect of any unpaid dividends on the Series A Preferred Stock that have
accumulated or accrued to the date of the issuance of the Exchange Preferred
Stock. Consequently, holders who exchange their shares of Series A Preferred
Stock for Exchange Preferred Stock will receive the same dividends on the
Exchange Preferred Stock that holders of the Series A Preferred Stock who do not
accept the Exchange Offer will receive on the Series A Preferred Stock.
Dividends on the Exchange Preferred Stock may be paid, at the Company's option,
on any dividend payment date occurring on or prior to August 15, 2002, either in
cash or by the issuance of additional shares of Exchange Preferred Stock having
an aggregate liquidation preference equal to the amount of such dividends. The
liquidation preference of the Exchange Preferred Stock will be $1,000 per share,
plus accumulated and unpaid dividends. The Exchange Preferred Stock will be
redeemable, at the option of the Company, in whole or in part, at any time on or
after August 15, 2002, at the redemption prices set forth herein, plus, without
duplication, accumulated and unpaid dividends to the redemption date. The
Company will be required, subject to certain conditions, to redeem all of the
Exchange Preferred Stock outstanding on August 15, 2005, at a redemption price
equal to 100% of the liquidation preference thereof, plus, without duplication,
accumulated and unpaid dividends to the redemption date. Upon the occurrence of
a Change of Control, each holder of the Exchange Preferred Stock will be
entitled to require the Company to purchase such holder's Exchange Preferred
Stock at a purchase price equal to 101% of the liquidation preference thereof,
plus, without duplication, accumulated and unpaid dividends to the purchase
date. The Exchange Preferred Stock will rank senior to any class or series of
common stock or preferred stock issued by the Company subsequent to the Issue
Date (as defined herein), and pari passu with respect to the Series A Preferred
Stock, with respect to dividend rights and rights upon liquidation, dissolution
or winding-up of the Company. The Exchange Preferred Stock is effectively
subordinated to existing and future indebtedness of the Company. As of
April 19, 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 oustanding (excluding the Intercompany Notes). The Company's ability
to make any cash payments with respect to the Exchange Preferred Stock may be
adversely affected by any inability of its subsidiaries to make dividend or
other payments to the Company.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF SERIES A PREFERRED STOCK IN ANY
JURISDICTION IN WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE
IN COMPLIANCE WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
There can be no assurance that an active public or private market for
the Exchange Preferred Stock will develop. Whether or not a market for the
Exchange Preferred Stock should develop, the shares of Exchange Preferred Stock
could trade at a discount from their aggregate liquidation preference. The
Company does not intend to list the Exchange Preferred Stock on a national
securities exchange or to apply for quotation of the Exchange Preferred Stock
through the National Association of Securities Dealers Automated
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Quotation System. To the extent shares of Series A Preferred Stock are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted shares of Series A Preferred Stock could be adversely
affected.
The Company has been advised by CIBC Wood Gundy Securities Corp. (the
"Initial Purchaser") that it intends to make a market in the Exchange Preferred
Stock; however, it is under no obligation to do so and any market making
activities with respect to the Exchange Preferred Stock may be discontinued at
any time.
Market data used throughout this Prospectus was obtained through
Company research, surveys or studies conducted by third parties, or industry or
general publications. The Company has not independently verified market data
provided by third parties or industry or general publications. Similarly,
internal Company research, while believed by the Company to be reliable, has not
been verified by any independent sources.
Anderson Power Products(R), AST(TM), Datcon(R), Illuma Deluxe(TM),
IllumaSeal(TM), Intellisensor(TM), Perfect Harmony(TM), PHI(R), Powerpole(R),
Quantum 2000 Scanning ESCA Microprobe(TM), SB(R), Smart Instrument(TM),
SMART-200(TM) and TRIFT II(TM) are trademarks, registered trademarks or brands
that are owned by, or licensed to, the Company. All other trademarks or service
marks referred to in this Prospectus are the property of their respective
owners.
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to, and
should be read in conjunction with, the more detailed information and the
consolidated financial statements and the notes thereto appearing elsewhere in
this Prospectus. As used in this Prospectus, unless the context otherwise
indicates, the term "HVE" refers to High Voltage Engineering Corporation and the
term the "Company" refers to HVE and its wholly-owned subsidiaries, including
PHI. As used in this Prospectus, the terms "Fiscal 1993," "Fiscal 1994," "Fiscal
1995," "Fiscal 1996" and "Fiscal 1997" refer to HVE's fiscal years ended May 1,
1993, April 30, 1994, April 29, 1995, April 27, 1996 and April 26, 1997,
respectively.
THE COMPANY
The Company owns and operates a diversified group of seven middle
market industrial manufacturing businesses. These businesses focus on designing
and manufacturing high quality, applications-engineered products which are
designed to address specific customer needs. The Company's products are sold to
a broad range of domestic and foreign original equipment manufacturers ("OEMs")
and end-users in a variety of industries including process automation,
freshwater and wastewater treatment, petrochemicals, semiconductor fabrication,
chemicals, construction, agriculture, materials handling, computers,
telecommunications, medical equipment and climate control and for scientific and
educational research. The diversified nature of the products sold and
end-markets served by the Company's businesses limits the effect on the Company
of operating performance fluctuations in any single operating unit and cyclical
downturns within individual industries and end-markets, while the Company
believes that its focus on middle market manufacturing enhances its growth
prospects. The Company believes that these factors have contributed to steady
growth in consolidated net sales and Adjusted EBITDA (as defined in note (m) on
page 35). 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 electric-powered vehicles,
uninterruptible power supply products, telecommunications and networking
equipment and office furniture panel electrification. For Fiscal 1997, Anderson
had net sales of $21.6 million.
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NATVAR COMPANY ("NATVAR"). Natvar is a manufacturer of disposable
specialty bulk medical grade plastic tubing used primarily in medical devices
and for less-invasive surgical procedures. Natvar also produces electrical
sleeving and tubing used to protect multiple insulated wires. For Fiscal 1997,
Natvar had net sales of $15.2 million.
GENERAL EASTERN INSTRUMENTS ("GENERAL EASTERN"). General Eastern is a
leading designer and manufacturer of relative humidity measurement instruments
and humidity calibration instruments. General Eastern's products are used in a
wide range of applications including energy management and climate control,
calibration and standards laboratories, thermal processing, environmental
monitoring and process control. For Fiscal 1997, General Eastern had net sales
of $12.2 million.
HIGH VOLTAGE ENGINEERING EUROPA B.V. ("HVE EUROPA"). HVE Europa is a
world 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.
RISK FACTORS
Holders of Series A Preferred Stock and prospective purchasers of
Exchange Preferred Stock should consider carefully the information set forth
under the caption "Risk Factors," and all other information set forth in this
Prospectus, in connection with the Exchange Offer. Specifically, and as
described in greater detail under the caption "Risk Factors," prospective
purchasers of Exchange Preferred Stock 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 Exchange Preferred Stock 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.
* RANKING OF THE EXCHANGE PREFERRED STOCK. The Exchange Preferred
Stock will rank junior in right of payment to all existing and
future indebtedness of the Company and pari passu with the Series A
Preferred Stock.
* LIMITATIONS ON ABILITY TO PAY DIVIDENDS. The New Revolving Credit
Facility and the Indenture governing the Notes limit the amount of
cash dividends that may be paid on shares of preferred stock of the
Company, including the Exchange Preferred Stock.
* 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 Exchange
Preferred Stock, 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.
* EFFECT OF POSSIBLE QUALIFIED SUBSIDIARY IPO. The Indenture allows
each Restricted Subsidiary (as defined herein) that is an obligor
under an Intercompany Note to effect a public offering of its
securities. Upon the occurrence of such a public offering,
(i) holders of Warrants will have a one-time right to require the
Company to exchange their Warrants for Subsidiary Warrants to
purchase common stock of the Restricted Subsidiary effecting such
public offering and (ii) holders of Common Shares will have a
one-time right to require the Company to exchange their Common
Shares for Subsidiary Shares of the Restricted Subsidiary effecting
such a public offering. After such a public offering, the Restricted
Subsidiary will become an Unrestricted Subsidiary and the cash flow
of such Unrestricted Subsidiary will no longer be available to make
payments with respect to Exchange Preferred Stock, to service debt
or for purposes of determining whether HVE meets the requirements of
certain financial covenants in its New Revolving Credit Facility and
certain of its other indebtedness. Such events may have an adverse
effect on the price at which the Exchange Preferred Stock 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, that competitors will
not find ways to design around such patents or that third parties
will not allege infringement. 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 or that the Company would prevail in any such challenge.
* VARIABILITY OF CUSTOMER REQUIREMENTS; FLUCTUATIONS IN OPERATING
RESULTS. The timing of orders placed by the customers of the
Company's operating units varies with 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 education research. 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. 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 or other debt or any payments on the Preferred
Stock.
* DEPENDENCE ON KEY PERSONNEL. The success of the Company depends
upon the efforts, abilities and expertise of its executive officers
and other key employees. The loss of the services of such
individuals and/or other key individuals could have a material
adverse effect on the Company's operations.
THE TRANSACTIONS
On May 7, 1997, HVE entered into an Agreement and Plan of Merger (the
"Merger Agreement") with PHI Acquisition Holdings, Inc. ("PHI Holdings") and
Chase Venture Capital Associates, L.P. ("CVCA"), the principal stockholder of
PHI Holdings, to acquire PHI for an aggregate consideration of $55.5 million in
cash, subject to certain adjustments (the "Merger Consideration"). This
acquisition was effected on August 8, 1997 through the merger (the "Merger") of
Lauren Corporation, a wholly-owned subsidiary of HVE, with and into PHI
Holdings. Immediately thereafter, PHI Holdings was merged with and into Physical
Electronics, Inc., its wholly-owned subsidiary, and Physical Electronics, Inc.
became a direct, wholly-owned subsidiary of HVE. After the repayment of certain
obligations of PHI, including all of PHI's outstanding indebtedness, the
remainder of the Merger Consideration was distributed to the holders of the
capital stock of PHI Holdings (including holders of options to purchase capital
stock).
In addition to the Merger, on August 8, 1997, the Company completed the
following transactions (collectively with the Merger, the "Transactions"): (i)
the issuance of $135,000,000 in aggregate principal amount of 10-1/2 Senior
Notes due 2004 (the "Notes") and $35,200,000 representing units (the "Units")
consisting of an aggregate of 33,000 shares of 12-1/2% Series A Preferred Stock,
82.7429 shares of HVE Common Stock ("Common Shares") and Warrants to purchase
82.7429 shares of HVE Common Stock ("Warrants"), (collectively, the
"Offerings"), (ii) a refinancing (the "Refinancing") comprised of the repayment
by the Company of certain of its outstanding indebtedness, the redemption of the
Company's outstanding redeemable preferred stock, the extinguishment by the
Company of certain CIP Agreements (as defined herein), the repurchase by the
Company of certain existing warrants, the payment by the Company of certain
distributions and the Company's entrance into a new revolving credit facility
(the "New Revolving Credit Facility") and (iii) the issuance to HVE by each of
its direct Restricted Subsidiaries (as defined herein) of intercompany notes
(the "Intercompany Notes") to be pledged by HVE as security for payment of
principal and interest on the Notes.
7
<PAGE> 10
THE EXCHANGE OFFER
Securities Offered............. Up to 33,000 shares of 12-1/2% Series A
Exchange Senior Redeemable Preferred Stock.
The terms of the Exchange Preferred Stock
are substantially identical to the terms of
the Series A Preferred Stock except that the
Exchange Preferred Stock will have been
registered under the Securities Act and will
not contain terms restricting the transfer
of such stock. See "Description of Exchange
Preferred Stock."
The Exchange Offer............. Shares of Exchange Preferred Stock are being
offered in exchange for any and all of the
outstanding shares of Series A Preferred
Stock (on a share for share basis). As of
November 7, 1997, 33,000 shares of Series A
Preferred Stock with an aggregate
liquidation preference of $33,000,000 were
issued and outstanding. The Company has
agreed to make the Exchange Offer in order
to satisfy its obligations under the
Preferred Stock Registration Rights
Agreement. For a description of the
procedures for tendering, see "Exchange
Offer -- Procedures for Tendering Series A
Preferred Stock."
Expiration Date; Withdrawal.... The Exchange Offer will expire at 5:00 p.m.,
Boston time, on the 30th day after the
effective date of the Registration Statement
of which this Prospectus is a part, or such
later date and time to which it may be
extended in the sole discretion of the
Company (the "Expiration Date"). Shares of
Series A Preferred Stock tendered pursuant
to the Exchange Offer may be withdrawn at
any time prior to the Expiration Date. Any
shares of Series A Preferred Stock not
accepted for exchange for any reason will be
returned without expense to the tendering
holders thereof as promptly as practicable
after the expiration or termination of the
Exchange Offer. See "Exchange Offer --
Expiration Date; Extensions; Termination;
Amendments; and Withdrawal Rights."
Conditions to Exchange Offer... The Exchange Offer is subject to certain
conditions. See "Exchange Offer -- Certain
Conditions to the Exchange Offer." The
Exchange Offer is not conditioned upon any
minimum number of shares of Series A
Preferred Stock being tendered for exchange.
Procedures for Tendering
Series A Preferred Stock....... Each holder of Series A Preferred Stock
wishing to accept the Exchange Offer must
complete, sign and date a Letter of
Transmittal, or a facsimile thereof, in
accordance with the instructions contained
herein and therein, and mail or otherwise
deliver such Letter of Transmittal, or such
facsimile, together with such Existing Notes
and any other required documents, to the
Exchange Agent (as defined) at the address
set forth herein. See
8
<PAGE> 11
"Exchange Offer -- Series A Preferred
Stock."
Use of Proceeds............. There will be no proceeds to the Company
from the exchange of Series A Preferred
Stock for Exchange Preferred Stock pursuant
to the Exchange Offer.
Certain Federal Income Tax
Consideration............... The Exchange of the Series A Preferred Stock
for the Exchange Preferred Stock should not
be a taxable event to the holder for federal
income tax purposes, and the holder should
not recognize any taxable gain or loss as a
result of such exchange. See "Certain
Federal Income Tax Considerations."
Untendered Series A Preferred
Stock....................... Upon consummation of the Exchange Offer, the
holders of Series A Preferred Stock, if any,
will have no further registration or other
rights under the Registration Rights
Agreement, except as provided herein.
Holders of shares of Series A Preferred
Stock who do not tender their shares of
Series A Preferred Stock in the Exchange
Offer or whose shares of Series A Preferred
Stock are not accepted for exchange will
continue to hold such shares of Series A
Preferred Stock and will be entitled to all
the rights and preferences thereof and will
be subject to all the limitations applicable
thereto, except for any such rights or
limitations which, by their terms, terminate
or cease to be effective as a result of this
Exchange Offer. All untendered and tendered
but unaccepted shares of Series A Preferred
Stock will continue to be subject to the
restrictions on transfer provided therein.
To the extent that shares of Series A
Preferred Stock are tendered and accepted in
the Exchange Offer, the trading market for
untendered and tendered but unaccepted
shares of Series A Preferred Stock could be
adversely affected.
Exchange Agent Boston EquiServe, L.P. is serving as the
Exchange Agent in connection with the
Exchange Offer.
TERMS OF THE EXCHANGE PREFERRED STOCK
Liquidation Preference...... $1,000 per share, plus accumulated and
unpaid dividends.
Dividends................... Dividends on the Exchange Preferred Stock
will accrue from the Issue Date and will be
payable semiannually on each August 15 and
February 15, commencing February 15, 1998,
at a rate per annum of 12-1/2% of the
liquidation preference per share. Dividends
may be paid, at the Company's option, on any
dividend payment date occurring on or prior
to August 15, 2002, either in cash or by the
issuance of additional shares of Exchange
Preferred Stock having an aggregate
liquidation preference
9
<PAGE> 12
equal to the amount of such dividends;
provided that if any dividend payable on any
dividend payment date subsequent to August
15, 2000 is not paid in full in cash, the
per annum dividend rate will be increased by
0.50% from such dividend payment date; and
provided, further, that following two such
non-cash payments, the per annum dividend
rate will be increased by 1.00% for each
additional semiannual period in which such
non-cash payment occurs, up to a maximum
rate of 200 basis points in excess of the
dividend rate originally borne by the
Exchange Preferred Stock (as shown on the
cover of this Prospectus). After the date on
which such dividend default is cured, the
dividend rate on the Exchange Preferred
Stock will revert to the dividend rate
originally borne by the Exchange Preferred
Stock (as shown on the cover of this
Prospectus).
Optional Redemption......... The Exchange Preferred Stock will be
redeemable, at the option of the Company, in
whole or in part, at any time on or after
August 15, 2002, at the redemption prices
set forth herein, plus, without duplication,
accumulated and unpaid dividends to the
redemption date.
Mandatory Redemption........ The Company will be required, subject to
certain conditions, to redeem all of the
Exchange Preferred Stock outstanding on
August 15, 2005, at a redemption price equal
to 100% of the liquidation preference
thereof, payable in cash, plus, without
duplication, accumulated and unpaid
dividends to the redemption date, which will
also be paid in cash (whether or not
otherwise payable in cash) to the redemption
date. The conditions referenced above will
include the absence of applicable
contractual restrictions (such as the
limitations on cash distributions with
respect to capital stock in instruments and
agreements with respect to borrowings) and
the legal availability of funds for such a
redemption (which, under presently
applicable law, would require the Company to
be solvent after giving effect to such
redemption).
Voting...................... Election of Directors: Holders of the
Exchange Preferred Stock (acting as a single
class together with holders of any Series A
Preferred Stock), will have the right to
elect that number of directors constituting
at least 25% of HVE's Board of Directors if
cash dividends are in arrears and unpaid for
two consecutive semiannual periods
after August 15, 2002, and in certain other
events.
Other Matters: The Exchange Preferred Stock
will otherwise be non-voting, except as
otherwise required by law.
Ranking..................... The Exchange Preferred Stock will rank
senior to the HVE Common Stock and any other
class or series of common stock or preferred
stock of the Company with respect to
dividend rights and rights upon liquidation,
dissolution or winding-up of the Company.
The Exchange Preferred Stock will rank pari
passu with the Series A Preferred Stock. It
will effectively be subordinated to existing
and future indebtedness of the Company.
10
<PAGE> 13
Change of Control........... Upon the occurrence of a Change of Control,
each holder of the Exchange Preferred Stock
will be entitled to require the Company to
purchase such holder's Exchange Preferred
Stock at a purchase price equal to 101% of
the liquidation preference thereof, plus,
without duplication, accumulated and unpaid
dividends to the purchase date. There can be
no assurance that the Company will have
sufficient funds to pay the required
purchase price for all Exchange Preferred
Stock tendered by holders thereof upon the
occurrence of a Change of Control. See
"Description of the Exchange Preferred Stock
-- Change of Control Offer."
Certain Covenants........... The Restated Articles of Organization of HVE
(the "Restated Articles") contain certain
restrictive provisions that, among other
things, limit the ability of HVE and its
Restricted Subsidiaries to (i) declare or
pay certain dividends or distributions or
payments on capital stock of HVE (other than
the Exchange Preferred Stock and the Series
A Preferred Stock) under certain conditions,
or (ii) purchase, redeem or make any other
acquisition or retirement for value of any
capital stock (other than the Exchange
Preferred Stock and the Series A Preferred
Stock) under certain conditions.
For more complete information regarding the Series A Preferred Stock
and the Exchange Preferred Stock, including the definitions of certain
capitalized terms used above, see "Description of the Exchange Preferred Stock."
11
<PAGE> 14
SUMMARY UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following table sets forth Summary Unaudited Pro Forma Condensed
Financial Data derived from the Unaudited Pro Forma Condensed Consolidated
Financial Data contained elsewhere herein. The statement of operations data for
the Company's fiscal year ended April 26, 1997 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 ....................................... 82,251 23,894
Income from operations ............................. 14,555 5,699
Interest expense ................................... 19,724 6,477
Interest income .................................... 418 69
Income taxes ....................................... 2,104 968
Income (loss) from continuing operations before
extraordinary item ............................... (6,855) (1,677)
Preferred dividends ................................ 4,242 1,061
(Loss) available to common stockholders before
extraordinary item ............................... (11,097) (2,738)
BALANCE SHEET DATA (AT PERIOD END):
Working capital(a) ................................. -- $ 48,494
Total assets ....................................... -- 190,851
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 ...................... 7,914 1,953
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 final 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)
12
<PAGE> 15
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 often used as a measurement in
evaluating companies. In particular, since Adjusted EBITDA excludes the
non-recurring items described above, the Company believes that trends
in Adjusted EBITDA may provide meaningful information as to the
Company's ability to satisfy its cash requirements on an on-going
basis. 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 and analysis of changes in Adjusted EBITDA in
recent periods. 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 $3.3 million and $2.4
million of non-cash interest expense comprised of amortization of
deferred financing costs and accretion of redeemable put warrants 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 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.
13
<PAGE> 16
RISK FACTORS
Holders of the Series A Preferred Stock and prospective purchasers of
Exchange Preferred Stock should consider carefully the following risk factors in
addition to the other information set forth in this Prospectus. Certain of the
statements in this Prospectus are forward-looking in nature and, accordingly,
are subject to many risks and uncertainties. The actual results that the Company
achieves may differ materially from any forward-looking statements in this
Prospectus. Factors that could cause or contribute to such differences include,
but are not limited to, those discussed below and those contained in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business," as well as those discussed elsewhere in this
Prospectus.
HIGH LEVEL OF INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS
The Company is, and will continue to be, highly leveraged. At 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 Series A Preferred Stock and Exchange Preferred
Stock, including, but not limited to, the following: (i) a substantial portion
of the Company's cash flow from operations must be dedicated to debt service and
will not be available for other purposes; (ii) the Company's ability to obtain
additional financing in the future, as needed, may be limited; (iii) the
Company's leveraged position and covenants contained in the Indenture and other
indebtedness of the Company may limit its ability to grow and make capital
improvements and acquisitions; (iv) the Company's level of indebtedness may make
it more vulnerable to economic downturns; and (v) the Company may be at a
competitive disadvantage because some of the Company's competitors are less
leveraged, resulting in greater operational and financial flexibility for such
competitors.
The Company currently anticipates that its operating cash flow,
together with available borrowings, will be sufficient to meet its operating
expenses and to service its debt requirements as they become due. However, the
ability of the Company to pay cash dividends on, and to satisfy the redemption
obligations in respect of, the Preferred Stock and to satisfy its debt
obligations, including the Notes, will be primarily dependent upon the future
financial and operating performance of the Company's operating units. Such
performance is dependent upon financial, business and other general economic
factors, many of which are beyond the control of the Company and its operating
units. If the Company is unable to generate sufficient cash flow to meet its
debt service obligations or provide adequate long-term liquidity, it will have
to pursue one or more alternatives, such as reducing or delaying capital
expenditures, refinancing debt, selling assets or raising equity capital. There
can be no assurance that such alternatives could be accomplished on satisfactory
terms, if at all, or in a timely manner. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
RANKING OF THE EXCHANGE PREFERRED STOCK
The Exchange Preferred Stock will rank junior in right of payment upon
liquidation to all existing and future indebtedness of the Company, including,
without limitation, indebtedness under the New Revolving Credit Facility and
indebtedness in respect of the Notes, and senior to the HVE Common Stock and any
other class or series of common stock or preferred stock issued by the Company
subsequent to the Issue Date. The Exchange Preferred Stock will rank pari passu
with the Series A Preferred Stock. As of July 26, 1997, pro forma for the
Transactions, HVE would have had $159.1 million of senior indebtedness
outstanding (including the Notes), of which $20.0 million would have been
secured indebtedness, and the subsidiaries of HVE would have had $47.1 million
of indebtedness and other liabilities and commitments outstanding (excluding the
Intercompany Notes). The Indenture pursuant to which Notes are issued (the
"Indenture") limits, but does not prohibit, the incurrence of additional
indebtedness by the Company. See "Description of Certain Indebtedness."
14
<PAGE> 17
LIMITATIONS ON ABILITY TO PAY DIVIDENDS
The New Revolving Credit Facility and the Indenture limit the amount of
cash dividends that may be paid on shares of preferred stock of the Company,
including the Exchange Preferred Stock, in certain circumstances. Dividends may
be paid, at the company's option, on or prior to August 15, 2002, either in cash
or by the issuance of additional shares of Exchange Preferred Stock. In the
event that cash dividends on the Exchange Preferred Stock are in arrears and
unpaid for two consecutive semiannual periods after such time, holders of the
Series A Preferred Stock and Exchange Preferred Stock will have the right to
elect that number of directors constituting at least 25% of HVE's Board of
Directors. See "Description of Certain Indebtedness" and "Description of the
Exchange Preferred Stock -- Voting Rights."
SUBSIDIARY OPERATIONS; RELIANCE ON SUBSIDIARIES 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 Exchange Preferred Stock, to meet HVE's obligations to
other creditors or to make funds available therefor. Because the shares of
Exchange Preferred Stock are direct obligations of HVE, it must rely on the
ability of HVE's subsidiaries to pay dividends and make other advances and
transfers of funds to generate the funds necessary to meet the Company's
obligations, including payment of cash dividends on the Exchange Preferred Stock
when due. There can be no assurance that such payments and distributions will be
adequate to fund cash dividends on the Exchange Preferred Stock when due. The
ability of HVE's subsidiaries to pay such dividends and make such advances and
transfers will be subject to applicable state law regulating the payment of
dividends. See "Description of Certain Indebtedness".
ACQUISITION OF PHI
The acquisition of PHI is the largest acquisition completed by the
Company to date. Acquisitions of this magnitude are inherently subject to
significant risk. Although the Company intends to operate PHI as a stand-alone
subsidiary, the acquisition will require some integration of PHI's management,
control and administrative systems with those of the Company. The Merger will
require substantial attention from, and place substantial demands upon, the
senior management of the Company, which may divert attention from and adversely
impact their ability to manage the Company's existing businesses.
The representations and warranties made by PHI and its principal
stockholder in the Merger Agreement relating to PHI and the indemnities made
with respect to such representations and warranties expired upon the closing of
the Merger. As a result, the Company has little or no recourse to PHI and its
principal stockholder after the Merger. In addition, unanticipated events or
liabilities related to PHI's business could materially and adversely affect the
Company and the success of the Merger.
EFFECT OF POSSIBLE QUALIFIED SUBSIDIARY IPO
Robicon, PHI, Datcon, Anderson and HVE Europa are direct or indirect
subsidiaries of HVE. The Indenture allows each Restricted Subsidiary that is an
obligor under an Intercompany Note to effect a 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,
15
<PAGE> 18
a Restricted Subsidiary will become an Unrestricted Subsidiary and the cash flow
of such Unrestricted Subsidiary will no longer be available (i) for any cash
payments with respect to the Exchange Preferred Stock, (ii) to service debt
obligations of HVE or its remaining Restricted Subsidiaries or (iii) for
purposes of determining whether HVE or its remaining Restricted Subsidiaries
will be able to incur additional indebtedness, any 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 Exchange Preferred Stock may be traded.
UNCERTAINTIES REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY
The Company currently relies on a combination of patents, trade
secrets, technical expertise and continuing technological research and
development to establish and protect proprietary rights in its products. There
can be no assurance that the Company's patents will not be successfully
challenged, that any patents that have been applied for will issue, or that
competitors will not find ways to design around such patents to provide similar
or functionally equivalent products, processes or technologies. In addition, the
Company recognizes that the exclusive rights to make, use and sell a technology
are granted for only a finite time and that new technologies must be developed
on an ongoing basis to replace those under expired patents or which have become
obsolete. The Company attempts to ensure that its products and processes do not
infringe patents and other proprietary rights of third parties, but there can be
no assurance that such an infringement may not be alleged by third parties in
the future. If infringement is alleged, there can be no assurance that the
Company would prevail in any such challenge, or that if the Company did not
prevail, that the necessary licenses would be available on acceptable terms, if
at all. In addition, patent and proprietary rights litigation can be extremely
protracted and expensive. See "Business -- Patents and Trademarks."
VARIABILITY OF CUSTOMER REQUIREMENTS; FLUCTUATIONS IN OPERATING RESULTS
The timing of orders placed by the customers of the Company's operating units
varies with, among other factors, the introduction of new products, product life
cycles, customer attempts to manage inventory levels, competitive conditions,
general economic conditions and the funding of scientific and educational
research. Historically, the industries served by the Company have been cyclical,
affected by both general economic conditions and industry-specific cycles.
Depressed general economic conditions and cyclical downturns in these industries
have had adverse effects on the Company's customers, contributing to
fluctuations in the Company's operating results. The variability of the level
and timing of orders from, and shipments to, customers may result in significant
periodic and quarterly fluctuations in the Company's results of operations. In
addition, the Company's operating units rely upon supplies or subcontractors for
custom components in their respective manufacturing processes, the loss of which
could adversely affect an operating unit's business until alternate suppliers
could be found.
Because the Company's operating expenses are based on anticipated
revenue levels and a high percentage of the Company's operating expenses is
relatively fixed, any unanticipated shortfall in revenue in a quarter may have
an adverse impact on the Company's results of operations for that quarter, which
could impact the Company's ability to pay amounts due under the Notes, or other
debt or any payments on the Preferred Stock. 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 and President 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."
16
<PAGE> 19
TECHNOLOGICAL CHANGE; MANUFACTURING PROCESS DEVELOPMENTS
The markets for the Company's products may be affected by technological
change, continuing process development and new product introductions. The
Company's success will depend, in part, upon its continued ability to
manufacture products that meet changing customer needs, successfully anticipate
or respond to technological changes in manufacturing processes on a
cost-effective and timely basis and enhance and expand its existing product
offerings. Current competitors or new market entrants may develop new products
with features that could adversely affect the competitive position of the
Company's products. The Company has invested and continues to invest substantial
resources in research and development for new products and improved
manufacturing processes; however, there can be no assurance that the Company's
new product or process development efforts will be successful or that the
emergence of new technologies, industry standards or customer requirements will
not render the Company's technology, equipment or processes obsolete or
uncompetitive. Any failure or delay in accomplishing these goals could have a
material adverse effect on the Company's business, results of operations and
financial condition. In addition, to the extent that the Company determines that
new manufacturing equipment or processes are required to remain competitive, the
acquisition and implementation of the technologies, equipment and processes
required are likely to require significant capital investment by the Company.
FOREIGN OPERATIONS
The Company has manufacturing operations in three foreign countries and
sells its products in a significant number of foreign countries. Pro forma for
the Merger, approximately $81.0 million, or 34%, of the Company's Fiscal 1997
net sales were from products sold overseas. Risks inherent in foreign operations
include fluctuations in foreign currency exchange rates and changes in social,
political and economic conditions. Changes in currency exchange rates may affect
the relative prices at which the Company and foreign competitors purchase
component materials and sell their finished products in the same market. Except
with respect to certain of its European operations, the Company generally does
not hedge its exposure to foreign currency exchange rate changes. The Company is
also exposed to risks associated with changes in the laws and policies that
govern foreign investments in countries where it has operations as well as, to a
lesser extent, changes in United States laws and regulations relating to foreign
trade and investment. While such changes in laws, regulations and conditions to
date have not had a material adverse effect on the Company's business or
financial condition, there can be no assurance as to the future effect of any
such changes.
COMPETITION
The markets for the Company's products are highly competitive. Many of
the Company's competitors are large companies, or divisions or parts of large
companies, that have greater financial resources than the Company. The Company
believes that the principal points of competition in its market niches are
product quality, design and engineering capabilities, product development,
conformity to customer specifications, quality of post-sale support, timeliness
of delivery and price. The rapidly evolving nature of the markets in which the
Company competes may attract new entrants as they perceive opportunities, and
the Company's competitors may foresee the course of market development more
accurately than the Company. In addition, the Company's competitors may develop
products that are superior to the Company's products or may adapt more quickly
than the Company to new technologies or evolving customer requirements. The
Company expects competitive pressures in these markets to remain strong. These
pressures arise from existing competitors, other companies that may enter the
Company's existing or future markets and, in certain cases, the Company's
customers, which may decide to move production in-house of certain items sold by
the Company. There can be no assurance that the Company will be able to compete
successfully with its existing competitors or with new competitors. Failure to
compete successfully could adversely affect the Company's business, results of
operations and financial condition. See "Business -- The Operating Units."
RESTRICTIVE DEBT COVENANTS
Certain loan agreements relating to the financing of Robicon's facility
in New Kensington, Pennsylvania, as well as the New Revolving Credit Facility
(and any other indebtedness incurred to provide for working capital or other
cash needs), contain a number of covenants that, among other things, limit the
ability of the Company to incur additional indebtedness, pay certain dividends,
prepay indebtedness, dispose of certain assets, create liens, make capital
expenditures and make certain investments or acquisitions and otherwise restrict
corporate activities. The New Revolving Credit Facility also contains (and any
indebtedness incurred to provide for working capital or other needs likely will
contain) provisions relating to a change of control of the Company. The New
Revolving Credit Facility also requires the Company to comply with certain
financial ratios and tests, under which the Company will be required to achieve
certain financial and operating results. The ability of the Company to comply
with such provisions may be affected by
17
<PAGE> 20
events beyond its control, including changes in prevailing economic conditions
and in the Company's competitive environment, which could impair the Company's
operating performance. A breach of any of these covenants would result in a
default under the New Revolving Credit Facility, in which event the lenders
under the New Revolving Credit Facility could elect to declare all outstanding
amounts borrowed thereunder, together with accrued and unpaid interest thereon,
to be due and payable. Such acceleration may also constitute an event of default
under the Indenture. As a result of the security interest expected to be
afforded to the lender under the New Revolving Credit Facility, there can be no
assurance that the Company would have sufficient funds to pay amounts due under
the New Revolving Credit Facility, the Notes and the Exchange Preferred Stock,
in the event of such acceleration. Acceleration of such indebtedness would have
a material adverse effect on the Company. See "Description of Certain
Indebtedness."
