<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 1, 1998
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
HIGH VOLTAGE ENGINEERING CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MASSACHUSETTS 3625 04-2035796
(State or other jurisdiction of Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
401 EDGEWATER PLACE, SUITE 680, WAKEFIELD, MA 01880
(781) 224-1001
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
------------------------------
JOSEPH W. MCHUGH, JR.,
VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
HIGH VOLTAGE ENGINEERING CORPORATION
401 EDGEWATER PLACE
WAKEFIELD, MA 01880
(781) 224-1001
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
WITH A COPY TO:
MICHAEL P. O'BRIEN, ESQ.
BINGHAM DANA LLP
150 FEDERAL STREET
BOSTON, MA 02110
(617) 951-8302
FACSIMILE NO. (617) 951-8736
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
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. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH AMOUNT PROPOSED PROPOSED
CLASS OF SECURITIES TO BE MAXIMUM OFFERING MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER UNIT OFFERING PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
10 1/2% Senior Notes due 2004......... $20,000,000 100% $20,000,000 $1,967.00(1)
</TABLE>
(1) Based on one-third of the principal amount of the securities as of the most
recent practicable date in accordance with Rule 457(f)(2) under the
Securities Act of 1933, as amended. The registrant has an accumulated
capital deficit of approximately $(63,170,000) as of March 28, 1997.
--------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 1, 1998
PROSPECTUS
OFFER TO EXCHANGE 10 1/2% SENIOR NOTES DUE 2004 WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING 10 1/2%
SENIOR NOTES DUE 2004 ORIGINALLY ISSUED ON MARCH 19, 1998
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
------------------------
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
High Voltage Engineering Corporation ("HVE" or, together with its
subsidiaries, the "Company") hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus and the accompanying letter of
transmittal (the "Letter of Transmittal," and together with this Prospectus, the
"Exchange Offer"), to exchange up to $20,000,000 in aggregate amount of its
10 1/2% Senior Notes due 2004 (the "Exchange Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), pursuant to
a Registration Statement of which this Prospectus is a part, for a like
principal amount of its outstanding 10 1/2% Senior Notes due 2004 (the "New
Notes"), originally issued on March 19, 1998, of which $20,000,000 in aggregate
principal amount is outstanding as of the date hereof. The terms of the Exchange
Notes are identical in all material respects to the terms of the New Notes,
except for certain transfer restrictions and registration rights relating to the
New Notes. The Exchange Notes will be issued pursuant to, and entitled to the
benefits of, the Indenture, dated as of August 8, 1997, as amended, between the
Company and State Street Bank and Trust Company, as trustee, relating to up to
$155,000,000 of HVE's 10 1/2% Senior Notes due 2004, including $135,000,000 of
its 10 1/2% Senior Notes due 2004 that have been registered under the Securities
Act and were issued on January 16, 1998 (the "Existing Notes" and, together with
the New Notes and the Exchange Notes, the "Notes").
The Company will accept for exchange any and all New Notes that are validly
tendered on or prior to 5:00 p.m., Boston time, on the date the Exchange Offer
expires, which will be 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 New Notes
may be withdrawn at any time prior to 5:00 p.m., Boston time, on the business
day prior to the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of New Notes being tendered for exchange. However, the
Exchange Offer is subject to certain conditions which may be waived by the
Company and to the terms and provisions of a Registration Rights Agreement,
dated as of March 19, 1998, between the Company and the Initial Purchaser named
therein (the "Registration Rights Agreement"). See "Exchange Offer." The Company
has agreed to pay the expenses of the Exchange Offer.
Holders of New Notes whose notes are not tendered and accepted in the
Exchange Offer will continue to hold such New Notes. Following consummation of
the Exchange Offer, the holders of New Notes will continue to be subject to the
existing restrictions upon transfer thereof and, except as provided herein, the
Company will have no further obligation to such holders to provide for the
registration under the Securities Act of the New Notes held by them.
SEE "RISK FACTORS" BEGINNING ON PAGE 16 FOR A DISCUSSION OF CERTAIN RISKS
THAT SHOULD BE CONSIDERED BY HOLDERS OF NEW NOTES AND PROSPECTIVE PURCHASERS OF
EXCHANGE NOTES.
---------------------
THE COMPANY WILL NOT RECEIVE ANY PROCEEDS FROM THIS EXCHANGE OFFER AND NO
UNDERWRITER IS BEING UTILIZED IN CONNECTION WITH THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is May , 1998.
<PAGE>
$20,000,000 aggregate principal amount of the New Notes that were not
registered under the Securities Act were issued and sold on March 19, 1998, in
reliance upon the exemption provided in Section 4(2) of the Securities Act.
Accordingly, the New Notes may not be offered, resold or otherwise pledged,
hypothecated or transferred in the United States unless so registered or unless
an applicable exemption from the registration requirements of the Securities Act
is available. The Exchange Notes are being offered hereby in order to satisfy
the obligations of the Company under the 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 Exchange Notes to be issued pursuant to
the Exchange Offer may be offered for sale, resold and otherwise transferred by
holders thereof (other than (i) a broker-dealer who purchases Exchange Notes
directly from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an "affiliate" of
the Company within the meaning of Rule 405 under the Securities Act), without
compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangements with any
person to participate in the distribution of such Exchange Notes. Each holder
who participates in the Exchange Offer will be required to represent that any
Exchange Notes received by it will be acquired in the ordinary course of its
business, that at the time of the consummation of the Exchange Offer such holder
will have no arrangement or understanding with any person to participate in the
distribution of the Exchange Notes, and that such holder is not an affiliate of
the Company within the meaning of Rule 405 promulgated under the Securities Act
or if it is such an affiliate, that it will comply with the registration and
prospectus delivery requirements of the Securities Act, to the extent
applicable. Each broker-dealer that receives Exchange Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of shares of Exchange Notes received in exchange for New Notes
where such New Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed to
use its best efforts to make this Prospectus available to participating
broker-dealers for a period necessary to permit compliance of such
broker-dealers with applicable prospectus delivery requirements under the
Securities Act, such period not to exceed 180 days except under specified
circumstances. See "Plan of Distribution."
Interest on the Notes will be payable in cash semiannually on each August 15
and February 15, commencing August 15, 1998 in the case of the New Notes and the
Exchange Notes and February 15, 1998 in the case of the Existing Notes. The
Notes will be redeemable at the option of the Company, in whole or in part, at
any time on or after August 15, 2001, at the redemption prices set forth herein,
plus accrued and unpaid interest to the redemption date. In addition, the
Company, at its option, may redeem in the aggregate up to 35% of the original
principal amount of the Notes at any time prior to August 15, 2000, at a
redemption price equal to 110.500% of the aggregate principal amount thereof,
plus accrued and unpaid interest to the redemption date, with the Net Proceeds
(as defined herein) of one or more Qualified Equity Offerings (as defined
herein) of HVE, or Letitia Corporation, a Delaware corporation and the principal
common stockholder of HVE ("Letitia Corporation"), to the extent such proceeds
were contributed to HVE as common equity; provided that at least $100.8 million
of the principal amount of the Notes originally issued remain outstanding after
giving effect to any such redemption and that any such redemption occurs within
60 days following the closing of any such Qualified Equity Offering. In
addition, the Company will allow each Restricted Subsidiary (as defined herein)
that is an obligor under an Intercompany Note (as defined herein) to effect a
Qualified Subsidiary IPO (as defined herein); provided, among other things, that
any Restricted Subsidiary effecting a Qualified Subsidiary IPO will be obligated
to repay in full its Intercompany Note with the Net Proceeds of such Qualified
Subsidiary IPO; that the Company will be obligated to make an offer to purchase
Notes from the holders thereof equal in aggregate
ii
<PAGE>
principal amount to the Intercompany Note being repaid by such Restricted
Subsidiary at a purchase price equal to 101% of the principal amount thereof,
plus accrued and unpaid interest to the purchase date and that any such purchase
of Notes occurs within 90 days following the closing of any such Qualified
Subsidiary IPO; that immediately after giving pro forma effect to such Qualified
Subsidiary IPO, the Company (excluding the EBITDA and the Consolidated Fixed
Charges (as defined herein) of the Restricted Subsidiary effecting the Qualified
Subsidiary IPO) could incur $1.00 of additional Indebtedness (as defined herein)
under the covenant described under "Description of the Notes -- Certain
Covenants Limitation on Additional Indebtedness," assuming for this purpose
only, that the aforementioned offer to repurchase has been subscribed in full;
and that all remaining Net Proceeds of such Qualified Subsidiary IPO received by
HVE will be deemed an Asset Sale (as defined herein). A Restricted Subsidiary
will become an Unrestricted Subsidiary (as defined herein) upon completion of a
Qualified Subsidiary IPO and the repayment of its Intercompany Note. See
"Description of the Notes -- Offer to Repurchase upon a Qualified Subsidiary
IPO."
The Exchange Notes will be senior unsecured obligations of the Company
ranking PARI PASSU in right of payment with all existing and future senior
indebtedness of the Company and senior in right of payment to any subordinated
indebtedness of the Company. The Exchange Notes will be effectively subordinated
to all existing and future secured indebtedness of the Company, including
indebtedness under the Revolving Credit Facility (as defined herein). Despite
the pledge of the Intercompany Notes to secure the repayment of the Notes, a
bankruptcy court could subordinate such repayments to all existing and future
indebtedness and other liabilities and commitments of any of HVE's subsidiaries.
As of March 28, 1998, pro forma for the Transactions and the General Eastern
Disposition (each as defined herein), HVE would have had $169.3 million of
senior indebtedness outstanding (including the New Notes and the Existing
Notes), of which $10.0 million would have been secured indebtedness, and the
subsidiaries of HVE would have had $66.6 million of additional indebtedness and
other liabilities and commitments outstanding (excluding the Intercompany
Notes), of which $14.9 million would have been secured indebtedness. The
Company's ability to make any cash payments with respect to the Notes may be
adversely affected by any inability of its subsidiaries to make dividend or
other payments to the Company.
Upon the occurrence of a Change of Control (as defined herein), each holder
of the Notes will be entitled to require the Company to purchase such holder's
Notes at a purchase price equal to 101% of the principal amount thereof, plus
accrued and unpaid interest to the purchase date. See "Description of the Notes
- -- Change of Control Offer." In addition, the Company will be obligated in
certain instances to make an offer to purchase the New Notes at a purchase price
in cash equal to 100% of the principal amount thereof, plus accrued and unpaid
interest to the purchase date, with the Available Asset Sale Proceeds (as
defined herein) of certain asset sales. See "Description of the Notes -- Certain
Covenants -- Limitation on Certain Asset Sales."
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF NEW NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
There can be no assurance that an active public or private market for the
Exchange Notes will develop. Whether or not a market for the Exchange Notes
should develop, the Exchange Notes could trade at a discount from their
aggregate liquidation preference. The Company does not intend to list the
Exchange Notes on a national securities exchange or to apply for quotation of
the Exchange Notes through the National Association of Securities Dealers
Automated Quotation System. To the extent New Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted shares of Exchange Notes could be adversely affected.
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
iii
<PAGE>
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-Registered Trademark-, AST-TM-,
Datcon-Registered Trademark-, Illuma Deluxe-TM-, IllumaSeal-TM-,
Intellisensor-TM-, Perfect Harmony-TM-, PHI-Registered Trademark-,
Powerpole-Registered Trademark-, Quantum 2000 Scanning ESCA Microprobe-TM-,
SB-Registered Trademark-, Smart Instrument-TM-, SMART-200-TM-,
Stewart-Warner-Registered Trademark-, SW-Registered Trademark- 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.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange Act
and in accordance therewith is required to file reports and other information
with the Commission. The Registration Statement, of which this Prospectus is a
part, and the exhibits thereto have been filed with the Commission, and such
Registration Statement and Exhibits, 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.
iv
<PAGE>
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
STEWART WARNER INSTRUMENT CORPORATION (COLLECTIVELY WITH ITS SUBSIDIARIES,
"STEWART WARNER"). AS USED IN THIS PROSPECTUS, THE TERMS "FISCAL 1993," "FISCAL
1994," "FISCAL 1995," "FISCAL 1996," "FISCAL 1997" AND "FISCAL 1998" REFER TO
HVE'S FISCAL YEARS ENDED MAY 1, 1993, APRIL 30, 1994, APRIL 29, 1995, APRIL 27,
1996 AND APRIL 26, 1997, AND HVE'S FISCAL YEAR ENDING APRIL 25, 1998,
RESPECTIVELY.
THE COMPANY
The Company owns and operates a diversified group of six 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 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 (e) on page 44). 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 15.6% CAGR from $9.1 million to $16.3 million. Pro forma for the
acquisition of Physical Electronics, Inc. (the "PHI Merger"), the acquisition of
Stewart Warner (the "Stewart Warner Acquisition"), and the disposition (the
"General Eastern Disposition") of the Company's General Eastern Instruments
division ("General Eastern"), the Company had net sales and Adjusted EBITDA of
$267.4 million and $28.1 million, respectively, in the latest twelve month
("LTM") period ended January 24, 1998.
The Company manufactures and markets its products through the following six
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 the LTM period ended January 24, 1998,
Robicon had net sales of $92.0 million.
PHYSICAL ELECTRONICS, INC. ("PHI"). On August 8, 1997, HVE acquired all of
the capital stock of PHI for an aggregate consideration of $54.6 million,
including transaction costs and net of cash acquired. 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
1
<PAGE>
instruments are also used for materials science research by universities and
government institutions. For the LTM period ended January 24, 1998, PHI had net
sales of $64.7 million.
THE DATCON / STEWART WARNER GROUP ("DATCON"). On March 19, 1998, a wholly
owned subsidiary of HVE acquired, directly or indirectly, all of the capital
stock of Stewart Warner, for an aggregate consideration of $24.7 million in
cash. The operations of Stewart Warner are being operated together with those of
the Company's existing Datcon Instrument Company subsidiary and its wholly owned
subsidiary Industrias Jorda, S.L. ("Jorda"). The Company believes that the
combined entity will be a leading designer, manufacturer and distributor of
customized monitoring instrumentation for heavy duty and off-highway vehicles
and equipment. The products manufactured and marketed, or distributed, by Datcon
will include a broad range of analog and digital instrument clusters and
displays, gauges (including fuel, temperature and pressure gauges), meters
(including speedometers and tachometers), sensing devices (for fuel level,
temperature and pressure), related electronic control units ("ECUs"), and
related vehicle accessory products. These products are used both by OEMs and in
the aftermarket in construction equipment, agricultural machinery and power turf
equipment, heavy duty truck, bus, materials handling equipment and generator and
compressor engines and marine applications. For the LTM period ended January 24,
1998, pro forma for the Stewart Warner Acquisition, Datcon had net sales of
$61.4 million, including net sales of $26.5 million generated by Stewart Warner.
ANDERSON INTERCONNECT, INC. -- ANDERSON POWER PRODUCTS
("ANDERSON"). Anderson is a leading designer and manufacturer of high
efficiency, pluggable power connectors for use in high current, quick disconnect
applications including materials handling equipment and other electric-powered
vehicles, uninterruptible power supply products, telecommunications and
networking equipment and office furniture panel electrification. For the LTM
period ended January 24, 1998, Anderson had net sales of $24.3 million.
NATVAR COMPANY ("NATVAR"). Natvar is a manufacturer of disposable specialty
bulk medical grade plastic tubing used primarily in medical devices and for
less-invasive surgical procedures. For the LTM period ended January 24, 1998,
Natvar had net sales of $16.7 million.
HIGH VOLTAGE ENGINEERING EUROPA B.V. ("HVE EUROPA"). HVE Europa is a
leading designer and manufacturer of particle accelerator systems used in
scientific, educational and industrial research. HVE Europa's products include
ion accelerator systems, research ion implanters, accelerator mass spectrometer
systems and component parts. For the LTM period ended January 24, 1998, HVE
Europa had net sales of $8.3 million.
RECENT DEVELOPMENTS
THE STEWART WARNER ACQUISITION
On March 19, 1998, a wholly owned subsidiary of HVE acquired, directly or
indirectly, all of the capital stock of Stewart Warner, for an aggregate
consideration of $24.7 million in cash. After the repayment of all of Stewart
Warner's outstanding indebtedness, the remainder of the cash purchase price was
distributed to the holders of the outstanding capital stock of Stewart Warner
(the "Stewart Warner Stock"). Following the consummation of the Stewart Warner
Acquisition, Stewart Warner, HVE Acquisition Corp., an Illinois corporation and
wholly owned subsidiary of HVE ("HVE Acquisition Corp."), and each of Stewart
Warner's existing subsidiaries, became Restricted Subsidiaries of HVE.
Immediately following the Stewart Warner Acquisition, Stewart Warner issued
an intercompany note, under which HVE Acquisition Corp. and TTS Mexican Holding
Company Inc., an Illinois corporation and wholly-owned subsidiary of Datcon
("TTS"), are co-obligors, in the principal amount of $20.0 million (the "Stewart
Warner Intercompany Note") which was pledged by HVE, together with existing
intercompany notes in the aggregate principal amount of $120.5 million (such
intercompany notes are referred to herein together with the Stewart Warner
Intercompany Note as the "Intercompany Notes") issued by certain of
2
<PAGE>
HVE's existing Restricted Subsidiaries, as security for payment of principal and
interest on the Notes. The Stewart Warner Acquisition and issuance of the
Stewart Warner Intercompany Note are referred to, collectively with the
Offering, as the "Transactions."
Stewart Warner is a manufacturer and marketer of a broad range of gauges,
senders, sensors, switches, lamps and other accessories that are sold to both
the OEM and aftermarket segments in specialty applications, including the heavy
duty truck, agricultural, bus, emergency equipment, marine, government and
performance automotive hobby markets. Stewart Warner products are characterized
by strong brand name recognition and a reputation within the industry for
quality. For the LTM period ended January 31, 1998, Stewart Warner had net sales
of $26.5 million, and Adjusted EBITDA of $2.5 million, with such net sales
representing 9.9% of the Company's total net sales during the LTM period ended
January 24, 1998, pro forma for the PHI Merger, the Stewart Warner Acquisition
and the General Eastern Disposition.
The Company believes that the combination of Stewart Warner and Datcon
Instrument Company has created one of the leading suppliers of engine monitoring
instrumentation to the OEM market and engine monitoring instrumentation parts to
the aftermarket. The combined entity is well positioned to benefit from
improvements in product pricing, materials costs, labor costs, manufacturing
efficiencies and product distribution. Datcon Instrument Company's historical
focus on the OEM side of the business acts as a compliment to Stewart Warner's
strength in the aftermarket business. The Company believes that Stewart Warner's
loyal customer relationships, solid market positions, operating and service
expertise, proven operating performance as well as its committed and experienced
management team will continue to help differentiate Datcon from its competitors.
In addition, Datcon will continue to be in a strong position to market its
products and accessories to a wider global customer base than most of its
competitors. The Company believes that the elimination of certain non-recurring
executive compensation and related professional fees, as well as certain
manufacturing synergies, will be realized over time as a result of the Stewart
Warner Acquisition. Although there can be no assurance that the benefit of any
such eliminations or synergies may be actually achieved, the Company believes
that, assuming such synergies had been achieved in full on a pro forma basis for
the LTM period ended January 24, 1998, the Company's Adjusted EBITDA would have
been increased by approximately $0.5 million, which would have resulted in
Supplemental Adjusted EBITDA (as defined) being generated by Stewart Warner of
$3.0 million for such period. See "Unaudited Pro Forma Condensed Consolidated
Financial Data -- Unaudited Supplemental Adjusted Pro Forma Financial Data."
SALE OF ASSETS OF GENERAL EASTERN
On April 15, 1998, the Company sold all of the assets and ordinary course
business trade payables and capital and operating lease obligations of General
Eastern to a subsidiary of Bowthorpe Holdings Corporation formed for the purpose
of the acquisition ("Bowthorpe"), pursuant to an Asset Purchase Agreement, dated
as of March 25, 1998, as amended (the "Asset Purchase Agreement"). The purchase
price for the General Eastern assets was $18.0 million, paid in cash. In
addition, $3.0 million was paid in cash to the Company at closing in
consideration for an agreement on the part of the Company not to compete in the
conduct of the business of General Eastern for a period of three years after the
closing. Of the aggregate $21.0 million received by the Company in connection
with this sale, $850,000 was placed into escrow for a limited period to secure
certain indemnification obligations of the Company and to satisfy possible
purchase price adjustments.
APPOINTMENT OF CHIEF OPERATING OFFICER
On March 2, 1998, the Company announced that Russell L. Shade, Jr. had
joined its leadership team as Chief Operating Officer, effective March 9, 1998.
Most recently Mr. Shade was Vice President, Industrial Systems at General
Electric Company, where he had worked for 25 years.
3
<PAGE>
THE CONSENT SOLICITATION
Simultaneously with the distribution of a Preliminary Offering Memorandum of
the Company dated March 5, 1998, the Company solicited the consent (the "Consent
Solicitation") of the holders of a majority of the Existing Notes (the
"Requisite Consents") to (i) make certain amendments (the "Amendments") to
certain provisions of the Indenture dated as of August 8, 1997 (as so amended,
the "Indenture"), governing the Notes; and (ii) to waive a breach of the
Restricted Payments (as defined herein) covenant of the Indenture that was made
as a result of a misinterpretation of the Indenture pursuant to which a cash
dividend was paid to the holders of its Series A Preferred Stock (as defined
herein) in accordance with the terms thereof (the "Waivers"). The principal
purposes of the Amendments are to (a) permit the offer of the New Notes (the
"Offering"), (b) provide for the issuance of the Stewart Warner Intercompany
Note, (c) modify the manner in which Restricted Subsidiaries may be created,
merged and consolidated, and (d) make minor modifications to other Indenture
provisions. The Amendments became effective upon the consummation of the Stewart
Warner Acquisition. The Waivers became effective upon the receipt of the
Requisite Consents. The Requisite Consents were received on March 13, 1998 and
the Company has paid a consent fee in the aggregate amount of $675,000 to the
holders of the Existing Notes.