In addition, the Indenture contains covenants that, among other things,
limit the ability of the Company to incur additional indebtedness, incur liens,
pay dividends and make certain other restricted payments, make certain
investments, consummate certain assets sales, enter into certain transactions
with affiliates, issue subsidiary stock, consolidate or merge with any other
person or transfer all or substantially all of the assets of the Company. See
"Description of Certain Indebtedness."
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 a Fixed Charge Coverage Ratio in the Indenture that would be a condition
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 regulations could
subject it to future liabilities or the suspension of production. Such
environmental laws and regulations could also restrict the Company's ability to
expand its facilities or could require the Company to acquire costly equipment
or to incur other significant expenses in connection with its manufacturing
processes. Although the Company believes it has made sufficient capital
expenditures to maintain compliance with existing laws and regulations, future
expenditures may be necessary as compliance standards and technology change. See
"Business -- Environmental and Insurance Matters."
PRODUCT LIABILITY
The Company's businesses expose it to potential product liability risks
that are inherent in the design, manufacture and sale of its products. While the
Company currently maintains what it believes to be suitable product liability
insurance, there can be no assurance that it will be able to maintain such
insurance on acceptable terms or that any such insurance will provide adequate
protection against potential liabilities. In the event of a claim against the
Company, a lack of sufficient insurance coverage could have a material adverse
effect on the Company. Moreover, even if the Company maintains adequate
insurance, any successful claim could materially and adversely affect the
reputation and prospects of the Company. See "Business -- Legal Proceedings."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will, subject
to certain conditions, be required to offer to purchase all of the Notes then
outstanding at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest to the purchase date and all of the shares of
the Exchange Preferred Stock then outstanding at a purchase price equal to 101%
of the liquidation preference thereof, plus, without duplication, accumulated
and unpaid dividends to the purchase date. If a Change of Control were to occur,
there can be no assurance that the Company would have sufficient funds to pay
the purchase price for all of the Notes and all of the shares of the Exchange
Preferred Stock that the Company might be required to purchase. The exercise by
the respective holders of the Notes and the Exchange Preferred Stock of their
right to require the Company to repurchase the Notes and the Exchange Preferred
Stock upon the occurrence of a Change of Control could also cause a default
under other indebtedness of the Company, even if the Change of Control itself
does not, because of the financial effect of such repurchase on the Company. The
Company's ability to pay cash to holders of the Notes and the Exchange Preferred
Stock upon a repurchase may be limited by the Company's then existing financial
resources. There can be no assurance that, in the event of a Change of Control,
the Company will have, or will have access to, sufficient funds or will be
contractually permitted under the terms of other outstanding indebtedness and
obligations, including the New Revolving Credit Facility, to pay the required
purchase price for all of the Notes tendered by holders thereof upon the
occurrence of a Change of Control. In addition, the Indenture will restrict the
Company's ability to repurchase the shares of the Exchange Preferred Stock,
including pursuant to a Change of Control. See "Description of Certain
Indebtedness" and "Description of the Exchange Preferred Stock -- Change of
Control Offer."
18
<PAGE> 21
CONTROL BY PRINCIPAL STOCKHOLDERS
Letitia Corporation beneficially owns over 90% of the outstanding HVE
Common Stock. Messrs. Laurence S. Levy and Clifford Press, the Chairman of the
Board and Chief Executive Officer, and President and a Director, respectively,
of the Company, are the sole directors of Letitia Corporation and, together with
certain of their affiliates and family members, beneficially own 90% of the
outstanding common stock of Letitia Corporation, before giving effect to any
repurchase of Letitia Common Stock from the High Voltage Engineering Corporation
Retirement Plan. As a result, Messrs. Levy and Press, and such affiliates and
family members, through their control of Letitia Corporation, are currently able
to elect all of the directors of HVE, retain the voting power to approve all
matters requiring stockholder approval and will continue to control HVE. See
"Principal Stockholders."
ADVERSE CONSEQUENCES OF FAILURE TO ADHERE TO EXCHANGE OFFER PROCEDURES
Issuance of shares of the Exchange Preferred Stock in exchange for
shares of the Series A Preferred Stock pursuant to the Exchange Offer will be
made only after a timely receipt by the Company of such shares of the Series A
Preferred Stock, a properly completed and duly executed Letter of Transmittal
and all other required documents. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of shares of the Series A
Preferred Stock tendered for exchange will be determined by the Company in its
sole discretion, which determination will be final and binding on all parties.
Holders of shares of the Series A Preferred Stock desiring to tender such shares
of the Series A Preferred Stock in exchange for shares of the Exchange Preferred
Stock should allow sufficient time to ensure timely delivery. The Company is
under no duty to give notification of defects or irregularities with respect to
the tenders of shares of the Series A Preferred Stock for exchange. Shares of
the Series A Preferred Stock that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof and, except as
provided herein, the Company will have no further obligations to provide for the
registration under the Securities Act of such shares of the Series A Preferred
Stock. In addition, any holder of the Series A Preferred Stock who tenders in
the Exchange Offer for the purpose of participating in a distribution of the
Exchange Preferred Stock may be deemed to have received restricted securities,
and if so, will be required to comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. To the extent that shares of the Series A Preferred Stock are
tendered and accepted in the Exchange Offer, the trading market for untendered
and tendered but unaccepted shares of the Series A Preferred Stock could be
adversely affected. See "Exchange Offer."
LACK OF PUBLIC MARKET FOR THE SECURITIES; RESTRICTIONS ON RESALE
There is no existing trading market for the Exchange Preferred Stock.
There can be no assurance regarding the future development of a market for the
Exchange Preferred Stock, or the ability of holders of any of the Exchange
Preferred Stock to sell their shares, or the price at which such holders may be
able to sell such shares. If such a market were to develop, the Exchange
Preferred Stock could trade at prices that may be lower than the initial
offering price for Series A Preferred Stock depending on many factors, including
prevailing interest rates, the Company's operating results and the market for
similar securities. The Initial Purchaser has advised the Company that it
currently intends to make a market in the Exchange Preferred Stock. The Initial
Purchaser is not obligated to do so, however, and any market-making with respect
to the Exchange Preferred Stock may be discontinued at any time without notice.
Therefore, there can be no assurance as to the liquidity of any trading market
for the Exchange Preferred Stock, or that an active public market for the
Exchange Preferred Stock will develop. In addition, such market-making activity
will be subject to the limitations imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer. The Company does not
intend to apply for listing or quotation of the Exchange Preferred Stock on any
securities exchange or stock market. See "Plan of Distribution."
19
<PAGE> 22
THE COMPANY
The Company owns and operates a diversified group of seven middle
market industrial manufacturing businesses. HVE was incorporated in
Massachusetts in 1946 by Robert J. van de Graaff, a Massachusetts Institute of
Technology professor of nuclear physics. In the 1970s, HVE began acquiring a
diversified group of industrial manufacturing businesses. In 1988, the Company
was acquired by Letitia Corporation, which is beneficially owned primarily by
Laurence S. Levy, Chairman of the Board and Chief Executive Officer of the
Company, Clifford Press, President and a Director of the Company, and certain of
their affiliates and family members. Since the Company's acquisition by Letitia
Corporation, the Company has disposed of 12 non-core businesses and has made
four acquisitions, including PHI.
The Company operates Robicon, PHI, Datcon, Anderson and HVE Europa as
direct or indirect wholly-owned subsidiaries. Natvar and General Eastern are
operated as divisions of the Company.
The Company's executive offices are located at 401 Edgewater Place,
Suite 680, Wakefield, Massachusetts 01880 and its telephone number is (617)
224-1001.
20
<PAGE> 23
THE TRANSACTIONS
THE OFFERINGS
On August 8, 1997, the Company issued $135,000,000 in aggregate
principal amount of Notes, and $35,200,000 representing 33,000 Units consisting
in the aggregate of 33,000 shares of Series A Preferred Stock, 82.7429 shares of
HVE Common Stock and Warrants to purchase 82.7429 shares of HVE Common Stock.
The gross proceeds to the Company from the Offerings of $170.2 million were or
will be used to consummate the Refinancing on August 8, 1997, finance the
Merger, for general corporate purposes and to pay related fees and expenses.
THE REFINANCING
Of such proceeds, the Company used or will use (i) $80.5 million to
repay certain of its outstanding indebtedness, including accrued and unpaid
interest thereon and prepayment penalties associated therewith, estimated as of
the closing of the Transactions; (ii) $11.6 million to redeem all of the
Company's outstanding redeemable preferred stock, including accumulated and
unpaid dividends thereon, estimated as of the closing of the Transactions; and
(iii) $6.8 million to extinguish the right of BancBoston Capital, Inc.
("BancBoston") pursuant to two agreements (the "CIP Agreements") to require the
Company to make "contingent interest payments" to BancBoston under certain
circumstances; (iv) $2.5 million to repurchase certain warrants issued in
connection with certain subordinated notes included in the repaid indebtedness
(the "Subordinated Notes Warrants"); and (v) up to $2.4 million for
distributions comprised of $2.25 million which may be used for the repurchase of
Letitia Common Stock from the High Voltage Engineering Corporation Retirement
Plan representing up to 10% of the outstanding Letitia Common Stock, and
$150,000 for a proportional accrual relating to the Subordinated Notes Warrants.
As a condition to the completion of the Offerings, the Company entered
into the New Revolving Credit Facility with a maximum committed amount of $25.0
million. The term of the New Revolving Credit Facility is five years.
Obligations under the New Revolving Credit Facility are guaranteed by HVE and
all of its domestic subsidiaries and are secured by the inventories and accounts
receivable of HVE and its domestic subsidiaries. See "Description of Other
Indebtedness -- New Revolving Credit Facility."
THE MERGER
On May 7, 1997, HVE entered into the Merger Agreement with PHI Holdings
and CVCA, the principal stockholder of PHI Holdings, to acquire PHI. The
acquisition was effected on August 8, 1997 through the merger of Lauren
Corporation, a wholly-owned subsidiary of HVE, with and into PHI Holdings.
Immediately thereafter, PHI Holdings was merged with and into Physical
Electronics, Inc., its wholly-owned subsidiary, and Physical Electronics, Inc.
became a direct, wholly-owned subsidiary of HVE. The aggregate Merger
Consideration paid, after adjustment, was approximately $54.6 million in cash
and included the payment of the following: (i) approximately $31.6 million in
cash consideration to the current holders of the capital stock of PHI (including
holders of options to purchase capital stock); (ii) approximately $9.8 million
to The Perkin-Elmer Corporation in repayment of a convertible subordinated
promissory note of PHI (the "Perkin-Elmer Note"); (iii) approximately $7.6
million in the aggregate to First Bank National Association to repay a term
promissory note of PHI; (iv) approximately $1.3 million to CVCA as an advance
against expenses incurred or to be incurred by CVCA in its capacity as
representative of the holders of the capital stock of PHI as determined
immediately prior to the consummation of the Merger; and (v) an aggregate of
approximately $4.3 million to the former and current Chief Executive Officers of
PHI in payment of certain existing obligations of PHI to such officers.
Approximately $12.9 million of the $31.6 million in cash consideration paid to
the holders of the capital stock of PHI in the Merger was received by 93
officers, directors and employees of, and consultants to, PHI in exchange for
their capital stock and options to purchase capital stock of PHI. See "Certain
Relationships and Related Transactions." In addition, pre-Merger holders of the
capital stock of PHI (including holders of options to purchase capital stock)
are entitled to receive an amount in cash equal to the amount of any refunds the
Company receives after the closing of the Merger of taxes paid by PHI for
periods prior to the closing of the Merger and an amount in cash equal to the
amount, if any, by which the cash and cash equivalents of PHI on the closing
date exceed the cash and cash equivalents of PHI on July 31, 1997.
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<PAGE> 24
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 Certain 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, the Preferred Stock or for other
purposes.
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<PAGE> 25
USE OF PROCEEDS
No proceeds will be received by the Company from the Exchange Offer. The
gross proceeds to the Company from the Offerings, of $170.2 million were or will
be used to consummate the Refinancing, to finance the Merger, for general
corporate purposes and to pay related fees and expenses. See "The Transactions."
The following table sets forth the sources and uses of funds as of the closing
date of the Transactions (dollars in thousands):
<TABLE>
<CAPTION>
<S> <C>
SOURCES OF FUNDS:
Notes sold in Offering ........................ $135,000
Units sold in Offering ........................ 35,200
--------
Total sources of funds ................... $170,200
========
USES OF FUNDS:
Repayment of Former Revolving Credit
Facility due 2001(a) ........................ $ 14,426
Repayment of Senior Term Loan due 2003(b) ..... 8,231
Repayment of Senior Secured Notes due 2003(c) . 23,551
Repayment of Senior Unsecured Notes due 2003(d) 7,723
Repayment of Subordinated Notes due 2004(e) ... 26,544
Redemption of Series C Preferred Stock(f) ..... 6,871
Redemption of Series B Preferred Stock(g) ..... 4,750
Extinguishment of BancBoston CIP Agreements (h) 6,750
Repurchase of certain Subordinated Notes
Warrants (i) .............................. 2,500
Cash purchase price of PHI(j) ................. 54,536
Distributions to fund Letitia Common
Stock repurchase (k) ...................... 2,400
General corporate purposes .................... 4,935
Estimated fees and expenses ................... 6,983
--------
Total uses of funds ...................... $170,200
========
</TABLE>
- ----------
(a) The Company's former senior revolving credit facility (the "Former Revolving
Credit Facility") bore interest, at the Company's option, at (i) LIBOR plus
2.75% or (ii) the Base Rate (as defined therein) currently 8.50%, and
matured on April 30, 2001. Repayment included $400,000 in prepayment
penalties and $26,000 of accrued and unpaid interest.
(b) The Company's senior term loan (the "Senior Term Loan") bore interest at the
Company's option at (i) LIBOR plus 3.25% or (ii) the Base Rate plus .75% (as
defined therein), currently 9.25% and matured on April 30, 2003. Repayment
included $17,000 of accrued and unpaid interest.
(c) The Company's senior secured notes (the "Senior Secured Notes") bore
interest at 10.84% and matured on May 1, 2003. Repayment included a make
whole premium of $3.0 million and $0.6 million of accrued and unpaid
interest.
(d) The Company's senior unsecured notes (the "Senior Unsecured Notes") bore
interest at 12.09% and matured on May 1, 2003. Repayment included $493,000
in prepayment penalties and $230,000 of accrued and unpaid interest.
(e) The Company's senior subordinated notes (the "Subordinated Notes") paid cash
interest that, together with accrued non-cash interest, provided an annual
yield to maturity of 14%. The Subordinated Notes matured on May 1, 2004.
Repayment included $6.2 million in prepayment penalties and $0.5 million of
accrued and unpaid interest.
(f) The Series C Preferred Stock had an aggregate liquidation preference of $6.9
million (as of the closing date of the Transactions) and was mandatorily
redeemable on June 1, 2000. All of the outstanding Series C Preferred Stock
was owned by Letitia Corporation, which had issued to Quest Equities Corp.
("Quest") a class of its own capital stock (the "Letitia Quest Preferred
23
<PAGE> 26
Stock") having identical rights and preferences to the Series C
Preferred Stock. Letitia Corporation caused the redemption of all of
the outstanding Letitia Quest Preferred Stock, simultaneously with the
closing of the Transactions, with the proceeds of the redemption of the
Series C Preferred Stock. In connection with the redemption of the
Letitia Quest Preferred Stock, certain rights of Quest under agreements
substantially similar to the CIP Agreements, pursuant to which, under
certain circumstances, Quest was entitled to demand "contingent
interest payments" equal to a minimum of 3.1% of HVE's common stock
equity value at the time payment was demanded, were extinguished.
(g) The Series B Preferred Stock had an aggregate liquidation preference of
$4.8 million, and was mandatorily redeemable by the Company on March
17, 2008. All of the outstanding 25,705 shares of Series B Preferred
Stock were held by Letitia Corporation. Messrs. Laurence S. Levy and
Clifford Press, the Chairman of the Board and Chief Executive Officer,
and President and a Director, respectively, of the Company and certain
of their affiliates and family members beneficially own 90% of the
outstanding Letitia Common Stock, before giving effect to any
repurchase of Letitia Common Stock from the High Voltage Engineering
Corporation Retirement Plan.
(h) Under the terms of the CIP Agreements, BancBoston had the right to
demand cash payments equal to a minimum of approximately 12.4% of the
Company's common stock equity value determined as the greater of the
fair market value or the Formula Value of the Company's common stock
equity at the time the demand is made. The Formula Value was an amount
calculated as of a certain date by (a) multiplying the Company's
Consolidated EBITA (as defined therein) during the preceding 12 full
calendar months by 6.5, (b) subtracting the total amount of the
Company's consolidated indebtedness for borrowed money outstanding on
such date and (c) adding to this amount the Company's cash and cash
equivalents on such date (adjusted to include the amount of certain
distributions). The Company and BancBoston extinguished these CIP
Agreements, simultaneously with the closing of the Transactions, along
with other accommodations, in return for payment to BancBoston of $6.75
million from a portion of the net proceeds of the Offerings.
(i) Represents the repurchase of warrants that entitled the holders thereof
to purchase 71.43 shares of HVE Common Stock, or 6.25% of HVE's Common
Stock on a fully diluted basis. In connection with the issuance of the
Subordinated Notes in May 1996, the Company issued to the holders
thereof warrants (the "Subordinated Notes Warrants") to purchase 142.86
shares of HVE Common Stock, representing 12.5% of the fully-diluted HVE
Common Stock.
(j) The Merger Consideration paid at the closing date of the Transactions,
after adjustment, of approximately $54.5 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
officers, directors and employees of, and consultants to, PHI in
exchange for their capital stock and options to purchase capital stock
of PHI. These estimated payments do not include post-closing
adjustments which may be required. See "The Transactions -- The Merger"
and "Certain Relationships and Related Transactions."
(k) Represents a distribution to Letitia Corporation of up to $2.25 million
to fund the intended purchase of Letitia Common Stock held by the High
Voltage Engineering Corporation Retirement Plan representing up to 10%
of the outstanding Letitia Common Stock, and a $150,000 proportional
accrual relating to the Subordinated Notes Warrants not repurchased
with a portion of the net proceeds of the Offerings.
24
<PAGE> 27
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the consolidated capitalization of High
Voltage Engineering Corporation and subsidiaries as of 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) --
Redeemable put warrants ............ 5,000 -- (2,500) 2,500
-------- -------- --------- ---------
Total debt ............... 93,438 17,505 48,192 159,135
-------- -------- --------- ---------
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) --
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.
25
<PAGE> 28
(e) Other debt is comprised of capital leases, industrial revenue bonds
("IRBs"), mortgage notes, notes payable, the foreign credit line and
the Perkin-Elmer Note.
(f) The Subordinated Notes were issued at a price of 82.086% of the
principal amount thereof. The initial carrying value also reflected an
additional discount related to the value allocated to redeemable put
warrants (the "Subordinated Notes Warrants") issued in connection
therewith.
(g) 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.
26
<PAGE> 29
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Condensed Consolidated Balance Sheet
presents the pro forma financial position of the Company as if the Transactions
had occurred on 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.
27
<PAGE> 30
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 7,900 (e) 48,724
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 ............ -- -- 8,123 (e) 8,123
-------- ------- -------- --------
$112,446 $45,860 $ 32,545 $190,851
======== ======= ======== ========
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
REDEEMABLE PUT WARRANTS .......................... 5,000 -- (2,500)(c) 2,500
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 -- 6,437 (e) 7,583
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)
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 $ 32,545 $190,851
======== ======= ======== ========
</TABLE>
See accompanying Notes to Unaudited Pro Forma
Condensed Consolidated Balance Sheet.
28
<PAGE> 31
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF 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>
- ----------
29
<PAGE> 32
(i) The proceeds from the Units sold in the Offering, excluding
the $2.2 million of proceeds from the Common Shares, which
have been allocated by the Company between the Series A
Preferred Stock ($30,800) and the Warrants ($2,200) based on
the initial estimated value of such Warrants at the Issue
Date. The initial estimated value of such Common Shares,
Series A Preferred Stock and Warrants are based on preliminary
evaluations by the Company and are subject to change.
(ii) Cash consideration paid to the holders of PHI capital stock
and holders of options to purchase capital stock includes
transaction fees and expenses of approximately $1.2 million.
In addition, the Company may be required to pay to the former
shareholders of PHI contingent consideration in an amount
equal to (1) income tax refunds, if any, that the Company
receives after closing of the Merger for taxes paid by PHI for
periods prior to the closing of the Merger and (2) an amount
in cash equal to the amount, if any, by which the cash and
cash equivalents of PHI on the closing date exceed its cash
and cash equivalents on July 31, 1997. (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):
30
<PAGE> 33
<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).......................... 7,900
Write-up of PHI inventory (iii)............................ 1,000
Deferred tax liability arising from the Merger ............ (6,437) 29,258
------- -------
Cost in excess of net assets acquired................ $ 8,123
=======
</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.
31
<PAGE> 34
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 26, 1997
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------------- ---------------------------
HVE(a) PHI(b) ADJUSTMENTS COMBINED
-------- ---------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales ...................................... $173,103 $64,752 $237,855
Cost of sales .................................. 114,848 39,641 $ (43)(c) 155,604
1,000 (d)
158 (g)
-------- ------- -------- --------
Gross profit .............................. 58,255 25,111 (1,115) 82,251
Administrative and selling expenses ............ 36,967 10,251 (24)(c) 48,396
407 (e)
618 (f)
177 (g)
Research and development expenses .............. 9,361 7,286 (15)(c) 16,632
Reimbursed environmental and litigation
costs-net .................................... 26 -- 26
Other .......................................... 2,234 408 2,642
-------- ------- -------- --------
Income from operations .................... 9,667 7,166 (2,278) 14,555
Interest expense ............................... 11,989 1,821 3,714 (h) 19,724
2,200 (i)
Interest income ................................ (351) (67) (418)
-------- ------- -------- --------
Income (loss) from continuing operations
before income taxes and extraordinary
item .................................... (1,971) 5,412 (8,192) (4,751)
Income taxes ................................... 526 1,578 -- (j) 2,104
-------- ------- -------- --------
Income (loss) from continuing operations
before extraordinary item ............... (2,497) 3,834 (8,192) (6,855)
Preferred dividend requirement ............ (479) -- (3,763)(k) (4,242)
-------- ------- -------- --------
Income (loss) available to common
stockholders before extraordinary item ....... $ (2,976) $ 3,834 $(11,955) $(11,097)
======== ======= ======== ========
Ratio of earnings to fixed charges(l) .......... -- --
Adjusted EBITDA data(m):
Income from operations ....................... $ 9,667 $ 7,166 $ (2,278) $ 14,555
Reimbursed environmental and litigation
costs-net ................................. 26 -- -- 26
Other ........................................ 2,234 408 -- 2,642
Depreciation and amortization ................ 4,376 2,595 943 7,914
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.
32
<PAGE> 35
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 $ (81)(c) 43,473
------- ------- ------- -------
Gross profit .............................. 15,910 7,903 81 23,894
Administrative and selling expenses ............ 10,510 3,005 (44)(c) 13,728
102 (e)
155 (f)
Research and development expenses .............. 2,348 2,065 (28)(c) 4,385
Reimbursed environmental and litigation
costs - net .................................. 45 -- 45
Other .......................................... (98) 135 37
------- ------- ------- -------
Income from operations .................... 3,105 2,698 (104) 5,699
Interest expense ............................... 5,825 383 269 (h) 6,477
Interest income ................................ (40) (29) (69)
------- ------- ------- -------
Income (loss) from continuing operations
before income taxes and extraordinary
item .................................... (2,680) 2,344 (373) (709)
Income taxes ................................... 270 698 -- (j) 968
------- ------- ------- -------
Income (loss) from continuing operations
before extraordinary item (2,950) 1,646 (373) (1,677)
Preferred dividends ....................... (128) -- (933)(k) (1,061)
------- ------- ------- -------
Income (loss) available to common
stockholders before extraordinary item ....... $(3,078) $ 1,646 $(1,306) $(2,738)
======= ======= ======= =======
Ratio of earnings to fixed charges(l) .......... -- --
Adjusted EBITDA data(m):
Income from operations ....................... $ 3,105 $ 2,698 $ (104) $ 5,699
Reimbursed environmental and litigation
costs - net ............................... 45 -- -- 45
Other ........................................ (98) 135 -- 37
Depreciation and amortization ................ 1,196 653 104 1,953
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)
Investing 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.
33
<PAGE> 36
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 26, 1997 AND
THE THREE MONTHS ENDED JULY 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 the fixed
assets acquired and their estimated remaining service lives as of
April 26, 1997. 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 $43 and $81 to cost
of sales, $24 and $44 to administrative and selling expenses and $15
and $28 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 $407 and $102 of estimated amortization of cost in excess of
net assets acquired, totaling $8.1 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
Accretion of redeemable put warrants.............. 2,587 2,200
Amortization of deferred financing
costs.......................................... 729 182
-------- ------
Total pro forma interest
expense...................................... 19,724 6,477
Less:
Historical HVE interest expense................... 11,989 5,825
Historical PHI interest expense................... 1,821 383
-------- ------
Total historical interest expense................... 13,810 6,208
-------- ------
Total pro forma interest expense
adjustment........................................ $ 5,914 $ 269
======== ======
</TABLE>
- ---------
34
<PAGE> 37
(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) 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.
(j) 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.
(k) 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.
(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 often used as a measurement in evaluating companies.
In particular, since Adjusted EBITDA excludes the non-recurring items
described above, the Company believes that trends in Adjusted EBITDA
may provide meaningful information as to the Company's ability to
satisfy its cash requirements on an on-going basis. 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 and analysis
of changes in Adjusted EBITDA in recent periods. 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.
35
<PAGE> 38
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) (11,989)
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) (1,971)
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) (2,497)
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 $ (2,756)
========= ========= ========= ========= =========
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 flow provided by (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) (5,825)
Interest income ............................................... 54 40
Income (loss) from continuing operations before income taxes,
discontinued operations and extraordinary item ............ 17 (2,680)
Income taxes (credit) ......................................... 7 270
--------- ---------
Income (loss) from continuing operations before discontinued
operations and extraordinary item ........................... 10 (2,950)
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) $ (2,950)
========= =========
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.
36
<PAGE> 39
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 often used as a measurement in evaluating companies. In
particular, since Adjusted EBITDA excludes the non-recurring items
described above, the Company believes that trends in Adjusted EBITDA
may provide meaningful information as to the Company's ability to
satisfy its cash requirements on an on-going basis. 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 and
analysis of changes in Adjusted EBITDA in recent periods. 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.
37
<PAGE> 40
(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.
38
<PAGE> 41
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 Selected Historical
Consolidated Financial Data for the fiscal years ended June 25, 1993 and June
25, 1994 are primarily derived from unaudited divisional financial statements of
the Physical Electronics division of Perkin-Elmer. For this reason and the
additional reason described in Note (a) below, such data for those two fiscal
years may lack comparability with the data for the three subsequent fiscal
years. 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 25, JUNE 25, JUNE 30, JUNE 28, JUNE 27,
1993(a) 1994(a) 1995 1996 1997
-------- -------- -------- -------- --------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ................................... $45,205 $48,315 $54,764 $58,074 $67,819
Cost of sales ............................... 28,488 30,044 34,244 35,740 42,740
------- ------- ------- ------- -------
Gross profit .............................. 16,717 18,271 20,520 22,334 25,079
Administrative and selling expenses(b) ...... 10,496 9,178 9,374 10,046 10,678
Research and development expenses ........... 5,415 6,012 6,197 6,333 7,902
Equity in earnings of joint venture(c) ...... (178) (725) (337) (206) 11
------- ------- ------- ------- -------
Operating income .......................... 984 3,806 5,286 6,161 6,488
Interest expense ............................ -- -- (1,855) (1,827) (1,693)
Interest income ............................. -- -- 89 137 48
------- ------- ------- ------- -------
Income before income taxes ................ 984 3,806 3,520 4,471 4,843
Income tax expense .......................... -- -- 812 1,496 1,403
------- ------- ------- ------- -------
Net income .................................. $ 984 $ 3,806 $ 2,708 $ 2,975 $ 3,440
======= ======= ======= ======= =======
BALANCE SHEET DATA (AT PERIOD END):
Working capital ............................. $12,615 $12,052 $14,123 $16,037 $17,332
Total assets ................................ 36,603 34,227 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(d) .......................... $ 2,559 $ 5,225 $ 7,064 $ 8,180 $ 9,538
Depreciation, amortization and other non-cash
transactions .............................. 1,753 2,144 2,115 2,225 2,769
Capital expenditures ........................ 1,832 1,796 2,596 2,814 3,309
Backlog ..................................... 9,852 14,745 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) Financial data available for PHI for the fiscal years ended June 25,
1993 and June 25, 1994 consist of 11 months and 12 months,
respectively. Financial data for the fiscal year ended June 25, 1994
exclude purchase accounting adjustments of $1.3 million related to the
acquisition of the Physical Electronics division of Perkin-Elmer.
(b) 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.
(c) 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.
39
<PAGE> 42
(d) 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 often 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.
40
<PAGE> 43
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 37), 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 37) 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 believes that the most important of these tests is the
calculation of cycle time, which is the time necessary to complete certain
strategic business processes. The Company specifically measures the cycle time
for obtaining new customers, order fulfillment and new product development and
views the compression of cycle time as a point of market differentiation.
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Between Fiscal 1995 and Fiscal 1997, the Company's operating units have
invested $25.5 million in research and development and $20.1 million in capital
expenditures primarily to facilitate growth. Such research and development
expenditures have resulted in innovative new products such as Robicon's Perfect
Harmony series of medium voltage VFDs, Datcon's Intellisensor(TM) fuel
measurement systems, Natvar's bonded tri-layer 151 tubing and numerous
applications-engineered products for Anderson's customers. As a result of the
capital expenditures incurred since the beginning of Fiscal 1995, the majority
of which funded the construction of new manufacturing facilities and the upgrade
of existing facilities, management currently believes that the Company's capital
expenditures in the fiscal year ending April 1998 will primarily fund planned
maintenance, including information technology investments, although the Company
may invest in information technology and additional manufacturing capacity if
necessitated by sales volume increases.
Since January 1992, the Company has replaced the senior management at
all of its operating units, in addition to hiring a new Chief Operating Officer;
Chief Financial Officer; Vice President, Financial Operations; and Vice
President, Human Relations.
SEASONALITY; VARIABILITY OF OPERATING RESULTS
The majority of the Company's operating units have historically
recorded the strongest operating results in the fourth quarter of the fiscal
year due in part to seasonal considerations and other factors, although in
recent years, seasonal fluctuations have been partially mitigated by overall
business growth.
The timing of orders placed by the Company's customers has varied with,
among other factors, the introduction of new products, product life cycles,
customer attempts to manage inventory levels, competitive conditions, general
economic conditions and the funding of scientific and educational research. The
variability of the level and timing of orders has, from time to time, resulted
in significant periodic and quarterly fluctuations in the operations of the
Company's operating units. Such variability is particularly evident at HVE
Europa, which ships on average four particle accelerator systems per year. These
systems are typically sold for between $1.0 million and $2.0 million each and
have long lead times. As a result, the timing of HVE Europa's shipments within
any fiscal year can have a material impact on an individual quarter's results.
RESTRUCTURING CHARGES
Restructuring costs declined from $1.3 million in Fiscal 1995 to
$150,000 in Fiscal 1996. The Fiscal 1995 provision included costs related to the
closing of an excess manufacturing facility, costs related to the consolidation
of the operations of this manufacturing facility into another existing facility,
and the write-off of the cumulative foreign currency translation adjustment
resulting from the liquidation of a subsidiary of HVE Europa. The Fiscal 1996
provision reflected the closure of a sales office in Europe.
REIMBURSED ENVIRONMENTAL AND LITIGATION COSTS - NET
The Company has, from time to time, received cash settlements and
insurance recoveries relating to environmental litigation, remediation and
consequential damages incurred in connection with properties formerly owned or
leased by the Company. The Company recorded net gains of $2.1 million, $450,000
and $351,000 for Fiscal 1995, Fiscal 1996 and Fiscal 1997, respectively, net of
actual legal costs, estimated settlement costs and changes in cost remediation
estimates, on cash recoveries of $2.3 million, $1.5 million and $1.1 million,
respectively, for such years. These cash recoveries have generally been received
from insurance companies in reimbursement of costs previously incurred, or
scheduled to be incurred, by the Company in remediation efforts or the payment
of damages to third parties, from other responsible or potentially responsible
parties in settlement of potential claims relating to remediation
responsibilities, and from the recovery of expenses incurred both in the
recovery of such amounts and the remediation of affected properties. See
"Business -- Environmental and Insurance Matters."
OTHER
Other expenses in Fiscal 1995 were primarily related to a $0.8 million
provision to write down certain assets held for sale to estimated net realizable
value and costs incurred by Anderson to move into another existing facility.
Other expenses in Fiscal 1996 included a $1.2 million provision to write down
certain assets held for sale to estimated net realizable value and costs
incurred by Robicon to move to a newly constructed facility, which were
partially offset by a net gain on the sale of vacant land and income from
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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. 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 40)from $54.8 million and $7.1 million,respectively,
for the fiscal year ended June 30, 1995 to $64.8 million and $10.4 million,
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respectively, for the LTM period ended March 28, 1997. PHI's EBITDA margin also
increased from 12.9% for the fiscal year ended June 30, 1995 to 16.1% for the
LTM period ended March 28, 1997.
The Company does not believe that there will be significant cost
savings or integration costs as a result of the Merger, as PHI will be operated
as a stand-alone operating unit.
The Company believes that PHI has the leading market share in Auger,
ESCA and TOF-SIMS and the second largest market share in Dynamic SIMS. The
capital outlay required to purchase advanced surface analysis instruments
(ranging from approximately $250,000 to $1.5 million) leads to careful
consideration by potential purchasers not only of product reliability and
performance, but also availability and quality of technical support and
training, factors which the Company believes favor PHI and enable it to realize
a pricing premium over competitors' comparable products. For the LTM period
ended March 28, 1997, PHI had a gross margin of 38.8% and an EBITDA margin of
16.1%. Pro forma for the Merger, the Company's gross margin and EBITDA margin
for Fiscal 1997 would have been 34.9% and 11.1%, respectively, as compared to
33.7% and 9.4% on a historical basis.
In recent years, PHI's shipments have increased to approximately 70
systems per year plus ongoing services and complementary components and hardware
options. Due to the relatively large capital outlay required to purchase PHI's
surface analysis instruments, the limited quantity sold every year and the
timing of shipments, the acquisition of PHI may increase the variability of the
Company's quarterly operating results. PHI incurs significant research and
development expenses due to the high technology content of PHI's surface
analysis instruments and PHI's growth strategy of increasing sales through
identification of new applications for its existing products, enhancements in
the technological capability of its instruments, development of
application-specific hardware configurations for its instruments and continued
improvement in operating ease and efficiency of its instruments through
increased automation and software development. In recent years, such initiatives
have resulted in the development of innovative products especially suitable for
applications in high growth end markets such as the semiconductor fabrication
industry. PHI's research and development expenses represented 11.3% of net sales
for the LTM period ended March 28, 1997 as compared to 5.4% of net sales for the
Company in Fiscal 1997.
RESULTS OF OPERATIONS
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 uninterruptible 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.
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. The excess of this increase over the increase in HVE's income from
operations for the same periods is primarily attributable to the exclusion from
Adjusted EBITDA for the first quarter of Fiscal 1998 of non-recurring severance
payments of $166,000 to certain former senior executives in that quarter.
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 $3.2 million, or 120.3%, to $5.8 million in
the first quarter of Fiscal 1998 due to an accrual of $2.2 million related to
the accretion of redeemable put warrants and $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
$3.0 million to a loss of $3.0 million 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 $3.0 million 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 Rupia 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 Europe. Gross margin declined from 34.7% to 33.7%
primarily due to the shipment by Robicon of certain higher cost prototype units
for new applications, the investment in a leased facility (a technical center
for new applications) at Anderson and the inclusion of the first full year of
costs of Natvar's Colorado facility.
Administrative and selling expenses increased $2.1 million, or 5.9%,
primarily due to a $1.6 million increase at Robicon due to increased commissions
and other selling and administrative costs attributable to higher sales levels.
Administrative and selling expenses declined as a percentage of net sales from
23.4% to 21.4% during the periods compared, including a decline from 21.9% to
16.7% at Robicon.
Research and development expenses increased $1.3 million, or 16.0% from
$8.1 million to $9.4 million, which was primarily attributable to new product
investments at Robicon, as well as volume related applications engineering to
support the aforementioned sales increase at Robicon. Such expenses remained
unchanged as a percentage of net sales at 5.4%.
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Depreciation and amortization from continuing operations increased from
$3.6 million to $4.4 million as a result of continued capital investment in
automation at Anderson and Datcon as well as a full year of depreciation in
connection with a new facility at Natvar.
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.
Adjusted 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 excess of this
increase in income from operations for the same periods is primarily
attributable to the higher level of restructuring and other charges excluded
from Adjusted EBITDA in Fiscal 1997, as described in the immediately preceding
paragraph.
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 $764,000 from $11.2 million in Fiscal 1996
to $12.0 million in Fiscal 1997 due to higher average interest rates in Fiscal
1997 and accretion of redeemable put warrants 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 $2.0
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
$2.0 million to a loss of $2.5 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 $2.8 million in Fiscal 1997.
Fiscal 1996 Compared to Fiscal 1995
Net sales increased $32.5 million, or 27.9%, from $116.6 million in
Fiscal 1995 to $149.1 million in Fiscal 1996. This increase included a $16.1
million, or 40.1%, increase at Robicon, excluding sales from divested product
lines of $345,000, due to increased sales of medium voltage VFDs, as well as an
increase of $11.0 million at Datcon attributable to the inclusion of sales
generated by Jorda for an entire fiscal year. Excluding sales from divested
product lines totaling $1.4 million in Fiscal 1995, net sales increased at
Anderson by $3.4 million, or 18.6%, primarily as a result of increased power
connector sales for new applications, market growth (particularly in Europe),
new market penetration and price increases. General Eastern's net sales
increased $1.9 million, or 18.8%, primarily due to higher calibration and
service revenues. HVE Europa's net sales increased $1.7 million, or 21.0%, in
Fiscal 1996 as compared to Fiscal 1995, primarily due to higher average selling
prices, as well as increased sales of component parts. Fiscal 1996 net sales at
Natvar were generally flat compared to the prior year.
Gross profit increased $8.6 million, or 19.9%, from $43.1 million
during Fiscal 1995, to $51.7 million in Fiscal 1996. This increase was primarily
attributable to the higher sales volumes discussed above. Gross margin decreased
from 37.0% to 34.7%, primarily as a result of: (i) a reduction in gross margin
at Natvar from 30.9% to 23.4% in Fiscal 1996 resulting from pricing pressures
and new plant start-up costs; (ii) a reduction in gross margin at Datcon from
36.3% to 28.9% in Fiscal 1996 resulting from plant
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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.
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.
Adjusted 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 excess of this
increase over the decrease in income from operations for the same periods is
primarily attributable to the higher level of restructuring and other charges
excluded from Adjusted EBITDA in Fiscal 1996, as described in the immediately
preceding paragraph.
As a result of the factors described above, income from operations
decreased $1.0 million, from $8.9 million in Fiscal 1995 to $7.9 million in
Fiscal 1996.
Interest expense increased $2.7 million from $8.6 million in Fiscal
1995 to $11.2 million in Fiscal 1996 due to an increase in CIP expense, the full
year impact of indebtedness incurred in connection with the Jorda acquisition
and the construction of a new manufacturing facility for Robicon, as well as
slightly higher interest rates.
As a result of the above items, the Company recorded income from
continuing operations before income taxes, discontinued operations and
extraordinary item of $365,000 in Fiscal 1995, as compared to a loss of $3.1
million in Fiscal 1996.
In Fiscal 1995, the Company had income tax expense of $196,000 compared
to an income tax credit of $2.6 million in Fiscal 1996, which was largely
attributable to a Fiscal 1996 reversal of a tax reserve previously accrued in
connection with a federal tax audit of prior years.
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The Company recorded income from discontinued operations net of income
taxes of $276,000 in Fiscal 1995 including the net loss on disposal of the
Berger and Shore operating units as compared to income of $1.5 million in Fiscal
1996, net of income taxes, including a gain on disposal of the Specialty
Connector operating unit.
In Fiscal 1996, the Company recorded an extraordinary loss of $422,000
on debt extinguishment, net of income taxes.
The foregoing factors contributed to an increase in net income from
$445,000 in Fiscal 1995 to $0.6 million in Fiscal 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs are primarily for working capital and
capital expenditures. The Company's primary sources of liquidity have been funds
provided by operations, proceeds from the sale of discontinued operations and
asset sales and proceeds from financing activities. On August 8, 1997, the
Company entered into a $25.0 million New Revolving Credit Facility which is
being used primarily to fund the Company's working capital requirements and has
a $5.0 million sublimit for the issuance of standby letters of credit. The New
Revolving Credit Facility has a term of five years and replaces the $20.0
million Existing Revolving Credit Facility. Borrowings outstanding under the New
Revolving Credit Facility as of August 8, 1997 were $8.5 million. The New
Revolving Credit Facility contains covenants restricting the ability of the
Company's operating units to, among other things, pay dividends or make other
restricted payments to the Company. See "Description of Other Indebtedness and
Obligations --New Revolving Credit Facility."
On August 8, 1997, the Company completed a private placement of
$135,000,000 in Existing Notes, $35,200,000 in Units consisting of Series A
Preferred Stock, Common Stock and Common Stock Warrants. A portion of the net
proceeds of the Offering was used to repay existing indebtedness described
below, including accrued and unpaid interest thereon and associated prepayment
penalties. In connection with the issuance of the Series A Preferred Stock, the
Company issued to the holders thereof warrants representing 6.6% of the
fully-diluted HVE Common Stock.
On May 9, 1996, the Company entered into the Existing Revolving Credit
Facility and the $10.0 million Senior Term Loan and completed a private
placement of $20.0 million of Senior Secured Notes, $7.0 million of Senior
Unsecured Notes and $25.0 million principal amount of Subordinated Notes (issued
at 82.086% of the principal amount thereof), the net proceeds of which were used
to refinance existing indebtedness. In connection with the issuance of the
Subordinated Notes, the Company issued to the holders thereof warrants (the
"Subordinated Notes Warrants") representing 12.5% of the fully-diluted HVE
Common Stock. The holders of such warrants have the right, after May 1, 2000, to
require the Company to purchase all or any portion of such warrants or any
shares of HVE Common Stock issued upon exercise of such warrants at the greater
of (i) a valuation prepared by an independent financial advisor or (ii) a
formula value calculated as 8.0x the Company's EBITDA (as defined therein) less
preferred stock and debt outstanding plus excess cash. The Company used $2.5
million of the net proceeds of the Offerings to repurchase Subordinated Notes
Warrants representing 6.25% of the fully-diluted HVE Common Stock.
For the third and fourth quarters of Fiscal 1997, the Company was not
in compliance with certain of its financial covenants contained in the Existing
Revolving Credit Facility, Senior Term Loan, Senior Secured Notes, Senior
Unsecured Notes and Subordinated Notes due primarily to costs incurred in
connection with an aborted acquisition and related offering costs. These
technical covenant breaches did not create an event of default whereby the
lenders could declare all outstanding balances due and payable, terminate all
available commitments or enforce their rights under all security arrangements.
The Company has received waivers with respect to such covenant defaults and all
such indebtedness was repaid in full, together with accrued and unpaid interest
and prepayment penalties, with the net proceeds of the Offerings.
During the same time period, the Company was also not in compliance
with certain of the financial covenants contained in the PEDFA IRB (as defined
herein) as a result of the factors described above; however the Company has
received a waiver with respect to such defaults. Additionally, if the waivers
discussed above had not been obtained one of the Company's lessors could have
declared a default under leases of certain of its properties in Lancaster,
Pennsylvania and Sterling, Massachusetts.
Pro forma for the consummation of the Transactions, as of 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.
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The Company does not anticipate any significant principal payment
obligations under any of its outstanding indebtedness prior to maturity of the
Notes except with respect to the New Revolving Credit Facility which has a term
of five years. The ability of the Company to satisfy its obligations under
existing indebtedness and preferred stock will be primarily dependent upon the
future financial and operating performance of its operating units and upon the
Company's ability to renew or refinance borrowings or to raise additional equity
capital as necessary.
The Company's working capital was $10.7 million, $11.9 million, $9.4
million and $12.1 million at April 29, 1995, April 27, 1996, April 26, 1997 and
the three months ended July 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. The $2.7 million increase from April 26, 1997 to July 26,
1997 resulted from (i) a decrease in Accounts Payable of $1.6 million primarily
relating to the timing of supplier deliveries and payments at Robicon, (ii) a
decrease of $500,000 in federal, foreign, and state income taxes payable and
deferred income taxes primarily resulting from tax payments of $700,000 in
excess of tax provisions and (iii) decreases in accrued interest and other
accrued liabilities related to the timing of interest and other payments. After
giving effect to the Merger, the Company's pro forma working capital at July 26,
1997 would have increased by $36.5 million. Cash and cash equivalents of $1.4
million on the Company's balance sheet as of July 26, 1997, unadjusted for the
Transactions, excludes $2.0 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. The net cash used in operating
activities for the three months ended July 26, 1997 was $3.1 million. This
decrease was primarily in working capital and attributable to the decrease in
accounts payable and federal, foreign, and state income taxes payable described
above.
As of April 29, 1995, April 27, 1996, April 26, 1997 and July 26, 1997,
the Company had assets held for sale, consisting of several former manufacturing
facilities, of $6.4 million, $6.2 million, $5.2 million, and $5.2 million
respectively. These properties are recorded at the carrying amount or fair value
less selling costs. The Company believes it is possible that the proceeds from
the sale of these properties will differ significantly from the carrying amount
and additional losses may then be recorded. During Fiscal 1995 and Fiscal 1996,
the Company recorded provisions of $0.8 million and $1.2 million, respectively,
to write down the value of certain former manufacturing facilities. During
Fiscal 1996, the Company reclassified to assets held for sale a former
manufacturing facility valued at $1.2 million, which was retained in the sale of
the Specialty Connector operating unit.
Net cash used in investing activities in Fiscal 1995 was $12.3 million
due primarily to the $10.0 million of capital expenditures (including $0.8
million related to discontinued operations and leased asset additions) and the
$5.9 million investment to acquire Jorda in Fiscal 1995. In Fiscal 1996, net
cash provided by investing activities was $5.7 million, due primarily to
approximately $11.0 million of proceeds from the sale of the Specialty Connector
operating unit partially offset by $6.0 million in capital expenditures
(including leased asset additions) in Fiscal 1996. The Company incurred capital
expenditures of $10.0 million (including $0.8 million related to discontinued
operations and leased asset additions) in Fiscal 1995, including $6.6 million
for a new manufacturing facility for Robicon compared to $6.0 million of capital
expenditures (including leased asset additions) in Fiscal 1996. Net cash used
in investing activities increased in Fiscal 1997 to $3.1 million 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. Net cash used in investing activities for the three months ended
July 26, 1997 was $700,000. This decrease was primarily due to capital
expenditures at Datcon, Natvar, Anderson, and General Eastern for information
technology upgrades, new products and productivity programs. Although the
Company believes that a significant portion of future capital expenditures will
be used to fund planned maintenance of facilities and equipment, the Company may
require additional capital expenditures to support growth at certain of its
operating units. The Company expects to make capital expenditures (including
leased asset additions) of $7.5 million in its fiscal year ending April 1998.
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Net cash provided by financing activities increased from $1.2 million
in Fiscal 1995 to $1.9 million in Fiscal 1996, primarily due to the issuance of
long-term obligations and the cash overdraft which was partially offset by
payments on certain long-term obligations and decreases in restricted cash. Net
cash provided by financing activities was $1.9 million for Fiscal 1996 and
Fiscal 1997, which included a refinancing of a majority of the Company's
long-term obligations in Fiscal 1997. For the three months ended July 26, 1997,
net cash provided by financing activities increased to $3.8 million primarily
due to the timing of supplier deliveries and payments, tax payments,
transaction costs, and prepaid vacation payments in Europe.
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 35). 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 (as defined in note (m) on page 35) 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, beginning 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.
BUSINESS STRATEGY
The Company's business strategy is to increase the sales and profitability
of its existing businesses and to build upon their inherent competitive
strengths. The Company applies a consistent operating strategy to its individual
operating units, key elements of which include:
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- Focus on Applications-Engineered Products. The Company's products are
typically engineered based upon specific customer applications. The
Company seeks to involve its customers at an early stage of the product
development process in order to jointly design new products and to
improve existing ones. In certain instances, this process has resulted
in the Company becoming a sole source supplier. The Company believes
that this strategy has led to incremental long-term business with key
customers and the addition of new customers.
- Integrated Product Development. The Company seeks to develop new
products and find new applications for existing products through an
integrated product development process that involves cross-functional
teams including engineering, manufacturing and marketing personnel. As a
result, the Company believes that it is able to design and manufacture
products that address specific customer needs and can be manufactured
efficiently, cost-effectively and on a timely basis.
- Focus on Core Competencies. The Company believes that its core
competencies are the design, engineering and assembly of
applications-engineered products. As part of its focus on these core
competencies, the Company has eliminated certain ancillary functions
performed by certain of its operating units over the last several years
including printed circuit board assembly, machining and metal stamping
and plating.
- Commitment to Process Re-engineering and Total Quality. The Company
maintains process re-engineering and Total Quality programs at each of
its operating units, which it began implementing in 1993. These programs
have enabled the Company to improve product quality, increase
manufacturing efficiency and productivity, reduce product lead and cycle
times and reduce the relative amount of working capital invested in its
businesses.
- Decentralized Management of Operating Units. The Company's operating
units are managed on a decentralized basis by senior managers who apply
a consistent operating strategy, while a small corporate staff provides
strategic direction and support. As a result of the discrete nature of
the Company's operating units, the Company has been able to sell
businesses or product lines on an opportunistic basis. For example,
since 1988, the Company has divested 12 businesses that generally lacked
some or all of the competitive strengths common to its current operating
units.
Acquisitions are also an important part of the Company's growth strategy.
The Company seeks to supplement its internal growth with selected add-on
acquisitions of businesses that are complementary to its existing operating
units. In recent years, both Robicon and Datcon have successfully completed and
integrated such add-on acquisitions. In addition, the Company seeks to acquire
middle market manufacturing businesses to operate on a stand-alone basis, such
as PHI, that possess competitive strengths similar to those of its existing
businesses.
THE OPERATING UNITS
The Company conducts its business through seven independent operating units,
Robicon, PHI, Datcon, Anderson, Natvar, General Eastern and HVE Europa, each of
which has its own management team and manufacturing facilities and maintains its
own independent market identity. A discussion of the businesses conducted by
each of the operating units follows.
ROBICON
Robicon is a leading designer and manufacturer of high power conversion
products, which are used to regulate electric power, reduce energy costs and
improve process control in a wide variety of industrial applications. Products
include variable frequency drives ("VFDs") for large electric motors and power
control systems for other applications. These products are used in process
automation, freshwater and wastewater treatment, oil and gas extraction and
transmission, petrochemical processing, silicon processing, glass manufacturing,
cement production and other general industrial applications. In general,
Robicon's products are designed to provide highly engineered solutions to
specific customer requirements by utilizing a combination of standard product
platforms and options, with customized features. Robicon's growth strategy is to
increase sales of existing product lines through entrance into new end markets
and international expansion, and to add products and services complementary to
its existing product lines. The Company believes that Robicon is able to
differentiate itself from its competitors through the use of proprietary
technology, innovative product development, superior customer service, and the
ability to offer applications-engineered solutions based on standard products.
Robicon's headquarters are located in New Kensington, Pennsylvania, a facility
opened in Fiscal 1996. For Fiscal
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1997, Robicon had net sales of $83.1 million, which represented 34.9% of the
Company's consolidated net sales for such period, pro forma for the Merger.
Products
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
semiconductor devices, including photoresist used in semiconductor device
manufacturing, which may affect production yields. PHI's TOF-SIMS products are
also sold for use in a variety other industries, including polymers, computer
peripherals and biomaterials. Applications include the process development of
the application of thin films on printer paper
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and lubricants on computer hard disks. In 1994, PHI introduced the TRIFT II, a
new TOF-SIMS instrument which may be configured to analyze every point on an
8-inch semiconductor wafer.
PHI's Dynamic SIMS surface analysis instruments direct a highly focused
continuous beam of ions onto a sample, which causes other ions to be emitted
from the sample surface. Because the mass of such ions is unique to the material
from which they were emitted, it may be measured to identify the elements
present. In general, Dynamic SIMS is used to examine inorganic samples. PHI's
Dynamic SIMS instruments are capable of detecting trace impurities with a
sensitivity of greater than one part per billion, although without the chemical
sensitivity of PHI's TOF-SIMS instruments. While PHI's Dynamic SIMS instruments
are well-suited to a variety of applications, they are predominantly used in
central support laboratories in the semiconductor industry for process control
to monitor the precise elemental composition of semiconductor devices and in
quality control to identify contaminants that may affect yields in semiconductor
fabrication. Because the ion beam in PHI's Dynamic SIMS instruments removes the
surface layer of a material under investigation, depth profiles are generated as
a result of the operation of the instrument. This is in contrast to PHI's other
surface analysis instruments in which an additional ion beam is required to
remove successive layers of material. The 6650 Dynamic SIMS is PHI's standard
model. In 1997, PHI intends to introduce the 6800 Dynamic SIMS instrument, which
has the ability to analyze every point on an 8-inch semiconductor wafer. All of
PHI's Dynamic SIMS surface analysis instruments are designed for ease of use and
rapid sample change for efficiency of sample analysis in industrial
applications.
Markets and Customers
PHI markets and sells its surface analysis instruments worldwide, with Japan
representing its largest market and North America its second largest market. The
Company believes that demand for advanced surface analysis instruments will
increase most rapidly in Asia and the Pacific Rim region over the next several
years due primarily to an increased level of semiconductor fabrication facility
construction in those regions.
Historically, customers have operated PHI's surface analysis instruments
primarily in industrial central support laboratories for research and
development, pre-production testing of pilot processes, materials
characterization and process control and verification, typically where
understanding the elemental and/or chemical composition of a material's surface
is critical to product or process development. In addition, the Company believes
that production support applications, such as failure analysis, defect review
and quality control, represent an important growth area, particularly in
semiconductor fabrication. PHI's surface analysis instruments are also used by
universities and government institutions for materials science research.
Due to the diversity of applications for PHI's surface analysis instruments,
PHI is not dependent on sales to customers in any single industry. PHI's
products are suitable for a wide variety of applications without the need for
customization or modification. This versatility of function permits PHI to
respond quickly to changes in the marketplace that favor new technologies or
demonstrate new applications. In addition, PHI has the ability to tailor each
surface analysis instrument to specific applications through changes in hardware
configuration, software customization and varying degrees of automation of
operation in response to industry-specific demands or customer requirements.
PHI's customer base is principally comprised of industrial laboratories,
OEMs and research facilities, including those associated with universities and
government institutions. Demand for PHI's products is driven by the need for
precise chemical and/or elemental analysis of materials. Some of PHI's customers
include Advanced Micro Devices, Alcoa, DuPont, Hewlett-Packard, IBM, Matsushita,
Motorola, Nippon Steel, Samsung, Seagate, Siemens, Texas Instruments, Toshiba
and numerous universities and government institutions worldwide. PHI seeks to
cultivate long-term relationships with its various customers through the
continuous provision of post-sale technical support and on-site training of new
users of PHI's installed base of surface analysis instruments.
Sales and Marketing
PHI markets its products domestically and internationally on the basis of
product performance and quality, availability and quality of after-sales
support, and industry reputation in the manufacture of advanced surface analysis
instruments. The significant cost of surface analysis instruments (ranging from
approximately $250,000 to $1.5 million) leads to careful consideration among
potential purchasers not only of product reliability and performance, but also
availability and quality of technical support and training, factors which the
Company believes favor PHI and enable it to realize a pricing premium over
competitors' comparable products.
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PHI's experienced and technically-oriented sales force is organized
geographically and consists of teams responsible for North America, Japan, the
Pacific Rim region and Europe. Technical service personnel (most of whom are
scientists and engineers) are decentralized within each region and strategically
situated in close proximity to major customers. PHI presently has a 50% interest
in a joint venture with ULVAC, a Japanese company, which resells and services
PHI's surface analysis instruments in the Japanese market. This joint venture
(ULVAC-PHI) has enabled PHI to successfully sell products into Japan, currently
the largest market for advanced surface analysis instruments. In addition, PHI
provides surface analysis services on a contract basis in its analytical
laboratories located in the United States, Germany and Japan. Such services
often serve as an effective means of demonstrating the capabilities of PHI's
surface analysis instruments to customers who may then consider purchasing an
instrument.
Competition
Competition in the surface analysis market is highly concentrated. The only
broad line competitors in the markets served by PHI's products are Cameca and VG
Scientific (Thermo Electron). The Company believes that PHI has leading market
shares in the Auger, ESCA and TOF-SIMS and that PHI has the second largest
market share in Dynamic SIMS. In Auger, PHI's primary competitors are VG
Scientific and JEOL (Nihon Densi). In ESCA, PHI's primary competitors are Kratos
Analytical (Shimadzu) and VG Scientific. In TOF-SIMS, PHI's primary competitor
is ION-TOF, which is partially-owned by and markets its products through Cameca.
In Dynamic SIMS, PHI's primary competitor is Cameca. The Company believes that
the technical expertise required for the design, production and support of
instruments incorporating ultrahigh vacuum technology is a significant barrier
to entry to potential competitors.
DATCON
Datcon together with its wholly-owned subsidiary, Jorda, designs and
manufactures customized monitoring instrumentation for heavy duty and
off-highway vehicles. Datcon's products include instrument clusters,
speedometers, tachometers and fuel, temperature and pressure gauges which are
used in construction equipment, agricultural machinery, materials handling
equipment and generator and compressor engines. Jorda, based in Barcelona,
Spain, was acquired by the Company in March 1995, and is a leading manufacturer
of instrument clusters for farm tractors in Europe. Datcon's headquarters are
located in Lancaster, Pennsylvania. For Fiscal 1997, Datcon had net sales of
$32.5 million, which represented 13.7% of the Company's consolidated net sales
for such period, pro forma for the Merger.
A principal element of Datcon's strategy is to provide its customers a broad
line of "mass customized" products in the niche market for monitoring
instrumentation for heavy duty and off-highway vehicles. Mass customization
involves several steps, from manufacturing instrumentation to a customer's
specific tolerances to incorporating the customer's logo and design profile in
the product. In order to mass customize products profitably, a manufacturer must
be able to meet short lead times and operate short production runs, both areas
in which Datcon has significant expertise. Datcon seeks to increase its market
share by introducing complementary new products that leverage its applications
expertise. Datcon has designed many innovative products capable of performing
accurately under the harsh conditions that are endemic to the construction,
agriculture and mining industries, including high vibration, extreme
temperature, exposure to ultra-violet light and humidity, which can cause
fogging.
Products
The Company believes that Datcon has one of the broadest lines of mass
customized monitoring instrumentation for heavy duty and off-highway vehicles.
Datcon's line of gauges and meters includes electrical instruments such as
speedometers, tachometers, fuel, temperature and pressure gauges and hour meters
in a variety of styles. Datcon offers its customers integrated monitoring
instrumentation packages comprised of gauges and/or senders or sensors. Sensors
and senders are devices that collect information at its source and relay it to
gauges and meters. Sensors are generally more technologically sophisticated than
senders and are used where the provision of precise measurement is
cost-justified. Datcon also manufactures and sells instrument clusters, which
are distinct from stand-alone vehicle monitoring instrumentation as they combine
multiple instruments in a single package with one set of electronics. Datcon
believes that its ability to offer its customers instrument clusters, through
the acquisition of Jorda, has enhanced its market position. In furtherance of
its strategy to increase market share through the introduction of innovative
products, Datcon has introduced several products including: (i) the
IllumaSeal(TM) line of heavy duty instruments that deliver no-fog, waterproof
performance and high levels of night visibility; (ii) the Smart Instrument(TM)
line of instruments that provide visual indication of operational problems and
can offer such feature enhancements on a simple plug-in replacement basis to
existing vehicle designs; (iii) the Illuma Deluxe(TM) line of field-programmable
speedometers and tachometers which enable customers to custom-calibrate these
new microprocessor controlled
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instruments to match individual vehicle specifications; and (iv) the
Intellisensor series of fuel measurement systems which allow for electronic
measurement of fluid levels through the use of solid state technology, thereby
eliminating moving parts and increasing accuracy and durability.
Markets and Customers
Datcon sells its products in 40 countries worldwide. Approximately 75% of
Datcon's product sales are to OEM markets (including OEM after market sales) to
a diverse group of customers. Datcon has multi-year relationships with some of
the largest OEMs in its markets including Caterpillar, Cummins Engine,
Harley-Davidson, Case, Landini, Massey Ferguson, SAME and Toro. The remaining
25% of Datcon's products are sold through third-party distributors under the
Datcon(R) and AST(TM) brand names to other OEM customers and to the after
market. Datcon believes that it has developed significant customer loyalty by
consistently providing high quality products and exceptional service. The
acquisition of Jorda has provided Datcon with direct access to additional
European customers and an immediate presence in the European instrument cluster
market.
Sales and Marketing
Datcon's products are sold through direct sales representatives in the
United States and Europe, as well as by manufacturers' sales agents in regions
where sales volume does not necessitate the assignment of a direct
representative. In addition, Datcon is represented by a worldwide network of
authorized distributors who carry Datcon products in inventory.
Competition
The market for monitoring instrumentation for heavy duty and off-highway
vehicles is highly fragmented. The U.S. Gauge/Dixson division of AMETEK, a
diversified manufacturer, is the largest competitor in the industry. Other
competitors are Beede, Frank W. Murphy Manufacturing, Hobbs, Joseph Pollack
(Stoneridge), Kysor/Medallion (Kuhlman) and Teleflex. The Company believes that
Datcon's largest competitor in Europe is VDO, a subsidiary of Mannesman.
ANDERSON
Anderson is a leading designer and manufacturer of high efficiency,
pluggable power connectors for use in high current, quick disconnect
applications including materials handling equipment and other electric-powered
vehicles, uninterruptible power supply products, telecommunications and
networking equipment and office furniture panel electrification. Anderson
specializes in high efficiency, pluggable connectors that are designed to
provide applications-specific solutions to power distribution and power
management challenges for end users. In addition to introducing new
applications-specific products, Anderson seeks to increase sales through finding
new applications for its standard power connectors. Anderson's headquarters are
located in Sterling, Massachusetts. For Fiscal 1997, Anderson had net sales of
$21.6 million, which represented 9.1% of the Company's consolidated net sales
for such period, pro forma for the Merger.
Products
Power connectors allow for the transmission of electric current to provide
distributed power within a device or system. Anderson focuses on the niche
market for wire-to-wire and wire-to-board, high current, quick disconnect
electric power connectors. Quick disconnect power connectors, in contrast to
permanent connectors, allow for easy and repeated disconnection and reconnection
to the power source. Anderson manufactures a broad range of both
applications-specific and standard power connectors. Anderson connectors utilize
a flat interlock contact design. These contacts are supplied in a variety of
housings and manufactured in a range of sizes in two product families. The SB(R)
series consists of two contacts, spring-mounted in a genderless plastic housing
design for easy connection and disconnection. The Powerpole(R) series consists
of a single contact, mounted in a modular, genderless housing which can be
assembled with other connectors in any configuration or quantity, offering
customers wide flexibility in customized connector solutions at reasonable cost
for low and high volume applications.
Anderson differentiates its power connectors from those of its competitors by
focusing on specialized applications that require unique power connectors to be
customized for specific applications on a rapid-turnaround basis. For example,
Anderson designed a special power connector for electric golf carts made by
E-Z-GO (Textron). Anderson designed and supplies a unique "smart" connector that
disables the electric drive control while the cart is being recharged, thereby
eliminating the possibility of inadvertent drive-aways
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while the cart remains connected to the charging stand. Anderson also
specializes in uncovering new applications for its standard power connectors.
For example, Anderson successfully applied its existing power connector
technology to the rapidly growing market for uninterruptible power supply
products.
Markets and Customers
Anderson's connectors are primarily used in OEM applications that typically
require high current capacity, high reliability and ease of installation, as
well as blind-mate, hot pluggable and quick disconnect capabilities. Typical
applications include: (i) materials handling equipment and other
electric-powered vehicles, including forklifts, golf carts, wheelchairs and
other vehicles; (ii) uninterruptible power supply (UPS) products and other
peripherals; (iii) telecommunications and networking equipment; and (iv) office
furniture panel electrification. Anderson's products are purchased both directly
by OEMs and indirectly through distributors.
A majority of Anderson's sales are derived from products which are
incorporated into the design of an OEM's product. Therefore, Anderson focuses
its sales and marketing efforts on OEMs and Anderson's engineers work directly
with an OEM's in-house product development team during the design phase of the
OEM's product life cycle to facilitate the engineering of effective power
interconnect solutions. Frequently, this collaborative effort results in a
design for which Anderson is designated by the OEM as a sole source supplier
through the life of the product program. Anderson believes that OEMs choose
Anderson's power connector products in large part due to its reputation for
innovative and customized solutions, its ability to quickly design products and
create prototypes and its long-term customer relationships. Anderson's product
design and prototyping capabilities were recently enhanced by the addition in
Fiscal 1997 of a technical center located in Leominster, Massachusetts which was
established specifically for such purposes.
Anderson's connectors are designed into products by OEMs including E-Z-GO
(Textron), Hyster-Yale and Yuasa-Exide in the materials handling equipment and
electric-powered vehicle industries, American Power Conversion and Yuasa-Exide
in UPS applications and Ericsson and Lucent Technologies in the
telecommunications and networking equipment industry.
Sales and Marketing
Anderson markets and sells the majority of its products under the Anderson
Power Products(R) name primarily in North America, Europe, Japan and the Pacific
Rim region both through an in-house direct sales force and through a global
third-party network of manufacturers' representatives, stocking agents and
authorized distributors. Anderson's products are generally purchased directly by
OEMs and by distributors for resale to OEMs and the after market.
Competition
The connector market served by Anderson is highly fragmented, although the
Company believes that the segment in which Anderson participates is less
fragmented than the overall connector market. Anderson's principal competitors
include Hypertronics, Multi-Contact, ODU and Positronics Industries. In
addition, certain large manufacturers of connectors, such as AMP, also produce
power connectors for certain applications which compete directly with Anderson
products.
NATVAR
Natvar is a manufacturer of disposable specialty bulk medical grade plastic
tubing used primarily in medical devices and for less-invasive surgical
procedures. Specialty bulk medical grade tubing is made from standard PVC,
polyethylene, polyurethane and radio page resin compounds extruded in conformity
with customer requirements and tolerances. The Company believes that Natvar
differentiates itself from other specialty bulk medical grade plastic tubing
manufacturers by selling products customized on a highly accurate basis to
medical device manufacturers' exacting standards. Natvar does not compete in the
non-specialty bulk medical tubing market, which is a commodity-type product used
in applications such as intravenous infusion therapy. Natvar also produces
electrical sleeving and tubing used to protect multiple insulated wires.
Natvar's headquarters are located in Clayton, North Carolina. For Fiscal 1997,
Natvar had net sales of $15.2 million, which represented 6.4% of the Company's
consolidated net sales for such period, pro forma for the Merger.
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Products
Natvar manufactures a variety of disposable specialty bulk medical grade
tubing products. These products are primarily incorporated in single use,
disposable products used in medical devices and for less-invasive surgical
procedures as opposed to products used in administering long-term patient care.
Specialty bulk medical grade tubing products include: (i) co-extruded
combinations of PVC and polyethylene used for administering unstable solutions
such as nitroglycerine, insulin and chemotherapy drugs; (ii) profile extrusion
tubing used as connectors to medical devices; (iii) transition tubing with
specially designed bubble spaces that reduce platelet damage during blood
hemolysis; (iv) heat exchanger coils used during cardioplegia procedures when
warming or cooling of blood is required; and (v) anesthesia monitoring lines.