THE EXCHANGE OF THE EXISTING NOTES AND SERIES A PREFERRED STOCK
On January 16, 1998, the Company issued $135.0 million aggregate principal
amount of 10 1/2% Senior Notes due 2004 that had been registered under the
Securities Act of 1933, as amended (the "Securities Act"), in exchange for the
$135.0 million aggregate principal amount of the Company's outstanding 10 1/2%
Senior Notes due 2004 (the "Original Notes") that had been issued and sold for
their face amount on August 8, 1997 in transactions exempt from the registration
requirements of the Securities Act pursuant to Rule 144A, Regulation S and
Regulation D thereunder. The $135.0 million of 10 1/2% Senior Notes due 2004
that have been registered under the Securities Act are referred to herein as the
"Existing Notes" and, together with the New Notes and the Exchange Notes, as the
"Notes." Concurrent with the issuance of the Original Notes, the Company issued
and sold 33,000 units (the "Units"), consisting of 33,000 shares of the
Company's 12 1/2% Series A Senior Redeemable Preferred Stock (the "Original
Series A Preferred Stock"), warrants to purchase 82.7429 shares of the Company's
Common Stock and 82.7429 shares of the Company's Common Stock, for an aggregate
consideration of $35.2 million. On January 16, 1998, all of the outstanding
Original Series A Preferred Stock was exchanged for shares of the Company's
12 1/2% Series A Exchange Senior Redeemable Preferred Stock (the "Series A
Preferred Stock") having terms substantially identical to those of the Original
Series A Preferred Stock, except that the shares of Series A Preferred Stock
have been registered under the Securities Act and do not bear legends
restricting the transfer of such shares. In connection with the issuance of the
Original Notes and the Units (collectively, the "Original Offering"), the
Company completed the PHI Merger and repaid substantially all of its existing
indebtedness (the "Refinancing"). The New Notes have the same terms as the
Existing Notes and were issued pursuant to the same Indenture, except that the
Existing Notes have been registered under the Securities Act and therefore do
not bear legends restricting the transfer thereof.
4
<PAGE>
RISK FACTORS
Holders of New Notes and prospective purchasers of Exchange Notes should
consider carefully the information set forth under the caption "Risk Factors"
and all other information set forth in this Prospectus, in connection with the
Exchange Offer. SPECIFICALLY, AND AS DESCRIBED IN GREATER DETAIL UNDER THE
CAPTION "RISK FACTORS," HOLDERS OF NEW NOTES AND PROSPECTIVE PURCHASERS OF
EXCHANGE NOTES SHOULD CONSIDER CAREFULLY: (i) the Company is and will continue
to be highly leveraged and may be unable to generate sufficient cash flow to
meet its various debt service obligations, including under the Notes; (ii) the
Notes are subordinated in right of payment to the Company's secured
indebtedness, and the Intercompany Notes may be effectively subordinated in
right of payment to other indebtedness of HVE's subsidiaries; (iii) the Company
faces significant risks with respect to the PHI Merger, the largest acquisition
undertaken by the Company to date; (iv) the Company may not apply the cash it
received pursuant to the General Eastern Disposition to the repurchase of Notes,
and if such repurchase is made, the repurchase price may be less than the
then-current trading price of the Notes; (v) the Company conducts most of its
business through subsidiaries which are not direct obligors under the Notes;
(vi) if the issuance of the Exchange Notes is determined to be a fraudulent
conveyance, the indebtedness represented thereby could be subordinated to other
indebtedness of the Company; (vii) the Stewart Warner Acquisition was a
signification acquisition by the Company and carries certain risks, such as the
diversion of management's attention from the Company's other operations; (viii)
if any of HVE's subsidiaries effect a Qualified Subsidiary IPO, the cash flow
from such subsidiary will be unavailable to service HVE's debt; (ix) the Company
is dependent on intellectual property protection for certain of its technology,
and such protection is by its nature vulnerable; (x) the Company's results of
operations fluctuate in response to various factors; and (xi) the Company is
dependent on the continued contributions of its key personnel.
5
<PAGE>
THE EXCHANGE OFFER
<TABLE>
<S> <C>
Securities Offered.............. Up to $20,000,000 aggregate principal amount of 10 1/2%
Senior Notes due 2004 (the "Exchange Notes") that have
been registered under the Securities Act. The terms of the
Exchange Notes and those of the New Notes are identical in
all material respects, except for certain transfer
restrictions relating to the New Notes. See "Description
of the Notes."
Registration Rights Agreement... The New Notes were issued on March 19, 1998 to the Initial
Purchaser. The Initial Purchaser resold the New Notes to
certain qualified institutional buyers in reliance on, and
subject to the restrictions imposed pursuant to, Rule 144A
under the Securities Act. In connection therewith, the
Company entered into the Registration Rights Agreement
providing, among other things, for the Exchange Offer. See
"The Exchange Offer."
Resale of Exchange Notes........ Based on interpretations by the Staff of the Commission as
set forth in no-action letters issued to third parties,
the Company believes that the Exchange Notes to be issued
pursuant to the Exchange Offer may be offered for sale,
resold and otherwise transferred by holders thereof (other
than (i) a broker-dealer who purchases Exchange Notes
directly from the Company to resell pursuant to Rule 144A
or any other available exemption under the Securities Act
or (ii) a person that is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act),
without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that
such Exchange Notes are acquired in the ordinary course of
such holders' business and such holders have no
arrangements with any person to participate in the
distribution of such exchange Notes. Each holder who
participates in the Exchange Offer will be required to
represent that any Exchange Notes received by it will be
acquired in the ordinary course of its business, that at
the time of the consummation of the Exchange Offer such
holder will have no arrangement or understanding with any
person to participate in the distribution of the Exchange
Notes, and that such holder is not an affiliate of the
Company within the meaning of Rule 405 promulgated under
the Securities Act or if it is such an affiliate, that it
will comply with the registration and prospectus delivery
requirements of the Securities Act, to the extent
applicable. If a holder of New Notes is unable to make the
foregoing representations, such holder may not rely on the
applicable interpretations of the Staff of the Commission
as set forth in such no-action letters, and must comply
with the registration and prospectus delivery requirement
of the Securities Act in connection with any secondary
resale transaction.
The Exchange Offer.............. The Exchange Notes are being offered in exchange for a
like principal amount of New Notes. New Notes may be
exchanged only in existing multiples of $1,000. The
issuance of the Exchange Notes is intended to satisfy
obligations of the Company under the Registration Rights
Agreement. For a description of the procedures for
tendering, see "Exchange Offer -- Procedures for Tendering
New Notes."
</TABLE>
6
<PAGE>
<TABLE>
<S> <C>
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"). The tender of New Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to any time prior
to 5:00 p.m., Boston time, on the business day prior to
the Expiration Date. Any New Notes not accepted for
exchange for any reason will be returned without expense
to the tendering holders thereof as promptly as
practicable after the expiration or termination of the
Exchange Offer. See "Exchange Offer -- Expiration Date;
Extensions; Termination; Amendments; and Withdrawal
Rights."
Conditions to Exchange Offer.... The Exchange Offer is subject to certain conditions. See
"Exchange Offer -- Certain Conditions to the Exchange
Offer."
Procedures for Tendering
New Notes..................... Each holder of New Notes wishing to accept the Exchange
Offer must complete, sign and date a Letter of
Transmittal, or a facsimile thereof, in accordance with
the instructions contained herein and therein, and mail or
otherwise deliver such Letter of Transmittal, or such
facsimile, together with such New Notes and any other
required documents, to the Exchange Agent (as defined
herein) at the address set forth herein. See "Exchange
Offer -- Procedures for Tendering New Notes."
Use of Proceeds................. There will be no proceeds to the Company from the exchange
of Notes pursuant to the Exchange Offer.
Certain Federal Income Tax
Considerations................ The exchange pursuant to the Exchange Offer should not be
a taxable event to the holder for federal income tax
purposes, and the holder should not recognize any taxable
gain or loss as a result of such exchange. See "Certain
Federal Income Tax Considerations."
Untendered New Notes............ Upon consummation of the Exchange Offer, the holders of
New Notes, if any, will have no further rights under the
Registration Rights Agreement, except as provided herein.
Holders of New Notes who do not tender their New Notes in
the Exchange Offer or whose New Notes are not accepted for
exchange will continue to hold such New Notes and will be
entitled to all the rights and preferences thereof and
will be subject to all the limitations applicable thereto.
All untendered and tendered but unaccepted New Notes will
continue to be subject to the restrictions on transfer
provided therein. To the extent that New Notes are
tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted New
Notes could be adversely affected.
Exchange Agent.................. State Street Bank and Trust Company is serving as the
Exchange Agent (the "Exchange Agent") in connection with
the Exchange Offer.
</TABLE>
7
<PAGE>
TERMS OF NOTES
Except as otherwise indicated, the following description relates both to the
Exchange Notes and to the outstanding $135.0 million in aggregate principal
amount of the Existing Notes. The Exchange Notes will be obligations of the
Company evidencing the same indebtedness as the Existing Notes, and will be
entitled to the benefits of the same Indenture. For a more complete description
of the Notes, including the definitions of certain capitalized terms used below,
see "Description of the Notes."
<TABLE>
<S> <C>
Issuer.......................... High Voltage Engineering Corporation.
Notes Offered................... $20,000,000 principal amount of 10 1/2% Senior Notes due
2004.
Maturity Date................... August 15, 2004.
Interest Payment Dates.......... Interest accrues on the New Notes and the Exchange Notes
from February 15, 1998, and accrues on the Existing Notes
from August 15, 1997, and will be payable in cash
semiannually on each August 15 and February 15,
commencing, in the case of the New Notes and the Exchange
Notes, on August 15, 1998.
Optional Redemption............. The Notes will be redeemable, at the option of the
Company, in whole or in part, at any time on or after
August 15, 2001, at the redemption prices set forth
herein, plus accrued and unpaid interest to the redemption
date. In addition, the Company, at its option, may redeem
in the aggregate up to 35% of the original principal
amount of the Notes at any time and from time to time
prior to August 15, 2000, at a redemption price equal to
110.500% of the aggregate principal amount thereof, plus
accrued and unpaid interest to the redemption date, with
the Net Proceeds of one or more Qualified Equity Offerings
of HVE, or Letitia Corporation to the extent such proceeds
are contributed to HVE as common equity; provided that at
least $100.8 million of the principal amount of the Notes
remains outstanding after giving effect to any such
redemption and that any such redemption occurs within 60
days following the closing of any such Qualified Equity
Offering. See "Description of the Notes -- Optional
Redemption."
Intercompany Notes.............. Upon the issuance of the Original Notes, the principal
amount of the Original Notes was allocated among HVE and
each of its current direct Restricted Subsidiaries in
consideration for the release of certain obligations of
such Restricted Subsidiaries relating to the indebtedness
being repaid in connection with the issuance of such
Notes. Amounts allocated to such Restricted Subsidiaries
were evidenced by Intercompany Notes aggregating $120.5
million in principal amount. Upon the consummation of the
issuance of the New Notes, Stewart Warner issued the
Stewart Warner Intercompany Note in the principal amount
of $20.0 million. The Intercompany Notes are senior
obligations of each Restricted Subsidiary, have terms
substantially similar to the terms of the Notes and have
been pledged by HVE as collateral on the Notes. The
Intercompany Notes may not be forgiven by the Company as
long as the Notes remain outstanding; provided, however,
that the Intercompany Note of a particular Restricted
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Subsidiary must be repaid with the Net Proceeds of a
Qualified Subsidiary IPO of such Restricted Subsidiary.
Offer to Repurchase upon a
Qualified Subsidiary IPO...... The Indenture allows each Restricted Subsidiary that is an
obligor under an Intercompany Note to effect a Qualified
Subsidiary IPO; provided, among other things, that: (i)
any Restricted Subsidiary effecting a Qualified Subsidiary
IPO will be obligated to repay in full its Intercompany
Note with the Net Proceeds of such Qualified Subsidiary
IPO; (ii) the Company will be obligated to make an offer
to purchase Notes from the holders thereof equal in
aggregate principal amount to the Intercompany Note being
repaid by such Restricted Subsidiary at a purchase price
equal to 101% of the principal amount thereof, plus
accrued and unpaid interest to the purchase date and that
any such purchase of Notes occurs within 90 days following
the closing of any such Qualified Subsidiary IPO; (iii)
immediately after giving pro forma effect to such
Qualified Subsidiary IPO, the Company (excluding the
EBITDA and the Consolidated Fixed Charges of the
Restricted Subsidiary effecting the Qualified Subsidiary
IPO) could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the covenant set forth
under "Description of the Notes -- Certain Covenants --
Limitation on Additional Indebtedness," and assuming for
purposes of this calculation only, that the aforementioned
offer to repurchase has been subscribed in full; and (iv)
all remaining Net Proceeds of such Qualified Subsidiary
IPO received by HVE will be deemed an Asset Sale. A
Restricted Subsidiary will become an Unrestricted
Subsidiary upon completion of a Qualified Subsidiary IPO.
See "Description of the Notes -- Offer to Repurchase Upon
a Qualified Subsidiary IPO."
Ranking......................... The Notes are senior unsecured obligations of the Company
ranking PARI PASSU in right of payment with all existing
and future senior indebtedness of the Company and senior
in right of payment to any subordinated indebtedness of
the Company. The Notes will be effectively subordinated to
all existing and future secured indebtedness of the
Company, including indebtedness under the Revolving Credit
Facility. Despite the pledge of the Intercompany Notes to
secure the repayment of the Notes, a bankruptcy court
could subordinate such repayments to all existing and
future indebtedness and other liabilities and commitments
of any of HVE's subsidiaries. As of March 28, 1998, pro
forma for the Transactions and the General Eastern
Disposition, HVE would have had $169.3 million of senior
indebtedness outstanding (including the New Notes and the
Existing Notes), of which $10.0 million would have been
secured indebtedness, and the subsidiaries of HVE would
have had $66.6 million of additional indebtedness and
other liabilities and commitments outstanding (excluding
the Intercompany Notes), of which $14.9 million would have
been secured indebtedness.
</TABLE>
9
<PAGE>
<TABLE>
<S> <C>
Change of Control............... Upon the occurrence of a Change of Control, each holder of
the Notes will be entitled to require the Company to
purchase such holder's Notes at a purchase price equal to
101% of the principal amount thereof, plus accrued and
unpaid interest to the purchase date. There can be no
assurance that the Company will have sufficient funds or
will be contractually permitted by the Revolving Credit
Facility to pay the required purchase price for all Notes
tendered by holders thereof upon the occurrence of a
Change of Control. See "Description of the Notes -- Change
of Control Offer."
Asset Sale Proceeds............. The Company will be obligated in certain instances to make
an offer to purchase the Notes at a purchase price in cash
equal to 100% of the principal amount thereof, plus
accrued and unpaid interest to the purchase date, with the
Available Asset Sale Proceeds of certain asset sales. See
"Description of the Notes -- Certain Covenants --
Limitation on Certain Asset Sales."
Certain Covenants............... The Indenture contains covenants for the benefit of the
holders of the Notes that, among other things, restrict
the ability of HVE and its Restricted Subsidiaries to: (i)
incur additional Indebtedness; (ii) pay dividends or make
certain other restricted payments; (iii) issue capital
stock or preferred stock of Restricted Subsidiaries; (iv)
make certain investments; (v) create liens; (vi) enter
into transactions with affiliates; (vii) transfer or repay
the Intercompany Notes; (viii) enter into sale and
lease-back transactions; (ix) merge or consolidate HVE or
any Restricted Subsidiaries; (x) transfer or sell assets;
(xi) create dividend or other payment restrictions
affecting Restricted Subsidiaries; and (xii) guarantee
certain indebtedness. These covenants are subject to a
number of important exceptions. See "Description of the
Notes -- Certain Covenants."
</TABLE>
10
<PAGE>
COMPARISON OF NEW NOTES WITH EXISTING NOTES
<TABLE>
<S> <C>
Freely Transferable............. Generally, the Exchange Notes will be freely transferable
under the Securities Act by holders thereof other than any
holder that is either an affiliate of the Company or a
broker-dealer that purchased the Notes from the Company to
resell pursuant to Rule 144A or any other available
exemption. The Exchange Notes otherwise will be
substantially identical in all material respects
(including interest rate and maturity) to the New Notes.
See "Exchange Offer."
Registration Rights............. The holders of New Notes currently are entitled to certain
registration rights pursuant to the Registration Rights
Agreement. However, upon consummation of the Exchange
Offer, subject to certain exceptions, holders of New Notes
who do not exchange their New Notes for Exchange Notes in
the Exchange Offer will no longer be entitled to
registration rights and will not be able to offer or sell
their New Notes, unless such New Notes are subsequently
registered under the Securities Act (which, subject to
certain limited exceptions, the Company will have no
obligation to do), except pursuant to an exemption from,
or in a transaction not subject to, the Securities Act and
applicable state securities laws. See "Risk Factors --
Adverse Consequences of Failure to Adhere to Exchange
Offer Procedures."
Absence of a Public Market for
the New Notes................. The Exchange Notes are new securities and there is
currently no established market for the Exchange Notes.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the Exchange
Notes. The Company does not intend to apply for listing on
a securities exchange of the Exchange Notes.
</TABLE>
11
<PAGE>
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 LTM period ended January 24, 1998 include the results of
operations of PHI Acquisition Holdings, Inc. and subsidiaries for the LTM period
ended January 24, 1998, and the results of operations of Stewart Warner
Instrument Corporation and subsidiaries for the LTM period ended January 31,
1998, and give effect to the PHI Merger, the Original Offering, the Refinancing,
the Transactions and the General Eastern Dispostion as if they had taken place
at the beginning of the period presented. The balance sheet data set forth below
present the financial condition of the Company as if the Transactions had
occurred on January 24, 1998.
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 PHI Merger, the Original
Offering, the Refinancing, the Transactions or the General Eastern Disposition
in fact occurred on the dates specified, nor are they necessarily indicative of
the results of operations that may be achieved in the future. 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. In addition, the Supplemental
Adjusted EBITDA information presented below is based on estimates and
assumptions made, and believed to be reasonable, by management of the Company
but are inherently uncertain and subject to change. There can be no assurance
that any of the operational synergies on which such estimates and assumptions
are based will be realized. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Unaudited Pro Forma Condensed
Consolidated Financial Data -- Unaudited Supplemental Adjusted Pro Forma
Financial Data" and the consolidated financial statements of High Voltage
Engineering Corporation and subsidiaries and the notes thereto, the consolidated
financial statements of PHI Acquisition Holdings, Inc. and subsidiaries and the
notes thereto, and the consolidated financial statements of Stewart Warner
Instrument Corporation and subsidiaries and the notes thereto, included
elsewhere herein.
12
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA
LTM PERIOD
ENDED
JANUARY 24,
1998
------------
(UNAUDITED)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................................................................................... $ 267,382
Gross profit...................................................................................... 90,957
Income from operations............................................................................ 14,205
Interest expense.................................................................................. 21,748
Interest income................................................................................... 621
Income taxes...................................................................................... 8,994
Loss from continuing operations before extraordinary item......................................... (15,916)
Preferred dividend................................................................................ 4,242
Accretion of redeemable put warrants.............................................................. 310
Loss applicable to common stockholders before extraordinary item.................................. (20,468)
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital (a)............................................................................... $ 63,149
Total assets...................................................................................... 232,888
Total debt (including redeemable put warrants) (b)................................................ 179,475
Redeemable preferred stock........................................................................ 29,567
Stockholders' deficit............................................................................. (48,118)
OTHER DATA:
Adjusted EBITDA (c)............................................................................... $ 28,057
Supplemental Adjusted EBITDA (d).................................................................. 28,591
Depreciation and amortization..................................................................... 10,372
Capital expenditures.............................................................................. 8,716
Cash interest expense............................................................................. 18,098
Ratio of Supplemental Adjusted EBITDA to cash interest expense (e)................................ 1.6x
Ratio of total debt to Supplemental Adjusted EBITDA (f)........................................... 6.3x
Ratio of total debt and redeemable preferred stock to Supplemental
Adjusted EBITDA (g)............................................................................. 7.4x
Ratio of earnings to fixed charges (h)............................................................ --
</TABLE>
(SEE FOOTNOTES ON FOLLOWING PAGE)
13
<PAGE>
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 $2,500 related to the estimated value of
certain redeemable put warrants issued in connection with the issuance of
$25,000 aggregate principal amount of the Company's Subordinated Notes on
May 9, 1996 (the "Subordinated Notes").
(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) reimbursed environmental and
litigation costs -- net and other, (ii) $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 the LTM period ended January 24, 1998, (iii) $636 of
severance to certain former executives of the Company included in
administrative and selling expenses in the LTM period ended January 24,
1998, (iv) purchase accounting expenses of $7,642 relating to the PHI Merger
(see notes (f) and (i) to "Notes to Unaudited Pro Forma Condensed
Consolidated Statements of Operations"), and (v) $65 of severance payments
to certain former employees of PHI for the LTM period ended January 24,
1998. 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 generally accepted accounting principles
("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 or some form
thereof 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 or Adjusted
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" or "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 or on the
same basis.
(d) Management believes that the following supplemental additional adjustments
to Adjusted EBITDA (as so supplemented, "Supplemental Adjusted EBITDA")
relating to operational synergies that may be achieved after the
consummation of the Stewart Warner Acquisition are relevant to evaluating
the future operating performance of the Company. These synergies are based
on estimates and assumptions made, and believed to be reasonable, by
management of the Company but are inherently uncertain and subject to
change. Accordingly, the expected synergies described below can vary
significantly and are not necessarily indicative of future financial
results, including Adjusted EBITDA and net income, which may be affected by
a number of other factors. See "Unaudited Pro Forma Condensed Consolidated
Financial Data -- Unaudited Supplemental Adjusted Pro Forma Financial Data."