Specialty bulk medical grade tubing can also be solvent bonded into paratubing
which allows for multiple fluids to be infused or removed without the need for
separate lines. Natvar has developed proprietary products such as Natvar 151
tubing, a bonded tri-layer tubing which does not react with drugs being
administered, and thereby combines the low cost of PVC with the inert properties
of more expensive materials such as silicone. Natvar also manufactures precision
medical and surgical tubing, which is designed for less-invasive surgical
procedures involving the use of products such as catheters, dilators and
arthroscopic applicators.
Natvar manufactures electrical sleeving and tubing for the secondary
electrical insulation market for use in a variety of applications, including low
voltage electric motors, instrument wiring, electric heater elements, wire
harnesses and cable assemblies. Electrical sleeving and tubing differs from
standard primary wire insulation in that it provides a secondary layer of
protection for an insulated wire. Electrical sleeving is made from fiberglass,
nylon and other fibers.
Markets and Customers
Substantially all of Natvar's customers for specialty bulk medical grade
tubing are medical equipment OEMs. Typically, manufacturing specifications for
such tubing are established by the customer in advance of placing the order.
Although many medical device companies utilize Natvar's products, each requires
slight variances in hardness, tint level, plasticity and thickness. All of these
customer specifications must be approved by the Food and Drug Administration
(the "FDA") prior to sale. OEMs closely monitor their suppliers to ensure that
tubing is being produced within FDA-approved specifications, and have lengthy
qualification procedures for new products to assure compliance. As a consequence
of this level of oversight, medical equipment manufacturers tend to maintain
only a limited number of specialty bulk medical grade tubing suppliers. Natvar's
major customers include COBE Laboratories, Haemonetics, Medtronics and 3M
Healthcare.
Unlike specialty bulk medical grade tubing, the majority of electrical
sleeving and tubing sales are made through distributors, while the balance is
made to OEMs. Products are sold primarily on the basis of price and performance
considerations. Electrical sleeving is sold for use in motors and appliances as
well as applications in the automotive and aerospace industries.
Sales and Marketing
All of Natvar's products are sold primarily by a direct sales force to
customers located primarily in the United States. Natvar maintains a performance
guarantee and marketing campaign for its specialty bulk medical grade tubing
products that guarantees that its products will be shipped on the date quoted to
the customer or the product and shipping is provided free to the customer. Since
the introduction of this policy, known as "On Time or On Us," Natvar has
consistently met this performance guarantee.
Competition
Competitors in the specialty bulk medical grade tubing market are typically
small, private companies, such as Kelcourt, Pexco and Sunlite, and divisions of
larger companies, including Norton and Plastron. Major competitors in the
electrical sleeving and tubing market include Bentley-Harris Manufacturing and
Varflex.
GENERAL EASTERN
General Eastern is a leading designer and manufacturer of relative humidity
measurement instruments and humidity calibration instruments. General Eastern's
products are used in a wide range of applications including energy management
and climate control, calibration and standards laboratories, thermal processing,
environmental monitoring and process control. General Eastern also
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provides long-term support and calibration services for all of its products.
Humidity measurement instruments are used to save energy, manufacture products
with greater quality and consistency, and allow people to live and work in more
comfortable surroundings. General Eastern's headquarters are located in Woburn,
Massachusetts. For Fiscal 1997, General Eastern had net sales of $12.2 million,
which represented 5.1% of the Company's consolidated net sales for such period,
pro forma for the Merger.
Products
General Eastern designs and manufactures a broad line of relative humidity
measurement instruments which are used to measure moisture levels in ambient
environments (those not subject to extreme conditions) for the purpose of
monitoring the temperature and humidity of such environments. General Eastern
also manufactures chilled mirror hygrometers, which are humidity measurement and
calibration instruments used primarily to confirm the accuracy of other humidity
measurement instruments. Chilled mirror hygrometers are highly accurate and are
therefore used as a reference standard for faster but less accurate humidity
measurement devices.
Markets and Customers
General Eastern's products are used in a wide range of application markets
including energy management and control, calibration and standards laboratories,
thermal processing, environmental monitoring, process control and gas systems.
Relative humidity measurement instruments are used in a wide variety of
manufacturing processes including pulp and paper drying, pharmaceuticals
production and other processes that require the monitoring of humidity to ensure
product quality. Humidity monitoring applications include semiconductor
fabrication, pharmaceutical production, museums and warehouses. General
Eastern's customers include OEMs such as Cray Computer, Johnson Controls, Landis
& Staefa and Siebe (Barber-Colman), and end users such as Eastman Kodak and
Intel. Customers for General Eastern's calibration services include the
Department of the Navy and the U.S. Geological Survey.
Sales and Marketing
General Eastern's products are sold in North America through a direct sales
force and independent manufacturers' representatives and overseas by a network
of distributors. General Eastern markets its products through direct mail
advertisement, advertisement in trade journals, participation in trade shows,
attendance at industry-related seminars, publication of scientific papers and an
internet website.
Competition
General Eastern's primary competitors are Edgetech, HyCal (Honeywell), MBW,
Panametrics, Protimeter and Vaisala. Companies compete in the humidity
measurement instrumentation industry primarily on the basis of price and the
quality and accuracy of their products.
HVE EUROPA
HVE Europa is 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
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strong electrical field and then fired into the material under investigation.
Instrumentation then measures the impact of the ion beams on the target
material. Accelerator mass spectrometer systems are specialized ion particle
accelerator systems used for carbon dating materials.
Markets and Customers
Historically, demand for HVE Europa's products was driven by nuclear physics
research. However, since the end of the Cold War, HVE Europa's products have
been sold for applications including carbon dating and materials science and
semiconductor research. Other applications include ratio spectrometry in
archaeology, oceanography, geosciences, materials science and biochemistry.
Accelerator mass spectrometer systems are used by universities and research
institutes for carbon dating in the fields of archaeology, oceanography and
geosciences. The demand for particle accelerator systems has historically been
tied to the construction of new or expanded research facilities, which for
educational institutions is mainly dependent upon grants and fund raising.
Sales and Marketing
HVE Europa's products are sold worldwide by its direct sales force. Due to
the complex, custom-built nature of HVE Europa's particle accelerators, frequent
and extensive interaction is required between HVE Europa and the customer. HVE
Europa presents technical papers at, and participates in, scientific
conferences, advertises in scientific periodicals and distributes product
literature and information on new developments to its existing customers.
Competition
Competition in HVE Europa's market is highly concentrated. HVE Europa's
sales in the particle accelerator market are often bid competitively against the
National Electrostatics Corporation, a privately-held U.S. manufacturer. HVE
Europa's primary competitor in Japan is Nissin High Voltage.
BACKLOG
The Company's backlog (prior to giving effect to the Merger) was as follows
as of the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
APRIL 29, 1995 APRIL 27, 1996 APRIL 26, 1997
----------------------- ----------------------- ------------------------
PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Robicon........ $20,887 48.9% $38,158 60.6% $41,661 59.8%
Datcon......... 4,787 11.2 6,773 10.7 7,655 11.0
Anderson....... 3,758 8.8 2,584 4.1 3,425 4.9
Natvar......... 3,432 8.0 3,579 5.7 3,239 4.7
General Eastern 1,735 4.1 1,430 2.3 1,804 2.6
HVE Europa..... 8,108 19.0 10,466 16.6 11,848 17.0
------- --------- ------- --------- ------- --------
Total..... $42,707 100.0% $62,990 100.0% $69,632 100.0%
======= ========= ======= ========= ======= ========
</TABLE>
The backlog of PHI as of March 28, 1997 was $21.7 million.
The Company believes that the Company's backlog as of any particular date
may not be indicative of sales for any future period. The Company expects that
approximately 25% of the Company's backlog (excluding PHI) as of April 26, 1997
will not be shipped before the end of the Company's 1998 fiscal year.
RESEARCH AND DEVELOPMENT
Research and development activities are conducted separately by each
operating unit. The Company's operating units focus on developing
applications-engineered products designed to meet their customers' needs. Teams
representing different functional areas within an operating unit work closely
with customers early in the product design process to ensure that the product
meets the
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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 critical to its operations. Management
does not believe that the future profitability of the Company's operating units
is dependent upon any one patent or group of related patents.
EMPLOYEES
At April 26, 1997, pro forma for the Merger, the Company had a total of
1,616 employees, of whom 1,600 were employed by the Company's operating units.
The Company's domestic employees are not covered by collective bargaining
agreements, however, substantially all of the personnel employed by its foreign
subsidiaries belong to national Workers' Councils. The Company considers it
relations with its employees to be good. The following table provides
information relating to the employees of the Company's operating units as of
April 26, 1997, pro forma for the Merger:
<TABLE>
<CAPTION>
TOTAL
OPERATING UNIT EMPLOYEES
-------------- ----------
<S> <C>
Robicon............................. 446
PHI................................. 386
Datcon.............................. 333
Anderson............................ 126
Natvar.............................. 168
General Eastern..................... 66
HVE Europa.......................... 75
------
Total Operating Unit
Employees............... 1,600
======
</TABLE>
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<PAGE> 65
PROPERTIES
The following are the principal operating facilities of the Company, listed
by operating unit, each of which also has limited general office and
administrative space:
<TABLE>
<CAPTION>
USABLE SPACE
OPERATING UNIT FUNCTION (SQUARE FEET) OWNED/LEASED
-------------- -------- ------------- ------------
<S> <C> <C> <C>
ROBICON:
New Kensington,
Pennsylvania Design and assembly 124,800 Leased(a)
Pittsburgh, Pennsylvania Assembly 79,000 Owned(b)
PHI:
Eden Prairie, Minnesota Design and assembly 207,000 Owned(c)
Redwood City, California Design 11,800 Leased
DATCON:
Lancaster, Pennsylvania Design and assembly 70,700 Leased(a)
Barcelona, Spain Design and assembly 35,500 Leased(a)
ANDERSON:
Sterling, Massachusetts Plastic injection molding and assembly 42,400 Leased(a)
Sterling, Massachusetts Plastic injection molding and assembly 31,000 Leased(a)
Leominster, Massachusetts Technical center (design and tooling) 10,000 Leased(a)
Fermoy, Ireland Plastic injection molding and assembly 8,500 Leased
NATVAR:
Clayton, North Carolina Plastic extrusion 75,000 Owned
Lakewood, Colorado Plastic extrusion 17,300 Leased
GENERAL EASTERN:
Woburn, Massachusetts Design and assembly 21,400 Leased
HVE EUROPA:
Amersfoort, The
Netherlands Design and assembly 60,000 Owned
</TABLE>
- ----------
(a) The Company holds a purchase option on these facilities.
(b) Approximately 21,800 square feet of space at the Robicon facility in
Pittsburgh, Pennsylvania is currently leased by Robicon to a third party.
(c) Approximately 14,000 square feet of space at the PHI facility in Eden
Prairie, Minnesota is currently leased by PHI to a third party.
In addition to the facilities described above, the Company leases various
warehouses and sales and administrative facilities. The Company believes that
its manufacturing facilities are properly maintained and that production
capacity is adequate to meet the requirements of its operating units.
ENVIRONMENTAL AND INSURANCE MATTERS
The Company's operations are subject to extensive and changing federal,
state, local and foreign environmental laws and regulations, including those
relating to the use, handling, storage, discharge and disposal of hazardous
substances and, as a result, the Company is from time to time involved in
administrative and judicial proceedings and inquiries relating to environmental
matters. Following is a description of the Company's significant pending
environmental matters.
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<PAGE> 66
Burlington, Massachusetts Cleanup. In June 1989, the Company entered into a
Consent Order with the predecessor to the Massachusetts Department of
Environmental Protection (the "DEP") with respect to the remediation of alleged
contamination at property formerly leased by the Company in Burlington,
Massachusetts (the "Burlington Site"). Pursuant to the Consent Order and a
remediation plan approved by the DEP, the Company has posted financial
assurances currently consisting of a $100,000 letter of credit and a $1.3
million lien on a site owned by the Company in Dorchester, Massachusetts and is
proceeding with certain remediation measures at the Burlington Site. The owners
of several parcels of land adjoining or near the Burlington Site have also
asserted claims or sought damages from the Company claiming damages from waste
allegedly originating from activities on the Burlington Site. The Company has
allowed $200,000 with respect to one adjoining property, and has agreed to pay
the first $500,000 of future costs incurred plus two-thirds of any additional
costs with respect to the cleanup of another. As of April 26, 1997, the
Company's estimate of the costs that will be necessary to complete these
cleanups is $1.5 million. Expenditures for cleanup will be incurred by the
Company over a number of years.
Woodbridge Township, New Jersey Cleanup. The Company is conducting an
environmental investigation and remediation of a former manufacturing site
located in Woodbridge Township, New Jersey (the "New Jersey Site") under New
Jersey law. The investigation and remediation are being undertaken in accordance
with an August 1989 agreement (the "Settlement Agreement") among the Company,
the current owner of the site and the former owner of the site who had purchased
the site from the Company which settled litigation brought against the Company
by the current owner of the New Jersey Site to recover damages allegedly caused
by environmental contamination of the site. As part of the Settlement Agreement,
the Company has agreed to assume full responsibility for the cleanup, and has
been conducting an investigation and remediation of the New Jersey Site in
accordance with the terms of the Settlement Agreement and New Jersey law. As of
April 26, 1997, the Company's estimate of the costs that will be necessary to
complete the cleanup is $2.1 million. Expenditures for cleanup will be incurred
by the Company over a number of years. In accordance with the terms of the
Settlement Agreement, the Company has posted financial assurances currently
consisting of a $2.2 million letter of credit. The Company is also involved in
litigation with the current owner of the New Jersey Site in which the Company is
seeking limited monetary damages in recovery of legal and consulting fees as
well as other relief.
The Company has, from time to time, received cash settlements and insurance
recoveries relating to environmental litigation, remediation and consequential
damages incurred in connection with properties formerly owned or leased by the
Company. The Company recorded net gains of $2.1 million, $450,000 and $351,000
for Fiscal 1995, Fiscal 1996 and Fiscal 1997, respectively, net of actual legal
costs, estimated settlement costs and changes in cost remediation estimates, on
cash recoveries of $2.3 million, $1.5 million and $1.1 million, respectively,
for such fiscal years. These cash recoveries have generally been received from
insurance companies in reimbursement of costs previously incurred by the Company
in remediation efforts or the payment of damages to third parties, from other
responsible or potentially responsible parties in settlement of potential claims
relating to remediation responsibilities, and from the recovery of expenses
incurred both in the recovery of such amounts and the remediation of affected
properties. Most of the amounts recovered by the Company in Fiscal 1995, Fiscal
1996 and Fiscal 1997 were recovered in connection with the litigation and
arbitration relating to the Burlington Site and the New Jersey Site. The Company
is not currently a party to any actions in which it has made a claim seeking
recovery for remediation and consequential damages incurred in connection with
environmental matters at properties formerly owned or leased by the Company.
Although the Company has realized significant recoveries on a historical basis,
the Company does not expect to receive any material recoveries relating to
environmental matters in any future periods.
In addition, although the Company believes it has made sufficient capital
expenditures to maintain compliance with existing laws and regulations, future
expenditures may be necessary as compliance standards and technology change. The
Company has expended, and may be required to expend in the future, significant
amounts for investigation of environmental conditions, remediation of
environmental conditions and other similar matters. See "Risk Factors --
Environmental Compliance."
LEGAL PROCEEDINGS
The nature of the Company's business is such that it is regularly involved
in legal proceedings incidental to its business. Although the Company believes
that none of these proceedings is material, the Company, along with six others,
is a defendant in an action commenced in November 1996 by Chicago-Dubuque
Foundry Corporation ("Chicago-Dubuque") and its property insurer, Employers
Mutual Casualty Co. in Iowa state court. The suit concerns a May 1, 1996 fire
that destroyed a Chicago-Dubuque facility located in East Dubuque, Illinois.
According to the complaint, defective products sold by one or more of the
defendants (including, it is alleged, the Company's Anderson division) to
Chicago-Dubuque, or incorporated in products sold by others to Chicago-Dubuque,
caused or contributed to the casualty. Chicago-Dubuque has not yet quantified
the amount of damages sought, but its property insurer has stated
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<PAGE> 67
that damages for property damage will be in excess of $11 million. No estimate
of economic losses caused by business interruption has been made by any
plaintiff. At the present time, the Company is not aware of any personal
injuries or deaths caused by the fire and the Company has been informed that the
State Fire Marshall who investigated the fire has, to date, not been able to
render an opinion as to the cause of the fire. The Company has placed its
insurers on notice of the claim and at least one insurer has retained legal
counsel to defend the Company. In light of the preliminary stage of the
proceedings, the Company is unable to assess the likelihood of liability in this
action, the amount of any damages that may be assessed against the Company, and
the extent to which any assessed liability will be covered by the Company's
insurance, as of the date of this Prospectus.
Natvar received a sixty (60) day notice of intent to sue on December 11,
1996 from a California citizens group regarding alleged violations of notice and
labeling requirements under California Proposition 65, a "right to know"
provision intended to give consumers clear and reasonable warnings of the
presence of certain potentially hazardous substances in products. Natvar and the
citizens group have signed an agreement delaying the deadline for filing any
lawsuit. The relevant regulations provide that violations of Proposition 65 are
subject to civil penalties of up to $2,500 per day retroactive to the beginning
of an alleged violation of Proposition 65. The substance contained in Natvar's
products and implicated in the notice of intent to sue has been listed under
Proposition 65 since 1988, and Natvar has sold products containing this
substance in California since that time. The Company is currently conducting
fact-finding to determine whether it believes a violation of Proposition 65 has
occurred. If a lawsuit is filed, the Company intends to defend it vigorously;
however, the Company believes, based on results in similar cases and a
preliminary review of the relevant facts, that any such suit could be settled
for substantially less than the maximum penalty available under the statute. The
Company does not believe that it is likely that it will incur material liability
as a result of any lawsuit arising in connection with this matter.
During Fiscal 1996, the Company reached a proposed settlement with the IRS
and various state taxation authorities with respect to issues arising out of an
audit of the 1986 through 1991 tax years of the Company and Letitia Corporation
which was approved, in January 1997, by the Joint Committee on Taxation. The
Company agreed to pay an aggregate amount of $1.2 million in income tax
assessments in settlement of such issues. The assessments that were the subject
of the audit related primarily to foreign tax credits claimed and disallowances
of deductions for certain costs incurred in connection with the acquisition of
HVE in the 1988 tax year of Letitia Corporation.
In February 1997, the Company commenced litigation in Massachusetts federal
court against TVM Group, Inc., ("TVM") of Fremont, California, and TVM's
principal stockholder, Mr. T. Lyn Morris, seeking damages on account of breach
by TVM and Mr. Morris of a December 1996 agreement pursuant to which a
subsidiary of the Company was to acquire TVM. 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.
65
<PAGE> 68
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
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
Paul H. Snyder....... 59 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.
Joseph W. McHugh, Jr. is a Vice President and the Chief Financial Officer of
the Company. Mr. McHugh joined the Company in January 1992. From 1983 to 1992,
Mr. McHugh worked at GCA Corporation as a Division Controller and later as
Controller. In the former capacity, he participated in the workout and
recapitalization of GCA before its purchase in 1988 by General Signal. From 1977
to 1983, Mr. McHugh served in various financial management positions at
Honeywell Information Systems. Mr. McHugh is a Certified Management Accountant
and received both a Bachelor of Science degree in accounting and a Masters
degree in Business Administration from Bentley College.
Michael Brosnan is Vice President, Financial Operations of the Company.
Prior to joining the Company in March 1997, Mr. Brosnan worked at Polaroid
Corporation as Senior Controller - Electronic Imaging Systems Group from 1994
through 1996, and
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<PAGE> 69
Senior Controller - Commercial Imaging Group thereafter. Mr. Brosnan was
employed by KPMG Peat Marwick LLP from 1978 to 1994, most recently as an Audit
Partner. Mr. Brosnan is a Certified Public Accountant and received his Bachelor
of Science degree in Business Administration from Northeastern University.
Arthur J. Burdett is Vice President, Human Relations of the Company. Mr.
Burdett joined the Company in 1993. From 1982 to 1993, Mr. Burdett held various
human resources and management positions at Hewlett-Packard Company culminating
in the position of Education Manager for the Medical Products Group. From 1966
to 1982, Mr. Burdett held various teaching and program director positions in the
Philadelphia School System and was one of the founders and eventually the
Director of the Bartram School for Human Services. Mr. Burdett is a graduate of
Temple University.
Jody E. Kurtzhalts has served as President of Robicon since April 1995.
Prior to joining the Company, Mr. Kurtzhalts was employed by Giddings & Lewis
Corp., from November 1992 to March 1995 as the Vice President/General Manager of
its Automation Control Division. Prior to November 1992, Mr. Kurtzhalts was the
Vice President, Electronics and Software Engineering of Giddings & Lewis. Mr.
Kurtzhalts has a Bachelor of Science in Electrical Engineering from Marquette
University.
David J. Chalmers has served as President and Chief Executive Officer of PHI
since February 1997. Following the Merger, Dr. Chalmers will continue to serve
in such capacities. Prior to February 1997, Dr. Chalmers was the President and
Chief Executive Officer of TA Instruments Inc., which was formed through a
leveraged buyout of the Thermal Analysis Division of E.I DuPont de Nemours in
1990. From 1967 to 1990, Dr. Chalmers held several technical, marketing and
product management positions at E.I DuPont de Nemours, most recently serving as
General Manager of the Thermal Analysis Division. Dr. Chalmers received a
Bachelor of Science in Chemistry from the University of Aberdeen and a Ph.D. in
Chemistry from Oxford University.
Oddie V. Leopando has served as President of Datcon since November 1995.
Prior to joining the Company, Mr. Leopando was employed by MascoTech, Inc. as
President of the MascoTech Body Systems & Assembly Division from 1994 to 1995.
From 1991 to 1994, Mr. Leopando was the Senior Vice President/General Manager of
MascoTech Manufacturing & Assembly Division. Prior to 1991, Mr. Leopando acted
in managerial roles in several other companies, including Massey Ferguson, Inc.
and the Chrysler Corporation. Mr. Leopando earned a Masters of Business
Administration in Finance and Operations from the University of Detroit and a
Bachelor of Science in Mechanical Engineering from the Mapua Institute of
Technology in Manila, Philippines. Mr. Leopando is a licensed professional
engineer.
Ronald G. Robinson has served as President of Anderson since 1992. Prior to
joining the Company in 1985, Mr. Robinson was employed by the Selectro
Corporation, where he was Senior Vice President, Operations. Mr. Robinson is a
former Director of the American Production and Inventory Control Society. Mr.
Robinson is a graduate of the University of Hartford.
Scott M. Kelley, who has been employed by the Company since 1993, has served
as President of Natvar since January 1996. Prior to being appointed as President
of Natvar, Mr. Kelley was the President of the Company's General Eastern
division, from August 1994 to January 1996, and the Acting President of the
Company's Specialty Connector division from December 1993 to August 1994. Prior
to joining the Company, Mr. Kelley was the Vice President of Operations at Data
Translation Inc. from 1990 to 1993. Mr. Kelley also served as a management
consultant at Ernst & Young LLP and Coopers & Lybrand L.L.P. Mr. Kelley is a
graduate of Eastern Connecticut State University.
James H. Schleckser has served as President of General Eastern since January
1996. Prior to being appointed President, Mr. Schleckser was the Vice President,
Sales and Marketing at General Eastern from August 1995 to January 1996. Prior
to joining the Company in 1995, Mr. Schleckser was employed from 1988 to 1995 by
J.M. Ney Company, most recently serving as the Director, Sales and Marketing of
Ney Ultrasonics Inc. Mr. Schleckser received his Master of Business
Administration from the University of Connecticut and his Bachelor of Chemical
Engineering from the University of Delaware.
Renee Koudijs has served as Managing Director of HVE Europa since May 1993,
and served as Engineering and Research and Development Manager at HVE Europa
from 1978 to 1993. From 1976 to 1978, Mr. Koudijs served as Engineering Manager
at Unicorp. Prior to that, Mr. Koudijs founded the Netherlands division of Sola
Basic Industries. Mr. Koudijs graduated from the Industrial and Commercial
Mechanical and Electrical College in The Netherlands and has a License for
Business Operation in The Netherlands through the General Commercial School.
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<PAGE> 70
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.
Paul H. Snyder was the Chief Operating Officer of the Company until
November 4, 1997 and became a Director of the Company effective upon
consummation of the Transactions. Mr. Snyder joined the Company in February
1993. 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.
ELECTION; TERM OF OFFICE
All officers are elected at the annual meeting of the Board of Directors and
hold office until the next annual meeting of the Board of Directors or until
their respective successors are chosen and qualified. Directors are elected at
the annual meeting of the stockholders and hold office until the next annual
meeting of the stockholders or until their successors are elected. According to
the Company's By-Laws, the President of the Company must be a member of the
Board of Directors. In addition, holders of the Exchange Preferred Stock (acting
as a single class together with holders of any Series A Preferred Stock) will
have the right to elect that number of directors constituting at least 25% of
the Board of Directors if cash dividends are in arrears and unpaid for two
semiannual periods after August 15, 2002, and in certain other events. See
"Description of the Exchange Preferred Stock -- Voting Rights."
BOARD COMMITTEES
The Bylaws of the Company provide for the election of an executive committee
of the Board of Directors which may exercise any powers delegated to it by the
full Board of Directors which the law permits a corporation's board to delegate
to a committee. There is no executive committee in existence at this time and
the Board of Directors has no plans to establish such a committee. By November
5, 1997, the Company expects to appoint both an audit committee and a
compensation committee of the Board of Directors, both committees to be
delegated the customary functions of such committees, with the compensation
committee being specifically empowered to set the compensation of each of the
Company's executive officers, including the Company's Chairman of the Board and
Chief Executive Officer and President.
COMPENSATION OF DIRECTORS
Prior to the Offerings, directors of the Company were not compensated for
their service as such. After the Offerings, non-employee directors of the
Company will be paid an annual retainer of $10,000 plus expenses incurred by the
directors in such capacity.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not currently have a compensation committee. During Fiscal
1997, Fiscal 1996 and Fiscal 1995, Laurence S. Levy and Clifford Press, the
Company's Chairman of the Board and Chief Executive Officer, and President and a
Director, respectively (who together comprised the Board of Directors during
such period) established the compensation of the Company's executive officers,
including their own compensation. The Company expects to appoint a compensation
committee by November 5, 1997.
EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid by the
Company for services rendered during Fiscal 1997, Fiscal 1996 and Fiscal 1995 to
the Company's Chairman of the Board and Chief Executive Officer, President and
four other most highly-compensated executive officers.
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<PAGE> 71
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION FISCAL PERIOD SALARY BONUS COMPENSATION(1) COMPENSATION(2)
--------------------------- ------------- ------------ ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C>
Laurence S. Levy................ 1997 $ 100,000(3) $ -- $3,300
Chairman of the Board and 1996 100,000(3) 250,000(5) 4,000
Chief Executive Officer 1995 184,050(3) -- 8,311
Clifford Press.................. 1997 $ 100,000(3) $ -- $3,300
President and Director 1996 100,000(3) 250,000(5) 4,000
1995 184,050(3) -- 8,536
Paul H. Snyder.................. 1997 $ 210,000 $ 50,000 $4,950
Director (4) 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(6) 87,500 35,000 --
Renee Koudijs................... 1997 $ 162,614 $ 53,164 $ --
Managing Director of HVE Europa 1996 141,327 125,597 --
1995 116,003 41,039 --
Jody E. Kurtzhalts.............. 1997 $ 168,750 $ 40,000 $ 51,480 $4,098
President of Robicon 1996 165,000 18,250 $ 31,492 $3,548
1995(7) 13,750 -- -- --
</TABLE>
- ----------
(1) Represents relocation expenses.
(2) Represents matching employer contributions under the Company's Section
401(k) savings plan. See "Retirement Plans" below.
(3) 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."
(4) Mr. Snyder ceased to be Chief Operating Officer of the Company as of
November 4, 1997.
(5) Represents amounts paid to affiliates of Hyde Park at the request of the
named executive officers.
(6) Mr. Leopando became an employee of the Company in November 1995.
(7) Mr. Kurtzhalts became an employee of the Company in April 1995.
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 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 generally upon a multiple of EBITDA, as defined
in the VCP, but also reflecting actual proceeds of dispositions of operating
units or public offerings by operating units. An aggregate amount equal to up to
5% of the incremental increases in value achieved in the unit is allocated to
the VCP. In the event that the value of any of the operating units increases
over time, the interests of its participating employees in the VCP will increase
proportionally.
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<PAGE> 72
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 generally on a multiple of EBITDA of the operating unit
but also reflecting actual proceeds of dispositions of operating units or public
offerings by operating units) 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 while
remaining employed. Vested interests are cashed out when an employee leaves the
Company or retires, when 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 was the Chief Operating Officer of the Company until
November 4, 1997 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 is entitled to
receive a special bonus equal to the amount that the market value of 1.6% of the
outstanding common equity of Letitia Corporation exceeds $300,000. This bonus
payment 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> 73
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Laurence S. Levy and Clifford Press, officers and directors of the Company,
are directors of Letitia Corporation, which owns all of the Company's
outstanding common and preferred stock. Hyde Park Holdings, Inc. ("Hyde Park"),
a corporation wholly-owned by Laurence S. Levy and Clifford Press, is a minority
stockholder of Letitia Corporation. See "Principal Stockholders" and "Management
- -- Executive Compensation."
Historically, the Company has paid to Hyde Park and its affiliates: (i) an
annual fee for services performed in managing the Company; (ii) an acquisition
fee payable upon the closing of acquisitions by the Company of additional
businesses; and (iii) a disposition fee payable upon the closing of the
disposition of certain divisions or subsidiaries (or significant groups of
assets) of the Company.
The management fees paid to Hyde Park and its affiliates were $780,901,
$648,424 and $450,376 for Fiscal 1997, Fiscal 1996 and Fiscal 1995,
respectively. Under the terms of the Indenture, while there are any of the Notes
outstanding, management fees to Hyde Park in excess of $750,000 for any fiscal
year of the Company will be limited by the Indenture's Restricted Payments
provision. Acquisition and disposition fees have been calculated as an amount
equal to 1% of the sum of the total price paid or received for shares of stock
(or in the case of an asset acquisition or disposition, the total price paid for
such assets) in such acquisition or divestiture. In Fiscal 1996, the Company
paid a fee of $110,000 in connection with the disposition of the Company's
Specialty Connector division. In Fiscal 1995, the Company paid fees aggregating
$101,850 in connection with the sale of the Company's Shore Instruments and
Berger divisions, and the acquisition of Jorda. No acquisition or divestiture
fees were paid in Fiscal 1997, and the Company did not pay an acquisition fee in
connection with the Merger.
In connection with the consummation of the Refinancing, the Company redeemed
all of the outstanding Series B Preferred Stock for an aggregate redemption
price of $4.8 million. All of the outstanding 25,705 shares of Series B
Preferred Stock were held by Letitia Corporation. Messrs. Laurence S. Levy and
Clifford Press, the Company's Chairman of the Board and Chief Executive
Officer, and President and a Director, respectively, and certain of their
affiliates and family members beneficially own 90% of the outstanding common
stock of Letitia Corporation before giving effect to any repurchase of Letitia
Common Stock from the High Voltage Engineering Corporation Retirement Plan and,
accordingly, were the primary beneficiaries of such redemption and could
through dividends or other distributions receive a majority of the proceeds of
such redemption.
Mr. Press and Mr. Levy, as well as certain other executives named above in
"Management -- Executive Compensation" also hold interests in the High Voltage
Engineering Corporation Retirement Plan which holds shares of Letitia Common
Stock intended to be repurchased with a portion of the net proceeds from the
Offerings.
In connection with the consummation of the Refinancing, the Company also
redeemed all of the issued and issuable 6,871 shares of Series C Preferred Stock
for an aggregate liquidation preference of $6.9 million. All of these shares
were held by Letitia Corporation, which redeemed 6,871 issued and issuable
shares of the Letitia Quest Preferred Stock having identical rights and
preferences to the Series C Preferred Stock simultaneously with the closing of
the Transactions, with the proceeds of the redemption of the Series C Preferred
Stock.
Upon the consummation of the Merger, CIBC Wood Gundy Securities Corp. ("CIBC
Wood Gundy") received a transaction fee of $500,000 (comprising a portion of the
Merger Consideration) for advisory services provided to the Company in
connection with the Merger. A predecessor of CIBC Wood Gundy also provided
investment banking services in connection with the May 1996 refinancing of
certain of the Company's indebtedness, for which it received customary
compensation. On July 24, 1997, CIBC Wood Gundy purchased existing Subordinated
Notes Warrants to purchase 71.43 shares of HVE Common Stock, representing 6.25%
of the HVE Common Stock on a fully diluted basis, for an aggregate purchase
price of $2.5 million. Such Subordinated Notes Warrants were repurchased from
CIBC Wood Gundy for the same purchase price by the Company from the proceeds of
the Offering. Mr. Edward Levy, who became a director of the Company effective
upon the consummation of the Transactions, is a managing director of CIBC Wood
Gundy.
David J. Chalmers, the President of PHI, is party to an employment
agreement, dated as of February 14, 1997, with Physical Electronics, Inc.
pursuant to which, among other things, PHI established an Executive Equity
Compensation Plan (the "Equity Plan")
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<PAGE> 74
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> 75
PRINCIPAL STOCKHOLDERS
The following table sets forth information concerning the beneficial
ownership of the HVE Common Stock, as of the date of this Prospectus by: (i)
each person known to the Company to own beneficially more than 5% of the
outstanding shares of HVE Common Stock; (ii) each director and each executive
officer named in the "Summary Compensation Table;" and (iii) all directors and
executive officers of the Company as a group. All shares are owned by such
person with sole voting and investment power. See "Description of Outstanding
Capital Stock."