The following calculation is provided for informational purposes only and
should not be viewed as indicative of actual or future results.
14
<PAGE>
<TABLE>
<CAPTION>
12 MONTHS 9 MONTHS LTM PERIOD
ENDED ENDED ENDED
APRIL 26, JANUARY 24, JANUARY 24,
1997 1998 1998
--------- ----------- -----------
<S> <C> <C> <C>
Adjusted EBITDA.............................................................. $26,560 $19,747 $28,057
Supplemental adjustments related to Stewart Warner
Certain facility relocations............................................... 42 39 39
Stockholder selling costs.................................................. 0 35 35
Operational synergies...................................................... 115 345 460
--------- ----------- -----------
Subtotal-supplemental adjustments........................................ 157 419 534
--------- ----------- -----------
Supplemental Adjusted EBITDA................................................. $26,717 $20,166 $28,591
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
(e) For the purpose of computing the ratio of Supplemental Adjusted EBITDA to
cash interest expense, cash interest expense excludes $3,700 of non-cash
interest expense comprised of amortization of deferred financing costs,
accretion of redeemable put warrants and the amortization of a premium on
the issuance of the New Notes, for the LTM period ended January 24, 1998.
See "Unaudited Pro Forma Condensed Consolidated Financial Data" and
"Description of Other Indebtedness."
(f) The ratio of total debt to Supplemental Adjusted EBITDA reflects pro forma
total debt as of January 24, 1998 divided by the Supplemental Adjusted
EBITDA for the LTM period ended January 24, 1998.
(g) The ratio of total debt and redeemable preferred stock to Supplemental
Adjusted EBITDA reflects total debt and the liquidation value of redeemable
preferred stock as of January 24, 1998 divided by the Supplemental Adjusted
EBITDA for the LTM period ended January 24, 1998.
(h) For the purpose of this computation, earnings are defined as income or loss
from continuing operations before income taxes, extraordinary items and
fixed charges. Fixed charges are the sum of: (i) interest cost; (ii)
amortization of deferred financing costs; (iii) the portion of operating
lease rental expense that is representative of the interest factor (deemed
to be one-third); (iv) dividends on preferred stock; and (v) accretion of
redeemable put warrants issued in connection with the Subordinated Notes. On
a pro forma basis earnings were inadequate to cover fixed charges by $11,200
for the LTM period ended January 24, 1998.
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RISK FACTORS
HOLDERS OF NEW NOTES AND PROSPECTIVE PURCHASERS OF EXCHANGE NOTES SHOULD
CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS IN ADDITION TO THE OTHER
INFORMATION SET FORTH IN THIS PROSPECTUS. CERTAIN OF THE STATEMENTS IN THIS
PROSPECTUS ARE FORWARD-LOOKING IN NATURE AND, ACCORDINGLY, ARE SUBJECT TO MANY
RISKS AND UNCERTAINTIES. THE ACTUAL RESULTS THAT THE COMPANY ACHIEVES MAY DIFFER
MATERIALLY FROM ANY FORWARD-LOOKING STATEMENTS IN THIS PROSPECTUS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO,
THOSE DISCUSSED BELOW AND THOSE CONTAINED IN "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS
WELL AS THOSE DISCUSSED ELSEWHERE IN THIS PROSPECTUS.
HIGH LEVEL OF INDEBTEDNESS; ABILITY TO SERVICE INDEBTEDNESS
The Company is, and will continue to be, highly leveraged. At March 28, 1998
the Company had $184.2 million of total indebtedness, mandatorily redeemable
preferred stock with an aggregate liquidation preference of $33.0 million, and a
common stockholders' deficit of $63.2 million. On a pro forma basis for Fiscal
1997, the nine months ended January 24, 1998 and the LTM period ended January
24, 1998, the Company's earnings would have been insufficient to cover fixed
charges (including preferred dividends requirements and accretion of redeemable
put warrants) by approximately $11.2 million, $9.8 million and $11.2 million,
respectively. 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. On February 17, 1998, in connection with a misinterpretation of
certain provisions of the Indenture, the Company paid a cash dividend in the
amount of approximately $2.1 million to the holders of the Series A Preferred
Stock pursuant to the terms thereof. This payment constituted a Restricted
Payment that was at the time prohibited under the terms of the Indenture and
thus constituted a default thereunder. In connection with the Consent
Solicitation, the Company obtained a waiver of this default. In that regard,
interest payments on the Existing Notes and dividend payments on the Series A
Preferred Stock paid as of February 15, 1998 negatively impacted current assets
and stockholders' deficiency and the higher level of indebtedness contributed to
an increase in net loss for the period from January 25, 1998 through the date of
this Prospectus compared to the same period in 1997.
The level of the Company's indebtedness could have important consequences to
holders of the Notes, including, but not limited to, the following: (i) a
substantial portion of the Company's cash flow from operations must be dedicated
to debt service and will not be available for other purposes; (ii) the Company's
ability to obtain additional financing in the future, as needed, may be limited;
(iii) the Company's leveraged position and covenants contained in the Indenture
and other indebtedness of the Company may limit its ability to grow and make
capital improvements and acquisitions; (iv) the Company's level of indebtedness
may make it more vulnerable to economic downturns; and (v) the Company may be at
a competitive disadvantage because some of the Company's competitors are less
leveraged, resulting in greater operational and financial flexibility for such
competitors.
The Company currently anticipates that its operating cash flow, together
with available borrowings, will be sufficient to meet its operating expenses and
to service its debt requirements as they become due. However, the ability of the
Company to pay cash dividends on, and to satisfy the redemption obligations in
respect of, its outstanding Series A Preferred Stock and to satisfy its debt
obligations, including under 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,
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refinancing debt, selling assets or operations, or raising equity capital. There
can be no assurance that such alternatives could be accomplished on satisfactory
terms, if at all, or in a timely manner. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources."
EFFECTIVE SUBORDINATION OF THE NOTES
The Notes are senior unsecured obligations of the Company ranking PARI PASSU
in right of payment with all existing and future senior indebtedness of the
Company and senior in right of payment to any subordinated indebtedness of the
Company. The Notes will be effectively subordinated in right of payment to all
existing and future secured indebtedness of the Company, including indebtedness
under the Revolving Credit Facility. Despite the pledge of the Intercompany
Notes to secure the repayment of the Notes, a bankruptcy court could subordinate
such repayments to all existing and future indebtedness and other liabilities
and commitments of any of HVE's subsidiaries. As of March 28, 1998, HVE had
$169.3 million of senior indebtedness outstanding (including the New Notes and
the Existing Notes), of which $10.0 million was secured indebtedness, and the
subsidiaries of HVE would have had $66.6 million of additional indebtedness and
other liabilities and commitments outstanding (excluding the Intercompany
Notes), of which $14.9 million was secured indebtedness. The Indenture will
limit, but not prohibit, the incurrence of additional indebtedness by the
Company. See "Description of Other Indebtedness."
SALE OF ASSETS OF GENERAL EASTERN
On April 15, 1998, the Company sold all of the assets and ordinary course
business trade payables and capital and operating lease obligations of General
Eastern to Bowthorpe, pursuant to the Asset Purchase Agreement. The purchase
price for the General Eastern Assets was $18.0 million, paid in cash. In
addition, $3.0 million was paid in cash at closing in consideration for an
agreement on the part of the Company not to compete in the conduct of the
business of General Eastern for a period of three years after the closing. Of
the aggregate $21.0 million received by the Company in connection with this
sale, $850,000 was placed into escrow for a limited period to secure certain
indemnification obligations of the Company and to satisfy possible purchase
price adjustments. The cash received by HVE in connection with the General
Eastern Disposition is subject to the covenant of the Indenture described under
the caption "Limitation on Certain Asset Sales." There can be no assurance that
HVE will use the cash proceeds of a sale of General Eastern to make an offer to
repurchase Notes, or that any such offer will be at a redemption price in excess
of the then-current trading price of the Notes. See "Description of the Notes --
Certain Covenants -- Limitation on Certain Assets Sales."
RECENT ACQUISITION OF PHI
On August 8, 1997, the Company completed the PHI Merger. The PHI Merger was
the largest acquisition completed by the Company to date. Acquisitions of this
magnitude are inherently subject to significant risk. Although the Company has
operated PHI as a stand-alone subsidiary and intends to continue to do so, the
acquisition will require some additional integration of PHI's management,
control and administrative systems with those of the Company. This may require
substantial additional attention from, and place substantial additional demands
upon, the senior management of the Company, which may divert attention from and
adversely impact their ability to manage the Company's other businesses. In
addition, the representations and warranties made by the principal stockholder
of PHI expired upon the closing of the acquisition of PHI and the Company will
have little or no recourse to such stockholder with respect to such
representations and warranties and the business of PHI. In addition,
unanticipated events or liabilities relating to PHI's business could materially
and adversely affect the Company.
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SUBSIDIARY OPERATIONS; RELIANCE ON SUBSIDIARIES AS PAYMENT SOURCE
The Company conducts most of its business through HVE's direct or indirect
subsidiaries. HVE's subsidiaries are separate and distinct legal entities and
have no obligations, contingent or otherwise, to pay any amounts due under the
Notes, to meet HVE's obligations to other creditors or to make funds available
therefor. Because the Notes are direct obligations of HVE, it must rely on (i)
the ability of those of HVE's subsidiaries which have issued Intercompany Notes
to HVE to pay principal and interest thereon; and (ii) the ability of HVE's
subsidiaries to pay dividends and make other advances and transfers of funds to
generate the funds necessary to meet the Company's obligations, including
payment of amounts due under the Notes. There can be no assurance that such
payments and distributions will be adequate to fund payments due under the
Notes. The ability of HVE's subsidiaries to make such payments, advances and
transfers will be subject to applicable state law regulating the payment of
dividends. In addition, none of HVE's subsidiaries or Letitia Corporation will
initially be a guarantor under the Notes, and the Indenture expressly provides
that by accepting the Notes, each holder of the Notes waives and releases the
liability of any person or entity other than HVE relating to the Notes, which
waiver and release are part of the consideration for the Notes. See "Description
of Other Indebtedness" and "Description of the Notes -- Certain Covenants --
Limitation on Additional Indebtedness."
The Intercompany Notes are unsecured obligations of HVE's subsidiaries. The
principal amount of the Notes has been allocated among HVE and each of its
direct Restricted Subsidiaries, evidenced by the Intercompany Notes, in
consideration for the release of certain obligations of such Restricted
Subsidiaries relating to the indebtedness that was repaid in connection with the
issuance of the Existing Notes. Persons seeking to enforce payments under any
Intercompany Note will only have the rights of a general unsecured creditor of
the issuer of such Intercompany Note with respect thereto and, as a result, the
benefits which might be realized in connection with the enforcement of such
obligations may be limited.
POSSIBLE EFFECTS OF FRAUDULENT CONVEYANCE LAWS
Management of the Company believes that the indebtedness of the Company
represented by the Notes was and is being incurred for proper purposes and in
good faith, and that, based on present forecasts, asset valuations and other
financial information, the Company is solvent, has sufficient capital for
carrying on its business and will be able to pay its debts as they mature.
Notwithstanding management's belief, if a court of competent jurisdiction in a
suit by an unpaid creditor or a representative of creditors (such as a trustee
in bankruptcy or a debtor-in-possession) were to find that, at the time the
Company issued the Notes, the Company (i) intended to hinder, delay or defraud
any existing or future creditor or contemplated insolvency with a design to
prefer one or more creditors to the exclusion in whole or in part of others or
(ii) did not receive fair consideration or reasonably equivalent value for
issuing the Notes, and the Company (a) was insolvent; (b) was rendered insolvent
by reason of the issuance of the Notes or the transactions consummated in
connection therewith; (c) was engaged or about to engage in a business or
transaction for which its remaining assets constituted unreasonably small
capital to carry on its business; or (d) intended to incur, or believed that it
would incur, debts beyond its ability to pay such debts as they matured, such
court could avoid such indebtedness. A possible consequence of such avoidance
would be the subordination of the indebtedness represented by the Notes to
existing and future indebtedness of the Company. Similarly, despite the pledge
of Intercompany Notes to secure the repayment of the Notes, a bankruptcy court
could subordinate the repayment of the Intercompany Notes to all existing and
future indebtedness and other liabilities and commitments of any of HVE's
subsidiaries.
The measure of insolvency for purposes of the foregoing will vary depending
upon the law of the relevant jurisdiction. Generally, however, a company would
be considered insolvent for purposes of the foregoing if the present fair
salable value of the company's assets is less than the amount that will be
required to pay its probable liability on existing debts as they become absolute
and mature. In rendering their respective opinions on the validity of the New
Notes in connection with the issuance thereof, counsel
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for each of the Company and the Initial Purchaser expressed no opinion as to
federal or state laws relating to fraudulent transfers.
RISKS ASSOCIATED WITH STEWART WARNER ACQUISITION
The acquisition of Stewart Warner represented a significant acquisition for
the Company. Acquisitions of this magnitude are inherently subject to
significant risk. The Stewart Warner Acquisition required some integration of
Stewart Warner's management, control and administrative systems with those of
the Datcon Instrument Company and Jorda. The Stewart Warner Acquisition required
and will continue to 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 other
businesses.
The representations and warranties made by the direct and indirect
stockholders of Stewart Warner in the Stock Purchase Agreement governing the
terms of the Stewart Warner Acquisition (the "Stock Purchase Agreement"), and
certain of the indemnities made therein with respect to such representations and
warranties will expire on March 19, 1999. In addition, although one of the
stockholders of Stewart Warner has agreed to guarantee the obligations of
certain of the other stockholders under the Stock Purchase Agreement, the
indemnification obligations of the Stewart Warner stockholders under the Stock
Purchase Agreement are several and not joint, and are subject in each case to a
maximum liability equal to their proportional share (based on their direct or
indirect ownership of the Stewart Warner Stock prior to the closing of the
Stewart Warner Acquisition) of an aggregate liability cap of $5.0 million
dollars. In addition, only $2.0 million of the purchase price for the Stewart
Warner Stock was placed into escrow to secure the obligations of the Stewart
Warner stockholders under the Stock Purchase Agreement, with the majority of
such amount to be released on or before March 19, 1999. As a result, the Company
has limited recourse to the Stewart Warner stockholders after the Stewart Warner
Acquisition. In addition, unanticipated events or liabilities related to Stewart
Warner's business could materially and adversely affect the Company and the
success of the Stewart Warner Acquisition.
EFFECT OF POSSIBLE QUALIFIED SUBSIDIARY IPO
Robicon, PHI, Datcon Instrument Company, Stewart Warner, 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
Adjusted 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 completion of a Qualified Subsidiary IPO, a Restricted
Subsidiary will become an Unrestricted Subsidiary and the cash flow of such
Unrestricted Subsidiary will no longer be available (i) to service debt
obligations of HVE or its remaining Restricted Subsidiaries; or (ii) for
purposes of determining whether HVE or its remaining Restricted Subsidiaries
will be able to incur additional indebtedness, either of which could affect the
ability of the Company to meet the requirements of certain financial covenants
in the Revolving Credit Facility and certain of its other indebtedness. There
can be no assurance that such events will not have an adverse effect on the
price at which the Notes may be traded. See "Description of the Notes -- Offer
to Repurchase upon a Qualified Subsidiary IPO."
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UNCERTAINTIES REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY
The Company currently relies on a combination of patents, trade secrets,
licenses, 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, exposure to
fluctuations in demand from emerging global markets 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 suppliers or
subcontractors for custom components in their respective manufacturing
processes, the loss of which could adversely affect an operating unit's business
until alternate suppliers could be found.
Because the Company's operating expenses are based on anticipated revenue
levels and a high percentage of the Company's operating expenses is relatively
fixed, any unanticipated shortfall in revenue in a quarter may have an adverse
impact on the Company's results of operations for that quarter, which could
impact the Company's ability to pay amounts due under the Notes. In addition to
the factors affecting customer requirements noted above, the Company's operating
results may also fluctuate due to factors such as changes in the product mix of
sales; changes in manufacturing, raw material and other costs or expenses;
competitive pricing pressures; the gain or loss of significant customers and
increased research and development expenses. The Company believes that
quarter-to-quarter comparisons of results of operations are not necessarily
meaningful or indicative of future performance. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
DEPENDENCE ON KEY PERSONNEL
The success of the Company depends upon the efforts, abilities and expertise
of its executive officers and other key employees, including its Chairman of the
Board and Chief Executive Officer, President, Chief Operating Officer and the
president or managing director of each of the Company's operating units. The
loss of the services of such individuals and/or other key individuals could have
a material adverse effect on the Company's operations. Generally, the Company
does not offer employment agreements to its executive officers or key employees,
nor does the Company maintain key man life insurance on such individuals. See
"Management."
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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 four foreign countries and sells
its products in a significant number of foreign countries. Approximately $85.2
million, or 37.3%, of the Company's net sales during Fiscal 1997, pro forma for
the PHI Merger and General Eastern Disposition, were generated by products sold
overseas, including approximately $31.8 million, or 13.9%, of the Company's net
sales during such period that were sold to Japan and other countries in Asia and
the Far East. Approximately $35.1 million, or 51.7%, of PHI's net sales during
its fiscal year ended June 27, 1997 were generated by products sold overseas,
including approximately $23.7 million, or 34.9% of PHI's net sales during such
period, that were sold to Japan and other countries in Asia and the Far East. In
addition, substantially all of the products manufactured by Stewart Warner are
produced at its Maquiladora plant in Juarez, Mexico. 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
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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 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 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 Revolving Credit
Facility also requires the Company to comply with certain financial ratios and
tests, under which the Company will be required to achieve certain financial and
operating results. The ability of the Company to comply with such provisions may
be affected by events beyond its control, including changes in prevailing
economic conditions and in the Company's competitive environment, which could
impair the Company's operating performance. A breach of any of these covenants
would result in a default under the Revolving Credit Facility, in which event
the lenders under the 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
granted to the lender under the Revolving Credit Facility, there can be no
assurance that the Company would have sufficient funds to pay amounts due under
the Revolving Credit Facility or the Notes, in the event of such acceleration.
Acceleration of such indebtedness would have a material adverse effect on the
Company. See "Description of Other Indebtedness."
In addition, the Indenture contains covenants that, among other things,
limit the ability of the Company to incur additional indebtedness, incur liens,
pay dividends and make certain other restricted payments, make certain
investments, consummate certain assets sales, enter into certain transactions
with affiliates, issue subsidiary stock, consolidate or merge with any other
person or transfer all or substantially all of the assets of the Company. See
"Description of Other Indebtedness."
As of the date of this Prospectus, the Company is not in default under any
of the foregoing covenants. However, the Company would not at such 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 into
certain other payments or transactions. The Company obtained the consent of the
holders of a majority in aggregate principal amount of the outstanding Existing
Notes to the incurrence by the Company of the indebtedness represented by the
New Notes and the Exchange Notes and to waive its breach of the Restricted
Payments Covenant. 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
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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 Series A 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 Series A
Preferred Stock that the Company might be required to purchase. The exercise by
the respective holders of the Notes and the Series A Preferred Stock of their
right to require the Company to repurchase the Notes and the Series A 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 Series A 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 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. See "Description of Other Indebtedness" and
"Description of the Notes -- Change of Control Offer."
CONTROL BY PRINCIPAL STOCKHOLDERS
Letitia Corporation beneficially owns 92.4% of the outstanding HVE Common
Stock. Messrs. Laurence S. Levy, the Chairman of the Board, Chief Executive
Officer, Vice President and a Director of HVE, and Clifford Press, the Deputy
Chairman of the Board, President and a Director of HVE, are the sole directors
of Letitia Corporation and, together with certain of their affiliates and family
members, indirectly beneficially own 100% of the outstanding common stock of
Letitia Corporation. As a result, Messrs. Levy and Press, and such affiliates
and family members, through their control of Letitia Corporation, are currently
able to elect all of the directors of HVE, retain the voting power to approve
all matters requiring stockholder approval and will continue to control HVE. See
"Principal Stockholders."
ADVERSE CONSEQUENCES OF FAILURE TO ADHERE TO EXCHANGE OFFER PROCEDURES
Issuance of the Exchange Notes in exchange for the New Notes pursuant to the
Exchange Offer will be made only after a timely receipt by the Company of such
New Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. All questions as to the validity, form,
23
<PAGE>
eligibility (including time of receipt) and acceptance of the New Notes tendered
for exchange will be determined by the Company in its sole discretion, which
determination will be final and binding on all parties. Holders of the New Notes
desiring to tender such the New Notes in exchange for Exchange Notes should
allow sufficient time to ensure timely delivery. The Company is under no duty to
give notification of defects or irregularities with respect to the tenders of
the New Notes for exchange. New Notes that are not tendered or are tendered but
not accepted will, following the consummation of the Exchange Offer, continue to
be subject to the existing restrictions upon transfer thereof and, except as
provided herein, the Company will have no further obligations to provide for the
registration under the Securities Act of such New Notes. To the extent that New
Notes are tendered and accepted in the Exchange Offer, the trading market for
untendered and tendered but unaccepted New Notes could be adversely affected.
See "Exchange Offer."
LACK OF PUBLIC MARKET FOR THE SECURITIES; RESTRICTIONS ON RESALE
There is no existing trading market for the Exchange Notes. There can be no
assurance regarding the future development of a market for the Exchange Notes,
or the ability of holders of any of the Exchange Notes to sell their Exchange
Notes, or the price at which such holders may be able to sell their Exchange
Notes. If such a market were to develop, the Exchange Notes could trade at
prices that may be lower than the initial offering price for the Exchange Notes
depending on many factors, including prevailing interest rates, the Company's
operating results and the market for similar securities. There can be no
assurance as to the liquidity of any trading market for the Exchange Notes, or
that an active public market for the Exchange Notes will develop. The Company
does not intend to apply for listing or quotation of the Notes on any securities
exchange or stock market. See "Plan of Distribution."
24
<PAGE>
THE COMPANY
The Company owns and operates a diversified group of six 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, the Chairman of the Board, Chief Executive Officer, Vice President and a
Director of HVE, and Clifford Press, the Deputy Chairman of the Board, President
and a Director of HVE, and certain of their affiliates and family members. Since
the Company's acquisition by Letitia Corporation, the Company has disposed of 13
non-core businesses and will have made five acquisitions.
The Company operates Robicon, PHI, Datcon Instrument Company, Stewart
Warner, Anderson and HVE Europa as direct or indirect wholly owned subsidiaries.
Natvar is operated as a division of the Company. Stewart Warner, Datcon
Instrument Company and Jorda (a subsidiary of Datcon Instrument Company) are
operated as a group.
The Company's executive offices are located at 401 Edgewater Place, Suite
680, Wakefield, Massachusetts 01880 and its telephone number is (781) 224-1001.
25
<PAGE>
THE TRANSACTIONS
THE CONSENT SOLICITATION
Simultaneously with the distribution of a Preliminary Offering Memorandum of
the Company, dated March 5, 1998, the Company solicited the consent of the
holders of a majority of the Existing Notes to (i) make certain amendments to
certain provisions of the Indenture governing the Notes; and (ii) to waive a
breach of the Restricted Payments covenant of the Indenture that was made as a
result of a misinterpretation of the Indenture pursuant to which a cash payment
was made to the holders of the Series A Preferred Stock in accordance with the
terms thereof. The principal purposes of the Amendments are to (a) permit the
Offering, (b) provide for the issuance of the Stewart Warner Intercompany Note
after the Stewart Warner Acquisition, (c) modify the manner in which Restricted
Subsidiaries are created, merged or consolidated, and (d) make minor
modifications to other Indenture provisions. The Requisite Consents were
received on March 13, 1998 and the Company has paid a consent fee in the
aggregate amount of $675,000 to the holders of the Existing Notes.
ACQUISITION OF STEWART WARNER
On March 19, 1998, a wholly owned subsidiary of HVE acquired, directly or
indirectly, all of the capital stock of Stewart Warner, for an aggregate
consideration of $24.7 million in cash. After the repayment of certain
obligations of Stewart Warner, including all of Stewart Warner's outstanding
indebtedness, the remainder of the purchase price was distributed to the holders
of the Stewart Warner Stock.
Pursuant to the Stock Purchase Agreement, each of the direct or indirect
stockholders of Stewart Warner have agreed, severally and not jointly, to
indemnify the Company for breaches of representations and warranties made by
such stockholders with respect to the business of Stewart Warner. Most of these
representations and warranties will expire on March 19, 1999. This
indemnification is subject to an aggregate maximum liability of $5.0 million,
with each Stewart Warner stockholder's liability being limited to the portion of
the maximum cap equal to its proportional direct interest in the Stewart Warner
Stock at the time the Stock Purchase Agreement was executed.
The Stewart Warner Acquisition was consummated through the purchase of all
of the Stewart Warner Stock held by certain stockholders of Stewart Warner
(constituting 52% of the Stewart Warner Stock then outstanding ), and the
purchase of all of the outstanding capital stock of Benner Berg, Inc. (which
held the remaining 48% of the outstanding Stewart Warner Stock). The purchase
price for the Stewart Warner Stock was distributed through HVE Acquisition Corp.
for payment by Datcon Instrument Company. Upon the consummation of the Stewart
Warner Acquisition, the Company acquired, indirectly through Stewart Warner, all
of the capital stock of Stewart Warner's existing subsidiaries, TTS, Stewart
Warner de Mexico, S.A. de C.V. (a Mexican corporation) and Stewart Warner
Instruments (Barbados), Inc. (a Barbados corporation). The Company currently
intends to merge Benner Berg, Inc. into Stewart Warner and Stewart Warner and
each of its existing subsidiaries are indirect Restricted Subsidiaries of HVE.
STEWART WARNER INTERCOMPANY NOTE
At the closing of the Offering, Stewart Warner issued the Stewart Warner
Intercompany Note in the principal amount of $20.0 million. HVE Acquisition
Corp. and TTS are co-obligors under the Stewart Warner Intercompany Note. At the
closing of the issuance of the $135.0 million in aggregate principal amount of
the Original Notes on August 8, 1997 (which Notes were exchanged for the
Existing Notes), the Company's existing direct Restricted Subsidiaries issued
the original 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 issuance of such Notes. These
Intercompany Notes are in the following principal amounts: (i) Robicon: $39.5
million; (ii) PHI: $39.5 million; (iii) Datcon Instrument Company: $19.0
million; (iv) Anderson: $19.0 million; and (v) HIVEC Holdings, Inc., a direct,
wholly
26
<PAGE>
owned subsidiary of HVE which in turn owns all the capital stock of HVE Europa
("HIVEC Holdings"): $3.5 million. The Intercompany Notes: (i) are senior
obligations of each Restricted Subsidiary; (ii) have terms substantially similar
to the terms of the Notes; and (iii) may not be forgiven by the Company as long
as the Notes remain outstanding; provided, however, that the Intercompany Note
of a particular Restricted Subsidiary must be repaid with the Net Proceeds of a
Qualified Subsidiary IPO of such Restricted Subsidiary. See "Description of
Other Indebtedness." Other than with respect to the principal amount thereof,
the Stewart Warner Intercompany Note has the same terms as the other
Intercompany Notes. The respective principal amounts of the Intercompany Notes
do not limit the amount of funds that may be generated by a particular
Restricted Subsidiary and used by the Company to make payments on the Notes or
for other purposes.
27
<PAGE>
USE OF PROCEEDS
No proceeds will be received by the Company from the Exchange Offer. The
following table sets forth the uses of the proceeds as of the closing date of
the Transactions (dollars in thousands):
<TABLE>
<CAPTION>
SOURCE OF FUNDS:
<S> <C>
Notes offered hereby (a)......................................... $ 20,100
Existing cash.................................................... 6,686
---------
Total sources of funds....................................... $ 26,786
---------
---------
USE OF FUNDS:
Cash purchase price of Stewart Warner (b)........................ $ 24,721
Estimated fees and expenses of the Transactions.................. 2,065
---------
Total uses of funds.......................................... $ 26,786
---------
---------
</TABLE>
- ------------
(a) Includes purchase premium of $100,000.
(b) The purchase price for the Stewart Warner Stock included the repayment of
all amounts outstanding under the Loan Agreement, dated as of January 22,
1996, between Stewart Warner and LaSalle National Bank (the "Stewart Warner
Loan Agreement"). As of the closing of the Offering, borrowings under the
Stewart Warner Loan Agreement bore interest at a rate of LaSalle National
Bank's prime rate for the first $1.0 million of borrowings and the balance
at a rate of 2.6% over LIBOR, and matured on September 1, 1999. The
outstanding balance under the Stewart Warner Loan Agreement as of March 19,
1998, was approximately $4.3 million.
28
<PAGE>
CAPITALIZATION
(DOLLARS IN THOUSANDS)
The following table sets forth the consolidated capitalization of High
Voltage Engineering Corporation and subsidiaries as of January 24, 1998, Stewart
Warner and its subsidiaries as of January 31, 1998 and the Company pro forma as
of January 24, 1998, as adjusted to reflect the Transactions and the General
Eastern Disposition. 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
------------------------
DISPOSITION PRO FORMA PRO FORMA
------------- -------------------------- HISTORICAL --------------------------
HVE(A) GEI(B) ADJUSTMENTS COMBINED SWI(C) ADJUSTMENTS COMBINED
--------- ------------- ------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED) (UNAUDITED)
Revolving Credit Facility
(d)....................... $ -- $ -- $ -- $ -- $ -- $ -- $ --
Notes....................... 135,000 -- -- 135,000 -- 20,000 155,000
Premium on New Notes........ -- -- -- -- -- 100 100
Other debt (e).............. 21,915 125 85 21,875 3,934 (3,934) 21,875
Redeemable put warrants..... 2,500 -- -- 2,500 -- -- 2,500
--------- ------ ------------- ----------- ----------- ------------- -----------
Total debt.......... 159,415 125 85 159,375 3,934 16,166 179,475
--------- ------ ------------- ----------- ----------- ------------- -----------
Series A Exchange Redeemable
Preferred Stock........... 29,567 -- -- 29,567 -- -- 29,567
Stockholders' (Deficiency)
Equity --
Common stock............ 1 -- -- 1 1002 (1,002) 1
Paid-in capital......... 19,527 -- -- 19,527 -- -- 19,527
Retained earnings
(accumulated
deficit).............. (81,155) 3,671 10,584 (67,380) 2,408 (2,300) (69,680)
6,947 (2,408)
(85)
Common Stock Warrants... 2,200 -- -- 2,200 -- -- 2,200
Cumulative foreign
currency translation
adjustment............ (166) -- -- (166) $ -- -- (166)
--------- ------ ------------- ----------- ----------- ------------- -----------
Total stockholders'
(deficiency)
equity............ (59,593) 3,671 $ 17,446 (45,818) 3,410 (5,710) (48,118)
--------- ------ ------------- ----------- ----------- ------------- -----------
Total
capitalization.... $ 129,389 $ 3,796 $ 17,531 $ 143,124 $ 7,344 $ 10,456 $ 160,924
--------- ------ ------------- ----------- ----------- ------------- -----------
--------- ------ ------------- ----------- ----------- ------------- -----------
</TABLE>
- ------------
(a) For purposes of this table, the term "HVE" refers to High Voltage
Engineering Corporation and subsidiaries, including PHI.
(b) For purposes of this table, the term "GEI" refers to General Eastern
Instruments, a division of HVE.
(c) For purposes of this table, the term "SWI" refers to Stewart Warner
Instrument Corporation and subsidiaries.
(d) The Revolving Credit Facility is a $25.0 million senior secured revolving
credit facility that bears interest at (i) the Lender's Base Rate plus 0.25%
or (ii) LIBOR plus 1.50%. See "Description of Other Indebtedness."
(e) Other debt is comprised of capital leases, industrial revenue bonds
("IRBs"), mortgage notes, notes payable and a foreign credit line for HVE
and its existing subsidiaries, and the outstanding Stewart Warner Loan
Agreement. This senior secured credit facility will be repaid out of the
proceeds of the Offering. See "Use of Proceeds."
29
<PAGE>
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
and the General Eastern Disposition had occurred on January 24, 1998. The
following Unaudited Pro Forma Condensed Consolidated Statements of Operations
for Fiscal 1997, the nine months ended January 24, 1998 and the LTM period ended
January 24, 1998 present the results of operations of the Company as if the PHI
Merger, the Original Offering, the Refinancing, the Transactions and the General
Eastern Disposition had occurred at the beginning of the periods presented. The
Unaudited Pro Forma Condensed Consolidated Financial Data for Fiscal 1997, the
nine months ended January 24, 1998 and the LTM period ended January 24, 1998
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
PHI Merger, the Original Offering, the Refinancing, the Transactions and the
General Eastern Disposition 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, PHI Acquisition Holdings, Inc. and subsidiaries and Stewart Warner
Instrument Corporation 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 operations of High Voltage Engineering Corporation
and subsidiaries for Fiscal 1997, after giving effect to the General Eastern
Disposition, PHI Acquisition Holdings, Inc. and subsidiaries for its fiscal year
ended June 27, 1997, and Stewart Warner Instrument Corporation and subsidiaries
for its fiscal year ended April 30, 1997. References in this Prospectus to the
Company's pro forma nine months ended January 24, 1998, and pro forma LTM period
ended January 24, 1998, combine, on a pro forma basis, (i) the results of
operations of High Voltage Engineering Corporation and subsidiaries after giving
effect to the General Eastern Disposition (excluding PHI Acquisition Holdings,
Inc. and subsidiaries), for the nine months ended January 24, 1998 and the LTM
period ended January 24, 1998, the results of operations of PHI Acquisition
Holdings, Inc. and subsidiaries for the nine months ended January 24, 1998 and
the LTM period ended January 24, 1998, and the results of operations of Stewart
Warner Instrument Corporation and subsidiaries for the nine months ended January
31, 1998 and the LTM period ended January 31, 1998. The fiscal year end of
Stewart Warner Instrument Corporation and subsidiaries is April 30 of each year.
The allocation of the aggregate purchase price for the Stewart Warner
Acquisition, 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, fixed assets, intangibles and liabilities in the final allocation
may differ from these estimates, which could impact future earnings. The Company
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 and unaudited consolidated
financial statements of High Voltage Engineering Corporation and subsidiaries
and the notes thereto, the audited financial statements of PHI Acquisition
Holdings, Inc. and subsidiaries and the notes thereto, and the audited financial
statements of Stewart Warner Instrument Corporation and subsidiaries and the
notes thereto, included elsewhere in this Prospectus.
30
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JANUARY 24, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
----------------------
DISPOSITION PRO FORMA HISTORICAL PRO FORMA
----------- -------------------------- ----------- --------------------------
HVE (A) GEI (B) ADJUSTMENTS COMBINED SWI (C) ADJUSTMENTS COMBINED
--------- ----------- ------------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.......... $ 15,105 $ -- $ 20,150(b) $ 35,255 $ 8 $ (6,621)(d) $ 28,642
Restricted cash.................... 3,973 -- 3,973 -- 3,973
Accounts receivable -- net......... 42,918 1,973 850(b) 41,795 3,171 44,966
Refundable income taxes............ 2,157 -- 2,157 -- 2,157
Inventories........................ 39,146 915 38,231 6,300 44,531
Prepaid expenses and other current
assets........................... 1,676 92 1,584 467 2,051
--------- ----------- ------------- ----------- ----------- ------------- -----------
Total current assets............. 104,975 2,980 21,000 122,995 9,946 (6,621) 126,320
PROPERTY, PLANT AND EQUIPMENT --
Net................................. 49,130 1,084 48,046 1,157 4,845(f) 54,048
INVESTMENT IN JOINT VENTURE.......... 1,843 -- 1,843 -- 1,843
ASSETS HELD FOR SALE................. 3,858 -- 3,858 -- 3,858
OTHER ASSETS -- Net.................. 16,598 207 16,391 433 1,750(d) 18,574
(2,300)(e)
2,300(f)
COST IN EXCESS OF NET ASSETS
ACQUIRED............................ 16,883 1,087 15,796 -- 12,449(f) 28,245
--------- ----------- ------------- ----------- ----------- ------------- -----------
$ 193,287 $ 5,358 $ 21,000 $ 208,929 $ 11,536 $ 12,423 $ 232,888
--------- ----------- ------------- ----------- ----------- ------------- -----------
--------- ----------- ------------- ----------- ----------- ------------- -----------
<CAPTION>
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY) EQUITY
<S> <C> <C> <C> <C> <C> <C> <C>
CURRENT LIABILITIES
Current maturities of long-term
debt obligations................. $ 1,308 $ 112 85(b) $ 1,281 $ 3,934 $ (3,934)(d) $ 1,281
Foreign credit line................ 2,610 -- 2,610 -- 2,610
Accounts payable................... 17,290 1,008 16,282 2,137 18,419
Accrued interest................... 6,781 -- 6,781 19 (19)(d) 6,781
Accrued liabilities................ 21,955 535 $ 175(b) 21,889 1,364
294(b) 23,253
Advance payments by customers...... 6,605 19 6,586 -- 6,586
Federal, foreign and state income
taxes payable.................... 1,270 -- 6,947(b) 1,270 128 1,398
(6,947)(b)
Deferred income taxes.............. 2,322 -- 2,322 521 2,843
--------- ----------- ------------- ----------- ----------- ------------- -----------
Total current liabilities........ 60,141 1,674 554 59,021 8,103 (3,953) 63,171
REDEEMABLE PUT WARRANTS.............. 2,500 -- 2,500 -- 2,500
LONG-TERM OBLIGATIONS, LESS CURRENT
MATURITIES.......................... 152,997 13 152,984 -- 20,000(d) 173,084
100(d)
DEFERRED INCOME TAXES................ 4,423 -- 4,423 -- 1,986(f) 6,409
OTHER LIABILITIES.................... 3,252 -- 3,000(b) 6,252 23 6,275
COMMITMENT AND CONTINGENCIES.........
REDEEMABLE PREFERRED STOCK........... 29,567 -- 29,567 -- -- 29,567
STOCKHOLDERS' (DEFICIENCY) EQUITY.... (59,593) 3,671 10,584(b) (45,818) 3,410 (2,300)(e) (48,118)
6,947(b) (3,410)(f)
(85)(b)
--------- ----------- ------------- ----------- ----------- ------------- -----------
$ 193,287 $ 5,358 $ 21,000 $ 208,929 $ 11,536 $ 12,423 $ 232,888
--------- ----------- ------------- ----------- ----------- ------------- -----------
--------- ----------- ------------- ----------- ----------- ------------- -----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Balance
Sheet.
31
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JANUARY 24, 1998
(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, including PHI Acquisition Holdings, Inc. and subsidiaries.
(b) For purposes of the Unaudited Pro Forma Condensed Consolidated Balance
Sheet, the term "GEI" refers to General Eastern a division of HVE.
Adjustments reflect pro forma for the General Eastern Disposition total
consideration of $21,000 for net assets of $3,671 less $85 related to a note
payable retained by HVE, and net of $175 of transaction related expenses,
$294 of expense related to the acceleration of the Value Creation Plan
liability, $6,947 of taxes in connection with the gain on the sale offset by
an adjustment to the valuation allowance, and $3,000 allocated to an
agreement on the part of HVE not to compete in the conduct of business of
GEI.
(c) For purposes of the Unaudited Pro Forma Condensed Consolidated Balance
Sheet, the term "SWI" refers to Stewart Warner Instrument Corporation and
subsidiaries. The financial position of Stewart Warner is as of January 31,
1998, the end of Stewart Warner's third fiscal quarter.
(d) Reflects the estimated sources and uses of funds for the Transactions,
assuming they had occurred as of January 24, 1998. 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 offered hereby................................................ $ 20,000
Premium on New Notes................................................ 100
Existing cash....................................................... 6,621
---------
Total sources of funds........................................ $ 26,721
---------
---------
USES OF FUNDS:
Stewart Warner Aquisition:
Cash consideration paid to holders of Stewart Warner Stock........ $ 20,703
Repayment of existing Stewart Warner Loan Agreement
plus accrued interest........................................... 3,953 $ 24,656
---------
Estimated acquisition expenses...................................... 315
Estimated fees and expenses associated with the Notes Offering
and Consent Solicitation.......................................... 1,750
---------
Total uses of funds........................................... $ 26,721
---------
---------
</TABLE>
(e) Reflects the following adjustments to stockholders' (deficiency) equity:
<TABLE>
<S> <C> <C>
Charges to historical earnings:
Write-off of purchased in-process research and development.................... $ 2,300
</TABLE>
(f) 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 Stewart Warner Stock......... $ 20,703
Estimated acquisition expenses..................................... 315
Less: Acquisition adjustments to SWI's historical financial
statements (i):
Elimination of SWI's stockholders' equity...................... $ 3,410
Increase in intangibles (ii)(iii).............................. 2,300
Write-up of SWI fixed assets (iii)............................. 4,845
Deferred tax liability arising from the Stewart Warner
Acquisition.................................................. (1,986) 8,569
--------- ---------
Cost in excess of net assets acquired...................... $ 12,449
---------
---------
</TABLE>
32
<PAGE>
-------------------
(i) 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,
fixed assets, intangibles 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 In-process research and development (see note (d)
above) $2,300.
(iii) Based on a preliminary estimate by management as of January 31,
1998.