<TABLE>
<CAPTION>
HVE COMMON STOCK
-------------------------------
NAME OF STOCKHOLDERS, DIRECTORS NUMBER OF PERCENT OF
AND EXECUTIVE OFFICERS SHARES COMMON SHARES
---------------------------------------------- -------------- ---------------
<S> <C> <C>
Letitia Corporation(1)........................ 1,000 92.4%
Laurence S. Levy(1)(2)........................ 1,000 92.4%
Clifford Press(1)(3).......................... 1,000 92.4%
Jody E. Kurtzhalts............................ -- --
Oddie V. Leopando............................. -- --
Paul H. Snyder................................ -- --
Edward Levy................................... -- --
H. Cabot Lodge III............................ -- --
Directors and executive officers as a group... 1,000 92.4%
</TABLE>
- ----------
(1) The address of each of these persons or organizations is c/o Hyde Park
Holdings, Inc., 595 Madison Avenue, 35th Floor, New York, New York 10022.
(2) All of such shares of HVE Common Stock (92.4% of the outstanding HVE Common
Stock) are held by Letitia Corporation. Mr. Laurence S. Levy is the Chairman
of the Board, Treasurer and Secretary of Letitia Corporation. Mr. Levy is
also a 50% stockholder of Hyde Park, which owns 15 shares (representing 2.5%
of the total outstanding) of Letitia Common Stock. Mr. Levy also personally
owns 25 shares (4.3%) of Letitia Corporation common stock and has an option
to purchase an additional 38.9015 shares (6.6%) of such stock from Clifford
Press for a nominal sum. Mr. Levy also holds a minor interest in the High
Voltage Engineering Corporation Retirement Plan, which owns 10% of the
outstanding Letitia Common Stock. Mr. Laurence S. Levy disclaims beneficial
ownership of any shares of HVE Common Stock.
(3) All of such shares of HVE Common Stock (92.4% of the outstanding HVE Common
Stock) are held by Letitia Corporation. Mr. Press is a Director and
President of Letitia Corporation. Mr. Press is also a 50% stockholder of
Hyde Park, which owns 15 shares (representing 2.5% of the total outstanding)
of Letitia Common Stock. In addition, Mr. Press personally owns 103 shares
(17.4%) of Letitia Common Stock and has granted an option to purchase
38.9015 shares (6.6%) of such stock to Mr. Laurence S. Levy for a nominal
sum. Certain family members of Mr. Press own, in the aggregate, 389 shares
(65.8%) of Letitia Common Stock, with respect to which Mr. Press does not
have any voting or investment power. Mr. Press also holds a minor interest
in the High Voltage Engineering Corporation Retirement Plan, which owns 10%
of the outstanding Letitia Common Stock. Mr. Press disclaims beneficial
ownership of any shares of HVE Common Stock.
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<PAGE> 76
EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange shares of Exchange
Preferred Stock for any and all of the outstanding shares of Series A Preferred
Stock (on a share for share basis) properly tendered on or prior to the
Expiration Date and not withdrawn as permitted pursuant to the procedures
described below.
PURPOSE OF THE EXCHANGE OFFER
Pursuant to the Offering which closed on August 8, 1997, the Company issued
33,000 shares of the Series A Preferred Stock. The issuance of Series A
Preferred Stock was not registered under the Securities Act in reliance upon the
exemption provided in Section 4(2) of the Securities Act.
In connection with the issuance and sale of the Series A Preferred Stock,
the Company entered into the Preferred Stock Registration Rights Agreement,
which requires it, at its cost, (i) within 45 days after the date of original
issue of the Series A Preferred Stock, to file a registration statement (the
"Exchange Offer Registration Statement") with the Commission with respect to a
registered offer to exchange the Series A Preferred Stock for the Exchange
Preferred Stock, which will have terms substantially identical in all material
respects to the Series A Preferred Stock (except that the Exchange Preferred
Stock will not contain terms with respect to transfer restrictions), and (ii)
within 135 days after the Issue Date, use its best efforts to cause the Exchange
Offer Registration Statement to be declared effective under the Securities Act.
Upon the Exchange Offer Registration Statement being declared effective, the
Company will offer the Exchange Preferred Stock in exchange for surrender of the
Series A Preferred Stock. The Company will keep the Exchange Offer open for not
less than 30 days (or longer if required by applicable law) after the date
notice of the Exchange Offer is mailed to the holders of the Series A Preferred
Stock. For each of the shares of Series A Preferred Stock surrendered to the
Company pursuant to the Exchange Offer, the holder who surrendered such shares
will receive shares of Exchange Preferred Stock having a liquidation preference
equal to that of the surrendered shares of Series A Preferred Stock. Under
existing Commission interpretations, the Exchange Preferred Stock will in
general be freely transferable after the Exchange Offer without further
registration under the Securities Act; provided that in the case of
broker-dealers, a prospectus meeting the requirements of the Act be delivered as
required. The Company has agreed for a period of 180 days after consummation of
the Exchange Offer to make available a prospectus meeting the requirements of
the Securities Act to any broker-dealer for use in connection with any resale of
any such Exchange Preferred Stock acquired as described below. A broker-dealer
which delivers such a prospectus to purchasers in connection with such resales
will be subject to certain of the civil liability provisions under the Act, and
will be bound by the provisions of the Preferred Stock Registration Rights
Agreement (including certain indemnification rights and obligations). See "Plan
of Distribution"
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such an Exchange Offer, or if for any other
reason the Exchange Offer is not consummated within 180 days of the date of the
Preferred Stock Registration Rights Agreement, the Company will, at its own
expense, (a) as promptly as practicable, file a Shelf Registration Statement
covering resales of the Series A Preferred Stock (the "Shelf Registration
Statement"), (b) use its best efforts to cause the Shelf Registration Statement
to be declared effective under the Act and (c) use its best efforts to keep
effective the Shelf Registration Statement until two years after its effective
date. The Company will, in the event of the Shelf Registration Statement,
provide to each holder of the Series A Preferred Stock copies of the prospectus
which is a part of the Shelf Registration Statement, notify each such holder
when the Shelf Registration Statement for the Series A Preferred Stock has
become effective and take certain other actions as are required to permit
unrestricted resales of the Series A Preferred Stock. A holder of the Series A
Preferred Stock that sells such Preferred Stock pursuant to the Shelf
Registration Statement generally would be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Act in connection with such sales and will be bound by the provisions of the
Preferred Stock Registration Rights Agreement which are applicable to such a
holder (including certain indemnification rights and obligations).
If the Company fails to comply with the above provisions or if such
registration statement fails to become effective, then, as liquidated damages,
additional dividends shall become payable in respect of the Series A Preferred
Stock as follows:
If (i) the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 45 days after the Issue Date or, if required
to be filed on behalf of the holders, the Shelf Registration Statement is
not filed with 30 days following delivery of notice of an Exchange Offer
Registration Statement;
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<PAGE> 77
(ii) the Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 135 days after the Issue Date;
and
(iii) either (A) the Company has not exchanged the Exchange Preferred
Stock for all Series A Preferred Stock validly tendered in accordance with
the terms of the Exchange Offer on or prior to 60 days after the date on
which the Exchange Offer Registration Statement was declared effective or
(B) the Exchange Offer Registration Statement ceases to be effective at any
time prior to the time that the Exchange Offer is consummated or (C) if
applicable, the Shelf Registration Statement has been declared effective and
such Shelf Registration Statement ceases to be effective at any time prior
to the second anniversary of its effective date;
(each such events referred to in clauses (i) through (iii) above is a
"Registration Default"), the sole remedy available to holders of the Series A
Preferred Stock will be the immediate assessment of additional dividends
("Additional Dividends") as follows: the per annum dividend rate on the Series A
Preferred Stock will increase by 50 basis points; and the per annum dividend
rate will increase by an additional 25 basis points for each subsequent 90-day
period during which the Registration Default remains uncured, up to a maximum
additional dividend rate of 200 basis points per annum in excess of the dividend
rate originally borne by the Series A Preferred Stock (as shown on the cover of
this Prospectus). All Additional Dividends will be payable to holders of the
Series A Preferred Stock in cash on each August 15 and February 15, commencing
with the first such date occurring after any such Additional Dividend commences
to accrue, until such Registration Default is cured. After the date on which
such Registration Default is cured, the dividend rate on the Series A Preferred
Stock will revert to the dividend rate originally borne by the Series A
Preferred Stock (as shown on the cover of this Prospectus).
The Exchange Offer is being made by the Company to satisfy its obligations
under the Preferred Stock Registration Rights Agreement. Pursuant to the
Preferred Stock Registration Rights Agreement, the Company has agreed to use its
best efforts to consummate the Exchange Offer no less than 30 days after the
date notice of the Exchange Offer is mailed to the holders of the Series A
Preferred Stock and no more than 60 days after the date the Company's
Registration Statement of which this Prospectus is a part is declared effective.
The summary herein of certain provisions of the Preferred Stock Registration
Rights Agreement does not purport to be complete and is subject to, and is
qualified in its entirety by reference to, all the provisions of the Preferred
Stock Registration Rights Agreement, a copy of which will be available upon
request to the Company.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer will expire at 5:00 P.M., Boston time, on , 1997, unless
the Company, in its sole discretion, has extended the period of time (as
described below) for which the Exchange Offer is open (such date, as it may be
extended, is referred to herein as the "Expiration Date"). The Expiration Date
will be at least 30 days after the commencement of the Exchange Offer (or longer
if required by applicable law). The Company expressly reserves the right, at any
time or from time to time, to extend the period of time during which the
Exchange Offer is open, and thereby delay acceptance for exchange of any shares
of Series A Preferred Stock by giving oral notice (confirmed in writing) or
written notice to the Exchange Agent (as defined herein) and by giving written
notice of such extension to the holders thereof or by timely public announcement
communicated, unless otherwise required by applicable law or regulation, by
making a release through the Dow Jones News Service, in each case, no later than
9:00 A.M. New York City time, on the next business day after the previously
scheduled Expiration Date. Such announcement may state that the Company is
extending the Exchange Offer for a specified period of time. During any such
extension, all shares of Series A Preferred Stock previously tendered will
remain subject to the Exchange Offer.
In addition, the Company expressly reserves the right to terminate or amend
the Exchange Offer and not to accept for exchange any shares of Series A
Preferred Stock not theretofore accepted for exchange upon the occurrence of any
of the events specified below under "-- Certain Conditions to the Exchange
Offer." If any such termination or amendment occurs, the Company will notify the
Exchange Agent and will either issue a press release or give oral or written
notice to the holders of the Series A Preferred Stock as promptly as
practicable.
PROCEDURES FOR TENDERING SERIES A PREFERRED STOCK
The tender to the Company of shares of Series A Preferred Stock by a holder
thereof as set forth below and the acceptance thereof by the Company will
constitute a binding agreement between the tendering holder and the Company upon
the terms and subject to the conditions set forth in this Prospectus and in the
accompanying Letter of Transmittal.
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<PAGE> 78
A holder of shares of Series A Preferred Stock may tender the same by (i)
properly completing and signing the Letter of Transmittal or a facsimile thereof
(all references in this Prospectus to the Letter of Transmittal shall be deemed
to include a facsimile thereof) and delivering the same, together with the
certificate or certificates representing the shares of Series A Preferred Stock
being tendered and any required signature guarantees, to the Exchange Agent at
its address set forth below on or prior to 5:00 p.m., New York City time, on the
Expiration Date (or complying with the procedure for book-entry transfer
described below) or (ii) complying with the guaranteed delivery procedures
described below.
THE METHOD OF DELIVERY OF SERIES A PREFERRED STOCK, LETTERS OF TRANSMITTAL
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF
SUCH DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY
INSURED, WITH RETURN RECEIPT REQUESTED, OR AN OVERNIGHT OR HAND DELIVERY
SERVICE, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE
TIMELY DELIVERY. NO SHARES OF SERIES A PREFERRED STOCK OR LETTERS OF TRANSMITTAL
SHOULD BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the shares of Series A Preferred Stock
surrendered for exchange pursuant thereto are tendered (i) by a registered
holder of the shares of Series A Preferred Stock who has not completed the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal or (ii) for the account of an Eligible Institution (as
defined herein). In the event that signatures on a Letter of Transmittal or a
notice of withdrawal, as the case may be, are required to be guaranteed, such
guarantee must be by a firm which is a member of a registered national
securities exchange or a member of the National Association of Securities
Dealers, Inc. or by a commercial bank or trust company having an office or
correspondent in the United States (each an "Eligible Institution"). If shares
of Series A Preferred Stock are registered in the name of a person other than a
signer of the Letter of Transmittal, the shares of Series A Preferred Stock
surrendered for exchange must be endorsed by, or be accompanied by a written
instrument or instruments of transfer or exchange, in satisfactory form as
determined by the Company in its sole discretion, duly executed by the
registered holder with the signature thereon guaranteed by an Eligible
Institution.
The Exchange Agent will make a request promptly after the date of this
Prospectus to establish accounts with respect to the Series A Preferred Stock at
the book-entry transfer facility, The Depository Trust Company, for the purpose
of facilitating the Exchange Offer, and subject to the establishment thereof,
any financial institution that is a participant in the book-entry transfer
facility's system may make book-entry delivery of shares of Series A Preferred
Stock by causing such book-entry transfer facility to transfer such shares of
Series A Preferred Stock into the Exchange Agent's account with respect to the
shares of Series A Preferred Stock in accordance with the book-entry transfer
facility's procedures for such transfer. Although delivery of shares of Series A
Preferred Stock may be effected through book-entry transfer in the Exchange
Agent's account at the book-entry transfer facility, an appropriate Letter of
Transmittal with any required signature guarantee and other required documents
must in each case be transmitted to and received or confirmed by the Exchange
Agent at its address set forth below on or prior to the Expiration Date, or, if
the guaranteed delivery procedures described below are complied with, within the
time period provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or shares of Series A Preferred Stock to reach the
Exchange Agent before the Expiration Date or the procedure for book-entry
transfer cannot be completed on a timely basis, a tender may be effected if the
Exchange Agent has received at its address or facsimile number set forth below
on or prior to the Expiration Date a letter, telegram or facsimile from an
Eligible Institution setting forth the name and address of the tendering holder,
the name in which the shares of Series A Preferred Stock are registered and, if
possible the certificate number or numbers of the Certificate or certificates
representing the shares of Series A Preferred Stock to be tendered, and stating
that the tender is being made thereby and guaranteeing that within three
business days after the Expiration Date the shares of Series A Preferred Stock
in proper form for transfer (or a confirmation of book-entry transfer of such
shares of Series A Preferred Stock into the Exchange Agent's account at the
book-entry transfer facility), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless shares of Series A Preferred Stock being
tendered by the above-described method are deposited with the Exchange Agent
within the time period set forth above (accompanied or preceded by a properly
completed Letter of Transmittal and any other required documents), the Company
may, at its option, reject the tender. Copies of a Notice of Guaranteed Delivery
which may be used by an Eligible Institution for the purposes described in this
paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the shares of Series A Preferred Stock (or a confirmation of
book-entry transfer of such shares
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<PAGE> 79
of Series A Preferred Stock into the Exchange Agent's account at the book-entry
transfer facility) is received by the Exchange Agent, or (ii) a Notice of
Guaranteed Delivery or letter, telegram or facsimile to similar effect (as
provided above) from an Eligible Institution is received by the Exchange Agent.
Issuances of shares of Exchange Preferred Stock in exchange for shares of Series
A Preferred Stock tendered pursuant to a Notice of Guaranteed Delivery or
letter, telegram or facsimile to similar effect (as provided above) by an
Eligible Institution will be made only against deposit of the Letter of
Transmittal (and any other required documents) and the tendered shares of Series
A Preferred Stock.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of shares of Series A Preferred Stock tendered for
exchange will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. The Company reserves the
right to reject any and all tenders of any particular shares of Series A
Preferred Stock not properly tendered or reject any particular shares of Series
A Preferred Stock the acceptance of which might, in the judgment of the Company
or its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or condition of the Exchange Offer as to any
particular shares of Series A Preferred Stock either before or after the
Expiration Date (including the right to waive the ineligibility of any holder
who seeks to tender shares of Series A Preferred Stock in the Exchange Offer).
The interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of shares of Series A Preferred Stock for exchange
must be cured within such time as the Company shall determine. Neither the
Company nor any other person shall be under any duty to give notification of
defects or irregularities with respect to tenders of shares of Series A
Preferred Stock for exchange, nor shall any of them incur any liability for
failure to give such notification.
If the Letter of Transmittal or any share of Series A Preferred Stock or
powers of attorney are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, proper evidence satisfactory to the Company of
their authority to so act must be submitted.
By tendering, each holder that is not a broker-dealer or is a broker-dealer
but is not receiving shares of Exchange Preferred Stock for its own account will
represent to the Company that, among other things, the shares of Exchange
Preferred Stock acquired pursuant to the Exchange Offer are being obtained in
the ordinary course of such holder's business, that such holder has no
arrangement or understanding with any person to participate in the distribution
of such shares of Exchange Preferred Stock and that such holder is not an
"affiliate" of the Company as defined in Rule 405 under the Securities Act or,
if it is an affiliate, such holder will comply with the registration and
prospectus delivery requirements of the Securities Act, to the extent
applicable. Each broker-dealer that is receiving shares of Exchange Preferred
Stock for its own account in exchange for shares of Series A Preferred Stock
that were acquired as a result of market-making or other trading activities will
represent to the Company that it will deliver a prospectus in connection with
any resale of such shares of Exchange Preferred Stock.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any shares of Series A Preferred Stock that remain
outstanding subsequent to the Expiration Date, or, as set forth under "--
Certain Conditions to the Exchange Offer," to terminate the Exchange Offer and
(b) to the extent permitted by applicable law, purchase shares of Series A
Preferred Stock in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers may differ from the terms
of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of shares of Series A Preferred Stock may be withdrawn at any time
prior to to 5:00 p.m., 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 prior to 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 shares of Series A
Preferred Stock to be withdrawn (the "Depositor"), (ii) identify the shares of
Series A Preferred Stock to be withdrawn (including the certificate number of
numbers of the certificate or certificates representing such shares of Series A
Preferred Stock and number of shares of such Series A Preferred Stock), (iii) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which such shares of Series A Preferred Stock were tendered
(including any required signature guarantees) or be accompanied by documents of
transfer sufficient to permit the Transfer Agent with respect to the shares of
Series A Preferred Stock to register the transfer of such shares of Series A
Preferred Stock into the name of the person
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<PAGE> 80
withdrawing the tender and (iv) specify the name in which any such shares of
Series A Preferred Stock are to be registered, if different from that of the
Depositor. All questions as to the validity, form and eligibility (including
time of receipt) of such withdrawal notices will be determined by the Company in
its sole discretion, which determination will be final and binding on all
parties. Any shares of Series A Preferred Stock so withdrawn will be deemed not
to have been validly tendered for purposes of the Exchange Offer and no shares
of Exchange Preferred Stock will be issued with respect thereto unless the
shares of Series A Preferred Stock so withdrawn are validly retendered. Any
shares of Series A Preferred Stock which have been tendered but which are
withdrawn will be returned to the holder thereof without cost to such holder as
soon as practicable after such withdrawal. Properly withdrawn shares of Series A
Preferred Stock may be retendered by following one of the procedures described
above under "-- Procedures for Tendering Series A Preferred Stock" at any time
prior to the Expiration Date.
ACCEPTANCE OF SERIES A PREFERRED STOCK FOR EXCHANGE; DELIVERY OF EXCHANGE
PREFERRED STOCK
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all shares of
Series A Preferred Stock properly tendered and will issue the shares of Exchange
Preferred Stock promptly after acceptance of the Exchange Offer. See "-- Certain
Conditions to the Exchange Offer" below. For purposes of the Exchange Offer, the
Company will be deemed to have accepted properly tendered shares of Series A
Preferred Stock for exchange when the Company has given oral or written notice
thereof to the Exchange Agent.
In all cases, issuance of the shares of Exchange Preferred Stock in exchange
for shares of Series A Preferred Stock pursuant to the Exchange Offer will be
made only after timely receipt by the Company of such shares of Series A
Preferred Stock, a properly completed and duly executed Letter of Transmittal
and all other required documents. If any tendered shares of Series A Preferred
Stock are not accepted for exchange for any reason set forth in the terms and
conditions of the Exchange Offer, such unaccepted shares of Series A Preferred
Stock will be returned without expense to the tendering holder thereof as
promptly as practicable after the rejection of such tender or the expiration or
termination of the Exchange Offer.
UNTENDERED SERIES A PREFERRED STOCK
Holders of shares of Series A Preferred Stock whose shares of Series A
Preferred Stock are not tendered or are tendered but not accepted in the
Exchange Offer will continue to hold such shares of Series A Preferred Stock and
will be entitled to all the rights and preferences and subject to the
limitations applicable thereto. Following consummation of the Exchange Offer,
the holders of shares of Series A Preferred Stock will continue to be subject to
the existing restrictions upon transfer thereof and, except as provided herein,
the Company will have no further obligation to such holders to provide for the
registration under the Securities Act of the shares of Series A Preferred Stock
held by them. To the extent that shares of Series A Preferred Stock are tendered
and accepted in the Exchange Offer, the trading market for untendered and
tendered but unaccepted shares of Series A Preferred Stock could be adversely
affected.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or issue shares of Exchange Preferred Stock
in exchange for, any shares of Series A Preferred Stock, and may terminate or
amend the Exchange Offer, if at any time before the acceptance of such shares of
Series A Preferred Stock for exchange, any of the following events shall occur:
(A) an injunction, order or decree shall have been issued by any court or
governmental agency that would prohibit, prevent or otherwise materially
impair the ability of the Company to proceed with the Exchange Offer; or
(B) there shall occur a change in the current interpretation of the staff
of the Commission which current interpretation permits the shares of
Exchange Preferred Stock issued pursuant to the Exchange Offer in exchange
for the shares of Series A Preferred Stock to be offered for resale, resold
and otherwise transferred by holders thereof (other than (i) a broker-dealer
who purchases such Exchange Preferred Stock directly from the Company to
resell pursuant to Rule 144A or any other available exemption under the
Securities Act or (ii) a person that is an affiliate of the Company within
the meaning of Rule 405 under the Securities Act), without compliance with
the registration and prospectus delivery provisions of the Securities Act
provided that such shares of Exchange Preferred Stock are acquired in the
ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of shares of
Exchange Preferred Stock.
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<PAGE> 81
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any shares of Series A
Preferred Stock and return any shares of Series A Preferred Stock that have been
tendered to the holders thereof, (ii) extend the Exchange Offer and retain all
shares of Series A Preferred Stock tendered prior to the Expiration Date,
subject to the rights of such holders of tendered shares of Series A Preferred
Stock to withdraw their tendered shares of Series A Preferred Stock, or (iii)
waive such termination event with respect to the Exchange Offer and accept all
properly tendered shares of Series A Preferred Stock that have not been
withdrawn. If such waiver constitutes a material change in the Exchange Offer,
the Company will disclose such change by means of a supplement to this
Prospectus that will be distributed to each registered holder of shares of
Series A Preferred Stock, and the Company will extend the Exchange Offer for a
period of five to ten business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders of the shares of
Series A Preferred Stock, if the Exchange Offer would otherwise expire during
such period.
In addition, the Company will not accept for exchange any Series A Preferred
Stock tendered, and no Exchange Preferred Stock will be issued in exchange for
any such Series A Preferred Stock, if at any time any stop order shall be
threatened by the Commission or in effect with respect to the Registration
Statement.
The Exchange Offer is not conditioned on any minimum number of shares of
Series A Preferred Stock being tendered for exchange.
EXCHANGE AGENT
Boston EquiServe, L.P. 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:
Boston EquiServe, L.P.
150 Royall Street
Canton, MA 02021
By Facsimile:
617-575-2500
Confirm By Telephone:
617-575-3120
SOLICITATION OF TENDERS; FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or other
persons soliciting acceptance of the Exchange Offer. The Company, however, will
pay the Exchange Agent reasonable and customary fees for its services and will
reimburse the Exchange Agent for its reasonable out-of-pocket expenses in
connection therewith. The cash expenses to be incurred by the Company in
connection with the Exchange Offer will be paid by the Company.
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No person has been authorized to give any information or to make any
representation in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company. Neither the
delivery of this Prospectus nor any exchange made hereunder shall, under any
circumstances, create any implication that there has been no change in the
affairs of the Company since the respective dates as of which information is
given herein. The Exchange Offer is not being made to (nor will tenders be
accepted from or on behalf of) holders of shares of Series A Preferred Stock in
any jurisdiction in which the making of the Exchange Offer or the acceptance
thereof would not be in compliance with the laws of such jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of shares of Series A Preferred Stock pursuant to the Exchange Offer. If,
however, certificates representing shares of Exchange Preferred Stock or shares
of Series A Preferred Stock not tendered or accepted for exchange are to be
delivered to, or are to be registered or issued in the name of, any person other
than the registered holder of the shares of Series A Preferred Stock tendered,
or if tendered shares of Series A Preferred Stock are registered in the name of
any person other than the person signing the Letter of Transmittal, or if a
transfer tax is imposed for any reason other than the exchange of shares of
Series A Preferred Stock pursuant to the Exchange Offer, then the amount of any
such transfer taxes (whether imposed on the registered holder or any other
persons) will be payable by the tendering holder. If satisfactory evidence of
payment of such taxes or exemption therefrom is not submitted with the Letter of
Transmittal, the amount of such transfer taxes will be billed directly to such
tendering holders.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. Expenses incurred in connection
with the issuance of the Exchange Preferred Stock will be charged by the
Company to paid-in-capital under generally accepted accounting principles.
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PLAN OF DISTRIBUTION
Based on no action letters issued by the staff of the Commission to third
parties, the Company believes that the Exchange Preferred Stock issued pursuant
to the Exchange Offer in exchange for Series A Preferred Stock may be offered
for resale, resold and otherwise transferred by holders thereof (other than (i)
a broker-dealer who purchases such Exchange Preferred Stock directly from the
Company to resell pursuant to Rule 144A or any other available exemption under
the Securities Act or (ii) a person that is an affiliate of the Company within
the meaning of Rule 405 under the Securities Act), without compliance with the
registration and prospectus delivery requirements of the Securities Act provided
that such shares of Exchange Preferred Stock are acquired in the ordinary course
of such holders' business and such holders have no arrangement with any person
to participate in the distribution of such Exchange Preferred Stock. Any holder
of Series A Preferred Stock who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Exchange Preferred Stock could not rely
on such interpretation by the staff of the Commission and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Thus, any shares of Exchange Preferred
Stock acquired by such holders will not be freely transferable except in
compliance with the Securities Act.
Each broker-dealer that receives shares of Exchange Preferred Stock for its
own account in exchange for shares of Series A Preferred Stock acquired as a
result of market-making or other trading activities must acknowledge that it
will deliver a prospectus in connection with any resale of such shares of
Exchange Preferred Stock. For a period of 90 days after the Expiration Date,
this Prospectus, as it may be amended or supplemented from time to time, may be
used by a broker-dealer in connection with resales of such shares of Exchange
Preferred Stock. During such 90-day period, the Company will use its best
efforts to make this Prospectus available to any broker-dealer for use in
connection with such resale, provided that such broker-dealer indicates in the
Letter of Transmittal that it is a broker-dealer.
The Company will not receive any proceeds from any sale of shares of
Exchange Preferred Stock by broker-dealers. Shares of Exchange Preferred Stock
received by broker-dealers for their own account pursuant to the Exchange Offer
may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the shares of Exchange Preferred Stock or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or negotiated prices. Any such resale
may be made directly to purchasers or to or through broker-dealers who may
receive compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such shares of Exchange Preferred
Stock. Any broker-dealer that resells shares of Exchange Preferred Stock that
were received by it for its own account pursuant to the Exchange Offer and any
person that participates in the distribution of such shares of Exchange
Preferred Stock may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of shares of Exchange Preferred
Stock and any commissions or concessions received by any such broker-dealers may
be deemed to be underwriting compensation under the Securities Act. The Letter
of Transmittal states that a broker-dealer, by acknowledging that it will
deliver and by delivering a prospectus, will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The Company will indemnify the holders of the Exchange Preferred Stock
(including any broker-dealers) against certain liabilities, including
liabilities under the Securities Act.
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DESCRIPTION OF THE EXCHANGE PREFERRED STOCK
The Board of Directors of the Company has authorized the issuance of up to
110,000 shares of Exchange Preferred Stock, which consist of up to 38,000 shares
of Exchange Preferred Stock for original issuance (of which up to 33,000 shares
are to be issued in the Exchange Offer) plus 72,000 additional shares of
Exchange Preferred Stock which may be issued only to pay dividends on the
Exchange Preferred Stock if the Company elects to pay dividends in additional
shares of Exchange Preferred Stock.
RANKING
The Exchange Preferred Stock will, with respect to dividend distributions
and distributions upon the liquidation, dissolution or winding-up of the
Company, rank senior to all classes of common stock of the Company and to each
other class of capital stock or series of preferred stock established after the
date of this Prospectus (collectively, "Junior Securities"). The Company may not
issue any class or series of capital stock ranking senior to or on a parity with
the Exchange Preferred Stock (or amend the provisions of any existing class of
capital stock or series of preferred stock to make such class or series rank
senior to or on a parity with the Exchange Preferred Stock) with respect to
dividend distributions or distributions upon liquidation, dissolution or
winding-up of the Company without the approval of the holders of at least a
majority of the shares of Exchange Preferred Stock then outstanding, voting or
consenting, as the case may be, together as one class; provided, however, that
the Company can issue, from time to time, (i) additional shares of Exchange
Preferred Stock to satisfy dividend payments on outstanding shares of Exchange
Preferred Stock, and (ii) up to 5,000 shares of Exchange Preferred Stock, or
Series A Preferred Stock, along with sufficient additional shares of Exchange
Preferred Stock and Series A Preferred Stock to satisfy the payment of dividends
thereon. The Exchange Preferred Stock will rank pari passu with the Series A
Preferred Stock.
DIVIDENDS
Holders of the Exchange Preferred Stock will be entitled to receive, when,
as and if declared by the Board of Directors of the Company, out of funds
legally available therefor, dividends on the Exchange Preferred Stock at a rate
per annum equal to 12-1/2% of the liquidation preference per share of Exchange
Preferred Stock, payable semiannually. All dividends will be cumulative whether
or not earned or declared on a daily basis from the Issue Date and will be
payable semiannually in arrears on August 15 and February 15 of each year,
commencing on February 15, 1998, to holders of record on the August 1 and
February 1 immediately preceding the relevant dividend payment date. Dividends
may be paid, at the Company's option, on any dividend payment date occurring on
or prior to August 15, 2002 either in cash or by the issuance of additional
shares of Exchange Preferred Stock (including fractional shares) having an
aggregate liquidation preference equal to the amount of such dividends. In the
event that on or prior to August 15 , 2002 dividends are declared and paid
through the issuance of additional shares of Exchange Preferred Stock, as
provided in the previous sentence, such dividends shall be deemed paid in full
and will not accumulate. If any dividend payable on any dividend payment date
subsequent to August 15, 2000 is not paid in full in cash, the per annum
dividend rate will be increased by 0.50% from such dividend payment date, and
following two such non-cash payments, the per annum dividend rate will be
increased by 1.00% for each additional semiannual period in which such non-cash
payment occurs, up to a maximum rate of 200 basis points in excess of the
dividend rate originally borne by the Exchange Preferred Stock (as shown on the
cover of this Prospectus). After the date on which such dividend default is
cured, the dividend rate on the Exchange Preferred Stock will revert to the
dividend rate originally borne by the Exchange Preferred Stock (as shown on the
cover of this Prospectus). After August 15, 2002, dividends must be paid in
cash. The Indenture and the New Revolving Credit Facility restrict the Company's
ability to pay cash dividends on its Capital Stock and will prohibit such
payments in certain instances and other future agreements may provide the same.
See "Description of Certain Indebtedness."
Unpaid dividends accumulating after August 15, 2002 on the Exchange
Preferred Stock for any past dividend period and dividends in connection with
any optional redemption may be declared and paid at any time, without reference
to any regular dividend payment date, to holders of record on such date, not
more than forty-five days prior to the payment thereof, as may be fixed by the
Board of Directors of the Company.
REDEMPTION
Optional Redemption. The Exchange Preferred Stock may be redeemed (subject
to contractual and other restrictions with respect thereto and to the legal
availability of funds therefor) at any time on or after August 15 , 2002, in
whole or in part, at the option of the Company, at the redemption prices
(expressed in percentages of the then effective liquidation preference thereof)
set forth below,
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plus, without duplication, an amount in cash equal to all accumulated and unpaid
dividends (including an amount in cash equal to a prorated dividend for the
period from the dividend payment date immediately prior to the redemption date
to the redemption date), if redeemed during the 12-month period beginning August
15 of each of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- -----------
<S> <C>
2002.............. 106.250%
2003.............. 103.125%
2004.............. 101.563%
2005 and thereafter 100.000%
</TABLE>
Mandatory Redemption. The Exchange Preferred Stock will also be subject to
mandatory redemption (subject to contractual and other restrictions with respect
thereto and to the legal availability of funds therefor) in whole on August 15,
2005 at a price equal to 100% of the liquidation preference thereof, payable in
cash, plus, without duplication, all accumulated and unpaid dividends, which
will also be paid in cash (whether or not otherwise payable in cash) to the date
of redemption.
In the event of redemption of fewer than all of the outstanding shares of
Exchange Preferred Stock, the Exchange Preferred Stock will be redeemed on a pro
rata basis. The Exchange Preferred Stock will be redeemable upon not less than
30 nor more than 60 days' prior written notice, mailed by first class mail to a
holder's last address as it shall appear on the register maintained by the
Transfer Agent of the Exchange Preferred Stock. On and after any redemption
date, dividends will cease to accrue on the Exchange Preferred Stock or portions
thereof called for redemption unless the Company shall fail to redeem any such
Exchange Preferred Stock. The Indenture and the New Revolving Credit Facility
restrict the ability of the Company to redeem the Exchange Preferred Stock and
will prohibit any such redemption in certain instances.