33
<PAGE>
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
DISPOSITION PRO FORMA HISTORICAL -----------
----------- -------------------------- -----------
HVE (A) GEI (B) ADJUSTMENTS COMBINED PHI (C) ADJUSTMENTS
--------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales......................................... $ 173,103 $ 12,256 $ 160,847 $ 67,819
Cost of sales..................................... 114,848 6,062 108,786 42,740 $ (100)(e)
1,000(f)
--------- ----------- ------------- ----------- ----------- -----------
Gross profit.................................... 58,255 6,194 52,061 25,079 (900)
Administrative and selling expenses............... 36,967 3,793 33,174 10,678 (55)(e)
429(g)
618(h)
Research and development expenses................. 9,361 739 8,622 7,902 (36)(e)
Reimbursed environmental and litigation
costs -- net..................................... 26 -- 26 --
Other............................................. 2,234 -- $ (1,000)(b) 1,234 11 --
--------- ----------- ------------- ----------- ----------- -----------
Income (loss) from operations................... 9,667 1,662 1,000 9,005 6,488 (1,856)
Interest expense.................................. 11,989 245 11,744 1,693 6,350(k)
Interest income................................... (351) -- (351) (48) --
--------- ----------- ------------- ----------- ----------- -----------
Income (loss) from operations before income
taxes and extraordinary item.................. (1,971) 1,417 1,000 (2,388) 4,843 (8,206)
Income taxes...................................... 526 -- 526 1,403 (l)
--------- ----------- ------------- ----------- ----------- -----------
Income (loss) from operations before
extraordinary item............................ (2,497) 1,417 1,000 (2,914) 3,440 (8,206)
Preferred dividends............................. (479) -- (479) -- (3,763)(m)
Accretion of redeemable preferred stock......... -- -- -- -- (310)(n)
--------- ----------- ------------- ----------- ----------- -----------
Income (loss) available to common stockholders
before extraordinary item........................ $ (2,976) $ 1,417 $ 1,000 $ (3,393) $ 3,440 $ (12,279)
--------- ----------- ------------- ----------- ----------- -----------
--------- ----------- ------------- ----------- ----------- -----------
Ratio of earnings to fixed charges (u)............ -- --
Adjusted EBITDA data (v):
Income from operations.......................... $ 9,667 $ 1,662 $ 1,000 9,005 $ 6,488 $ (1,856)
Reimbursed environmental and litigations costs
-- net........................................ 26 -- -- 26 --
Other........................................... 2,234 -- (1,000) 1,234 11
Depreciation and amortization................... 4,376 254 -- 4,122 2,769 856
Purchase accounting expenses/severance.......... -- -- -- -- 270 1,000
--------- ----------- ------------- ----------- ----------- -----------
Adjusted EBITDA............................... $ 16,303 $ 1,916 $ -- $ 14,387 $ 9,538 $ --
--------- ----------- ------------- ----------- ----------- -----------
--------- ----------- ------------- ----------- ----------- -----------
<CAPTION>
COMPANY
HISTORICAL PRO FORMA
HVE/PHI ------------- ------------------------
COMBINED SWI (D) ADJUSTMENTS TOTAL
----------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
Net sales......................................... $ 228,666 $ 24,228 $ 252,894
Cost of sales..................................... 152,426 16,651 $ 501(o) 169,578
----------- ------------- ------------- ---------
Gross profit.................................... 76,240 7,577 (501) 83,316
Administrative and selling expenses............... 44,844 4,417 155(o) 49,783
622(p)
(255)(q)
Research and development expenses................. 16,488 942 34(o) 17,464
Reimbursed environmental and litigation
costs -- net..................................... 26 26
Other............................................. 1,245 (33) -- 1,212
----------- ------------- ------------- ---------
Income (loss) from operations................... 13,637 2,251 (1,057) 14,831
Interest expense.................................. 19,787 398 1,702(r) 22,162
292(s)
(17)(t)
Interest income................................... (399) (399)
----------- ------------- ------------- ---------
Income (loss) from operations before income
taxes and extraordinary item.................. (5,751) 1,853 (3,034) (6,932)
Income taxes...................................... 1,929 761 (l) 2,690
----------- ------------- ------------- ---------
Income (loss) from operations before
extraordinary item............................ (7,680) 1,092 (3,034) (9,622)
Preferred dividends............................. (4,242) -- (4,242)
Accretion of redeemable preferred stock......... (310) -- (310)
----------- ------------- ------------- ---------
Income (loss) available to common stockholders
before extraordinary item........................ $ (12,232) $ 1,092 $ (3,034) $ (14,174)
----------- ------------- ------------- ---------
----------- ------------- ------------- ---------
Ratio of earnings to fixed charges (u)............
Adjusted EBITDA data (v):
Income from operations.......................... $ 13,637 $ 2,251 $ (1,057) $ 14,831
Reimbursed environmental and litigations costs
-- net........................................ 26 -- 26
Other........................................... 1,245 (33) 1,212
Depreciation and amortization................... 7,747 162 1,312 9,221
Purchase accounting expenses/severance.......... 1,270 -- 1,270
----------- ------------- ------------- ---------
Adjusted EBITDA............................... $ 23,925 $ 2,380 $ 255 $ 26,560
----------- ------------- ------------- ---------
----------- ------------- ------------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement
of Operations.
34
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JANUARY 24, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
------------------------ PRO FORMA
DISPOSITION PRO FORMA HISTORICAL -----------
------------- ---------------------------- -----------
HVE (A) GEI (B) ADJUSTMENTS COMBINED PHI (C) ADJUSTMENTS
--------- ------------- --------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales...................................... $ 138,368 $ 9,867 $ 128,501 $ 49,772
Cost of sales.................................. 88,853 5,015 83,838 32,650 $ (45)(e)
--------- ------ ----- ----------- ----------- -----------
Gross profit................................. 49,515 4,852 44,663 17,122 45
Administrative and selling expenses............ 33,109 3,083 30,026 8,895 (24)(e)
107(g)
155(h)
Research and development expenses.............. 7,852 682 7,170 12,164 (16)(e)
(5,800)(i)
Reimbursed environmental and litigation costs
-- net....................................... 458 -- 458 --
Other.......................................... 44 -- $ (750)(b) (706) 6,834 (6,660)(j)
--------- ------ ----- ----------- ----------- -----------
Income (loss) from operations................ 8,052 1,087 750 7,715 (10,771) 12,283
Interest expense............................... 12,779 220 12,559 1,923 467(k)
Interest income................................ (402) -- (402) (74)
--------- ------ ----- ----------- ----------- -----------
Income (loss) from operations before income
taxes and extraordinary item............... (4,325) 867 750 (4,442) (12,620) 11,816
Income taxes................................... 3,575 -- 3,575 (2,845) 4,840(l)
--------- ------ ----- ----------- ----------- -----------
Income (loss) from operations before
extraordinary item......................... (7,900) 867 750 (8,017) (9,775) 6,976
Preferred dividends.......................... (2,057) -- (2,057) -- (1,126)(m)
Accretion of redeemable preferred stock...... (175) -- (175) -- (58)(n)
--------- ------ ----- ----------- ----------- -----------
Income (loss) available to common stockholders
before extraordinary item.................... $ (10,132) $ 867 $ 750 $ (10,249) $ (9,775) $ 5,792
--------- ------ ----- ----------- ----------- -----------
--------- ------ ----- ----------- ----------- -----------
Ratio of earnings to fixed charges (u)......... --
Adjusted EBITDA data (v):
Income from operations....................... $ 8,052 $ 1,087 $ 750 $ 7,715 $ (10,771) $ 12,283
Reimbursed environmental and litigations
costs -- net............................... 458 -- 458 --
Other........................................ 44 -- (750) (706) 6,834 (6,660)
Depreciation and amortization................ 3,519 245 -- 3,274 3,077 177
Purchase accounting expenses/severance....... 636 -- 636 7,707 (5,800)
--------- ------ ----- ----------- ----------- -----------
Adjusted EBITDA............................ $ 12,709 $ 1,332 $ -- $ 11,377 $ 6,847 $ --
--------- ------ ----- ----------- ----------- -----------
--------- ------ ----- ----------- ----------- -----------
<CAPTION>
COMPANY
HISTORICAL PRO FORMA
HVE/PHI ------------- --------------------------
COMBINED SWI (D) ADJUSTMENTS TOTAL
----------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Net sales...................................... 178,273 $ 19,616 $ 197,889
Cost of sales.................................. 116,443 13,784 $ 304 130,531
----------- ------------- ------------- -----------
Gross profit................................. 61,830 5,832 (304) 67,358
Administrative and selling expenses............ 39,159 3,792 95(o) 43,231
467(p)
(282)(q)
Research and development expenses.............. 13,518 1,007 21(o) 14,546
Reimbursed environmental and litigation costs
-- net....................................... 458 -- 458
Other.......................................... (532) -- -- (532)
----------- ------------- ------------- -----------
Income (loss) from operations................ 9,227 1,033 (605) 9,655
Interest expense............................... 14,949 289 1,286(r) 16,731
219(s)
(12)(t)
Interest income................................ (476) -- (476)
----------- ------------- ------------- -----------
Income (loss) from operations before income
taxes and extraordinary item............... (5,246) 744 (2,098) (6,600)
Income taxes................................... 5,570 336 (l) 5,906
----------- ------------- ------------- -----------
Income (loss) from operations before
extraordinary item......................... (10,816) 408 (2,098) (12,506)
Preferred dividends.......................... (3,183) -- (3,183)
Accretion of redeemable preferred stock...... (233) -- (233)
----------- ------------- ------------- -----------
Income (loss) available to common stockholders
before extraordinary item.................... $ (14,232) $ 408 $ (2,098) $ (15,922)
----------- ------------- ------------- -----------
----------- ------------- ------------- -----------
Ratio of earnings to fixed charges (u).........
Adjusted EBITDA data (v):
Income from operations....................... $ 9,227 $ 1,033 $ (605) $ 9,655
Reimbursed environmental and litigations
costs -- net............................... 458 -- 458
Other........................................ (532) -- -- (532)
Depreciation and amortization................ 6,528 208 887 7,623
Purchase accounting expenses/severance....... 2,543 -- 2,543
----------- ------------- ------------- -----------
Adjusted EBITDA............................ $ 18,224 $ 1,241 $ 282 $ 19,747
----------- ------------- ------------- -----------
----------- ------------- ------------- -----------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement
of Operations.
35
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE LTM PERIOD ENDED JANUARY 24, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
---------------------- PRO FORMA
DISPOSITION PRO FORMA HISTORICAL -----------
----------- ----------- -----------
HVE (A) GEI (B) ADJUSTMENTS COMBINED PHI (C) ADJUSTMENTS
--------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net sales......................................... $ 189,425 $ 13,187 $ 176,238 $ 64,686
Cost of sales..................................... 122,452 6,692 115,760 41,951 $ (45)(e)
--------- ----------- ----------- ----------- ----------- -----------
Gross profit.................................... 66,973 6,495 60,478 22,735 45
Administrative and selling expenses............... 43,179 4,009 39,170 11,896 (24)(e)
214(g)
309(h)
Research and development expenses................. 10,251 863 9,388 14,289 (16)(e)
(5,800)(i)
Reimbursed environmental and
litigation costs -- net.......................... 256 -- 256 --
Other............................................. 1,490 -- $ (1,000)(b) 490 6,586 (6,660)(j)
--------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations................... 11,797 1,623 1,000 11,174 (10,036) 12,022
Interest expense.................................. 16,518 291 16,227 2,295 851(k)
Interest income................................... (547) -- (547) (74)
--------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations before income
taxes and extraordinary item.................. (4,174) 1,332 1,000 (4,506) (12,257) 11,171
Income taxes...................................... 6,623 -- 6,623 (2,995) 4,649(l)
--------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations before
extraordinary item............................ (10,797) 1,332 1,000 (11,129) (9,262) 6,522
Preferred dividends............................. (2,180) -- (2,180) -- (2,062)(m)
Accretion of redeemable preferred stock......... (175) -- (175) -- (135)(n)
--------- ----------- ----------- ----------- ----------- -----------
Income (loss) available to common stockholders
before extraordinary item........................ $ (13,152) $ 1,332 $ 1,000 $ (13,484) $ (9,262) $ 4,325
--------- ----------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- ----------- -----------
Ratio of earnings to fixed charges (u)............ --
Adjusted EBITDA data (v):
Income from operations.......................... $ 11,797 $ 1,623 $ 1,000 11,174 $ (10,036) $ 12,022
Reimbursed environmental and litigation costs -- 256 -- 256 --
net...........................................
Other........................................... 1,490 -- (1,000) 490 6,586 (6,660)
Depreciation and amortization................... 4,719 258 -- 4,461 4,002 438
Purchase accounting adjustments/severance....... 636 -- -- 636 7,977 (5,800)
--------- ----------- ----------- ----------- ----------- -----------
Adjusted EBITDA............................... $ 18,898 $ 1,881 $ -- $ 17,017 $ 8,529 $ --
--------- ----------- ----------- ----------- ----------- -----------
--------- ----------- ----------- ----------- ----------- -----------
<CAPTION>
COMPANY
HISTORICAL PRO FORMA
HVE/PHI ------------- ------------------------
COMBINED SWI (D) ADJUSTMENTS TOTAL
----------- ------------- ------------- ---------
<S> <C> <C> <C> <C>
Net sales......................................... $ 240,924 $ 26,458 $ 267,382
Cost of sales..................................... 157,666 18,325 $ 434(o) 176,425
----------- ------------- ------------- ---------
Gross profit.................................... 83,258 8,133 (434) 90,957
Administrative and selling expenses............... 51,565 4,924 134(o) 56,901
622(p)
(344)(q)
Research and development expenses................. 17,861 1,294 29(o) 19,184
Reimbursed environmental and
litigation costs -- net.......................... 256 -- 256
Other............................................. 416 (5) 411
----------- ------------- ------------- ---------
Income (loss) from operations................... 13,160 1,920 (875) 14,205
Interest expense.................................. 19,373 384 1,716(r) 21,748
292(s)
(17)(t)
Interest income................................... (621) -- (621)
----------- ------------- ------------- ---------
Income (loss) from operations before income
taxes and extraordinary item.................. (5,592) 1,536 (2,866) (6,922)
Income taxes...................................... 8,277 717 (l) 8,994
----------- ------------- ------------- ---------
Income (loss) from operations before
extraordinary item............................ (13,869) 819 (2,866) (15,916)
Preferred dividends............................. (4,242) -- (4,242)
Accretion of redeemable preferred stock......... (310) -- (310)
----------- ------------- ------------- ---------
Income (loss) available to common stockholders
before extraordinary item........................ $ (18,421) $ 819 $ (2,866) $ (20,468)
----------- ------------- ------------- ---------
----------- ------------- ------------- ---------
Ratio of earnings to fixed charges (u)............ --
Adjusted EBITDA data (v):
Income from operations.......................... $ 13,160 $ 1,920 $ (875) $ 14,205
Reimbursed environmental and litigation costs -- 256 -- 256
net...........................................
Other........................................... 416 (5) 411
Depreciation and amortization................... 8,901 252 1,219 10,372
Purchase accounting adjustments/severance....... 2,813 -- 2,813
----------- ------------- ------------- ---------
Adjusted EBITDA............................... $ 25,546 $ 2,167 $ 344 $ 28,057
----------- ------------- ------------- ---------
----------- ------------- ------------- ---------
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Statement
of Operations.
36
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED APRIL 26, 1997,
THE NINE MONTHS ENDED JANUARY 24, 1998
AND THE LTM PERIOD ENDED JANUARY 24, 1998
(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, excluding PHI Acquisition Holdings, Inc. and subsidiaries.
(b) For purposes of the Unaudited Pro Forma Condensed Consolidated Statement of
Operations, the term "GEI" refers to General Eastern a division of HVE.
Adjustments reflect pro forma for the General Eastern Disposition an
increase of $1,000, $750 and $1,000 of amortization income resulting from
the $3,000 allocated to an agreement on the part of HVE not to compete in
the conduct of business of GEI for three years for the fiscal year ended
April 26, 1997, the nine months ended January 24, 1998 and the LTM period
ended January 24, 1998, respectively. See note (b) to "Notes to Unaudited
Pro Forma Condensed Consolidated Balance Sheet."
(c) 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 its fiscal year ended
June 27, 1997, the nine months ended January 24, 1998 and the LTM period
ended January 24, 1998.
(d) For purposes of the Unaudited Pro Forma Condensed Consolidated Statement of
Operations, the term "SWI" refers to Stewart Warner Instrument Corporation
and subsidiaries. The results of operations of SWI are for its fiscal year
ended April 30, 1997, the nine months ended January 31, 1998, and the LTM
period ended January 31, 1998.
(e) Reflects a decrease in depreciation expense resulting from a valuation by
management, based in part on an appraisal, of both the estimated fair value
of the fixed assets acquired and their estimated remaining service lives as
of August 8, 1997. Such assets will be depreciated over their estimated
remaining service lives which range from 3 to 30 years. The decrease in
depreciation expense is allocated $100, $45 and $45 to cost of sales, $55,
$24 and $24 to administrative expense, and $36, $16 and $16 to research and
development expense, respectively, for the fiscal year ending April 26,
1997, the nine months ended January 24, 1998 and the LTM period ended
January 24, 1998. 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 fiscal year ended June 27, 1997.
(f) Reflects an increase of $1,000 to cost of sales resulting from an increase
in the value of the inventory based on an estimate by management for the
fiscal year ended April 26, 1997. This increase is reflected in historical
cost of sales for the nine months ended January 24, 1998, and the LTM period
ended January 24, 1998.
(g) Reflects an increase of $429, $107 and $214 of amortization of cost in
excess of net assets acquired, totaling approximately $8,600, over 20 years
resulting from the PHI Merger for the fiscal year ended April 26, 1997, the
nine months ended January 24, 1998 and the LTM period ended January 24,
1998.
(h) Reflects an increase of $618, $155 and $309 of amortization of intangible
assets, totaling $6,800, resulting from the PHI Merger for the fiscal year
ended April 26, 1997, the nine months ended January 24, 1998 and the LTM
period ended January 24, 1998, respectively.
(i) Reflects the reversal of $5,800 for the write-off of purchased research and
development that was charged to historical earnings resulting from the PHI
Merger on August 8, 1997.
(j) Reflects the reversal of non-recurring transactions related to compensation
expense recognized in connection with the exercising of employee stock
options and stock appreciation rights payments charged to historical
earnings by PHI prior to the PHI Merger on August 8, 1998.
37
<PAGE>
(k) Reflects the effect on interest expense resulting from the issuance of the
Original Notes and the PHI Merger:
<TABLE>
<CAPTION>
12 MOS. 9 MOS. LTM PERIOD
ENDED ENDED ENDED
INTEREST APRIL 26, JANUARY 24, JANUARY 24,
RATES AMOUNT 1997 1998 1998
-------------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
PRO FORMA INTEREST EXPENSE CALCULATION:
Revolving Credit Facility (i)............. -- $ -- $ -- $ -- $ --
Original Notes............................ 10.5% 135,000 14,175 10,631 14,175
Mortgage notes, capital leases, foreign
credit line and notes payable........... 2.0%-16.4% 21,790 2,101 1,457 1,698
Unused credit facility fee................ 125 62 125
--------- ----------- -----------
Pro forma cash interest expense......... 16,401 12,150 15,998
Accretion of redeemable put warrants...... 2,587 2,200 2,587
Amortization of deferred financing
costs................................... 799 599 799
--------- ----------- -----------
Total pro forma interest expense........ 19,787 14,949 19,384
Less:
Historical HVE interest expense......... 11,744 12,559 16,238
Historical PHI interest expense......... 1,693 1,923 2,295
--------- ----------- -----------
Total historical interest expense....... 13,437 14,482 18,533
--------- ----------- -----------
Total pro forma interest expense
adjustment................................ $ 6,350 $ 467 $ 851
--------- ----------- -----------
--------- ----------- -----------
- ------------
</TABLE>
(i) The Revolving Credit Facility is a $25,000 senior secured revolving
credit facility that bears interest at (i) the Lender's Base Rate plus
.25% or (ii) LIBOR plus 1.50%. See "Description of Other Indebtedness."
(l) For the fiscal year ended April 26, 1997, 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. For the nine months ended January 24, 1998 and for the LTM period
ended January 24, 1998, the adjustment reflects the tax effect of the pro
forma adjustments at a 40% effective tax rate.
(m) Represents adjustment to reflect dividends in the amount of $4,242, $3,183
and $4,242 on the Series A Preferred Stock at 12.50% per annum, payable
semiannually in cash or additional shares of Series A Preferred Stock, at
the option of the Company, and the elimination of dividends on the Series C
Preferred Stock of $479 for the fiscal year ended April 26, 1997, the nine
months ended January 24, 1998, and the LTM period ended January 24, 1998,
respectively.
(n) Represents adjustment to reflect the accretion of redeemable preferred stock
in the amount of $310, $233 and $310 on the Series A Preferred Stock as a
result of the allocation of $2,200 to the warrants to purchase HVE common
stock and $1,400 of fees and issuance costs for the fiscal year ended April
26, 1997, nine months ended January 24, 1998, and the LTM period ended
January 24, 1998, respectively.
(o) Reflects an increase in depreciation expense resulting from a preliminary
valuation by management, based in part on preliminary appraisal data, of
both the estimated fair value of the fixed assets acquired and their
estimated remaining service lives as of January 31, 1998. Such assets will
be depreciated over the estimated remaining service lives which range from 2
to 11 years. See note (f) to
38
<PAGE>
"Notes to Unaudited Pro Forma Condensed Consolidated Balance Sheet." The
increase in depreciation expense is allocated $501, $304 and $434 to cost of
sales, $155, $95 and $134 to administrative and selling expense, and $34,
$21 and $29 to research and development expense, respectively, for the
fiscal year ended April 26, 1997, the nine months ended January 24, 1998 and
the LTM period ended January 24, 1998. The allocation of the increase in
depreciation expense is based upon the allocation of historical depreciation
expense in the results of operations of SWI for the nine months ended
January 31, 1998.
(p) Reflects $622, $467 and $622 of estimated amortization of cost in excess of
net assets acquired, totaling $12,400, over 20 years resulting from the
Stewart Warner Acquisition for the fiscal year ended April 26, 1997, the
nine months ended January 24, 1998, and the LTM period ended January 24,
1998, respectively. See note (f) to "Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet."
(q) Reflects adjustments to administrative and selling expenses to eliminate
certain operating expenses (including compensation) relating to a SWI
stockholder who will not be employed by the Company after the acquisition as
follows: $255, $282 and $344 for the fiscal year ended April 26, 1997, the
nine months ended January 24, 1998 and the LTM period ended January 24,
1998, respectively.
(r) Reflects $2,100, $1,575 and $2,100 of interest expense on the $20,000 of the
New Notes at 10.5% per annum and the elimination of $398, $289 and $384 of
SWI historical interest expense for the fiscal year ended April 26, 1997,
the nine months ended January 24, 1998, and the LTM period ended January 24,
1998, respectively. See note (d) to "Notes to Unaudited Pro Forma Condensed
Consolidated Balance Sheet."
(s) Reflects $292, $219 and $292 of amortization of deferred financing costs on
the $1.7 million of fees and expenses associated with the New Notes for the
fiscal year ended April 26, 1997, nine months ended January 24, 1998, and
the LTM period ended January 24, 1998, respectively. See note (d) to "Notes
to Unaudited Pro Forma Condensed Consolidated Balance Sheet."
(t) Represents an adjustment to reflect amortization of $17, $12 and $17 of a
premium of $100 on the issuance on the New Notes for the fiscal year ended
April 26, 1997, the nine months ended January 24, 1998, and the LTM period
ended January 24, 1998, respectively. See note (d) to "Notes to Unaudited
Pro Forma Condensed Consolidated Balance Sheet."
(u) 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 $11,200 and $2,500, respectively, in Fiscal 1997,
$9,800 and $13,800, respectively, for the nine months ended January 24, 1998
and $11,200 and $13,800, respectively, for the LTM period ended January 24,
1998.
(v) 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 expense included in
administrative and selling expenses in connection with the replacement of
such officer of PHI in the fiscal year ended April 26, 1997 and the LTM
period ended January 24, 1998, (iii) $636 of severance to certain former
executives of the Company included in administrative and selling expense in
the nine months ended January 24, 1998 and the LTM period ended January 24,
1998, and (iv) purchase accounting expenses relating to the PHI Merger of
$1,000 in the fiscal year ended April 26, 1997 and $7,642 in the nine months
and LTM period January 24, 1998 (see notes (f) and (i) to "Notes to
Unaudited Pro Forma Condensed Consolidated Statements of Operations") and
$65 of severance payments to certain former employees
39
<PAGE>
of PHI for the nine months ended January 24, 1998 and the LTM period ended
January 24, 1998. See notes F, K and N to "Notes to Consolidated Financial
Statements" of High Voltage Engineering Corporation and subsidiaries.
Adjusted EBITDA is not be 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 or a form thereof 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 an analysis
of changes in Adjusted EBITDA in recent periods. Investors should note,
however, that "Adjusted EBITDA" as used in this Memorandum 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 or on the same basis.
40
<PAGE>
UNAUDITED SUPPLEMENTAL ADJUSTED PRO FORMA FINANCIAL DATA
(DOLLARS IN THOUSANDS)
The following additional operational synergies do not reflect adjustments to
the Unaudited Pro Forma Condensed Consolidated Financial Information presented
for the Company. However, management believes these operational synergies may be
realizable and are relevant to evaluating the potential future operating results
of the Company. The following synergies are based on estimates and assumptions
made, and believed to be reasonable, by management, but are inherently uncertain
and subject to change. Due to the uncertainties of future economic conditions,
the amount of the expected synergies listed below may vary significantly.
Accordingly, the expected synergies described below are not necessarily
indicative of future financial results, including Adjusted EBITDA and net
income, which may be affected by a number of other factors. As a result,
prospective purchasers of New Notes are cautioned not to place undue reliance on
the amount of the synergies. See "Risk Factors -- Risks Associated with Stewart
Warner Acquisition," and "-- Variability of Customer Requirements; Fluctuations
in Operating Results." The following additional information reflects the
anticipated synergies resulting from management's business and operating
strategy, calculated prior to the Stewart Warner Acquisition based on due
diligence reviews by management, and expected to be substantially completed
within two years of the Stewart Warner Acquisition. However, unanticipated
factors may delay realization of such benefits or other unanticipated factors
could affect the achievement of such synergies and there can be no assurance
that such benefits will be fully realized, if at all.
<TABLE>
<CAPTION>
12 MONTHS 9 MONTHS LTM PERIOD
ENDED ENDED ENDED
APRIL 26, JANUARY 24, JANUARY 24,
1997 1998 1998
----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Adjusted EBITDA........................................................... $26,560 $19,747 $28,057
Supplemental adjustments related to Stewart Warner:
Certain facility relocations (a)........................................ 42 39 39
Stockholder selling costs (b)........................................... 0 35 35
Operational synergies (c)............................................... 115 345 460
----------- ----------- -----------
Subtotal-supplemental adjustments..................................... 157 419 534
----------- ----------- -----------
Supplemental Adjusted EBITDA.............................................. $26,717 $20,166 $28,591
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
- ------------
(a) Reflects add-back of non-recurring costs previously incurred relating to
moving the Des Plaines, Illinois and El Paso, Texas facilities to new leased
space.
(b) Reflects add-back of non-recurring initial retainer fee previously incurred
and paid to investment banker in connection with the sale of Stewart Warner.
(c) Reflects estimated operational synergies including: (1) consolidation of
sourcing of printed circuit board assembly, plastic injection molding, and
other component parts; (2) elimination of duplication in distribution as
well as expanding cross selling of parts available for such distribution;
(3) marketing of Stewart Warner parts to Europe; (4) rationalization of
source assembly of labor intensive parts; and (5) elimination of duplicative
research and development, advertising and promotion expenses.
41
<PAGE>
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 audited 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 nine
months ended January 25, 1997 and January 24, 1998 and the LTM period ended
January 24, 1998 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. The
results for any interim period are not necessarily indicative of the results of
operations for a full year.
The Selected Historical Consolidated Financial Data of High Voltage
Engineering Corporation and its subsidiaries should be read in conjunction with
the audited 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 48 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 NINE MONTHS ENDED
------------------------------------------------------------- --------------------------
MAY 1, APRIL 30, APRIL 29, APRIL 27, APRIL 26, JANUARY 25, JANUARY 24,
1993 1994 1995 1996 1997 1997 1998
--------- ----------- ----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $ 101,282 $ 102,098 $ 116,551 $ 149,100 $ 173,103 $ 122,046 $ 164,796
Cost of sales.......................... 65,109 63,951 73,424 97,386 114,848 81,249 105,962
--------- ----------- ----------- ----------- ----------- ------------ ------------
Gross profit....................... 36,173 38,147 43,127 51,714 58,255 40,797 59,014
Administrative and selling expenses
(a).................................. 24,323 24,902 26,113 34,915 36,967 26,897 38,755
Research and development expenses...... 6,732 6,940 8,094 8,071 9,361 6,962 17,731
Restructuring charge (b)............... -- -- 1,294 150 -- -- --
Reimbursed environmental and litigation
costs -- net (c)..................... (2,467) (6,725) (2,130) (450) 26 228 458
Other (d).............................. (408) 703 892 1,163 2,234 788 44
--------- ----------- ----------- ----------- ----------- ------------ ------------
Income from operations............. 7,993 12,327 8,864 7,865 9,667 5,922 2,026
Interest expense....................... 8,753 7,870 8,573 11,225 11,989 8,250 14,291
Interest income........................ (628) (99) (74) (278) (351) (206) (476)
Income (loss) from continuing
operations before income taxes,
discontinued operations and
extraordinary item................. (132) 4,556 365 (3,082) (1,971) (2,122) (11,789)
Income taxes (credit).................. 1,677 4,209 196 (2,619) 526 (2,522) 2,769
--------- ----------- ----------- ----------- ----------- ------------ ------------
Income (loss) from continuing
operations before discontinued
operations and extraordinary item.... (1,809) 347 169 (463) (2,497) 400 (14,558)
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) (259) (7,861)
--------- ----------- ----------- ----------- ----------- ------------ ------------
Net income (loss)...................... $ (1,845) $ 453 $ 445 $ 613 $ (2,756) $ 141 $ (22,419)
--------- ----------- ----------- ----------- ----------- ------------ ------------
--------- ----------- ----------- ----------- ----------- ------------ ------------
<CAPTION>
(CONTINUED ON NEXT PAGE)
<CAPTION>
LTM PERIOD
ENDED
JANUARY 24,
1998
-------------
(UNAUDITED)
<S> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $ 216,033
Cost of sales.......................... 139,561
-------------
Gross profit....................... 76,472
Administrative and selling expenses
(a).................................. 48,825
Research and development expenses...... 20,130
Restructuring charge (b)............... --
Reimbursed environmental and litigation
costs -- net (c)..................... 256
Other (d).............................. 1,490
-------------
Income from operations............. 5,771
Interest expense....................... 18,030
Interest income........................ (621)
Income (loss) from continuing
operations before income taxes,
discontinued operations and
extraordinary item................. (11,638)
Income taxes (credit).................. 5,817
-------------
Income (loss) from continuing
operations before discontinued
operations and extraordinary item.... (17,455)
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......................... (7,861)
-------------
Net income (loss)...................... $ (25,316)
-------------
-------------
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------------------------------- --------------------------
MAY 1, APRIL 30, APRIL 29, APRIL 27, APRIL 26, JANUARY 25, JANUARY 24,
1993 1994 1995 1996 1997 1997 1998
--------- ----------- ----------- ----------- ----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
(AT PERIOD END):
Working capital........................ $ 11,730 $ 19,157 $ 10,685 $ 11,894 $ 9,371 $ 18,016 $ 44,834
Total assets........................... 89,517 92,664 105,974 113,718 113,587 116,019 193,287
Total debt (including redeemable put
warrants)............................ 80,023 78,190 82,232 84,671 88,201 94,895 159,415
Redeemable preferred stock............. 9,750 10,134 10,549 10,995 11,474 11,351 29,567
Stockholders' deficiency............... (34,426) (34,728) (33,897) (33,482) (36,736) (33,704) (59,593)
OTHER DATA:
Adjusted EBITDA (e).................... $ 9,120 $ 9,593 $ 12,246 $ 12,768 $ 16,303 $ 10,114 $ 15,930
Depreciation and amortization (f)...... 4,002 3,288 3,080 3,584 4,376 3,176 5,966
Capital expenditures (g)............... 1,406 3,175 9,135 5,959 5,010 3,383 4,612
Backlog................................ 23,993 27,883 42,707 62,990 69,632 75,757 92,034
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 $ 58,516 $ 67,422
PHI.................................. -- -- -- -- -- -- 26,608
Datcon Instrument Company............ 15,170 16,875 21,514 32,514 32,482 23,209 25,690
Anderson (i)......................... 15,017 15,471 18,136 21,509 21,554 15,441 18,219
Natvar............................... 13,979 13,948 16,828 17,101 15,227 11,080 12,510
General Eastern...................... 9,837 9,969 10,176 12,093 12,256 8,936 9,867
HVE Europa........................... 7,929 6,008 8,048 9,738 8,488 4,864 4,660
--------- ----------- ----------- ----------- ----------- ------------ ------------
Subtotal........................... 96,031 97,009 114,763 149,100 173,103 122,046 164,976
Divested product lines (i)........... 5,251 5,089 1,788 -- -- -- --
--------- ----------- ----------- ----------- ----------- ------------ ------------
Total net sales.................... $ 101,282 $ 102,098 $ 116,551 $ 149,100 $ 173,103 $ 122,046 $ 164,976
--------- ----------- ----------- ----------- ----------- ------------ ------------
--------- ----------- ----------- ----------- ----------- ------------ ------------
Adjusted EBITDA: (j)
Robicon.............................. $ 2,337 $ 3,057 $ 2,212 $ 1,425 $ 6,030 $ 4,063 $ 5,298
PHI.................................. -- -- -- -- -- -- 3,221
Datcon Instrument Company............ 2,005 2,233 3,444 4,230 4,338 2,935 3,347
Anderson............................. 2,632 3,271 3,922 5,240 4,885 3,406 4,393
Natvar............................... 2,268 2,357 2,881 1,784 1,328 986 1,418
General Eastern...................... 1,154 1,173 1,318 1,681 1,916 1,367 1,332
HVE Europa........................... 445 155 463 1,146 673 (382) (94)
--------- ----------- ----------- ----------- ----------- ------------ ------------
Total operating unit Adjusted
EBITDA........................... 10,841 12,246 14,240 15,506 19,170 12,375 18,915
Corporate overhead................... (1,721) (2,653) (1,994) (2,738) (2,867) (2,261) (2,985)
--------- ----------- ----------- ----------- ----------- ------------ ------------
Total Adjusted EBITDA.............. $ 9,120 $ 9,593 $ 12,246 $ 12,768 $ 16,303 $ 10,114 $ 15,930
--------- ----------- ----------- ----------- ----------- ------------ ------------
--------- ----------- ----------- ----------- ----------- ------------ ------------
CASH FLOW PROVIDED BY (USED FOR):
Operating activities................... $ (595) $ 7,806 $ 10,127 $ (6,360) $ 627 $ (4,228) $ (12,144)
Investing activities................... (114) (3,464) (12,278) 5,729 (3,066) (2,739) (55,422)
Financing activities................... (3,655) (4,823) 1,221 1,853 1,893 6,117 81,368
<CAPTION>
LTM PERIOD
ENDED
JANUARY 24,
1998
-------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA
(AT PERIOD END):
Working capital........................ $ 44,834
Total assets........................... 193,287
Total debt (including redeemable put
warrants)............................ 159,415
Redeemable preferred stock............. 29,567
Stockholders' deficiency............... (59,593)
OTHER DATA:
Adjusted EBITDA (e).................... $ 22,119
Depreciation and amortization (f)...... 7,166
Capital expenditures (g)............... 6,239
Backlog................................ 92,034
Ratio of earnings to fixed charges
(h).................................. --
OPERATING UNIT DATA:
Net sales:
Robicon (i).......................... $ 92,002
PHI.................................. 26,608
Datcon Instrument Company............ 34,963
Anderson (i)......................... 24,332
Natvar............................... 16,657
General Eastern...................... 13,187
HVE Europa........................... 8,284
-------------
Subtotal........................... 216,033
Divested product lines (i)........... --
-------------
Total net sales.................... $ 216,033
-------------
-------------
Adjusted EBITDA: (j)
Robicon.............................. $ 7,265
PHI.................................. 3,221
Datcon Instrument Company............ 4,750
Anderson............................. 5,872
Natvar............................... 1,760
General Eastern...................... 1,881
HVE Europa........................... 961
-------------
Total operating unit Adjusted
EBITDA........................... 25,710
Corporate overhead................... (3,591)
-------------
Total Adjusted EBITDA.............. $ 22,119
-------------
-------------
CASH FLOW PROVIDED BY (USED FOR):
Operating activities................... $ (7,289)
Investing activities................... (55,749)
Financing activities................... 77,144
</TABLE>
See accompanying Notes to Selected Historical Consolidated Financial Data.
43
<PAGE>
NOTES TO SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
(a) Adjusted EBITDA excludes severance expenses of $246, $456 and $636 included
in administrative and selling expenses in Fiscal 1995, Fiscal 1996, and the
nine months ended January 24, 1998, 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 NINE MONTHS ENDED
--------------------------------------------------------------- ----------------------------
MAY 1, APRIL 30, APRIL 29, APRIL 27, APRIL 26, JANUARY 25, JANUARY 24,
1993 1994 1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- ----------- ------------- -------------
<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) (230) (710)
Division relocation and moving
costs....................... -- 488 124 103 -- -- --
Facilities (income) expense,
net......................... -- -- -- (57) 319 175 (274)
Aborted acquisition and
offering costs.............. -- -- -- -- 2,145 843 --
Unreimbursed litigation
costs....................... -- -- -- -- -- -- 1,028
Acquisition costs and loss on
write-off of purchased
assets...................... -- 215 -- -- -- -- --
----- ----------- ----- ----------- ----------- ----- ------
Total..................... $ (408) $ 703 $ 892 $ 1,163 $ 2,234 $ 788 $ 44
----- ----------- ----- ----------- ----------- ----- ------
----- ----------- ----- ----------- ----------- ----- ------
<CAPTION>
LTM PERIOD
ENDED
JANUARY 24,
1998
-------------
<S> <C>
Writedown of assets held for
sale........................ $ --
Net gain on disposition of
miscellaneous assets........ (710)
Division relocation and moving
costs....................... --
Facilities (income) expense,
net......................... (130)
Aborted acquisition and
offering costs.............. 1,302
Unreimbursed litigation
costs....................... 1,028
Acquisition costs and loss on
write-off of purchased
assets...................... --
------
Total..................... $ 1,490
------
------
</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, $456 and $636 to certain former senior
executives included in administrative and selling expenses of HVE in Fiscal
1995, Fiscal 1996, the nine months ended January 25, 1997 and the LTM period
ended January 24, 1998, respectively, (iii) purchase accounting expenses
relating to the PHI Merger of $1,000 in the fiscal year ended April 26,
1997, and $7,642 the nine months ended and LTM period ended January 24, 1998
(see notes (f) and (i) to "Notes to Unaudited Pro Forma Condensed
Consolidated Statements of Operations"), and (iv) and $65 of severance
payments to certain former employees of PHI for the nine months ended
January 24, 1998 and the LTM period ended January 24, 1998. 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 some form of 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
44
<PAGE>
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 an analysis of changes in Adjusted EBITDA in recent periods.
Investors should note, however, that "Adjusted EBITDA" as used in this
Memorandum 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 or on the same basis.
(f) Depreciation and amortization excludes $1,100 and $600 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
$800 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, $600, $3,500, $2,500, $2,500 and $13,800 in
Fiscal 1993, Fiscal 1995, Fiscal 1996, Fiscal 1997 and the nine months ended
January 25, 1997 and January 24, 1998, respectively.
(i) Anderson's net sales exclude net sales of $4,500, $4,100 and $1,400 from
divested product lines for Fiscal 1993, Fiscal 1994 and Fiscal 1995,
respectively. Robicon's net sales exclude net sales of $700, $1,000 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.
45
<PAGE>
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>
FISCAL YEAR ENDED
-------------------------------------------------------------------------
JUNE 25, JUNE 25, JUNE 30, JUNE 28, JUNE 27,
1993(A) 1994(A) 1995 1996 1997
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
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..................... 1,733 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 $1,300 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.
(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 EBITDA or
some form thereof is customarily used as a measurement in evaluating
companies. Investors should note, however, that "Adjusted EBITDA" as used in
this Memorandum 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 or on the same basis.
46
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS)
STEWART WARNER INSTRUMENT CORPORATION AND SUBSIDIARIES
The following Selected Historical Consolidated Financial Data of Stewart
Warner Instrument Corporation and subsidiary for its fiscal years ended April
30, 1995, 1996 and 1997 and for the nine-month period ended January 31, 1998
have been derived from the audited consolidated financial statements of Stewart
Warner Instrument Corporation and subsidiary (referred to herein collectively as
"SWI"). The following Selected Historical Consolidated Financial Data of Stewart
Warner Instrument Corporation and subsidiary for the nine-month period ended
January 31, 1997 and the LTM period ended January 31, 1998 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. The results for any interim period are not necessarily
indicative of the results of operations for a full year. The information
presented below should be read in conjunction with SWI's consolidated financial
statements and the notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
------------------------------------- ----------------------------
APRIL 30, APRIL 30, APRIL 30, JANUARY 31, JANUARY 31,
1995 1996 1997 1997 1998
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $ 25,127 $ 22,521 $ 24,228 $ 17,386 $ 19,616
Cost of sales................................... 17,197 15,653 16,651 12,110 13,784
----------- ----------- ----------- ------------- -------------
Gross profit................................ 7,930 6,868 7,577 5,276 5,832
Administrative and selling expenses (a)......... 4,673 5,061 4,417 3,285 3,792
Research and development expense................ 961 966 942 655 1,007
Other........................................... (22) -- (33) (28) --
----------- ----------- ----------- ------------- -------------
Operating income............................ 2,318 841 2,251 1,364 1,033
Interest expense................................ 888 526 398 303 289
Interest income................................. -- -- -- -- --
----------- ----------- ----------- ------------- -------------
Income before income taxes.................. 1,430 315 1,853 1,061 744
Income tax expense.............................. 540 96 761 380 336
----------- ----------- ----------- ------------- -------------
Net income...................................... $ 890 $ 219 $ 1,092 $ 681 $ 408
----------- ----------- ----------- ------------- -------------
----------- ----------- ----------- ------------- -------------
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................. $ 925 $ 853 $ 1,541 $ 1,252 $ 1,842
Total assets.................................... 11,312 10,794 11,931 10,131 11,536
Total debt...................................... 4,439 4,948 4,584 3,772 3,934
Stockholders' equity............................ 1,941 1,910 3,002 2,592 3,410
OTHER DATA:
Adjusted EBITDA (b)............................. $ 2,536 $ 1,123 $ 2,635 $ 1,647 $ 1,523
Depreciation, amortization and other non-cash
transactions.................................. 240 282 162 118 208
Capital expenditures............................ 280 367 514 402 516
Backlog 4,679 4,240 4,585 4,478 4,408
CASH FLOW PROVIDED BY (USED FOR):
Operating activities............................ $ 3,458 $ 167 $ 808 $ 1,504 $ 1,152
Investing activities............................ (8,672) (367) (482) (373) (516)
Financing activities............................ 5,245 230 (365) (1,176) (650)
<CAPTION>
LTM PERIOD
ENDED
JANUARY 31,
1998
-------------
<S> <C>
(UNAUDITED)
STATEMENT OF OPERATIONS DATA:
Net sales....................................... $ 26,458
Cost of sales................................... 18,325
-------------
Gross profit................................ 8,133
Administrative and selling expenses (a)......... 4,924
Research and development expense................ 1,294
Other........................................... (5)
-------------
Operating income............................ 1,920
Interest expense................................ 384
Interest income................................. --
-------------
Income before income taxes.................. 1,536
Income tax expense.............................. 717
-------------
Net income...................................... $ 819
-------------
-------------
BALANCE SHEET DATA (AT PERIOD END):
Working capital................................. $ 1,842
Total assets.................................... 11,536
Total debt...................................... 3,934
Stockholders' equity............................ 3,410
OTHER DATA:
Adjusted EBITDA (b)............................. $ 2,511
Depreciation, amortization and other non-cash
transactions.................................. 252
Capital expenditures............................ 628
Backlog 4,408
CASH FLOW PROVIDED BY (USED FOR):
Operating activities............................ $ 456
Investing activities............................ (625)
Financing activities............................ 161
</TABLE>
- ---------------
(a) Includes $255, $193, $282 and $344 of certain operating expenses (including
compensation) relating to a SWI stockholder who will not be employed by the
Company after the Stewart Warner Acquisition for the fiscal year ended April
30, 1997, the nine months ended January 31, 1997, the nine months ended
January 31, 1998 and the LTM period ended January 31, 1998, respectively.
(b) Adjusted EBITDA is defined as earnings before interest, income taxes,
depreciation, amortization, other non-cash transactions, and non-recurring
items. See note (a) above. Non-recurring items are comprised of $255, $193,
$282 and $344 of certain operating expenses (including compensation)
relating to an SWI stockholder who will not be employed by the Company after
the Merger for the fiscal year ended April 30, 1997, the nine months ended
January 31, 1997, the nine months ended January 31, 1998 and the LTM period
ended January 31, 1998, respectively. 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 or
some form thereof is customarily used as a measurement in evaluating
companies. Investors should note, however, that "Adjusted EBITDA" as used in
this Memorandum 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 or on the same basis.