LIQUIDATION PREFERENCE
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, holders of the Exchange Preferred Stock will initially be entitled
to be paid, out of the assets of the Company available for distribution, $1,000
per share, plus an amount in cash equal to accumulated and unpaid dividends
thereon to the date fixed for liquidation, dissolution or winding-up (including
an amount equal to a prorated dividend for the period from the immediately
preceding dividend payment date to the date fixed for liquidation, dissolution
or winding-up), before any distribution is made on any Junior Securities. If
upon any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the amounts payable with respect to the Exchange Preferred Stock are
not paid in full, the holders of the Exchange Preferred Stock and Series A
Preferred Stock will share equally and ratably in any distribution of assets of
the Company first in proportion to the full liquidation preference to which each
is entitled until such preferences are paid in full, and then in proportion to
their respective amounts of accumulated but unpaid dividends. After payment of
the full amount of the liquidation preference and accumulated and unpaid
dividends to which they are entitled, the holders of shares of Exchange
Preferred Stock will not be entitled to any further participation in any
distribution of assets of the Company. However, neither the sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Company nor the consolidation or merger of the Company with one or more
corporations shall be deemed to be a liquidation, dissolution or winding-up of
the Company.
VOTING RIGHTS
Holders of the Exchange Preferred Stock will have no voting rights with
respect to general corporate matters except as provided by law or as set forth
in the Restated Articles. The Restated Articles provide that if (i) after August
15, 2002, cash dividends on the Exchange Preferred Stock are in arrears and
unpaid for two consecutive semiannual periods; (ii) the Company fails to redeem
the Exchange Preferred Stock on or before August 15 , 2005 or fails to discharge
any redemption obligation with respect to the Exchange Preferred Stock; (iii)
the Company fails to make a Change of Control Offer in the event of a Change of
Control or fails to purchase shares of the Exchange Preferred Stock from holders
who elect to have such shares purchased pursuant to the Change of Control Offer;
(iv) a breach or violation of any of the provisions described under the caption
" -- Certain Covenants" below occurs and the breach of violation continues for a
period of 30 days or more after the Company receives notice thereof specifying
the default from the holders of at least 25% of the shares of the Exchange
Preferred Stock then outstanding; or (v) the failure to pay at the final stated
maturity (giving effect to any extensions thereof and applicable grace periods)
the principal amount of any Indebtedness of the Company or any Subsidiary of the
Company, or the acceleration of the final stated maturity of any such
Indebtedness, if the aggregate principal amount of such Indebtedness, together
with the aggregate principal amount of any other such Indebtedness in default
for
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failure to pay principal at the final stated maturity (giving effect to any
extensions thereof and applicable grace periods) or which has been accelerated,
aggregates $3.0 million or more at any time, in each case, after a 10-day period
during which any one or more of the above defaults shall not have been cured or
such acceleration rescinded, then the number of directors constituting the Board
of Directors will be adjusted to permit the holders of the majority of the then
outstanding Series A Preferred Stock and Exchange Preferred Stock, voting
together as a single class, to elect that number of directors constituting at
least 25% of the Board of Directors of the Company. Such voting rights will
continue until such time as, in the case of a dividend default, all accumulated
and unpaid dividends on the Series A Preferred Stock and Exchange Preferred
Stock are paid in full in cash and, in all other cases, any failure, breach or
default giving rise to such voting right is remedied, at which time the term of
any directors elected pursuant to the provisions of this paragraph shall
immediately terminate.
The Restated Articles provide that the Company will not authorize any
additional shares of Exchange Preferred Stock or any class or series of capital
stock ranking prior to or on a parity with the Exchange Preferred Stock (other
than the Series A Preferred Stock) with respect to dividend distributions or
distributions upon liquidation, dissolution or winding-up without the
affirmative vote or consent of holders of at least a majority of the shares of
Exchange Preferred Stock of the Company then outstanding which are entitled to
vote thereon, voting or consenting, as the case may be, as one class. The
Restated Articles also provide that the Company may not amend the Restated
Articles so as to affect adversely the specified rights, preferences, privileges
or voting rights of the holders of shares of Exchange Preferred Stock, without
the affirmative vote or consent of the holders of at least a majority of the
then outstanding shares of Exchange Preferred Stock which are entitled to vote
thereon, voting or consenting, as the case may be, as one class.
Under Massachusetts state law, holders of Exchange Preferred Stock are
entitled to vote as a class upon a proposed amendment to the articles of
organization of the Company, whether or not entitled to vote thereon by the
articles of organization, if the amendment would adversely affect the rights of
the shares of such class.
CHANGE OF CONTROL OFFER
Within 20 days of the occurrence of a Change of Control, the Company shall
make an offer to purchase (the "Change of Control Offer") the outstanding
Exchange Preferred Stock at a purchase price equal to 101% of the liquidation
preference thereof plus, without duplication, an amount in cash equal to all
accumulated and unpaid dividends thereon (including an amount in cash equal to a
prorated dividend for the period from the immediately preceding dividend payment
date to the Change of Control Payment Date (such applicable purchase price being
hereinafter referred to as the "Change of Control Purchase Price")) in
accordance with the procedures set forth in this covenant.
Within 20 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control to be sent at least once to
the Dow Jones News Service or similar business news service in the United States
and (ii) send by first-class mail, postage prepaid, to each holder of Exchange
Preferred Stock, at the address appearing in the register maintained by the
Preferred Stock Transfer Agent, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Exchange Preferred Stock tendered will be accepted for
payment, and otherwise subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 Business Days from the date such
notice is mailed (the "Change of Control Payment Date"));
(3) that any Exchange Preferred Stock not tendered will continue to
accumulate dividends;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Exchange Preferred Stock accepted for payment
pursuant to the Change of Control Offer shall cease to accumulate dividends
after the Change of Control Payment Date;
(5) that holders accepting the offer to have their Exchange Preferred
Stock purchased pursuant to a Change of Control Offer will be required to
surrender their certificates representing Exchange Preferred Stock to the
Company at the address specified in the notice prior to the close of
business on the Business Day preceding the Change of Control Payment Date;
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(6) that holders will be entitled to withdraw their acceptance if the
Company receives, not later than the close of business on the third Business
Day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the holder, the
number of shares of Exchange Preferred Stock delivered for purchase, and a
statement that such holder is withdrawing his election to have such Exchange
Preferred Stock purchased;
(7) that holders whose Exchange Preferred Stock is being purchased only
in part will be issued new certificates representing the number of shares of
Exchange Preferred Stock equal to the unpurchased portion of the
certificates surrendered; and
(8) any other procedures that a holder must follow to accept a Change of
Control Offer or effect withdrawal of such acceptance.
On the Change of Control Payment Date, the Company shall accept for payment
the Exchange Preferred Stock tendered pursuant to the Change of Control Offer
and promptly mail to each holder of Exchange Preferred Stock so accepted payment
in an amount equal to the purchase price for such Exchange Preferred Stock, and
the Company shall execute and issue a new Exchange Preferred Stock certificate
equal to any unpurchased shares represented by a certificate surrendered.
In the event that a Change of Control occurs and the holders of Exchange
Preferred Stock exercise their right to require the Company to purchase Exchange
Preferred Stock, if such purchase constitutes a "tender offer" for purposes of
Rule 14e-1 under the Exchange Act at that time, the Company will comply with the
requirements of Rule 14e-1 as then in effect with respect to such repurchase.
Prior to the mailing of the notice referred to above, but in any event
within 20 days following the date on which a Change of Control occurs, the
Company covenants that, if the purchase of the Exchange Preferred Stock would
violate or constitute a default or be prohibited under the Indenture, the New
Revolving Credit Facility or any other instrument governing Indebtedness
outstanding at the time, then the Company will, to the extent needed to permit
such purchase of Exchange Preferred Stock, either (i) repay in full all
Indebtedness under the Indenture, the New Revolving Credit Facility or any such
other instrument, as the case may be, or (ii) obtain the requisite consents
under the Indenture, the New Revolving Credit Facility or any such other
instrument, as the case may be, to permit the redemption of the Exchange
Preferred Stock as provided above. The Company will first comply with the
covenant in the preceding sentence before it will be required to redeem Exchange
Preferred Stock pursuant to the provisions described above.
CERTAIN COVENANTS
The Restated Articles impose certain restrictions on the ability of the
Company to (i) declare or pay any dividend or any other distribution or payment
on Capital Stock of the Company or make any payment to the direct or indirect
holders (in their capacities as such) of Capital Stock of the Company other than
the Series A Preferred Stock and the Exchange Preferred Stock (other than
dividends or distributions payable solely in Capital Stock (other than capital
stock which matures or is mandatorily redeemable prior to the maturity date of
the Exchange Preferred Stock ("Disqualified Capital Stock")) or in options,
warrants or other rights to purchase Capital Stock (other than Disqualified
Capital Stock) or (ii) purchase, redeem or make any other acquisition or
retirement for value of any Capital Stock of the Company other than the Exchange
Preferred Stock (other than Capital Stock owned by the Company or a Wholly-Owned
Subsidiary of the Company, excluding Disqualified Capital Stock) unless (A)
dividends on the Exchange Preferred Stock have been paid in cash for the most
recent semiannual period and (B) the payments made on Capital Stock shall not
exceed the sum of (1) 50% of the Company's cumulative Consolidated Net Income
after the Issue Date (or minus 100% of any cumulative deficit in Consolidated
Net Income during such period), and (2) 100% of the aggregate Net Proceeds and
the fair market value of securities or other property received by the Company as
a capital contribution to the common equity of the Company after the Issue Date
and from the issue or sale, after the Issue Date, of Capital Stock (other than
Disqualified Capital Stock or Capital Stock of the Company issued to any
Subsidiary of the Company) of the Company or any Indebtedness or other
securities of the Company convertible into or exercisable or exchangeable for
Capital Stock (other than Disqualified Capital Stock) of the Company which has
been so converted or exercised or exchanged, as the case may be plus (3)
$2,500,000. Such restrictions do not prohibit (i) the retirement of any shares
of Capital Stock of the Company or by conversion into, or by or in exchange for,
shares of Capital Stock (other than Disqualified Capital Stock), or out of, the
Net Proceeds of the substantially concurrent sale (other than to a Subsidiary of
the Company) of other shares of Capital Stock of the Company (other than
Disqualified Capital Stock); (ii) the retirement of any shares of Disqualified
Capital Stock by conversion into, or by exchange for, shares of Disqualified
Capital Stock, or out of the Net Proceeds of the substantially concurrent sale
(other than to a Subsidiary of the Company) of other shares of Disqualified
Capital Stock; (iii) payment, from the proceeds of the Offerings, of up to $2.25
million to Parent to be used to repurchase from the High Voltage Engineering
Corporation Retirement Plan
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shares of Letitia Common Stock within 60 days of the Issue Date for not more
than $2.25 million and payment of $150,000 to fund a proportional accrual
relating to the Subordinated Notes Warrants of up to $150,000; (iv) the exchange
of Warrants for Subsidiary Warrants or Common Shares for Subsidiary Shares in
the event of a Qualified Subsidiary IPO; or (v) the payment of management fees
for services provided by Parent or its employees in an aggregate annual amount
not to exceed $750,000; provided, however that any amounts paid by the Company
with respect to clause (iv) shall reduce amounts available for other payments on
Capital Stock as described in clause (B) in the preceding sentence.
TRANSFER AGENT AND REGISTRAR
State Street Bank and Trust Company is the transfer agent (the "Preferred
Stock Transfer Agent") and registrar for the Exchange Preferred Stock.
REPORTS TO HOLDERS
Even if the Company is not subject to the reporting requirements of Section
13 or Section 15(d) of the Exchange Act, the Company will be obligated to
provide to the holders of Preferred Stock all annual and quarterly reports and
other documents which the Company would have been required to file with the
Commission pursuant to such Sections 13 and 15(d) had it been so subject and
provide to all holders of Preferred Stock, without cost to such holders, copies
of such reports and documents.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Restated Articles. Reference is made to the Restated Articles for the full
definition of all such terms as well as any other capitalized terms used herein
for which no definition is provided.
"Affiliate" of any specified Person means any other Person which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, such specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"Asset Sale" means the sale, transfer, repayment or other disposition (other
than to the Company or any of its Restricted Subsidiaries) in any single
transaction or series of related transactions with a fair market value in excess
of $1.0 million of (a) any Capital Stock of or other equity interest in any
Restricted Subsidiary of the Company, (b) all or substantially all of the assets
of the Company or of any Restricted Subsidiary thereof, (c) real property, (d)
all or substantially all of the assets of any business owned by the Company or
any Restricted Subsidiary thereof, or a division, line of business or comparable
business segment of the Company or any Restricted Subsidiary thereof; provided
that Asset Sales shall not include sales, leases, conveyances, transfers or
other dispositions to the Company or to a Restricted Subsidiary or to any other
Person if after giving effect to such sale, lease, conveyance, transfer or other
disposition such other Person becomes a Restricted Subsidiary.
"Capital Stock" means, with respect to any Person, any and all shares or
other equivalents (however designated) of capital stock, partnership interests
or any other participation, right or other interest in the nature of an equity
interest in such Person or any option, warrant or other security convertible
into any of the foregoing.
"Capitalized Lease Obligations" means Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP, and the amount of such Indebtedness
shall be the capitalized amount of such obligations determined in accordance
with GAAP.
A "Change of Control" of the Company will be deemed to have occurred at such
time as (i) any Person (including a Person's Affiliates and associates), other
than a Permitted Holder, becomes the beneficial owner (as defined under Rule
13d-3 or any successor rule or regulation promulgated under the Exchange Act) of
50% or more of the total voting or economic power of the Company's or Parent's
Common Stock, as the case may be, (ii) any Person (including a Person's
Affiliates and associates), other than a Permitted Holder, becomes the
beneficial owner of more than 33 1/3% of the total voting power of the Common
Stock of the Company or Parent, as the case may be, and the Permitted Holders
beneficially own, in the aggregate, a lesser percentage of the total voting
power of the Common Stock of the Company or Parent, as the case may be, than
such other Person and do not have the right or ability by
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voting power, contract or otherwise to elect or designate for election a
majority of the Board of Directors of the Company or Parent, as the case may be,
(iii) there shall be consummated any consolidation or merger of the Company or
Parent in which the Company or Parent, as the case may be, is not the continuing
or surviving corporation or pursuant to which the Common Stock of the Company or
Parent, as the case may be, would be converted into cash, securities or other
property, other than a merger or consolidation of the Company or Parent, as the
case may be, in which the holders of the Common Stock of the Company or Parent,
as the case may be, outstanding immediately prior to the consolidation or merger
hold, directly or indirectly, at least a majority of the Common Stock of the
surviving corporation immediately after such consolidation or merger, or (iv)
during any period of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors of the Company or Parent, as the
case may be, (together with any new directors whose election by such Board of
Directors or whose nomination for election by the shareholders of the Company or
Parent, as the case may be, has been approved by 66 2/3% of the directors then
still in office who either were directors at the beginning of such period or
whose election or recommendation for election was previously so approved) cease
to constitute a majority of the Board of Directors of the Company or Parent, as
the case may be.
"Common Stock" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"Consolidated Net Income" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person, including any
Unrestricted Subsidiary of the Company or a Restricted Subsidiary (the "other
Person") in which the Person in question or any of its Restricted Subsidiaries
has less than a 100% interest (which interest does not cause the net income of
such other Person to be consolidated into the net income of the Person in
question in accordance with GAAP) shall be included only to the extent of the
amount of dividends or distributions actually paid to the Person in question or
the Restricted Subsidiary, (b) the Net Income of any Restricted Subsidiary of
the Person in question that is subject to any restriction or limitation on the
payment of dividends or the making of other distributions to the Company (other
than pursuant to the Notes or the Indenture) shall be excluded to the extent of
such restriction or limitation, (c)(i) the Net Income of any Person acquired in
a pooling of interests transaction for any period prior to the date of such
acquisition and (ii) any net gain (but not loss) resulting from an Asset Sale by
the Person in question or any of its Restricted Subsidiaries other than in the
ordinary course of business shall be excluded, (d) extraordinary, unusual and
non-recurring gains and losses shall be excluded and (e) without duplication,
the tax effected non-cash accrual or accretion of, and payment of, Contingent
Interest Payments or Warrants during such period shall be excluded.
"Contingent Interest Payments" means the contingent interest payments
payable by the Company to BancBoston Capital, Inc. pursuant to the Contingent
Interest Payment Agreement, dated as of April 27, 1991, as amended, between the
Company, Robicon and Datcon and BancBoston Capital, Inc. ("BancBoston") and that
Agreement For Additional Contingent Interest Payments (Quest), dated as of June
29, 1995, between the Company, Robicon and Datcon and BancBoston.
"Exchange Preferred Stock" means the 12-1/2% Series A Exchange Redeemable
Preferred Stock of the Company.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, incur (by conversion, exchange or otherwise), assume,
guarantee or otherwise become liable in respect of such Indebtedness or other
obligation or the recording, as required pursuant to GAAP or otherwise, of any
such Indebtedness or other obligation on the balance sheet of such person (and
"incurrence," "incurred," "incurable," and "incurring" shall have meanings
correlative to the foregoing); provided that a change in GAAP that results in an
obligation of such Person that exists at such time becoming Indebtedness shall
not be deemed an incurrence of such Indebtedness.
"Indebtedness" means (without duplication), with respect to any Person, any
indebtedness at any time outstanding, secured or unsecured, contingent or
otherwise, which is for borrowed money (whether or not the recourse of the
lender is to the whole of the assets of such Person or only to a portion
thereof), or evidenced by bonds, notes, debentures or similar instruments or
representing the balance deferred and unpaid of the purchase price of any
property (excluding, without limitation, any balances that constitute accounts
payable or trade payables, and other accrued liabilities arising in the ordinary
course of business) if and to the extent any of the foregoing indebtedness would
appear as a liability upon a balance sheet of such Person prepared in accordance
with GAAP, and shall also include, to the extent not otherwise included (i) any
Capitalized Lease Obligations, (ii) obligations secured by a lien to which the
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property or assets owned or held by such Person is subject, whether or not the
obligation or obligations secured thereby shall have been assumed, (iii)
guarantees of items of other Persons which would be included within this
definition for such other Persons (whether or not such items would appear upon
the balance sheet of the guarantor), (iv) all obligations for the reimbursement
of any obligor on any letter of credit, banker's acceptance or similar credit
transaction, (v) in the case of the Company, Disqualified Capital Stock of the
Company or any Restricted Subsidiary thereof, and (vi) obligations of any such
Person under any Interest Rate Agreement applicable to any of the foregoing (if
and to the extent such Interest Rate Agreement obligations would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP).
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided (i) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount, including the Notes, is the principal amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with GAAP
and (ii) that Indebtedness shall not include any liability for federal, state,
local or other taxes. Notwithstanding any other provision of the foregoing
definition, any trade payable arising from the purchase of goods or materials or
for services obtained in the ordinary course of business shall not be deemed to
be "Indebtedness" of the Company or any Restricted Subsidiaries for purposes of
this definition. Furthermore, guarantees of (or obligations with respect to
letters of credit supporting) Indebtedness otherwise included in the
determination of such amount shall not also be included.
"Interest Rate Agreement" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"Issue Date" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.
"Net Income" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"Net Proceeds" means (a) in the case of any sale of Capital Stock by any
Person, the aggregate net proceeds received by such Person, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the fair market value
thereof, as determined in good faith by the board of directors, at the time of
receipt), (b) in the case of any exchange, exercise, conversion or surrender of
outstanding securities of any kind for or into shares of Capital Stock of the
Company which is not Disqualified Capital Stock, the net book value of such
outstanding securities on the date of such exchange, exercise, conversion or
surrender (plus any additional amount required to be paid by the holder to the
Company upon such exchange, exercise, conversion or surrender, less any and all
payments made to the holders, e.g., on account of fractional shares and less all
expenses incurred by the Company in connection therewith) and (c) in the case of
any issuance of any Indebtedness by the Company or any Restricted Subsidiary,
the aggregate net cash proceeds received by such Person after the payment of
expenses, commissions, underwriting discounts and the like incurred in
connection therewith.
"New Revolving Credit Facility" means the credit agreement or credit
agreements to be entered into by and among the Company, the Restricted
Subsidiaries and any one or more lenders from time to time parties thereto, as
the same may be amended, extended, increased, renewed, restated, supplemented or
otherwise modified (in whole or in part, and without limitation as to amount,
terms, conditions, covenants and other provisions) from time to time and any
agreement or agreements governing Indebtedness incurred to refinance, replace,
restructure or refund in whole or in part the borrowings and then maximum
commitments under the New Revolving Credit Facility or such agreement (whether
with the original administrative agent and lenders or other lenders or other
agents and lenders or otherwise and whether provided under the original credit
facility or other credit agreements or otherwise). The Company shall promptly
notify the Transfer Agent with respect to the Exchange Preferred Stock of any
such refunding, replacement, restructuring or refinancing of the New Revolving
Credit Facility.
"Parent" means Letitia Corporation, a Delaware corporation and the Company's
sole stockholder.
"Permitted Holders" means (a) Parent, (b) Laurence S. Levy, (c) Clifford
Press and (d) any spouse and any trust, holding company, or similar entity
established by and or controlled by either or both of Laurence S. Levy and
Clifford Press for the principal benefit of them and any of their spouses,
lineal descendants or other family members.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
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"Preferred Stock" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over holders of other
Capital Stock issued by such Person.
"Restricted Subsidiary" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes all of the Subsidiaries of the Company
existing as of the Issue Date.
"Series A Preferred Stock" means the 12-1/2% Senior Redeemable Preferred
Stock of the Company.
"Subsidiary" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first-named Person or any of its
Subsidiaries; or (ii) in the case of a partnership, joint venture, association
or other business entity, with respect to which such first-named Person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in
accordance with generally accepted accounting principles such entity is
consolidated with the first-named Person for financial statement purposes.
"Unrestricted Subsidiary" means (a) any Subsidiary of an Unrestricted
Subsidiary, (b) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of
Directors of the Company and (c) any Restricted Subsidiary that may be
classified as an Unrestricted Subsidiary pursuant to the Indenture.
"Wholly-Owned Subsidiary" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares) of which
are owned, directly or indirectly, by the Company.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
The Company has certain outstanding indebtedness and other payment
obligations (including guarantees of a subsidiary's indebtedness) which contain
a number of covenants that, among other things, restrict the ability of the
Company and its subsidiaries to incur additional indebtedness, pay certain
dividends, prepay indebtedness, dispose of certain assets, create liens, make
capital expenditures, make certain investments or acquisitions and otherwise
restrict corporate activities. Certain of these agreements also contain
provisions relating to a change of control of the Company, requirements that the
Company comply with certain financial ratios and tests and, in some cases, that
the Company make payments relating to the value of the Company's equity.
Following is a description of such other indebtedness and other obligations. The
following summary does not purport to be complete and is qualified in its
entirety by reference to the provisions of these agreements, copies of certain
of which have been filed as exhibits to the Registration Statement of which this
Prospectus is a part.
NEW REVOLVING CREDIT FACILITY
Concurrently with the closing of the Offerings, the Company entered into a
new $25.0 million senior secured revolving credit facility, including a $5.0
million sublimit for the issuance of standby letters of credit (the "New
Revolving Credit Facility"), with Fleet National Bank (the "Lender").
Interest Rate and Security. Availability under the New Revolving Credit
Facility is limited to the sum of 85% of eligible accounts receivable and 60% of
eligible inventory. The term of the New Revolving Credit Facility is five years.
Amounts borrowed under the New Revolving Credit Facility bear interest, at the
option of the Company, at either (i) the Lender's Base Rate plus 0.25% or (ii)
LIBOR plus 1.50%. Obligations under the New Revolving Credit Facility are
guaranteed by the Company and all of its domestic subsidiaries and secured by
accounts receivable and inventories of HVE and its domestic subsidiaries.
Certain Covenants. The New Revolving Credit Facility contains a number of
covenants that restrict the operation of the Company, including restrictions on,
among other things: (i) certain mergers, acquisitions or sales of the Company's
assets or stock (other than the stock of HVE); (ii) cash dividends and other
distributions to equity holders; (iii) payments in respect of subordinated debt;
(iv) transactions resulting in a change of control of HVE; (v) transactions with
affiliates; and (vi) indebtedness and liens. The New Revolving Credit Facility
will also include certain financial covenants, including without limitation, a
maximum total leverage ratio and a minimum fixed charge coverage ratio. The New
Revolving Credit Facility also contains customary representations, warranties,
affirmative and negative covenants and events of default for a facility of this
type.
THE INDENTURE AND NOTES
Concurrently with the issuance of the Series A Preferred Stock, the Company
issued $135,000,000 in aggregate principal amount of its 10-1/2% Senior Notes
due 2004, under an Indenture, dated as of August 8, 1997 (the "Indenture") by
and between the Company and State Street Bank and Trust Company, as trustee (the
"Trustee"). Capitalized terms used in this section and not otherwise defined
herein shall have the meaning set forth in the Indenture. As used in this
description, the "Company" means HVE only.
The Notes are general unsecured obligations of the Company ranking pari
passu in right of payment to all existing and future senior indebtedness of the
Company and senior in right of payment to any current or future subordinated
indebtedness of the Company.
The Notes mature on August 15, 2004. The Notes bear interest at a rate of
10-1/2% per annum from the date of original issuance until maturity. Interest is
payable semiannually in arrears on August 15 and February 15, commencing
February 15, 1998, to holders of record of the Notes at the close of business on
the immediately preceding August 1, and February 1, respectively. The interest
rate on the Notes is subject to increase, and such Additional Interest will be
payable on the payment dates set forth above, in certain circumstances, if the
Notes (or other securities substantially similar to the Notes) are not
registered with the Commission within the prescribed time periods.
The Notes are redeemable at the option of the Company, in whole or in part,
at any time on or after August 15, 2001 at the following redemption prices
(expressed as a percentage of principal amount), together, in each case, with
accrued and unpaid interest to the redemption date, if redeemed during the
twelve-month period beginning on August 15, of each year listed below:
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<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001......................... 105.250%
2002......................... 102.625%
2003 and thereafter.......... 100.000%
</TABLE>
Notwithstanding the foregoing, the Company may redeem in the aggregate up to
35% of the original principal amount of Notes at any time and from time to time
prior to August 15, 2000, at a redemption price equal to 110.500% of the
aggregate principal amount so redeemed, plus accrued and unpaid interest to the
redemption date with the Net Proceeds of one or more Qualified Equity Offerings
of the Company, or Parent to the extent such proceeds were contributed to the
Company as common equity; provided that at least $87.8 million of the principal
amount of Notes originally issued remains outstanding immediately after the
occurrence of any such redemption and that any such redemption occurs within 60
days following the closing of any such Qualified Equity Offering.
At the closing of the Offerings, the principal amount of the Notes Offering
was allocated among the Company and each of its direct Restricted Subsidiaries
in consideration for the release of certain obligations of such Restricted
Securities relating to the indebtedness being repaid in connection with the
Refinancing. Amounts allocated to individual Restricted Subsidiaries were
evidenced by the Intercompany Notes. The Intercompany Notes: (i) are senior
obligations of each Restricted Subsidiary; (ii) bear interest at least at the
rate borne by the Notes; (iii) mature on the maturity date of the Notes or such
earlier time when no Notes remain outstanding; (iv) not be subject to
redemption, repayment or repurchase prior to the stated maturity thereof except
as set forth below; and (v) will be pledged by the Company as collateral on the
Notes. See "The Transactions -- Intercompany Notes."
The Indenture allows each Restricted Subsidiary that is an obligor under an
Intercompany Note to effect a Qualified Subsidiary IPO; provided that (i) the
Restricted Subsidiary consummating such Qualified Subsidiary IPO will have
repaid in full its applicable Intercompany Note, together with all accrued and
unpaid interest, if any, thereon, (ii) immediately after giving pro forma effect
to such Qualified Subsidiary IPO, the Company (excluding the EBITDA and
Consolidated Fixed Charges of the Restricted Subsidiary effecting the Qualified
Subsidiary IPO) could incur $1.00 of additional Indebtedness (other than
Permitted Indebtedness) under the covenant described below assuming for the
purposes of this calculation only, that the offer to repurchase referred to in
the following paragraph has been subscribed in full, and (iii) no Default or
Event of Default shall have occurred and be continuing. Upon completion of a
Qualified Subsidiary IPO and the repayment of its Intercompany Note, such
Restricted Subsidiary will become an Unrestricted Subsidiary.
Within 30 days of the consummation of a Qualified Subsidiary IPO, the
Company shall mail a notice to each holder of Notes stating, among other things:
(1) that the holders of the Notes have the right to require the Company to apply
the Net Proceeds received from the repayment of the applicable Intercompany Note
to repurchase Notes from the holders thereof at a purchase price in cash equal
to 101% of the aggregate principal amount thereof (plus accrued and unpaid
interest to the purchase date) in the principal amount of the Intercompany Note
being repaid by such Restricted Subsidiary; (2) the purchase date, which shall
be no earlier than 30 days and not later than 60 days from the date such notice
is mailed; (3) the instructions, determined by the Company, that each holder
must follow in order to have such Notes repurchased; and (4) if the aggregate
principal amount of Notes surrendered by Holders exceeds the principal amount of
such Intercompany Note, the Company shall select the Notes to be purchased on a
pro rata basis.
Following the consummation of any such offer to holders of the Notes
following a Qualified Subsidiary IPO, the remaining Net Proceeds from the
payment of the Intercompany Note repurchased by the Company in connection
therewith shall be proceeds of an Asset Sale and shall be applied in accordance
with the covenant regarding limitation on certain asset sales.
The Indenture contains numerous affirmative and negative covenants that
restrict the activities of the Company in many respects. Among other things, the
Indenture provides that (i) the Company will not, and will not permit any
Restricted Subsidiary of the Company to, directly or indirectly, incur (as
defined) any Indebtedness (including Acquired Indebtedness but excluding
certain categories of Permitted Indebtedness) unless a certain Fixed Charge
Coverage Ratio is met and no Default or Event of Default shall have occurred
and be continuing at the time or as a consequence of the incurrence of such
Indebtedness.
The Indenture provides that the Company will not make, and will not permit
any of its Restricted Subsidiaries to, directly or indirectly, make, any
Restricted Payment, unless no Default or Event of Default shall have occurred
and be continuing at the time of or immediately after giving effect to such
Restricted Payment and immediately after giving pro forma effect to such
Restricted Payment, the Company could incur $1.00 of additional Indebtedness
(other than Permitted Indebtedness) and such payments, together
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with the aggregate of all Restricted Payments declared or made after the Issue
Date, does not exceed certain limits set forth in the Indenture.
In addition, the Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, (i) make any Investment other than
certain permitted investments and investments that are made as Restricted
Payments in compliance with the Restricted Payments covenant; (ii) create, incur
or otherwise cause or suffer to exist or become effective certain Liens upon any
property or asset of the Company or any Restricted Subsidiary or any shares of
stock or debt of any Restricted Subsidiary which owns property or assets, now
owned or hereafter acquired; or (iii) enter into or suffer to exist any
transaction or series of related transactions (including, without limitation,
the sale, purchase, exchange or lease of assets, property or services) with any
Affiliate (including entities in which the Company or any of its Restricted
Subsidiaries owns a minority interest) or holder of 10% or more of the Company's
Common Stock (an "Affiliate Transaction") or extend, renew, waive or otherwise
modify the terms of any Affiliate Transaction entered into prior to the Issue
Date unless certain specified conditions are met.
The Indenture also limits (i) certain mergers, consolidations, asset sales
and dispositions of assets, (ii) the issuance of Preferred Stock by a Restricted
Subsidiary, (iii) the sale, pledge, conveyance or disposal of any Capital Stock
of a Restricted Subsidiary, (iv) the sale, pledge, conveyance or disposal of the
Intercompany Notes or repayment thereof and (v) creation or existence of any
encumbrances on the ability of a Restricted Subsidiary to meet its principal and
interest obligations on the Intercompany Notes.
The Indenture also provides that within 20 days of the occurrence of a
Change of Control, the Company shall notify the Trustee in writing of such
occurrence and shall make an offer to purchase (the "Change of Control Offer")
the outstanding Notes at a purchase price equal to 101% of the principal amount
thereof plus any accrued and unpaid interest thereon to the Change of Control
Payment Date in accordance with specified procedures.
Events of Default under the Indenture include (i) default in payment of any
principal of, or premium, if any, on the Notes; (ii) default for 30 days in
payment of any interest on the Notes; (iii) default by the Company or any
Guarantor in the observance or performance of any other covenant in the Notes or
the Indenture for 60 days after written notice from the Trustee or the holders
of not less than 25% in aggregate principal amount of the Notes then
outstanding; (iv) failure to pay when due principal, interest or premium in an
aggregate amount of $3,000,000 or more with respect to any Indebtedness of the
Company or any Restricted Subsidiary thereof, or the acceleration of any such
Indebtedness aggregating $3,000,000 or more which default shall not be cured,
waived or postponed pursuant to an agreement with the holders of such
Indebtedness within 60 days after written notice as provided in the Indenture,
or such acceleration shall not be rescinded or annulled within 20 days after
written notice as provided in the Indenture; (v) any final judgment or judgments
which can no longer be appealed for the payment of money in excess of $3,000,000
shall be rendered against the Company or any Restricted Subsidiary thereof, and
shall not be discharged for any period of 60 consecutive days during which a
stay of enforcement shall not be in effect; and (vi) certain events involving
bankruptcy, insolvency or reorganization of the Company or any Restricted
Subsidiary thereof.
If an Event of Default (other than an Event of Default resulting from
certain events of bankruptcy, insolvency or reorganization) shall have occurred
and be continuing, then the Trustee or the holders of not less than 25% in
aggregate principal amount of the Notes then outstanding may declare to be
immediately due and payable the entire principal amount of all the Notes then
outstanding plus accrued interest to the date of acceleration; provided,
however, that after such acceleration but before a judgment or decree based on
acceleration is obtained by the Trustee, the holders of a majority in aggregate
principal amount of outstanding Notes may, under certain circumstances, rescind
and annul such acceleration if all Events of Default, other than nonpayment of
accelerated principal, premium or interest, have been cured or waived as
provided in the Indenture. In case an Event of Default resulting from certain
events of bankruptcy, insolvency or reorganization shall occur, the principal,
premium and interest amount with respect to all of the Notes shall be due and
payable immediately without any declaration or other act on the part of the
Trustee or the Holders of the Notes.