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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 Stewart Warner
Acquisition or the General Eastern Disposition. 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
16, 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.
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
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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. There were no restructuring charges in
Fiscal 1997.
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 (losses) of $2.1 million, $450,000,
($26,000) and ($458,000) for Fiscal 1995, Fiscal 1996, Fiscal 1997, and the nine
months ended January 24, 1998, 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, $1.1 million and $0, respectively, for
such periods. 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
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
offerings costs, and $319,000 in net expenses incurred in connection with assets
held for sale, offset by a $230,000 gain on the sale of a small product line at
Robicon. In the nine months ended January 24, 1998, other expenses were $44,000
which primarily reflected $1.0 million of litigation costs related to the
aborted acquisition and offerings costs offset by a gain of $0.6 million on the
sale of a vacant facility in Boston and income on the leases of other vacant
facilities. See note K to the consolidated financial statements of High Voltage
Engineering Corporation and subsidiaries.
ACQUISITION OF STEWART WARNER
On March 19, 1998, a wholly owned subsidiary of HVE acquired, directly or
indirectly, all of the capital stock of Stewart Warner, for an aggregate
consideration of $24.7 million in cash. After the repayment of all of Stewart
Warner's outstanding indebtedness, the remainder of the cash purchase price was
distributed to the holders of the Stewart Warner Stock.
THE PHI MERGER
On August 8, 1997, HVE acquired PHI Acquisition Holdings, Inc. ("PHI
Holdings") for $54.6 million, including transaction costs and net of cash
acquired. The acquisition was consummated 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.
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RESULTS OF OPERATIONS
NINE MONTHS ENDED JANUARY 24, 1998 (THE "1998 PERIOD") COMPARED TO NINE
MONTHS ENDED
JANUARY 25, 1997 (THE "1997 PERIOD").
Net sales increased $42.9 million, or 35.2%, from $122.0 million for the
1997 Period to $165.0 million for the 1998 Period. This increase was primarily
attributable to: (i) $26.6 million in revenues due to the PHI Merger on August
8, 1997, (ii) an $8.9 million, or 15.2%, increase in sales at Robicon primarily
due to the continued growth in sales of medium voltage VFDs, (iii) a $2.8
million, or 18.0%, increase at Anderson due to continued growth in sales to the
uninterruptible power supply markets as well as telecommunications and
networking equipment markets primarily in North America, (iv) an increase of
$2.5 million, or 10.7%, at Datcon Instrument Company due to higher shipments in
both the United States and Europe, (v) an increase of $1.4 million, or 12.9%, at
Natvar, and (vi) an increase of $0.9 million, or 10.4%, at General Eastern, of
which approximately $300,000 is attributable to the acquisition of certain
assets of a small competitor during the first quarter of Fiscal 1998.
Gross profit increased $18.2 million, or 44.7%, from $40.8 million for the
1997 Period to $59.0 million for the 1998 Period. The increase included $9.5
million due to the PHI Merger, which included a $1.0 million charge to cost of
sales resulting from the shipments of finished goods inventory which had been
revalued in accordance with purchase accounting procedures. The remaining
increase in gross profit of $8.7 million was primarily attributable to higher
shipments at all operating units except for HVE Europa, as well as an improved
gross margin rates at all operating units except General Eastern. The gross
margin rate increased 2.4%, from 33.4% to 35.8%, as a result of the higher
shipments discussed above, as well as productivity improvements at Robicon,
Datcon Instrument Company, Anderson and Natvar compared to the 1997 Period.
Administrative and selling expenses of the Company increased by $11.9
million, or 44.1% for the 1998 Period, which included a $5.6 million increase
attributable to the PHI Merger, $3.0 million at Robicon primarily due to a step
level increase in information technology and other selling and administrative
costs to support higher sales, as well as $2.7 million due to higher selling and
administrative costs throughout the remainder of the Company to support higher
sales, and $0.6 million of severance accrued for certain former executives of
the Company. Administrative and selling expenses increased as a percent of sales
from 22.0% for the 1997 Period to 23.5% during the 1998 Period, as a result of
the factors discussed above.
Engineering, research and development expenses increased $10.8 million, from
approximately $7.0 million for the 1997 Period to approximately $17.7 million
for the 1998 Period, primarily as a result of the inclusion of $9.9 million of
such costs incurred at the newly acquired PHI, including $5.8 million of
purchased research and development as allocated from the purchase price for PHI
which was expensed during the second quarter of Fiscal 1998 in accordance with
purchase accounting procedures. The remaining increases included approximately
$0.6 million attributable to increased new product applications development at
Datcon Instrument Company.
Depreciation and amortization increased $2.9 million from $3.2 million for
the 1997 Period to $6.1 million for the 1998 Period, including $2.4 million
attributable to PHI and continued capital investment in information technology
and automation throughout the Company during the past twelve months.
Other expenses, including reimbursed environmental and litigation costs,
declined from $1.0 million to $0.5 million during the periods compared. The 1997
Period included a $0.8 million provision to write-off costs associated with an
aborted acquisition and related financing costs. The 1998 Period costs include
litigation costs of $1.0 million associated with the aborted acquisition, as
well as a gain of $0.6 million from the sale of a vacant building in Boston,
Massachusetts, as well as a change in the estimate on certain environmental
cleanup costs.
As a result of the above items, the Company's income from continuing
operations decreased by $3.9 million, from $5.9 million for the 1997 Period to
$2.0 million for the 1998 Period.
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Interest expense increased $6.0 million to $14.3 million for the 1998 Period
compared to $8.3 million in the 1997 Period due to higher average indebtedness
associated with the sale of the Original Notes, accretion of redeemable put
warrants in the amount of $2.2 million recorded in the first quarter of Fiscal
1998, as well as a $1.0 million provision for contingent interest payments
recorded in the first quarter of Fiscal 1998. Interest income increased $270,000
to $476,000 for the 1998 Period primarily due to the higher average cash
balances after the sale of the Original Notes.
Income tax provisions increased $5.3 million, from a benefit of $2.5 million
for the 1997 Period, to a provision of $2.8 million for the 1998 Period. The
increase primarily reflects a change in the valuation allowance due to a
revaluation of the realization of net operating loss carryforwards, net of
income tax benefits allocated to extraordinary items.
Income from operations before extraordinary items decreased $15.0 million to
a loss of $14.6 million for the 1998 Period. Extraordinary losses on debt
extinguishment, net of income taxes, in the amounts of $259,000 and $7.9 million
were recorded in the 1997 Period and the 1998 Period, respectively.
The foregoing factors contributed to an increase in net loss of $22.6
million from income of $141,000 for the 1997 Period, to a loss of $22.4 million
for the 1998 Period.
FISCAL 1997 COMPARED TO FISCAL 1996
The following discussion does not include the results of operations of PHI
Acquisition Holdings, Inc., but does include the results of operations of
General Eastern.
Net sales increased $24.0 million, or 16.1%, from $149.1 million in Fiscal
1996 to $173.1 million in Fiscal 1997. This increase was primarily attributable
to a $27.0 million, or 48.0%, increase at Robicon due to the continued growth in
sales of medium voltage VFDs. Robicon's net sales increase was slightly offset
by a $1.9 million, or 11.0%, decline in Natvar's net sales, due to weakness in
medical markets and related market price reductions, as well as a decrease of
$1.3 million, or 12.8%, at HVE Europa which was primarily attributable to weaker
foreign currencies. Net sales at General Eastern increased slightly despite
flatness in the market for humidity measurement instruments. Net sales at Datcon
Instrument Company remained flat as a sales increase in domestic markets was
offset by weakness in agricultural equipment markets in Europe. Net sales at
Anderson remained flat as higher domestic shipments of connectors for new
applications and new customers were offset by weaker markets in traction
batteries for materials handling equipment.
Gross profit increased $6.5 million, or 12.6%, from $51.7 million during
Fiscal 1996 to $58.3 million in Fiscal 1997. The increase was primarily
attributable to the growth in shipments at Robicon, but was somewhat offset by
lower sales at Natvar and HVE Europa. Gross margin declined from 34.7% to 33.7%
primarily due to the shipment by Robicon of certain higher cost prototype units
for new applications, the investment in a leased facility (a technical center
for new applications) at Anderson and the inclusion of the first full year of
costs of Natvar's Colorado facility.
Administrative and selling expenses increased $2.1 million, or 5.9%,
primarily due to a $1.6 million increase at Robicon due to increased commissions
and other selling and administrative costs attributable to higher sales levels.
Administrative and selling expenses declined as a percentage of net sales from
23.4% to 21.4% during the periods compared, including a decline from 21.9% to
16.7% at Robicon.
Research and development expenses increased $1.3 million, or 16.0%, from
$8.1 million to $9.4 million, which was primarily attributable to new product
investments at Robicon, as well as volume related applications engineering to
support the aforementioned sales increase at Robicon. Such expenses remained
unchanged as a percentage of net sales at 5.4%.
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Depreciation and amortization from continuing operations increased from $3.6
million to $4.4 million as a result of continued capital investment in
automation at Anderson and Datcon Instrument Company 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 over the 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
The following discussion does not include the results of operations of PHI
Acquisition Holdings, Inc., but does include the results of operations of
General Eastern.
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 Instrument Company 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
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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
Instrument Company from 36.3% to 28.9% in Fiscal 1996 resulting from plant
reconfiguration and new product introduction costs, as well as the impact of a
full year of Jorda's lower gross margin; and (iii) a reduction in gross margin
at Robicon from 36.6% to 33.0% in Fiscal 1996 resulting from inefficiencies
relating to Robicon's move to a new facility, its outsourcing of production of
its printed circuit boards and an upgrade of its MIS software system. These
gross margin reductions were partially offset by: (i) an increase in gross
margin at Anderson from 41.1% to 47.0% in Fiscal 1996 resulting from increased
automation, a more profitable mix of products resulting from the divestiture of
three lower margin product lines in Fiscal 1995, and cost savings resulting from
the consolidation of Anderson's manufacturing operations into a single facility
in Fiscal 1996; (ii) an increase in gross margin at HVE Europa from 29.1% to
36.8% in Fiscal 1996 resulting from improved pricing and certain product cost
reductions; and (iii) an increase in gross margin at General Eastern from 48.8%
to 50.8% in Fiscal 1996 resulting primarily from the growth of its calibration
and service businesses.
Administrative and selling expenses increased $8.8 million, or 33.7%,
including $1.1 million due to the incremental costs associated with the
inclusion of the operations of Jorda for a full year and increased commissions
and other selling and administrative costs at Robicon, Anderson, General Eastern
and HVE Europa attributable to higher sales levels. In addition, the Company
incurred severance costs of $246,000 during Fiscal 1995, as compared to $456,000
in Fiscal 1996, in connection with the replacement of operating unit presidents
as part of the Company's overall program to improve operating unit management.
Such costs have been excluded from EBITDA. Administrative and selling expenses
as a percentage of net sales increased from 22.4% to 23.4%, primarily as a
result of the increase at Robicon from 19.3% to 21.9% in Fiscal 1996 due to
higher sales levels.
Research and development expenses were $8.1 million in both Fiscal 1995 and
Fiscal 1996. As a percentage of net sales, such expenses declined from 6.9% in
Fiscal 1995 to 5.4% in Fiscal 1996.
Depreciation and amortization from continuing operations increased $500,000,
from $3.1 million to $3.6 million, primarily as a result of the Jorda
acquisition.
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
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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.
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 March 19, 1998, the Company completed a private placement (the
"Offering") of $20.0 million in 10 1/2% Senior Notes Due 2004. The net proceeds
of the Offering were used to finance part of the purchase price for the Stewart
Warner Stock.
On August 8, 1997, the Company entered into the $25.0 million Revolving
Credit Facility which is being used primarily to fund the Company's working
capital requirements and has a $6.0 million sublimit for the issuance of standby
letters of credit. The Revolving Credit Facility has a term of five years and
replaced the $20.0 million revolving credit facility in place on such date.
There were no borrowings outstanding under the Revolving Credit Facility as of
January 24, 1998; however, there were $4.8 million in letters of credit
commitments outstanding. The 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 -- Revolving Credit Facility."
On August 8, 1997, the Company completed a private placement (the "Original
Offering") of $135.0 million in 10 1/2% Senior Notes due 2004 and $35.2 million
in Units consisting of Original Series A
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Preferred Stock, HVE Common Stock and Warrants to purchase HVE Common Stock. A
portion of the net proceeds of these private placements 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 Original Series A Preferred Stock, the Company issued to the holders thereof
warrants representing 6.6% of the fully-diluted HVE Common Stock. On January 16,
1998, the Company's outstanding 10 1/2% Senior Notes due 2004 and Original
Series A Preferred Stock were exchanged by the holders thereof for the Existing
Notes and a like number of shares of Series A Preferred Stock registered
pursuant to the Securities Act. See "Description of Outstanding Capital Stock."
On May 9, 1996, the Company entered into a $20.0 million revolving credit
facility as well as a $10.0 million senior term loan from Sanwa Business Credit
Corporation and Fleet National Bank. On the same date, the Company completed a
private placement of $20.0 million of senior secured notes due 2003, $7.0
million of senior unsecured notes due 2003 and $25.0 million principal amount of
subordinated notes due 2004 (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 due 2004, 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. This senior revolving credit facility and term loan was repaid
and extinguished in connection with the Original Offering, and the $20.0 million
of senior secured notes due 2003, $7.0 million of senior unsecured notes due
2003 and $25.0 million of subordinated notes due 2004 were repurchased. The
Company also used $2.5 million of the net proceeds of the Original Offering 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 had 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.
On February 17, 1998, in connection with a misinterpretation of the
Indenture, the Company paid a dividend in cash in the aggregate amount of
approximately $2.1 million to the holders of the Series A Preferred Stock in
accordance with the terms thereof. Because the Company is currently unable to
incur additional indebtedness under the covenant described under the caption
"Description of the Notes -- Limitation on Additional Indebtedness," the payment
of this dividend, which constitutes a Restricted Payment under the Indenture, is
prohibited and constitutes a default under the Indenture. Under the terms of the
Company's Amended and Restated Articles of Organization (the "Restated Charter")
the Company is permitted to pay any dividends that become due and payable on the
Series A Preferred Stock pursuant to the Restated Charter on or prior to August
15, 2002 through the issuance of additional shares of Series A Preferred Stock.
The Company has reported the default to the Trustee under the Indenture
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and obtained the consent of the holders of a majority of the Existing Notes to
waive the default and any Event of Default (as defined herein) that may arise
therefrom, represented by this dividend payment.
Pro forma for the consummation of the Trasactions and the General Eastern
Disposition, as of March 28, 1998, the Company had total indebtedness (including
redeemable put warrants) of $184.2 million and mandatorily redeemable preferred
stock with an aggregate liquidation preference of $33.0 million.
The Company does not anticipate any significant principal payment
obligations under any of its outstanding indebtedness prior to maturity of the
Notes except with respect to the Revolving Credit Facility which has a term of
five years, as well as $1.6 million of unsecured seller notes related to the
Jorda acquisition due on March 16, 2000. 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 $44.8 million at April 29, 1995, April 27, 1996, April 26, 1997 and January
24, 1998, respectively. The $35.5 million increase in working capital from April
26, 1997 to January 24, 1998 is partially attributable to a $13.6 million
increase in cash on hand as a result of the Original Offering, an increase in
accounts receivable of $9.6 million, of which $12.9 is due to the acquisition of
PHI, an increase of $2.2 million of refundable income taxes attributable to PHI,
and increases in inventories of $16.8 million in the aggregate, of which PHI
accounted for $17.4 million, which was offset by reductions in inventory of $0.6
million for the Company's other operations. Also contributing to the increase in
working capital was a decrease of $1.7 million in interest expense payable
related to a $6.8 million payment made upon the closing of the Original Offering
to extinguish obligations of the Company under certain Contingent Interest
Payment Agreements partially offset by additional accruals. Accounts payable and
accrued liabilities increased $10.1 million during this period, of which $8.9
million resulted from the acquisition of PHI. Short term debt also decreased
$1.3 million since April 26, 1997. 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. Cash
and cash equivalents of $15.1 million on the Company's balance sheet as of
January 24, 1998, unadjusted for the Transactions, excludes $4.0 million of
restricted cash in uninsured foreign bank accounts which was used as collateral
for bank guarantee facilities for customer advances.
Net cash used in operating activities was $4.2 million and $12.1 million for
the 1997 Period and 1998 Period, respectively. The decrease in net cash for the
1998 Period was attributable primarily to an increase in inventories of $3.3
million. The decrease in net cash for the 1998 Period was primarily due to the
payment of prepayments fees and penalties of $6.3 million, net of taxes, and the
payment of $6.8 million to extinguish the Company's obligations under the
Contingent Interest Payment Agreements in connection with the Original Offering.
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Net cash used in investing activities was $2.7 million and $55.4 million for
the 1997 Period and 1998 Period, respectively. The decrease in net cash for the
1997 Period consisted primarily of capital expenditures of $2.9 million which
were partially offset by proceeds from minor asset sales. The decrease in net
cash for the 1998 Period resulted from the acquisition of PHI for $54.6 million,
including transaction costs and net of cash acquired, and capital expenditures
of $4.3 million, and offset by proceeds from asset sales of $3.4 million.
Net cash provided by financing activities was $6.1 million and $81.4 million
for the 1997 Period and 1998 Period, respectively. The increase in net cash for
the 1997 Period was the result of increased borrowings of $4.4 million under the
Company's previous senior credit agreement and the reduction of restricted cash
accounts of $1.4 million. The increase in cash for the 1998 Period was
substantially the result of the Original Offering, consummated on August 8,
1997, which provided $163.3 million (net of expenses) of cash, of which $78.5
million was used to retire existing preferred stock and indebtedness.
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. 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 January 24, 1998,
the Company had assets held for sale, consisting of several former manufacturing
facilities, of $6.4 million, $6.2 million, $5.2 million and $3.9 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. This
decrease was primarily due to capital expenditures at Datcon Instrument Company,
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 approximately $6.0 million in its fiscal year ending April 25, 1998.
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Net cash provided by financing activities increased from $1.2 million in
Fiscal 1995 to $1.9 million in Fiscal 1996, primarily due to the issuance of
long-term obligations and the cash overdraft which was partially offset by
payments on certain long-term obligations and decreases in restricted cash. Net
cash provided by financing activities was $1.9 million for Fiscal 1996 and
Fiscal 1997, which included a refinancing of a majority of the Company's
long-term obligations in Fiscal 1997.
The Indenture permits 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.
On April 15, 1998, the Company sold all of the assets and ordinary course
business trade payables and capital and operating lease obligations of General
Eastern to Bowthorpe, pursuant to the Asset Purchase Agreement. This sale
generated cash, net of expenses and cash acquired, of approximately $20.5
million. The cash received by HVE in connection with the General Eastern
Disposition is subject to the covenant of the Indenture described under the
caption "Limitation on Certain Asset Sales," which requires the Company to apply
such cash to either (i) repay debt ranking PARI PASSU to the Notes, (ii) make an
investment in assets for the Company's presently conducted business or (iii)
offer to repurchase the Notes pursuant to an Excess Proceeds Offer (as defined
herein). The Company has no current plans for the use of the cash proceeds of
the General Eastern Disposition and unless the Company develops a plan for such
proceeds in the interim, the Company will be required to commence an offer to
repurchase the Notes on April 15, 1999. See "Description of the Notes -- Certain
Covenants -- Limitation on Certain Assets Sales."
While the Company believes that internally generated funds, funds generated
by sales of assets and amounts available under the Revolving Credit Facility
will be sufficient to satisfy its operating cash requirements and make required
interest and principal payments under the 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 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.
NEW ACCOUNTING PRONOUNCEMENTS
EARNINGS PER SHARE. During 1997, the Financial Accounting Standards Board
("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share," which changes the calculation of earnings per share to be
more consistent with countries outside the United States. In general, the
statement requires two calculations of earnings per share to be disclosed, basic
EPS and diluted EPS. Basic EPS is to be computed using only weighted average
shares outstanding, while diluted EPS is computed considering the dilution of
options and warrants. This statement has been adopted by the Company and all
prior, interim and annual periods have been restated.
OTHER PRONOUNCEMENTS. During 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income," which establishes standards for the reporting and display
of comprehensive income and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which introduces a new model for segment
reporting. The Company does not believe adoption will have a material impact on
its financial statement disclosures.
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YEAR 2000
Many existing computer programs use only two digits to identify a year in
the date field. These programs were designed and developed without considering
the impact of the upcoming change in the century. If not corrected, many
computer applications could fail or create erroneous results by or at the Year
2000. The Company has reviewed the Year 2000 issue. Upon the implementation of a
new information technology system at PHI, expected to be completed by the end of
fiscal 1999, management believes that all of the Company's operating units will
be Year 2000 compliant. Additionally, each operating unit is assessing the
impact of the Year 2000 issue on its significant customers, suppliers and on
others. Management believes that the cost to complete its Year 2000 compliance
will not have a material adverse effect upon the Company.
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BUSINESS
COMPANY OVERVIEW
The Company owns and operates a diversified group of six 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 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
(e) on page 44). 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 15.6% CAGR from $9.1 million to $16.3
million. Pro forma for the PHI Merger, the Stewart Warner Acquisition and the
General Eastern Disposition, the Company had net sales and Adjusted EBITDA of
$267.4 million and $28.1 million, respectively, in the LTM period ended January
24, 1998. For information regarding the Company's consolidated net sales,
operating income, identifiable assets and other information by industry segment,
see Note R to the Company's consolidated financial statements, at page F-33. For
information regarding international and export sales, see Note Q to the
Company's consolidated financial statements, beginning at page F-31.