GUARANTEES OF ROBICON INDUSTRIAL REVENUE BONDS
Pennsylvania Economic Development Financing Authority. HVE is the guarantor
of Robicon's obligations to the Pennsylvania Economic Development Financing
Authority ("PEDFA") under a certain loan agreement among Robicon, PEDFA and
Dollar Bank, Federal Savings Bank ("Dollar Bank"), pursuant to which Robicon
borrowed $4.2 million from PEDFA to finance the construction of Robicon's
manufacturing facility in New Kensington, Pennsylvania. In connection with the
loan, PEDFA issued a Pennsylvania Economic Development Revenue Bond (1995 Series
C) (the "PEDFA IRB") to Dollar Bank for $4.2 million. PEDFA simultaneously
assigned most of its rights to reimbursement under the loan agreement to Dollar
Bank pursuant to an indenture between PEDFA and
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Dollar Bank. The PEDFA IRB is a special limited obligation of PEDFA, payable
solely from funds received from Robicon and under the guarantee (the "PEDFA
Guarantee") from HVE and an Open-End Mortgage and Security Agreement granting a
first priority security interest in the land and improvements at the New
Kensington facility.
The PEDFA IRB bears interest at a rate of 8.29% and matures on April 21,
2011. Robicon is permitted to prepay the PEDFA IRB at any time before maturity,
subject to prepayment premiums ranging from 101% to 105% of the principal amount
thereof.
The PEDFA Guarantee imposes certain financial and non-financial covenants
upon the Company which, once modified, are expected to correspond to covenants
contained in the New Revolving Credit Facility. The PEDFA Guarantee provides a
cure period of 30 days with respect to certain non-financial covenants contained
therein and, in most cases, an additional notice period of five days following
the acceleration of the PEDFA IRB before payment must be made by the Company
under the PEDFA Guarantee. The outstanding principal balance under the PEDFA IRB
as of April 26, 1997 was $3.9 million.
In the third and fourth quarters of Fiscal 1997, HVE was in technical
default of certain covenants under the PEDFA Guarantee, which defaults were
waived by the lender. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
Pennsylvania Industrial Development Authority. HVE has also guaranteed
Robicon's obligations to the Pennsylvania Industrial Development Authority
("PIDA") under a Consent, Subordination and Assumption Agreement (the
"Assumption Agreement") between Robicon and the Monroeville Area Industrial
Development Corporation ("MAID"), pursuant to which MAID assigned to Robicon all
of MAID's obligations to PIDA under a Loan Agreement between PIDA and MAID (the
"PIDA Loan Agreement"). Under the PIDA Loan Agreement, MAID borrowed $2.0
million from PIDA to defray the costs of Robicon's construction of its New
Kensington facility. Simultaneously with the execution of the Assumption
Agreement, Robicon entered into an installment sale agreement (the "Installment
Sale Agreement") with MAID pursuant to which Robicon agreed to purchase the New
Kensington property from MAID. The PIDA Loan Agreement is secured by the
guaranty from HVE and a mortgage granting a security interest in the land and
improvements at the New Kensington facility. The security interest represented
by this mortgage has been subordinated to the lien of Dollar Bank under the
PEDFA IRB pursuant to a subordination agreement between PIDA and Dollar Bank.
The balance outstanding under the PIDA Loan Agreement as of April 26, 1997 was
approximately $1.7 million.
The PIDA loan is evidenced by a note which bears interest at a rate of 2%
per annum of the outstanding principal balance of the note, unless the loan is
in default, in which case the note shall bear interest at a rate of the greater
of 12.5% or the Prime Interest Rate (as defined therein) plus 2% per annum,
applied from the date of such event of default (or if the event of default
relates to violation of a certain covenant relating to employment, applied
retroactively to the date of disbursement of the funds under the note)
prospectively until the note is paid in full. Robicon's obligations under the
Installment Sale Agreement also include payment of a fee to MAID of
seven-eighths of 1% charged on the outstanding principal balance of the note for
each year that the Installment Sale Agreement remains unsatisfied together with
any and all charges assessed annually or otherwise by PIDA relative to the note.
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<PAGE> 96
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 comprising in the
aggregate also 33,000 shares of Series A Preferred stock and 82.7429 Common
Shares, Warrants to purchase an aggregate of 82.7429 shares of HVE Common Stock.
Each Warrant, when exercised, will entitle the holder thereof to purchase
.00250736 shares of HVE Common Stock (each such share a "Warrant Share") at an
exercise price equal to $0.01 per .00250736 shares (the "Exercise Price"). The
number of Warrant Shares may be adjusted from time to time upon the occurrence
of certain events as provided in the Warrant Agreement. The Warrants are
presently exercisable and, unless exercised, will automatically expire on August
15, 2005 (the "Expiration Date"). The Warrants
94
<PAGE> 97
will entitle the holders thereof to purchase in the aggregate approximately 6.6%
of the outstanding HVE Common Stock on a fully diluted basis as of the date of
issuance of the Warrants.
The Warrants are detachable from the Series A Preferred Stock and the Common
Shares and separately transferable, subject to compliance with applicable
federal and state securities laws. The Warrants and the Warrant Shares have not
been registered under the Securities Act and are subject to certain transfer
restrictions further described in the Warrant Agreement.
Immediately prior to the occurrence of a Qualified Subsidiary IPO and at
certain times thereafter, Warrant holders will have a right to require the
Company to exchange a portion of their Warrants into new warrants to purchase
Subsidiary Shares. In addition, holders of the Warrants have certain
registration rights and take-along rights. Moreover, additional Warrants may be
issuable to the holders of the Warrants in the future, under certain
circumstances.
PREFERRED STOCK
The Board of Directors is authorized, subject to certain limitations
prescribed by law and the terms of the Indenture and the Restated Articles,
without further stockholder approval, from time to time to issue up to an
aggregate of 400,000 shares of Preferred Stock in one or more series and to fix
or alter the designations, preferences and rights, and any qualifications,
limitations or restrictions thereof, of the shares of each such series,
including the number of shares constituting any such series and the dividend
rights, dividend rates, conversion rights, voting rights, terms of redemption
(including sinking fund provisions), redemption price or prices and liquidation
preferences thereof. 110,000 of these shares of Preferred Stock have been
designated as Series A Preferred Stock and an additional 110,000 shares have
been designated as Exchange Preferred Stock. The creation and issuance of any
additional series of Preferred Stock may have the effect of delaying, deferring
or preventing a change of control of the Company. See "Description of the
Exchange Preferred Stock -- Ranking and -- Certain Covenants."
As of the date of this Prospectus, the only outstanding shares of Preferred
Stock are the 33,000 shares of Series A Preferred Stock issued in the Offerings.
See "Description of the Exchange Preferred Stock."
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Restated Articles contain certain provisions permitted under
Massachusetts law relating to the liability of directors. These provisions
eliminate a director's personal liability for monetary damages resulting from a
breach of fiduciary duty, except in certain circumstances involving certain
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions that involve intentional misconduct or a knowing violation of law.
These provisions do not limit or eliminate the rights of the Company or any
stockholder to seek non-monetary relief, such as an injunction or rescission, in
the event of a breach of a director's fiduciary duty. These provisions will not
alter a director's liability under federal securities laws. The Company's
Restated Articles and By-laws also contain provisions indemnifying the directors
and officers of the Company to the fullest extent permitted by Massachusetts
law. The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors.
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<PAGE> 98
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of certain of the anticipated federal income tax
consequences of an exchange of the Series A Preferred Stock for Exchange
Preferred Stock and of the purchase, ownership, and disposition of the Exchange
Preferred Stock is based upon the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), the final, temporary, and proposed regulations
promulgated thereunder, and administrative rulings and judicial decisions now in
effect, all of which are subject to change (possibly with retroactive effect) or
different interpretations. This summary does not purport to deal with all
aspects of federal income taxation that may be relevant to a particular
investor, nor any tax consequences arising under the laws of any state,
locality, or foreign jurisdiction, and it is not intended to be applicable to
all categories of investors, some of which, such as dealers in securities,
banks, insurance companies, tax-exempt organizations, foreign persons, persons
that hold Exchange Preferred Stock as part of a straddle or conversion
transactions or holders subject to the alternative minimum tax, may be subject
to special rules. In addition, the summary is limited to persons that will hold
the Exchange Preferred Stock and Warrants as "capital assets" (generally,
property held for investment) within the meaning of Section 1221 of the Code.
ALL INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS REGARDING THE
FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE EXCHANGE AND THE
OWNERSHIP AND DISPOSITION OF EXCHANGE PREFERRED STOCK AND WARRANTS.
TAXATION OF HOLDERS ON EXCHANGE
Although the matter is not free from doubt, an exchange of shares of Series
A Preferred Stock for shares of Exchange Preferred Stock should not be a taxable
event to holders of Series A Preferred Stock, and holders should not recognize
any taxable gain or loss as a result of such an exchange. Accordingly, a holder
would have the same adjusted basis and holding period in the Exchange Preferred
Stock as it had in the Series A Preferred Stock immediately before the exchange.
Further, the tax consequences of ownership and disposition of any shares of
Exchange Preferred Stock should be the same as the tax consequences of ownership
and disposition of shares of the Series A Preferred Stock.
ALLOCATION OF PURCHASE PRICE
The purchase of the Series A Preferred Stock with the Warrants and Common
Shares was treated as the purchase of an investment unit for Federal income tax
purposes. In order to determine the issue price for each security, the aggregate
issue price of the Series A Preferred Stock and Warrants and Common Shares was
allocated between each of the securities based on their relative fair market
values on the date of issuance. The issue price of the Exchange Preferred Stock
should be the same as the issue price of the Series A Preferred Stock (adjusted
to take into account any constructive distributions on the Series A Preferred
Stock under Section 305 of the Code, as described below) immediately before the
exchange.
DISTRIBUTIONS ON EXCHANGE PREFERRED STOCK AND EXCESS REDEMPTION PRICE
The amount of any distribution with respect to the Exchange Preferred Stock
will be equal to the amount of cash or the fair market value of shares of
Exchange Preferred Stock distributed. A stockholder's initial tax basis in any
additional shares of Exchange Preferred Stock distributed by the Company will be
equal to the fair market value of such additional shares of Exchange Preferred
Stock on the date of distribution. A stockholder's holding period for such
additional shares of Exchange Preferred Stock will commence on the day following
the date of distribution and will not include such stockholder's holding period
for the shares of Exchange Preferred Stock with respect to which the additional
shares of Exchange Preferred Stock were distributed. The amount of any
distribution with respect to the Exchange Preferred Stock, whether paid in cash
or in additional shares of Exchange Preferred Stock, will be a dividend, taxable
as ordinary income to the recipient thereof, to the extent of the Company's
current or accumulated earnings and profits ("earnings and profits") as
determined under U.S. federal income tax principles. To the extent that the
amount of such a distribution exceeds the current and accumulated earnings and
profits of the Company, such excess will be treated as nontaxable recovery of
the holder's basis in the stock in respect of which the distribution is made (to
the extent thereof), with any remaining excess treated as a gain from the sale
or exchange of such stock.
In addition, under Section 305 of the Code and the Treasury Regulations
authorized thereunder, if the redemption price of preferred stock exceeds its
issue price by more than a de minimus amount, such excess may under certain
circumstances, be taxable as a constructive distribution to the holder (treated
as a dividend to the extent of the Company's current and accumulated earnings
and profits and otherwise subject to the treatment described above for
distributions in excess of current and accumulated earnings and
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<PAGE> 99
profits). A holder of such preferred stock is required to treat such excess as a
constructive distribution received by the holder over the life of the preferred
stock under a constant interest (economic yield) method that takes into account
the compounding of yield. The excess of the liquidation preference over the
issue price of the Exchange Preferred Stock will be treated as a constructive
distribution, as described above, by a holder on a constant yield basis over its
term. In the case of the Exchange Preferred Stock initially issued to the
purchaser, the issue price will be determined as described above under
"--Allocation of Purchase Price." In the case of any additional shares of
Preferred Stock distributed by the Company in lieu of a cash payment, the issue
price generally will equal the fair market value of such shares of Exchange
Preferred Stock on the date of distribution, with the result that the amount of
any redemption premium, and the tax consequences thereof, may need to be
separately determined for each such distribution. Holders should consult their
own tax advisers regarding the application of the redemption premium rules to
their particular situation.
DIVIDENDS TO CORPORATE SHAREHOLDERS
In general, an actual or constructive distribution that is treated as a
dividend for federal income tax purposes and that is made to a corporate
shareholder with respect to the Exchange Preferred Stock will qualify for the
70% dividends-received deduction.
In addition, there are many exceptions and restrictions relating to the
availability of such dividends-received deduction such as restrictions relating
to (i) the holding period of stock the dividends on which are sought to be
deducted, (ii) debt-financed portfolio stock, (iii) dividends treated as
"extraordinary dividends" for purposes of Section 1059 of the Code, and (iv)
taxpayers that pay alternative minimum tax. Corporate shareholders should
consult their own tax advisers regarding the extent, if any, to which such
exceptions and restrictions may apply to their particular factual situation.
REDEMPTION, SALE, OR EXCHANGE OF PREFERRED STOCK
Upon a sale or other disposition (other than a redemption) of the shares of
Exchange Preferred Stock, a holder will generally recognize capital gain or loss
equal to the difference between the sum of the amount of cash and the fair
market of any property received by the holder and such holder's adjusted tax
basis in such shares. Such gain or loss will generally be long-term if the
holding period for such shares is more than eighteen months.
A holder's initial tax basis in the Exchange Preferred Stock will equal its
tax basis in the Series A Preferred Stock, as described above under "Taxation of
Holders on Exchange." Thereafter, such initial tax basis will be (i) increased
by the amount (if any) of any constructive distributions the holder is treated
as having received pursuant to the rules described above under "Distributions on
Exchange Preferred Stock and Excess Redemption Price" and (ii) decreased by the
portion of any (actual or constructive) distribution that is treated as a tax
free recovery of basis as described above under "Distributions on Exchange
Preferred Stock and Excess Redemption Price."
Upon a redemption of the shares of Exchange Preferred Stock in a situation
where the holder has no other interest in the Company, actually or
constructively, following such redemption, the holder will generally recognize
capital gain or loss (except to the extent of cash payments received on the
exchange that are attributable to declared dividends which will be treated in
the same manner as distributions described above). If the holder does continue
to own an interest in the Company, actually or constructively, the redemption
payment could be treated as a dividend subject to the rules described above.
BACKUP WITHHOLDING
In general, a noncorporate holder of Exchange Preferred Stock or Warrant
will be subject to backup withholding at the rate of 31% with respect to
reportable payments of dividends accrued with respect to, or the proceeds of a
sale, exchange, or redemption of, Exchange Preferred Stock or Warrants, if the
holder fails to provide a taxpayer identification number or certification of
foreign or other exempt status or fails to report in full dividend and interest
income. Amounts paid as backup withholding do not constitute an additional tax
and will be credited against the holder's federal income tax liabilities.
THE UNITED STATES FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY OR MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISERS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE EXCHANGE OF SERIES A PREFERRED
STOCK FOR EXCHANGE PREFERRED STOCK AND OF THE OWNERSHIP AND DISPOSITION OF THE
EXCHANGE PREFERRED STOCK
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<PAGE> 100
AND THE WARRANTS, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND
OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
EXPERTS
The consolidated historical financial statements of High Voltage Engineering
Corporation and Subsidiaries as of April 27, 1996 and April 26, 1997, and for
each of the fiscal years in the three-year period ended April 26, 1997, included
in this Prospectus and elsewhere in this Registration Statement have been
audited by Grant Thornton LLP, independent public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in auditing and accounting.
The consolidated historical financial statements of PHI Acquisition
Holdings, Inc. and Subsidiaries as of June 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.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith will be required to file reports and other
information with the Commission. The Registration Statements filed by the
Company with the Commission with respect to the Exchange Notes and Exchange
Preferred Stock and the exhibits thereto, as well as such reports and other
information to be filed by the Company with the Commission, may be inspected,
without charge, at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, as well as the
regional offices of the Commission at the Northwest Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such documents can be obtained
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549, at prescribed rates. In addition, the Company
is required to file electronic versions of these documents with the Commission
through the Commission's Electronic Data Gathering, Analysis, and Retrieval
(EDGAR) system. The Commission maintains a World Wide Web site, located at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus contains certain statements that may be considered
"forward-looking." Those forward-looking statements include, among other things,
discussions of the Company's business strategy and expectations concerning the
Company's position in the various industries in which it participates, future
operations, growth, product development and marketing efforts, the issuance of
patents, margins, profitability, liquidity and capital resources, as well as
statements concerning certain products under development, and the acquisition of
PHI and PHI's contribution to the realization of the Company's overall
strategies. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Company to be materially different from any future
results, performance or achievements of the Company expressed or implied by such
forward-looking statements. Prospective investors in the Exchange Preferred
Stock offered hereby are cautioned that although the Company believes that the
assumptions on which the forward-looking statements contained herein are based
are reasonable, any of those assumptions could prove to be inaccurate and, as a
result, the forward-looking statements based on those assumptions also could be
materially incorrect. The uncertainties in this regard include, but are not
limited to, those identified in the section of this Prospectus entitled "Risk
Factors." In light of these and other uncertainties, the inclusion of a
forward-looking statement herein should not be regarded as a representation by
the Company that the Company's plans and objectives will be achieved and
prospective investors in the Exchange Preferred Stock should not place undue
reliance on such forward-looking statements.
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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> 102
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> 103
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
REDEEMABLE PUT WARRANTS ............................................... -- 2,800 5,000
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
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> 104
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 11,989 2,644 5,825
Interest income ............................................ (74) (278) (351) (54) (40)
--------- --------- ---------- --------- ----------
Income (loss) from continuing operations before income
taxes, discontinued operations and extraordinary item . 365 (3,082) (1,971) 17 (2,680)
Income taxes (credit) ...................................... 196 (2,619) 526 7 270
--------- --------- ---------- --------- ----------
Income (loss) from continuing operations before
discontinued operations and extraordinary item ........ 169 (463) (2,497) 10 (2,950)
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 (2,756) (249) (2,950)
Preferred dividends ........................................ (415) (446) (479) (119) (128)
--------- --------- ---------- --------- ----------
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> 105
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 ...................................... (2,756) (2,756)
Preferred stock dividends ..................... (479) (479)
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 ...................................... (2,950) (2,950)
Preferred stock dividends ..................... (128) (128)
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> 106
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 $ (2,756) $ (249) $(2,950)
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 2,897 323 3,661
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> 107
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> 108
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> 109
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 Translation
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.
Derivatives
The Company enters into forward exchange contracts to manage exposure
related to certain foreign currency commitments, certain foreign currency
denominated balance sheet positions and anticipated foreign currency denominated
expenditures. All forward exchange contracts are designated as and effective as
a hedge and are highly inversely correlated to the hedged item as required by
generally accepted accounting principles. If a derivative contract terminates
prior to maturity, the investment is shown at its fair value with the resulting
gain or loss reflected in operating results. 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 contracts are included in income currently.
At April 26, 1997, the notional amounts of forward exchange contracts (all
denominated in Netherlands guilders) totaled $1,272. All of these contracts
mature in fiscal year 1998. Deferred unrealized losses from hedging firm
commitments are immaterial.
The Company's forward exchange contracts contain credit risk in that its
banking counterparties may be unable to meet the terms of the agreements. The
Company minimizes such risk by limiting its counterparties to major financial
institutions. In addition, the potential risk of loss with any one party
resulting from this type of credit risk is monitored. Management does not
expect any material losses as a result of default by other parties.
The Company does not use derivative financial instruments for speculative
trading purposes, nor does it hold or issue leveraged derivative financial
instruments.
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> 110
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> 111
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> 112
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> 113
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 in
the amount of $387 and $2,200 for fiscal year 1997 and for the three months
ended July 26, 1997, respectively, were charged to interest expense. 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> 114
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> 115
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> 116
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> 117
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> 118
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) $(4,407)
Foreign ..................... (806) 3,713 2,436
------- ------- -------
Total .............. $ 365 $(3,082) $(1,971)
======= ======= =======
</TABLE>
F-18
<PAGE> 119
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) $ (689)
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 3,093
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> 120
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 2,677
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 12,098
Valuation allowance ................................ (6,493) (9,586)
-------- --------
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 3,093
-------- ------ ------
Balance at end of period............... $ 4,824 $6,493 $9,586
======== ====== ======
</TABLE>
F-20
<PAGE> 121
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 $6,742 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> 122
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> 123
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> 124
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 or the results of operations 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> 125
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> 126
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> 127
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> 128
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> 129
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> 130
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> 131
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> 132
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> 133
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> 134
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> 135
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> 136
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> 137
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> 138
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> 139
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> 140
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 28, 1996.
<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> 141
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> 142
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> 143
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> 144
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFERS
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary ..................................................... 5
Risk Factors ........................................................... 14
The Company ............................................................ 20
The Transactions ....................................................... 21
Use of Proceeds ........................................................ 23
Capitalization ......................................................... 25
Unaudited Pro Forma Condensed Consolidated Financial Data .............. 27
Selected Historical Consolidated Financial Data ........................ 35
Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................ 41
Business ............................................................... 50
Management ............................................................. 66
Certain Relationships and Related Transactions ......................... 71
Principal Stockholders ................................................. 73
Exchange Offer ......................................................... 74
Plan of Distribution ................................................... 81
Description of the Exchange Preferred Stock ............................ 82
Description of Certain Indebtedness .................................... 90
Description of Outstanding Capital Stock ............................... 94
Certain Federal Income Tax Considerations .............................. 96
Experts ................................................................ 98
Legal Matters .......................................................... 98
Available Information .................................................. 98
Special Note Regarding Forward-Looking Statements ...................... 98
Index to Financial Statements .......................................... F-1
================================================================================
================================================================================
[LOGO]
HIGH VOLTAGE
ENGINEERING
CORPORATION
OFFER TO EXCHANGE ALL OUTSTANDING
SHARES OF 12-1/2% SERIES A SENIOR
REDEEMABLE PREFERRED STOCK FOR
SHARES OF 12-1/2% SERIES A EXCHANGE
SENIOR REDEEMABLE PREFERRED STOCK
------------
PROSPECTUS
------------
, 1997
================================================================================
100
<PAGE> 145
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 67 of the Massachusetts Business Corporation Law (the "MBCL")
grants a Massachusetts corporation the power to indemnify any director, officer,
employee or other agent to the extent specified in or authorized by (i) the
articles of organization, (ii) a by-law adopted by the stockholders or (iii) a
vote adopted by the holders of a majority of the shares of stock entitled to
vote at an election of directors. No indemnification may be provided, however,
for any person with respect to any matter as to which he shall have been
adjudicated in any proceeding not to have acted in good faith in the reasonable
belief that his action was in the best interest of the corporation.
The Restated Articles of Organization of the Company and the Amended
and Restated By-laws of the Company, copies of which are filed as Exhibits 3.1
and 3.2, provide for indemnification of officers and directors of the Company
and certain other persons against liabilities and expenses incurred by any of
them in certain stated proceedings and under certain stated conditions.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of exhibits filed as a part of this
registration statement:
EXHIBIT
2.1 Agreement and Plan of Merger, dated as of May 7, 1997, by and between
PHI Acquisition Holdings, Inc. and Chase Venture Capital Associates,
L.P.*
3.1 Restated Articles of Organization of the Registrant.*
3.2 Amended and Restated By-laws of the Registrant.*
4.1 Article IV of the Restated Articles of the Registrant (included in
Exhibit 3.1).*
4.3 Preferred Stock Registration Rights Agreement, by and between
Registrant and CIBC Wood Gundy Securities Corp. and Painewebber
Incorporated.*
4.4 Indenture, dated as of August 8, 1997, by and between Registrant and
State Street Bank and Trust Company.*
<PAGE> 146
-2-
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.
24.1 Power of Attorney (included in signature page to Registration
Statement as originally filed).*
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.
- ---------------------
* Previously filed.
** Incorporated by reference from the Exhibits to Registrant's
Amendment No. 2 to its Registration Statement on Form S-4 (File No. 333-33969)
with respect to its 10 1/2% Series Notes due 2004.
(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> 147
-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> 148
-4-
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
The undersigned Registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4), or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
<PAGE> 149
-5-
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has
duly caused this Amendment No. 2 to its registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts, on this 7th day of November, 1997.
HIGH VOLTAGE ENGINEERING CORPORATION
By: /s/ Joseph W. McHugh, Jr.
---------------------------------
Joseph W. McHugh, Jr.,
Vice President and Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to its Registration Statement (File No. 333-33963) has been
signed below by the following persons in the capacities and on the dates
indicated:
<PAGE> 150
- 6 -
SIGNATURES
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Laurence S. Levy* Chief Executive Officer and November 7, 1997
- --------------------------- Director
Laurence S. Levy
/s/ Clifford Press* President and Director November 7, 1997
- ---------------------------
Clifford Press
/s/ Paul H. Snyder* Director November 7, 1997
- ---------------------------
Paul H. Snyder
/s/ Edward Levy* Director November 7, 1997
- ---------------------------
Edward Levy
/s/ H. Cabot Lodge III* Director November 7, 1997
- ---------------------------
H. Cabot Lodge III
/s/ Joseph W. McHugh, Jr. Vice President and Chief November 7, 1997
- --------------------------- Financial Officer
Joseph W. McHugh, Jr. (principal financial and
accounting officer)
</TABLE>
*/s/ Joseph W. McHugh, Jr. November 7, 1997
- ---------------------------
Joseph W. McHugh, Jr.
Attorney-in-Fact
<PAGE> 151
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- --------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of May 7, 1997, by and between
PHI Acquisition Holdings, Inc. and Chase Venture Capital Associates,
L.P.*
3.1 Restated Articles of Organization of the Registrant.*
3.2 Amended and Restated By-laws of the Registrant.*
4.1 Article IV of the Restated Articles of the Registrant (included in
Exhibit 3.1).*
4.2 Intentionally omitted.
4.3 Preferred Stock Registration Rights Agreement, by and between
Registrant and CIBC Wood Gundy Securities Corp. and Painewebber
Incorporated.*
4.4 Indenture, dated as of August 8, 1997, by and between Registrant and
State Street Bank and Trust Company.*
5.1 Opinion of Bingham Dana LLP, as to legality of securities being
registered.
10.1 Senior Secured Revolving Credit Agreement, dated as of August 8, 1997,
by and between the Registrant and Fleet National Bank. *
10.2 Lease Agreement, dated as of November 10, 1988, by and between
Corporate Property Associates 8, L.P. and Datcon Instrument Company
(Lancaster, PA).*
10.3 Lease Agreement, dated as of November 10, 1988, by and between
Corporate Property Associates 8, L.P. and the Registrant (Sterling,
MA).*
10.4 Installment Sale Agreement, dated as of September 23, 1994, by and
between Monroeville Area Industrial Development Corporation and
Halimar Robicon Group, Inc.(New Kensington, PA).*
10.5 Lease with Option to Purchase, dated as of July 15, 1996, by and
between Raija Olkkola & Joseph Grammel, Co-Trustees of THO Trust and
Registrant. (Sterling, MA).*
10.6 Amendment to Lease Agreement, dated as of May 8, 1996, by and between
Corporate Property Associates 8, L.P. and the Registrant (Sterling,
MA).*
10.7 Value Creation Plan of the Registrant.**
10.8 Employment Agreement, dated December 1, 1992, by and between
Registrant and Paul Snyder.*
21.1 List of Subsidiaries.**
</TABLE>
<PAGE> 152
<TABLE>
<CAPTION>
-2-
Exhibit
Number Description Page
- --------------------------------------------------------------------------------------------
<S> <C>
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.
24.1 Power of Attorney (included in signature page to Registration
Statement as originally filed).*
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
</TABLE>
- ---------------------
* Previously filed.
** Incorporated by reference to the Exhibits to Registrant's Amendment
No. 2 to its Registration Statement on Form S-4 (File No. 333-33969) with
respect to its 10 1/2% Series Notes due 2004.
(b) All schedules have been omitted because either they are not required,
are not applicable, or the information is otherwise set forth in the
Consolidated Financial Statements and notes thereto.
<PAGE> 1
Exhibit 5.1 (Pfd Stock))
November 6, 1997
High Voltage Engineering Corporation
401 Edgewater Place, Suite 680
Wakefield, Massachusetts 01880-6210
Re: Registration Statement on Form S-4
Under the Securities Act of 1933, as Amended
--------------------------------------------
Ladies and Gentlemen:
We have acted as counsel for High Voltage Engineering Corporation, a
Massachusetts corporation (the "Company"), in connection with the registration
under the Securities Act of 1933, as amended (the "Securities Act"), of 33,000
shares of 12 1/2% Series A Exchange Senior Redeemable Preferred Stock,
liquidation preference $1,000 per share, of the Company (the "Shares"), pursuant
to a Registration Statement on Form S-3 (File Number: 333-33969) (as amended,
the "Registration Statement"), initially filed with the Securities Exchange
Commission on August 19, 1997.
As such counsel, we have reviewed the corporate proceedings of the
Company with respect to the authorization of the issuance of the Shares. We have
also examined and relied upon originals or copies, certified or otherwise
identified or authenticated to our satisfaction, of such corporate records,
instruments, agreements or other documents of the Company, and certificates of
officers of the Company as to certain factual matters, and have made such
investigation of law and have discussed with officers and representatives of the
Company such questions of fact, as we have deemed necessary or appropriate as a
basis for the opinions hereinafter expressed. In our examination, we have
assumed the genuineness of all signatures, the conformity to the originals of
all documents reviewed by us as copies, the authenticity and completeness of all
original documents reviewed by us in original or copy form and the legal
competence of each individual executing any document.
This opinion is limited solely to the Massachusetts Business Corporation
Law as applied by courts located in Massachusetts.
Based upon and subject to the foregoing, we are of the opinion that:
<PAGE> 2
High Voltage Engineering Corporation
November 6, 1997
Page 2
1. The issuance and exchange of the Shares as described in the
Registration Statement have been duly authorized by the Company.
2. The Shares, when issued, exchanged and delivered as described in
the Registration Statement, will be validly issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus included in the Registration Statement.
Very truly yours,
/s/ BINGHAM DANA LLP
------------------------------
BINGHAM DANA LLP
<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 consolidated financial statements of High Voltage
Engineering Corporation and Subsidiaries contained in the Amendment No. 2
to Form S-4 Registration Statement. We consent to the use of the
aforementioned report in the Amendment No. 2 to Form S-4 Registration
Statement, and to the use of our name as it appears under the caption
"Experts".
Boston, Massachusetts /s/ GRANT THORNTON LLP
November 6, 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, 1997 in the
Prospectus Offer to exchange all outstanding shares of 12 1/2% Series A Senior
Redeemable Preferred Stock for share of 12 1/2% Series A Exchange Senior
Redeemable Preferred Stock of High Voltage Engineering Corporation on the
Amendment No. 2 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 consolidated 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
Minneapolis, Minnesota
November 7, 1997
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
HIGH VOLTAGE ENGINEERING CORPORATION
OFFER TO EXCHANGE ITS
12 1/2% SERIES A EXCHANGE SENIOR REDEEMABLE PREFERRED STOCK,
LIQUIDATION PREFERENCE $1,000 PER SHARE,
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
12 1/2% SERIES A SENIOR REDEEMABLE PREFERRED STOCK,
LIQUIDATION PREFERENCE $1,000 PER SHARE
PURSUANT TO THE PROSPECTUS DATED NOVEMBER 7, 1997
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., BOSTON TIME, ON THE 30TH DAY AFTER
THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT FILED WITH RESPECT TO THE
SERIES A EXCHANGE PREFERRED STOCK, UNLESS EXTENDED (THE "EXPIRATION DATE"). THE
EXCHANGE OFFER WILL NOT BE EXTENDED BEYOND THE 60TH DAY AFTER THE EFFECTIVE DATE
OF THE REGISTRATION STATEMENT FILED WITH RESPECT TO THE SERIES A EXCHANGE
PREFERRED STOCK. SHARES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY
TIME PRIOR TO THE EXPIRATION DATE.
Deliver To the Exchange Agent:
Boston EquiServe, L.P.
150 Royall Street
Canton, Massachusetts 02021
Confirm by Telephone:
617-575-3120
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 November __, 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 shares of its 12 1/2% Series A Exchange Senior Redeemable
Preferred Stock, liquidation preference $1,000 per share (the "SERIES A EXCHANGE
PREFERRED STOCK"), 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 any and all shares of the Company's issued and
outstanding 12 1/2% Series A Senior Redeemable Preferred Stock, liquidation
preference $1,000 per share (the "SERIES A PREFERRED STOCK"). 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 shares of Series A Preferred
Stock 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 shares of Series
A Preferred Stock either if certificates representing shares of Series A
Preferred Stock are to be forwarded herewith or if delivery of shares of Series
A Preferred Stock, 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 SERIES
A PREFERRED STOCK." Holders of shares of Series A Preferred Stock whose
certificates representing their shares of Series A Preferred Stock are not
immediately available, or who are unable to deliver certificates representing
their shares of Series A Preferred Stock 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 shares of Series A Preferred Stock according to
the guaranteed delivery procedures set forth in the Prospectus under the caption
"THE EXCHANGE OFFER-PROCEDURES FOR TENDERING SERIES A PREFERRED STOCK." 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 shares of Series A Preferred Stock are registered on the books of the
Company or any other person who has obtained a properly completed stock 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 shares of Series A Preferred Stock 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 shares of Series A Preferred Stock to which this Letter
of Transmittal relates. If the space below is inadequate, list the certificate
numbers and number of shares of Series A Preferred Stock represented thereby on
a separate signed schedule affixed to this Letter of Transmittal.
<PAGE> 3
-3-
DESCRIPTION OF SHARES OF SERIES A EXCHANGE PREFERRED STOCK TENDERED
NAME(S) AND ADDRESS(ES)
OF
REGISTERED HOLDER(S),
EXACTLY AS NAME(S) NUMBER OF SHARES NUMBER OF
APPEAR(S) REPRESENTED SHARES
ON EXISTING SHARE CERTIFICATES CERTIFICATE BY SHARE TENDERED
(PLEASE FILL IN, IF BLANK) NUMBER(S)* CERTIFICATE(S) TOTAL**
-------------------------- ---------- -------------- -------
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, any tendering Holder of shares of Series A
Preferred Stock will be deemed to have tendered the full number of
shares represented by such certificates of Series A Preferred Stock.
[ ] CHECK HERE IF SHARE CERTIFICATE(S) REPRESENTING THE SHARES OF SERIES A
PREFERRED STOCK TENDERED ARE ENCLOSED HEREWITH.
[ ] CHECK HERE IF TENDERED SHARES OF SERIES A PREFERRED STOCK 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 SHARES OF SERIES A PREFERRED STOCK 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 Series A Preferred Stock: __________________
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): _________________________
[ ] 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: ______________________________________________________________________
<PAGE> 4
-4-
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 shares of
Series A Exchange Preferred Stock. If the undersigned is a broker-dealer that
will receive shares of Series A Exchange Preferred Stock for its own account in
exchange for shares of Series A Preferred Stock, it acknowledges that the shares
of Series A Preferred Stock 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 shares of Series A Exchange Preferred Stock;
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.
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 number of shares of
Series A Preferred Stock indicated above. Subject to and effective upon the
acceptance for exchange of the number of shares of Series A Preferred Stock
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 shares of Series A Preferred Stock 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 shares of Series A Preferred Stock
with full power of substitution to (i) deliver such shares of Series A Preferred
Stock, or transfer ownership of such shares of Series A Preferred Stock 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 shares of Series A Preferred Stock for transfer on the books of the
Company and receive all benefits and otherwise exercise all rights of beneficial
ownership of such shares of Series A Preferred Stock, 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 shares of
Series A Preferred Stock tendered hereby and to acquire the shares of Series A
Exchange Preferred Stock issuable upon the exchange of such tendered shares of
Series A Preferred Stock, 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 shares of Series A Exchange Preferred Stock issued in
exchange for the shares of Series A Preferred Stock 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 shares of Series A Exchange Preferred Stock 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 Series A Exchange Preferred
Stock and have no arrangement or understanding with any person to participate in
a distribution of Series A Exchange Preferred Stock. The undersigned hereby
further represents to the Company that (i) any shares of Series A Exchange
Preferred Stock acquired in exchange for shares of Series A Preferred Stock
tendered hereby are being acquired in the ordinary course of business of the
person receiving such shares of Series A Exchange Preferred Stock, 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 Series A Exchange
Preferred Stock, (iii) neither
<PAGE> 5
-5-
the undersigned nor any such other person has an arrangement or understanding
with any person to participate in the distribution of Series A Exchange
Preferred Stock, 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 shares of Series A
Exchange Preferred Stock is a broker-dealer that is receiving the shares of
Series A Exchange Preferred Stock for its own account in exchange for shares of
Series A Preferred Stock that were acquired as a result of market-making
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 shares of Series A Exchange Preferred Stock; 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 acknowledges that if the undersigned is
participating in the Exchange Offer for the purpose of distributing shares of
Series A Exchange Preferred Stock (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 Series A Exchange Preferred Stock, 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 shares of Series A
Exchange Preferred Stock 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 shares of Series A Exchange Preferred
Stock 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 shares of
Series A Preferred Stock tendered hereby, including the transfer of such shares
of Series A Preferred Stock 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 shares of Series A Preferred Stock when,
as and if the Company gives oral or written notice thereof to the Exchange
Agent. Any tendered shares of Series A Preferred Stock 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 shares of Series A Preferred Stock pursuant to the procedures described
under the caption "The Exchange Offer -- Procedures for Tendering Series A
Preferred Stock " 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.
<PAGE> 6
-6-
Unless otherwise indicated under "Special Issuance Instructions," please
issue the shares of Series A Exchange Preferred Stock issued in exchange for the
shares of Series A Preferred Stock accepted for exchange and return any shares
of Series A Preferred Stock 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 shares of Series A Exchange Preferred
Stock issued in exchange for the shares of Series A Preferred Stock accepted for
exchange and any shares of Series A Preferred Stock not tendered or not
exchanged (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 shares of Series A Exchange Preferred Stock issued
in exchange for the shares of Series A Preferred Stock accepted for exchange in
the name(s) of, and return any shares of Series A Preferred Stock 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 shares of Series A Preferred
Stock from the name of the registered holder(s) thereof if the Company does not
accept for exchange any of the shares of Series A Preferred Stock so tendered
for exchange.
PLEASE SIGN HERE WHETHER OR NOT CERTIFICATES OF
SHARES OF SERIES A PREFERRED STOCK 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 shares of
Series A Preferred Stock as the name(s) appear(s) on the certificates of shares
of Series A Preferred Stock or on a security position listing, or by person(s)
authorized to become registered Holder(s) by a properly completed stock power
from the registered Holder(s), a copy of which must be transmitted with this
Letter of Transmittal. If shares of Series A Preferred Stock 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)
<PAGE> 7
-7-
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: _____________________________________________________________, 1997
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if shares of Series A Preferred Stock not tendered, or
shares of Series A Exchange Preferred Stock issued in exchange for shares of
Series A Preferred Stock accepted for exchange, are to be issued in the name of
someone other than the undersigned, or (ii) if shares of Series A Preferred
Stock tendered by book-entry transfer which are not exchanged are to be returned
by credit to an account maintained by the Holder at the Book-Entry Transfer
Facility.
Issue shares of Series A Exchange Preferred Stock and/or shares of
Series A Preferred Stock 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 shares of Series A Preferred Stock delivered by
book-entry transfer to the Book-Entry Transfer Facility set forth below:
___________________________________________________________
(Book-Entry Transfer Facility Account Number,
if applicable)
<PAGE> 8
-8-
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY if shares of Series A Preferred Stock in a principal amount
not tendered, or shares of Series A Exchange Preferred Stock issued in exchange
for shares of Series A Preferred Stock 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 shares of Series A Exchange Preferred Stock and/or
shares of Series A Preferred Stock to:
Name(s): __________________________________________________
(Please Type or Print)
Address: __________________________________________________
___________________________________________________________
(Include Zip Code)
___________________________________________________________
(Tax Identification or Social Security No.)
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF
THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND SHARES OF SERIES A
PREFERRED STOCK OR BOOK-ENTRY CONFIRMATIONS. All physically delivered
certificates representing shares of Series A Preferred Stock or any confirmation
of a book-entry transfer to the Exchange Agent's account at the Book-Entry
Transfer Facility of shares of Series A Preferred Stock 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 shares of Series
A Preferred Stock, 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 shares of Series A
Preferred Stock should be sent to the Company.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their
shares of Series A Preferred Stock and (a) whose certificates representing such
Holder's shares of Series A Preferred Stock are not immediately available, or
(b) who cannot deliver the certificates representing their shares of Series A
Preferred Stock, 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 shares of Series A Preferred Stock 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 shares of Series A Preferred Stock, the
<PAGE> 9
-9-
certificate number(s) of such shares of Series A Preferred Stock and the number
of shares of Series A Preferred Stock 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 shares of Series A Preferred Stock in proper form for transfer (or a
Book-Entry Confirmation), must be received by the Exchange Agent within THREE
(3) Nasdaq trading days after the Expiration Date; and (iii) the shares of
Series A Preferred Stock, 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 shares of Series A Preferred Stock who wishes to tender
shares of Series A Preferred Stock 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 shares of Series A Preferred Stock
according to the guaranteed delivery procedures set forth above.
See "The Exchange Offer -- Guaranteed Delivery Procedures" section of
the Prospectus.
3. TENDER BY HOLDER. Only a Holder of shares of Series A Preferred
Stock may tender such shares of Series A Preferred Stock in the Exchange Offer.
Any beneficial Holder of shares of Series A Preferred Stock 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 the
certificates representing his shares of Series A Preferred Stock, either make
appropriate arrangements to register ownership of the shares of Series A
Preferred Stock in such Holder's name or obtain a properly completed stock power
from the registered Holder.
4. PARTIAL TENDERS. If less than the entire number of shares
represented by any certificates is tendered, the tendering Holder should fill in
the number of shares tendered in the third column of the box entitled
"Description of Shares of Series A Preferred Stock" above. All shares
represented by Series A Preferred Stock certificates delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated. If all
shares of Series A Preferred Stock represented by any certificates are not
tendered, then certificates for Series A Preferred Stock not tendered and
certificates for Series A Exchange Preferred Stock issued in exchange for any
shares of Series A Preferred Stock 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 shares for
Series A Preferred Stock are accepted for exchange.
5. SIGNATURES ON THIS LETTER OF TRANSMITTAL; STOCK POWERS AND
ENDORSEMENTS; MEDALLION GUARANTEE OF SIGNATURES. If this Letter of Transmittal
(or facsimile hereof) is signed by the registered Holder(s) of the shares of
Series A Preferred Stock tendered hereby, the signature must correspond with the
name(s) as written on the face of the certificates of Series A Preferred Stock
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 shares of Series A Preferred Stock.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of shares of Series A Preferred Stock listed and
tendered hereby and the shares of Series A Exchange Preferred Stock issued in
exchange therefor is to be issued (or any untendered shares of Series A
Preferred Stock are to be reissued) to the registered Holder, the said Holder
need not and should not
<PAGE> 10
-10-
endorse any tendered shares of Series A Preferred Stock, nor provide a separate
stock power. In any other case, such Holder must either properly endorse the
certificates representing the Series A Preferred Stock tendered or transmit a
properly completed separate stock power with this Letter of Transmittal, with
the signatures on the endorsement or stock 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 shares of Series A
Preferred Stock listed, such certificate representing such share of Series A
Preferred Stock must be endorsed or accompanied by appropriate stock powers, in
each case signed as the name of the registered Holder or Holders appears on the
certificate representing such shares of Series A Preferred Stock.
If this Letter of Transmittal (or facsimile hereof) or any certificates
representing shares of Series A Preferred Stock or stock powers 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 so to act must be
submitted with this Letter of Transmittal.
Endorsements on certificates of Series A Preferred Stock or signatures
on stock 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 shares of Series A Preferred Stock
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 shares
of Series A Preferred Stock) and the issuance of shares of Series A Exchange
Preferred Stock (and any shares of Series A Preferred Stock 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 shares of Series A
Exchange Preferred Stock or shares of Series A Preferred Stock 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 shares of Series A Preferred Stock 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 of shares of Series A Preferred Stock should indicate, in the applicable
box or boxes, the name and address (or account at the Book-Entry Transfer
Facility) to which shares of Series A Exchange Preferred Stock or substitute
shares of Series A Preferred Stock for shares of Series A Preferred Stock 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 shares of Series A Preferred Stock pursuant to the
Exchange Offer. If, however, shares of Series A Exchange Preferred Stock or
substitute shares of Series A Preferred Stock for shares of Series A Preferred
Stock not tendered or accepted for exchange are to be delivered to, or are to be
registered or issued in the name of, any person other than the registered Holder
of the shares of Series A Preferred Stock tendered hereby, or if tendered shares
of Series A Preferred Stock 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 shares of Series A Preferred Stock
pursuant to the Exchange Offer, then the amount of any such transfer taxes
(whether imposed on the registered Holder or any other persons) will be payable
by the tendering Holder. If satisfactory evidence of payment of such taxes or
exemption therefrom is not submitted with this Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering Holder.
<PAGE> 11
-11-
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE SHARES OF SERIES A PREFERRED STOCK
LISTED IN THIS LETTER OF TRANSMITTAL.
8. TAX IDENTIFICATION NUMBER. Federal income tax law required that
a Holder of any shares of Series A Preferred Stock 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 is 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 shares of Series A Preferred Stock 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 shares of
Series A Preferred Stock 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 shares of Series A Preferred Stock not validly
tendered or any shares of Series A Preferred Stock, 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 shares of Series A Preferred Stock as to
any ineligibility of any Holder who seeks to tender shares of Series A Preferred
Stock in the Exchange Offer. The interpretation of the terms and conditions of
the Exchange Offer (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 shares of Series A
Preferred Stock must be cured within such time as the Company shall determine.
The Company will use reasonable efforts to give notification of defects or
irregularities with respect to tenders of shares of Series A Preferred Stock,
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 tenders of shares of Series A Preferred Stock on transmittal of this
Letter of Transmittal will be accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED SHARES OF SERIES A
PREFERRED STOCK. Any Holder whose certificates representing shares of Series A
Preferred Stock have been mutilated, lost, stolen or destroyed should contact
the Exchange Agent at the address indicated above for further instructions.
<PAGE> 12
-12-
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 SHARES OF SERIES A PREFERRED STOCK AND
ISSUANCE OF SHARES OF SERIES A EXCHANGE PREFERRED STOCK; RETURN OF SHARES OF
SERIES A PREFERRED STOCK. Subject to the terms and conditions of the Exchange
Offer, the Company will accept for exchange all validly tendered shares of
Series A Preferred Stock as soon as practicable after the Exchange Date and will
issue shares of Series A Exchange Preferred Stock therefor as soon as
practicable thereafter. For purposes of the Exchange Offer, the Company shall be
deemed to have accepted tendered shares of Series A Preferred Stock when, as and
if the Company has given written and oral notice thereof to the Exchange Agent.
If any tendered shares of Series A Preferred Stock are not exchanged pursuant to
the Exchange Offer for any reason, such unexchanged shares of Series A Preferred
Stock 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 "The
Exchange offer -- Withdrawal of Tenders."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE
HEREOF (TOGETHER WITH THE SHARES OF SERIES A PREFERRED STOCK) 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 No.-For All Part II - For Payees
FORM W-9 Accounts Exempt from Backup
Withholding (see
enclosed Guidelines)
DEPARTMENT OF Enter your taxpayer
THE TREASURY identification number in the
INTERNAL appropriate box. For most
REVENUE individuals and sole
SERVICE proprietors, this is your social
security number. 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 Note: If the account is
FOR TAXPAYER in more than one name, see
IDENTIFICATION NO. Employer identification number 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 ___________1997
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 SHARES OF SERIES A
EXCHANGE PREFERRED STOCK. 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
12 1/2% SERIES A SENIOR REDEEMABLE PREFERRED STOCK,
LIQUIDATION PREFERENCE $1,000 PER SHARE
IN EXCHANGE FOR
12 1/2% SERIES A EXCHANGE SENIOR REDEEMABLE PREFERRED STOCK
LIQUIDATION PREFERENCE $1,000 PER SHARE
OF
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 shares of 12 1/2% Series A
Senior Redeemable Preferred Stock (the "Series A Preferred Stock") to the
Exchange Agent pursuant to the guaranteed delivery procedures described in
"Exchange Offer -- Procedures for Tendering Series A Preferred Stock" of the
Company's Prospectus, dated November 7, 1997 (the "Prospectus") and in
Instruction 2 to the related Letter of Transmittal. Any holder who wishes to
tender shares of Series A Preferred Stock 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 THE 30TH DAY AFTER
THE EFFECTIVE DATE OF THE REGISTRATION STATEMENT OF WHICH THE PROSPECTUS IS A
PART UNLESS EXTENDED (THE "EXPIRATION DATE"). SHARES OF SERIES A PREFERRED STOCK
TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE
EXPIRATION DATE.
The Exchange Agent for the Exchange Offer is:
Boston EquiServe, L.P.
150 Royall Street
Canton, Massachusetts 02021
Confirm by Telephone:
(617) 575-3120
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 shares of Series A Preferred Stock
set forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus and in Instruction 2 of the Letter of Transmittal.
PLEASE SIGN AND COMPLETE
Names of Tendering Holder(s): _______ Address(es): ________________________
_____________________________________ _____________________________________
_____________________________________ _____________________________________
Signature(s): _______________________ Date: _______________________________
_____________________________________ _____________________________________
Area Code and Telephone No(s). ______
_____________________________________
Name(s) in which shares of Series A Preferred Stock are registered: ___________
_______________________________________________________________________________
Number of shares of Series A Certificate number(s) (if known) of
Preferred Stock tendered: ___________ shares of shares of Series A
Preferred Stock: ____________________
_____________________________________ _____________________________________
This Notice of Guaranteed Delivery must be signed by the holder(s) exactly
as their name(s) appear(s) on certificates for shares of Series A Preferred
Stock or on a security position listing as the owner of shares of Series A
Preferred Stock, 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
of a corporation or other person 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 OF DELIVERY
(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 certificates representing shares of Series
A Preferred Stock tendered hereby in proper form for transfer (or confirmation
of the book-entry transfer of such shares of Series A Preferred Stock 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 THREE (3) Nasdaq trading days following
the Expiration Date.
Name of Firm: _______________________ _____________________________________
Authorized Signature
_____________________________________ _____________________________________
Address: ____________________________ Name: _______________________________
_____________________________________ Title: ______________________________
(Include Zip Code)
Area Code and Telephone Number:
_____________________________________ Date: _________________________, 1997
DO NOT SEND CERTIFICATES REPRESENTING SHARES OF SERIES A PREFERRED STOCK WITH
THIS FORM. ACTUAL SURRENDER OF CERTIFICATES REPRESENTING SHARES OF SERIES A
PREFERRED STOCK MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY
COMPLETED AND DULY EXECUTED LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED
DOCUMENTS.
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<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 hand 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 shares of
Series A Preferred Stock referred to herein, the signature must correspond with
the name(s) written on the face of the certificates of shares of Series A
Preferred Stock 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 shares of Series A Preferred Stock, the signature must correspond with
the name shown on the security position listing as the owner of the shares of
Series A Preferred Stock.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any shares of Series A Preferred Stock listed or a
participant of the Book-Entry Transfer Facility, this Notice of Guaranteed
Delivery must be accompanied by appropriate stock powers, signed as the name of
the registered holder(s) appears on the certificates of shares of Series A
Preferred Stock 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.
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<PAGE> 1
Exhibit 99.3
EXCHANGE AGENCY AGREEMENT
as of November 7, 1997
Boston EquiServe, L.P.
150 Royall Street
Canton, Massachusetts 02021
Ladies and Gentlemen:
High Voltage Engineering Corporation, a Delaware corporation (the
"Company"), intends to make an offer (the "EXCHANGE OFFER") to exchange its
12 1/2% Series A Exchange Senior Redeemable Preferred Stock, liquidation
preference $1,000 per share (the "SERIES A PREFERRED STOCK",) for its
outstanding 12 1/2% Series A Senior Redeemable Preferred Stock, liquidation
preference $1,000 per share (the "SERIES A EXCHANGE PREFERRED STOCK"). The terms
and conditions of the Exchange Offer as currently contemplated are set forth in
a prospectus, dated _________ __, 1997 (the "PROSPECTUS"), distributed to all
record holders of the Series A Preferred Stock. The Series A Preferred Stock and
the Series A Exchange Preferred Stock are collectively referred to herein as the
"PREFERRED STOCK."
The Company hereby appoints Boston EquiServe, L.P. ("BOSTON EQUISERVE")
to act as exchange agent (the "EXCHANGE AGENT") in connection with the Exchange
Offer. References hereinafter to "you" shall refer to Boston EquiServe.
The Exchange Offer is expected to be commenced by the Company on or
about the date of the Prospectus. The Letter of Transmittal accompanying the
Prospectus is to be used by the holders of the Series A Preferred Stock to
accept the Exchange Offer, and contains instructions with respect to the
delivery of certificates representing the shares of Series A Preferred Stock
tendered.
The Exchange Offer shall expire at 5:00 P.M., Boston time, on the 30th
day after the effective date of the Registration Statement of which the
Prospectus is a part or on such later date or time to which the Company may
extend the Exchange Offer (the "EXPIRATION DATE"). Subject to the terms and
conditions set forth in the Prospectus, the Company expressly reserves the
right to extend the Exchange Offer from time to time and may extend the
Exchange Offer by giving oral (confirmed in writing) or written notice to you
before 5:00 P.M., Boston
<PAGE> 2
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time, on the previously scheduled Expiration Date.
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth in the section of the Prospectus captioned "Exchange
Offer" or as specifically set forth herein, provided, however, that in no way
will your general duty to act in good faith be discharged by the foregoing.
2. You are to examine each of the Letters of Transmittal and
certificates representing shares of Series A Preferred Stock and any other
documents delivered or mailed to you by or for holders of the Series A Preferred
Stock to ascertain whether: (i) the Letters of Transmittal and any such other
documents are duly executed and properly completed in accordance with the
instructions set forth therein and (ii) the shares of Series A Preferred Stock
have otherwise been properly tendered. In each case where the Letter of
Transmittal or any other document has been improperly completed or executed or
any of the certificates representing shares of Series A Preferred Stock are not
in proper form for transfer or some other irregularity in connection with the
acceptance of the Exchange Offer exists, you will endeavor promptly to inform
the presenters of the need for fulfillment of all requirements and promptly to
take any other action as may be necessary or advisable to cause such
irregularity to be corrected, and you will promptly notify the Company thereof.
3. With the approval of any of the Treasurer, any Assistant
Treasurer, the Chief Executive Officer, the President, any Vice President and
the Clerk (each, a "DESIGNATED OFFICER") of the Company, or of counsel to the
Company (such approval, if given orally, to be confirmed in writing) or any
other party designated by such a Designated Officer, you are authorized to waive
any irregularities in connection with any tender of shares of Series A Preferred
Stock pursuant to the Exchange Offer.
4. Tenders of shares of Series A Preferred Stock may be made only as
set forth in the Letter of Transmittal and in the section of the Prospectus
captioned "Exchange Offer -- Procedures for Tendering Series A Preferred Stock,"
and shares of Series A Preferred Stock shall be considered properly tendered to
you only when tendered in accordance with the procedures set forth therein.
<PAGE> 3
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Notwithstanding the provisions of this paragraph 4, shares of Series A
Preferred Stock that a Designated Officer of the Company shall approve as having
been properly tendered shall be considered to be properly tendered.
5. You shall advise the Company with respect to any shares of
Series A Preferred Stock received subsequent to the Expiration Date and accept
its instructions with respect to disposition of such shares of Series A
Preferred Stock.
6. You shall accept tenders:
(a) in cases where the shares of Series A Preferred Stock, are
registered in two or more names only if signed by all named holders;
(b) in cases where the signing person (as indicated on the Letter
of Transmittal) is acting in a fiduciary or a representative capacity
only when proper evidence of his or her authority so to act is
submitted; and
(c) from persons other than the registered holder of shares of
Series A Preferred Stock provided that customary transfer requirements,
including payment of any applicable transfer taxes, have been
satisfied.
You shall accept partial tenders of shares of Series A Preferred Stock
where so indicated and as permitted in the Letter of Transmittal and deliver
certificates representing shares of Series A Preferred Stock to the transfer
agent or split-up and return any untendered shares of Series A Preferred Stock
to the holder (or such person as may be designated in the Letter of Transmittal)
as promptly as practicable.
7. The Company will exchange shares of Series A Preferred Stock duly
tendered for shares of Series A Exchange Preferred Stock on the terms and
subject to the conditions set forth in the Prospectus and the Letter of
Transmittal. Delivery of shares of Series A Exchange Preferred Stock will be
made on behalf of the Company at the rate of one share of Series A Exchange
Preferred Stock for each share of Series A Preferred Stock tendered as soon as
practicable after notice (such notice if given orally, to be confirmed in
writing) of acceptance of said shares of Series A Preferred Stock by the
Company, provided, however, that in all cases, shares of Series A Preferred
Stock tendered pursuant to the Exchange Offer will be exchanged only after
timely receipt by you of certificates
<PAGE> 4
-4-
representing such shares of Series A Preferred Stock, a properly completed and
duly executed Letter of Transmittal with any required signature guarantees and
any other required documents. Unless otherwise instructed by the Company, you
shall issue only whole shares of Series A Exchange Preferred Stock.
8. Tenders pursuant to the Exchange Offer are irrevocable, except
that, subject to the terms and upon the conditions set forth in the Prospectus
and the Letter of Transmittal, shares of Series A Preferred Stock tendered
pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date.
9. The Company shall not be required to exchange any shares of
Series A Preferred Stock tendered if any of the conditions set forth in the
Exchange Offer are not met. Notice of any decision by the Company not to
exchange any shares of Series A Preferred Stock tendered shall be given (and
confirmed in writing) by the Company to you.
10. If, pursuant to the Exchange Offer, the Company does not accept
for exchange all or party of the shares of Series A Preferred Stock tendered
because of an invalid tender, the occurrence of certain other events set forth
in the Prospectus under the caption "The Exchange Offer -- Certain Conditions to
the Exchange Offer" or otherwise, you shall as soon as practicable after the
expiration or termination of the Exchange Offer return those certificates
representing unaccepted shares of Series A Preferred Stock (or effect
appropriate book-entry transfer), together with any related required documents
and the Letters of Transmittal relating thereto that are in your possession, to
the persons who deposited them.
11. All certificates representing reissued shares of Series A
Preferred Stock, unaccepted shares of Series A Preferred Stock or shares of
Series A Exchange Preferred Stock shall be forwarded by (a) first-class
certified mail, return receipt requested under a blanket surety bond protecting
you and the Company from loss or liability arising out of the non-receipt or
non-delivery of such certificates or (b) by registered mail insured separately
for the replacement value of each of such certificates.
12. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons or
to engage or utilize any person to solicit tenders.
13. As Exchange Agent hereunder you:
<PAGE> 5
-5-
(a) shall have not duties or obligations other than those
specifically set forth herein or as may be subsequently agreed to in
writing by you and the Company.
(b) will be regarded as making no representations and having no
responsibilities as to the validity, sufficiency, value or genuineness
of any of the certificates or the shares of Series A, Preferred Stock
represented thereby deposited with you pursuant to the Exchange Offer,
provided, however, that in no way will your general duty to act in good
faith be discharged by the foregoing:
(c) shall not be obligated to take any legal action hereunder
which might in your reasonable judgment involve any expense or
liability, unless you shall have been furnished with reasonable
indemnity;
(d) may reasonably rely on and shall be protected in acting in
reliance upon any certificate, instrument, opinion, notice, letter,
telegram or other document or security delivered to you and reasonably
believed by you to be genuine and to have been signed by the proper
party or parties:
(e) may reasonably act upon any tender, statement, request,
comment, agreement or other instrument whatsoever not only as to its
due execution and validity and effectiveness of its provisions, but
also as to the truth and accuracy of any information contained therein,
which you shall in good faith believe to be genuine or to have been
signed or represented by a proper person or persons;
(f) may rely on and shall be protected in acting upon written or
oral instructions from any Designated Officer of the Company;
(g) may consult with your counsel with respect to any questions
relating to your duties and responsibilities and the written opinion of
such independent counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be
taken by you hereunder in good faith and in accordance with the written
opinion of such counsel; and
(h) shall not advise any person tendering shares of Series A
Preferred Stock pursuant to the Exchange Offer as to the wisdom
<PAGE> 6
-6-
of making such tender or as to the market value or decline or appreciation
in market value of any shares of Series A Preferred Stock.
14. You shall take such action as may from time to time be requested
by the Company (and such other action as you may reasonably deem appropriate) to
furnish copies of the Prospectus, Letter of Transmittal and the Notice of
Guaranteed Delivery of such other forms as may be approved from time to time by
the Company, to all persons requesting such documents and to accept and comply
with telephone requests for information relating to the Exchange Offer, provided
that such information shall relate only to the procedures for accepting (or
withdrawing from) the Exchange Offer. The Company will furnish you with copies
of such documents at your request.
15. You shall advise by cable, telex, facsimile transmission or
telephone, and promptly thereafter confirm in writing to the Company and such
other person or persons as it may request, daily (and more frequently during the
week immediately preceding the Expiration Date and if otherwise requested) up to
and including the Expiration Date, as to the number of shares of Series A
Preferred Stock that have been tendered pursuant to the Exchange Offer and the
items received by you pursuant to this Agreement, separately reporting and
giving cumulative totals as to items properly received and items improperly
received. In addition, you will also inform, and cooperate in making available
to, the Company or any such other person or persons upon oral request made form
time to time prior to the Expiration Date such other information as it, he or
she reasonably requests. Such cooperation shall include, without limitation, the
granting by you to the Company and such person as the Company may request of
access to those persons on your staff who are responsible for receiving tenders,
in order to ensure that immediately prior to the Expiration Date the Company
shall have received information in sufficient detail to enable it to decide
whether to extend the Exchange Offer. You shall prepare a final list of all
persons whose tenders were accepted, the aggregate number of shares of Series A
Preferred Stock tendered, the aggregate number of shares of Series A Preferred
Stock accepted and deliver said list to the Company.
16. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Company.
<PAGE> 7
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17. You hereby expressly waive any lien, encumbrance or right of
set-off whatsoever that you may have with respect to funds deposited with you
for the payment of transfer taxes by reasons of amounts, if any, borrowed by the
Company, or any of its subsidiaries or affiliates pursuant to any loan or credit
agreement with your or for compensation owed to you hereunder.
18. For services tendered as Exchange Agent hereunder, you shall be
entitled to such compensation as set forth on SCHEDULE I attached hereto.
19. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of them. Any
inconsistency between this Agreement, on the one hand, and the Prospectus and
the Letter of Transmittal (as they may be amended from time to time), on the
other hand, shall be resolved in favor of the latter two documents, except with
respect to the duties, liabilities and indemnification of you as Exchange Agent
which shall be controlled by this Agreement.
20. The Company covenants and agrees to indemnify and hold you in your
capacity as Exchange Agent hereunder harmless against any loss, liability, cost
or expense, including reasonable attorneys' fees arising out of or in connection
with any act, omission, delay or refusal made by you in reasonable reliance upon
any signature, endorsement, assignment, certificate, order, request, notice,
instruction or other instrument or document reasonably believed by you to be
valid, genuine and sufficient and in accepting any tender or effecting any
transfer of shares of Series A Preferred Stock reasonably believed by you in
good faith to be authorized, and in delaying or refusing in good faith to accept
any tenders or effect any transfer of shares of Series A Preferred Stock;
provided, however, that the Company shall not be liable for indemnification or
otherwise for any loss, liability, cost or expense to the extend arising out of
your gross negligence, willful misconduct or bad faith. In no case shall the
Company be liable under this indemnity with respect to any claim against you
unless the Company shall be notified by you, by letter or cable or be telex
confirmed by letter, of the written assertion of a claim against you or of any
other action commenced against you, promptly after you shall have received any
such written assertion or shall have been served with a summons in connection
therewith.
In addition, the Company shall not be liable for any loss, liability,
cost or expense resulting from a settlement entered into without its
<PAGE> 8
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consent. The Company shall be entitled to participate at its own expense in the
defense of any such claim or other action, and, if the Company so elects, the
Company shall assume the defense of any suit brought to enforce any such claim.
In the event that the Company shall assume the defense of any such suit, the
Company shall not be liable for the fees and expenses of any additional counsel
thereafter retained by you, so long as the Company shall retain counsel
reasonably satisfactory to you to defend such suit.
21. You shall arrange to comply with all requirements under the tax
laws of the United States, including those relating to missing Tax
Identification Numbers, and shall file any appropriate reports with the Internal
Revenue Service. The Company understands that you are required to deduct 31% on
payments to holders who have not supplied their correct Taxpayer Identification
Number or required certification. Such funds will be turned over to the Internal
Revenue Service.
22. You shall deliver or cause to be delivered, in a timely manner to
each governmental authority to which any transfer taxes are payable in respect
of the exchange of shares of Series A Preferred Stock, your check in the amount
of all transfer taxes so payable, and the Company shall reimburse you for the
amount of any and all transfer taxes payable in respect of the exchange of
shares of Series A Preferred Stock; provided, however, that you shall reimburse
the Company for amounts refunded to you in respect of your payment of any such
transfer taxes, at such time as such refund is received by you.
23. This Agreement and your appointment as Exchange Agent hereunder
shall be construed and enforced in accordance with the laws of the Commonwealth
of Massachusetts applicable to agreements made and to be performed entirely
within such state, and shall inure to the benefit of, and the obligations
created hereby shall be binding upon, the successors and assigns of each of the
parties hereto. This Agreement may not be modified orally.
24. This Agreement may be executed in one or more counterparts, each
of which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
25. In case any provisions of this Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
<PAGE> 9
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26. This Agreement shall not be deemed or construed to be modified,
amended, rescinded, canceled or waived, in whole or in party, except by a
written instrument signed by a duly authorized representative of the party to be
charged.
27. Unless otherwise provided herein, all notices, requests and other
communications to any party hereunder shall be in writing (including telecopy or
similar writing) and shall be given to such party, addressed to it, at its
address or telecopy number set forth below:
If to the Company:
High Voltage Engineering Corporation
401 Edgewater Place, Suite 680
Wakefield, MA 01880-6210
Phone: 617-224-1001
Telecopier: 617-224-1011
Attention: Chief Financial Officer
If to the Exchange Agent:
Boston EquiServe, L.P.
150 Royall Street
Canton, MA 02021
Phone: 617-575-3120
Telecopier: 617-575-2500
28. Unless terminated earlier by the parties hereto, this Agreement
shall terminate 90 days following the Expiration Date. Upon any termination of
this Agreement, you shall promptly deliver to the Company any certificates,
funds or property then held by you as Exchange Agent under this Agreement.
29. This Agreement shall be binding and effective as of the date
hereof.
<PAGE> 10
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Please acknowledge receipt of this Agreement and confirm the
arrangement herein provided by signing and returning the enclosed copy.
HIGH VOLTAGE ENGINEERING CORPORATION
By: ________________________________________
Name:
Title:
Accepted as of the date first above written.
BOSTON EQUISERVE, L.P.
By: ________________________________________
Name:
Title:
Attested By:
Name:
Title:
<PAGE> 11
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Schedule I
FEE SCHEDULE
Pursuant to Paragraph eighteen of the Exchange Agency Agreement, the
fee for the Agent is $_____ plus out-of-pocket expenses.