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) 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 5.9% of HVE's
consolidated net sales for Fiscal 1997, pro forma for the PHI Merger, the
Stewart Warner Acquisition and the General Eastern Disposition, no
customer of any of its operating units accounted for more than 6.2% of
such sales. The Company's operating units have
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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 HVE'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:
- 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 13 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 Instrument Company have
successfully completed and integrated such add-on acquisitions. The Stewart
Warner Acquisition, after which the operations of Stewart Warner were and will
continue to be operated with those of Datcon Instrument Company and Jorda, is
another example of the implementation of this strategy. 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.
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THE OPERATING UNITS
The Company conducts its business through six independent operating units,
Robicon, PHI, Datcon, Anderson, Natvar 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 the LTM period ended January 24, 1998, Robicon had
net sales of $92.0 million, which represented 34.4% of the Company's
consolidated net sales for such period, pro forma for the PHI Merger, the
Stewart Warner Acquisition and the General Eastern Disposition.
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.
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Recently, the Company introduced the Perfect Harmony series of medium voltage
(2,300 to 7,200 volts) VFDs for large electric motors (400 to 12,000
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 $35.3 million of Robicon's net sales
for the LTM period ended January 24, 1998, or approximately 38.4% 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. Robicon's power control systems
incorporate patented technology that virtually eliminates harmonic distortion
and "flicker."
MARKETS AND CUSTOMERS
Robicon markets and sells VFDs primarily in North America and Asia with an
expanding presence in Europe, Australia, South America and the Middle East. 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, Exxon, Interprovincial Pipeline, Lafarge, Mead Paper,
Medusa Cement, Petrobras 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.
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SALES AND MARKETING
Robicon's VFDs and power control systems are sold through Robicon's direct
sales force and by independent manufacturers' representatives. Robicon targets
large industrial users in select markets and segments and specifying engineers
in both industrial and commercial projects. Bids for large municipal VFD
contracts are typically conducted through a "request for proposal" process and
handled by Robicon's independent manufacturers' representatives. In addition to
direct sales efforts in the United States, Robicon has sales offices in
Edmonton, Alberta; Shanghai, China; and Sao Paolo, Brazil.
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"), Eaton (Cutler
Hammer), Emerson Electric and Siemens. Robicon's major competitors in the power
control systems market include multinational corporations such as ABB and
Siemens, 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 January 24, 1998, PHI had net sales
of $64.7 million, which represented 24.2% of the Company's consolidated net
sales for such period, pro forma for the PHI Merger, the Stewart Warner
Acquisition and the General Eastern Disposition.
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.
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
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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 and/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-TM-, which offers
enhanced resolution and operation on a fully-automated "turn-key" basis.
PHI's TOF-SIMS surface analysis instruments direct short, intermittent
bursts of charged atoms or molecules called "ions" onto a sample, which causes
other ions to be emitted from the sample surface. These emitted ions traverse a
long flight path, with the time required for an ion to reach the analyzer (the
"time of flight") being directly related to its mass. Because the mass of such
ions is unique to the material from which they were emitted, it may be measured
to identify the elements or molecules present. The "time of flight" method of
determining the mass of the emitted ions is highly precise and can be used to
accurately identify both the elemental and chemical composition of a surface. In
addition, TOF-SIMS is the best-suited of PHI's instruments to the detection of
very large molecules, such as those found in plastics and biomaterials, and
PHI's TOF-SIMS instruments can detect trace impurities in a sample at levels of
one part per million. PHI's TOF-SIMS products are used in a variety of
applications including the semiconductor industry for quality control and
process development, primarily in central support laboratories. For example,
PHI's TOF-SIMS instruments are capable of detecting contamination on
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semiconductor devices, including photoresist used in semiconductor device
manufacturing, which may affect production yields. PHI's TOF-SIMS products are
also sold for use in a variety other industries, including polymers, computer
peripherals and biomaterials. Applications include the process development of
the application of thin films on printer paper and lubricants on computer hard
disks. In 1994, PHI introduced the TRIFT II, a new TOF-SIMS instrument which may
be configured to analyze every point on an 8-inch semiconductor wafer.
PHI's Dynamic SIMS surface analysis instruments direct a highly focused
continuous beam of ions onto a sample, which causes other ions to be emitted
from the sample surface. Because the mass of such ions is unique to the material
from which they were emitted, it may be measured to identify the elements
present. In general, Dynamic SIMS is used to examine inorganic samples. PHI's
Dynamic SIMS instruments are capable of detecting trace impurities with a
sensitivity of greater than one part per billion, although without the chemical
sensitivity of PHI's TOF-SIMS instruments. While PHI's Dynamic SIMS instruments
are well-suited to a variety of applications, they are predominantly used in
central support laboratories in the semiconductor industry for process control
to monitor the precise elemental composition of semiconductor devices and in
quality control to identify contaminants that may affect yields in semiconductor
fabrication. Because the ion beam in PHI's Dynamic SIMS instruments removes the
surface layer of a material under investigation, depth profiles are generated as
a result of the operation of the instrument. This is in contrast to PHI's other
surface analysis instruments in which an additional ion beam is required to
remove successive layers of material. The 6650 Dynamic SIMS is PHI's standard
model. In 1997, PHI introduced 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 to conduct 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
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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.
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 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.
THE DATCON / STEWART WARNER GROUP ("DATCON")
On March 19, 1998, a wholly owned subsidiary of HVE acquired, directly or
indirectly, all of the capital stock of Stewart Warner, for an aggregate
consideration of $24.7 million in cash. The operations of Stewart Warner will
continue to be operated together with those of the Company's existing Datcon
Instrument Company subsidiary and its wholly owned subsidiary Jorda. The Company
believes that the combined entity will be a leading designer, manufacturer and
distributor of customized monitoring instrumentation for heavy duty and
off-highway vehicles and equipment.
DATCON INSTRUMENT COMPANY. Datcon Instrument Company together with its
wholly owned subsidiary, Jorda, designs and manufactures customized monitoring
instrumentation for heavy duty and off-highway vehicles. Datcon Instrument
Company's products include instrument clusters, speedometers, tachometers and
fuel, temperature and pressure gauges which are used in construction equipment,
agricultural machinery, materials handling equipment, generator and compressor
engines, and marine
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products. 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 Instrument Company's headquarters are located in Lancaster,
Pennsylvania. For the LTM period ended January 24, 1998, Datcon Instrument
Company had net sales of $35.0 million, which represented 13.1% of the Company's
consolidated net sales for such period, pro forma for the PHI Merger, the
Stewart Warner Acquisition and the General Eastern Disposition. After the
Stewart Warner Acquisition, the operations of Datcon Instrument Company and
Jorda will be combined with those of Stewart Warner to form Datcon.
A principal element of Datcon Instrument Company'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 Instrument Company has significant expertise.
Datcon Instrument Company seeks to increase its market share by introducing
complementary new products that leverage its applications expertise. Datcon
Instrument Company 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 Instrument Company has one of the broadest
lines of mass customized monitoring instrumentation for heavy duty and
off-highway vehicles. Datcon Instrument Company'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
Instrument Company 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 Instrument Company 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
Instrument Company 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 Instrument Company has introduced several products
including: (i) the IllumaSeal-TM- line of heavy duty instruments that deliver
no-fog, waterproof performance and high levels of night visibility; (ii) the
Smart Instrument-TM- line of instruments that provide visual indication of
operational problems and can offer such feature enhancements on a simple plug-in
replacement basis to existing vehicle designs; (iii) the Illuma Deluxe-TM- line
of field-programmable speedometers and tachometers which enable customers to
custom-calibrate these new microprocessor controlled instruments to match
individual vehicle specifications; and (iv) the Intellisensor series of fuel
measurement systems which allow for electronic measurement of fluid levels
through the use of solid state technology, thereby eliminating moving parts and
increasing accuracy and durability.
MARKETS AND CUSTOMERS
Datcon Instrument Company sells its products in 40 countries worldwide.
Approximately 75% of Datcon Instrument Company's product sales are to OEM
markets (including OEM after market sales) to a diverse group of customers.
Datcon Instrument Company 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
Instrument Company's products are sold through third-party distributors under
the Datcon-Registered Trademark- and AST-TM- brand names to other OEM customers
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and to the after market. Datcon Instrument Company believes that it has
developed significant customer loyalty by consistently providing high quality
products and exceptional service. The acquisition of Jorda has provided Datcon
Instrument Company with direct access to additional European customers and an
immediate presence in the European instrument cluster market.
SALES AND MARKETING
Datcon Instrument Company'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 Instrument Company is
represented by a worldwide network of authorized distributors who carry Datcon
Instrument Company 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 Instrument Company's largest competitor in Europe is VDO, a subsidiary of
Mannesman.
STEWART WARNER. Stewart Warner is a manufacturer and marketer of a broad
range of gauges, senders, sensors, switches, lamps and other accessories that
are sold to both the OEM and aftermarket segments in specialty applications,
including the heavy duty truck, agricultural, bus, emergency equipment, marine,
government and performance automotive hobby markets. Stewart Warner products are
characterized by strong brand name recognition and a reputation within the
industry for quality. For the LTM period ended January 31, 1998, Stewart Warner
had net sales of $26.5 million, which would be 9.9% of the Company's net sales
during the LTM period ended January 24, 1998, pro forma for the Stewart Warner
Acquisition and the General Eastern Disposition.
Stewart Warner is a direct wholly owned subsidiary of HVE and is operated in
conjunction with Datcon Instrument Company and Jorda. Datcon Instrument Company
and Jorda design and manufacture customized monitoring instrumentation for heavy
duty and off-highway vehicles.
Stewart Warner maintains three separate operating facilities: a Des Plaines,
Illinois headquarters which houses its new product design and engineering and
sales and marketing groups, and a twin-plant "Maquiladora Program" comprised of
a 20,000 square foot warehouse in El Paso, Texas and a 75,000 square foot
manufacturing facility in Juarez, Mexico which employs approximately 400 people.
PRODUCTS
Like Datcon Instrument Company, Stewart Warner currently markets its
instruments as individual units or as "engineered systems" incorporating groups
of instruments which are integrated into a vehicle's electrical system or onto a
stand-alone industrial engine. More sophisticated product offerings of Stewart
Warner include instrument "clusters" or "panels" which combine several
instruments into one mechanism designated to fit into a specified space in the
dashboard or control panel of an OEM's product. Clusters and panels are offered
in either a conventional or advanced technology configuration, the latter
incorporating solid state electronics with the option of microprocessor control.
Stewart Warner currently has several products in production which utilize
"SAE Data Bus" technology, a state-of-the-art microprocessor driven
communications network which carries information concerning the operating
parameters of engines, braking systems, etc. to the vehicle's driver through a
system of gauges and digital displays or warning lights.
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Like Datcon Instrument Company, Stewart Warner has employed a strategy of
"mass customization" which involves several steps, from manufacturing
instrumentation and instrument packages to specific customer requirements
(including customer-specified functions) to incorporating the customer's logo
and design profile into the product. This strategy is attractive to OEMs because
it offers a product designed to fit within a specific place in the OEM's product
and provides the look of a customized product without the significant investment
previously required for such customization. Like Datcon Instrument Company,
Stewart Warner has designed its production processes to be capable of meeting
the short lead times and operating the short production runs required to be
successful in its market place.
While many of Stewart Warner's products overlap with those sold by Datcon
Instrument Company or Jorda in certain markets, each company's products are be
differentiated on the basis of appearance, application, features offered and, in
some cases, price, with certain of the products of Stewart Warner having
generally higher prices than those of Datcon Instrument Company in the
aftermarket segment. Stewart Warner also distributes forward lamps and fuel
pumps, which Datcon Instrument Company does not currently manufacture or
distribute.
Since 1992, all of Stewart Warner's products have been manufactured at
Stewart Warner's "Maquiladora" facility located in Juarez, Mexico, and
distributed from Stewart Warner's warehouse located in El Paso, Texas (the
sister city to Juarez). This production plan permits Stewart Warner to cost-
effectively manufacture products requiring significant labor content due to the
advantageous labor costs. All of Stewart Warner's operations (including its
Mexican manufacturing operations) are ISO 9001 certified and recently received
QS-9000 certification.
In addition to its own products, Stewart Warner markets and distributes
products of other manufacturers, such as Hobbs hourmeters, that supplement its
own products. Sales of other manufacturers' products accounted for approximately
15% of Stewart Warner's net sales for the LTM period ended January 31, 1998.
MARKETS AND CUSTOMERS
Stewart Warner's products are sold to both the OEM and aftermarket segments
for many specialty applications, including heavy truck, bus, emergency
equipment, agricultural and construction equipment, marine, government and
performance automotive markets, with North America representing its largest
market.
Stewart Warner's major OEM customers include Case, Caterpillar,
Freightliner, Hyundai, John Deere, Komatsu, MCI Bus and New Holland. Stewart
Warner intends to continue to leverage the breadth of its product line, its
reputation for product quality, the competitive pricing it is able to provide as
a result of its Maquiladora Program and its strong relationships with many OEMs
to continue to increase its share of the OEM market. OEM products typically
require significant product engineering, design and customization which can
include lead times of six to 18 months to develop an appropriate gauge or
display and then a five to 15 year model production cycle. In general, these
relationships are characterized by exclusive contracts for specific parts,
closely tied to plant production schedules and requiring "just in time"
delivery.
Stewart Warner supplies its aftermarket customers, including wholesalers,
specialty distributors, repair shops and parts suppliers (such as CarQuest and
NAPA) with products that are used to replace defective instruments or to upgrade
the sophistication and appearance of an existing functional product. Product
life cycles in the aftermarket can be extremely long, with many current Stewart
Warner products replacing products installed thirty years earlier.
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Stewart Warner's customer base includes over 300 active accounts, ranging
from small shops to large chain stores and OEMs. Stewart Warner's top 100
customers accounted for 80% of net sales in the LTM period ended January 31,
1998, two of which, Freightliner 7.0% and New Holland 5.9%, accounted
individually for more than 5% of net sales in such period.
SALES AND MARKETING
To date, Stewart Warner's marketing efforts have been primarily focused on
North America, primarily the United States and, to a lesser extent, Canada and
Mexico. Stewart Warner uses a combination of direct sales personnel and
manufacturer representatives in both the OEM and aftermarket applications. Most
major OEM sales functions are performed by a technically skilled factory sales
force that coordinates with product managers in Stewart Warner's Des Plaines
facility to provide engineering support. Domestic aftermarket sales are handled
by more than 150 sales representatives nationwide. International sales functions
are performed by a combination of manufacturers' representatives and factory
direct sales staff.
COMPETITION
Stewart Warner faces competition from both OEM and, to a lesser extent,
aftermarket manufacturers. Stewart Warner's primary competitors in the high
volume OEM market are the U.S. Gauge/Dixson division of AMETEK and Joseph Pollak
(Stoneridge). Other current competitors include ISSPRO, Kysor/ Medallion
(Kuhlman) and Teleflex and 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 the LTM period ended January 24, 1998,
Anderson had net sales of $24.3 million, which represented 9.1% of the Company's
consolidated net sales for such period, pro forma for the PHI Merger, the
Stewart Warner Acquisition and the General Eastern Disposition.
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-Registered Trademark- series consists of two contacts, spring-mounted in a
genderless plastic housing design for easy connection and disconnection. The
Powerpole-Registered Trademark- 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
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by E-Z-GO (Textron). Anderson designed and supplies a unique "smart" connector
that disables the electric drive control while the cart is being recharged,
thereby eliminating the possibility of inadvertent drive-aways while the cart
remains connected to the charging stand. Anderson also specializes in uncovering
new applications for its standard power connectors. For example, Anderson
successfully applied its existing power connector technology to the rapidly
growing market for uninterruptible power supply products.
MARKETS AND CUSTOMERS
Anderson's connectors are primarily used in OEM applications that typically
require high current capacity, high reliability and ease of installation, as
well as blind-mate, hot pluggable and quick disconnect capabilities. Typical
applications include: (i) materials handling equipment and other
electric-powered vehicles, including forklifts, golf carts, wheelchairs and
other vehicles; (ii) uninterruptible power supply (UPS) products and other
peripherals; (iii) telecommunications and networking equipment; and (iv) office
furniture panel electrification. Anderson's products are purchased both directly
by OEMs and indirectly through distributors.
A majority of Anderson's sales are derived from products which are
incorporated into the design of an OEM's product. Therefore, Anderson focuses
its sales and marketing efforts on OEMs and Anderson's engineers work directly
with an OEM's in-house product development team during the design phase of the
OEM's product life cycle to facilitate the engineering of effective power
interconnect solutions. Frequently, this collaborative effort results in a
design for which Anderson is designated by the OEM as a sole source supplier
through the life of the product program. Anderson believes that OEMs choose
Anderson's power connector products in large part due to its reputation for
innovative and customized solutions, its ability to quickly design products and
create prototypes and its long-term customer relationships. Anderson's product
design and prototyping capabilities were recently enhanced by the addition in
Fiscal 1997 of a technical center located in Leominster, Massachusetts which was
established specifically for such purposes. The technical center also houses
Anderson's tool company which designs and builds molds for customers and allows
Anderson to meet quick cycle times from concept to production.
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-Registered Trademark- 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
in its niche markets include Hypertronics, Multi-Contact, ODU and Positronics
Industries. In addition, certain large manufacturers of connectors, such as AMP,
also produce power connectors for certain applications which compete directly
with Anderson products.
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NATVAR
Natvar is a manufacturer of disposable specialty bulk medical grade plastic
tubing used primarily in medical devices and for less-invasive surgical
procedures. Specialty bulk medical grade tubing is made from standard PVC,
polyethylene, polyurethane and radiopaque 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 the LTM period
ended January 24, 1998, Natvar had net sales of $16.7 million, which represented
6.2% of the Company's consolidated net sales for such period, pro forma for the
PHI Merger, the Stewart Warner Acquisition and the General Eastern Disposition.
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.
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<PAGE>
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.
HVE EUROPA
HVE Europa is a leading designer and manufacturer of particle accelerator
systems used in scientific, educational and industrial research. HVE Europa's
products are used primarily for materials science, semiconductor research and
"carbon dating." HVE Europa's headquarters are located in Amersfoort, The
Netherlands. For the LTM period ended January 24, 1998, HVE Europa had net sales
of $8.3 million, which represented 3.1% of the Company's consolidated net sales
for such period, pro forma for the PHI Merger, the Stewart Warner Acquisition
and the General Eastern Disposition.
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 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 its carbon dating systems for biomedical and biochemical applications.
PRODUCTS
HVE Europa's products include ion accelerator systems, research ion
implanters, accelerator mass spectrometer systems and component parts such as
accelerator tubes. In a particle accelerator, ions are accelerated to a high
velocity under the influence of a strong electrical field and then fired into
the material to modify its properties and/or analyze its structure. Accelerator
mass spectrometer systems are specialized ion 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 various applications in materials science, including 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.
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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
National Electrostatics Corporation, a privately-held U.S. manufacturer. HVE
Europa's primary competitor in Japan is Nissin High Voltage.
BACKLOG
Pro forma for the General Eastern Disposition, the Company's backlog was as
follows as of the dates indicated (dollars in thousands):
<TABLE>
<CAPTION>
APRIL 29, 1995 APRIL 27, 1996 APRIL 26, 1997 JANUARY 24, 1998
---------------------- ---------------------- ---------------------- ----------------------
PERCENTAGE PERCENTAGE PERCENTAGE PERCENTAGE
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
--------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robicon......................... $ 20,887 51.0% $ 38,158 62.0% $ 41,661 61.4% $ 41,395 45.8%
PHI............................. -- -- -- -- -- 19,684 21.8
Datcon Instrument Company(1).... 4,787 11.7 6,773 11.0 7,655 11.3 7,875 8.7
Anderson........................ 3,758 9.2 2,584 4.2 3,425 5.0 3,796 4.2
Natvar.......................... 3,432 8.3 3,579 5.8 3,239 4.8 3,617 4.0
HVE Europa...................... 8,108 19.8 10,466 17.0 11,848 17.5 13,967 15.5
--------- ----- --------- ----- --------- ----- --------- -----
Total....................... $ 40,972 100.0% $ 61,560 100.0% $ 67,828 100.0% $ 90,334 100.0%
--------- ----- --------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- ----- --------- -----
</TABLE>
- ------------
(1) Does not include Stewart Warner. The backlog of Stewart Warner as of January
31, 1998 was $4.4 million.
The Company believes that its backlog as of any particular date may not be
indicative of sales for any future period. The Company expects that
approximately $737,000 of its backlog will not be shipped before April 24, 1999.
RESEARCH AND DEVELOPMENT
Research and development activities are conducted separately by each
operating unit. The Company's operating units focus on developing
applications-engineered products designed to meet their customers' needs. Teams
representing different functional areas within an operating unit work closely
with customers early in the product design process to ensure that the product
meets the customer's specifications and is designed for ease of manufacturing.
As a general matter, with the exception of Robicon and PHI, the Company's
operating units have not required substantial research and development
expenditures. Research and development expenditures that the Company has made
have resulted in innovative new products such as Robicon's Perfect Harmony
series of medium voltage VFDs, Datcon Instrument Company'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
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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, $9.4 million and $11.9 million for fiscal 1995,
fiscal 1996 and fiscal 1997, and nine months ended January 24, 1998,
respectively, excluding $5.8 million of purchased research and development
related to the PHI Merger. PHI's research and development expenses were $6.2
million, $6.3 million, $7.9 million and $12.2 million (including $5.8 million of
purchased research and development as allocated from the purchase price for PHI)
for its fiscal years ended June 30, 1995, June 28, 1996 and June 27, 1997, and
the nine months ended January 24, 1998, respectively. Stewart Warner's research
and development expenses were $1.0 million, $1.0 million, $0.9 million and $1.0
million for fiscal 1995, fiscal 1996 and fiscal 1997, and the nine months ended
January 31, 1998. Substantially all research and development expenses of the
Company, PHI and Stewart Warner related to company-sponsored research. Pro forma
for the PHI Merger, the Stewart Warner Acquisition and the General Eastern
Disposition, the Company incurred research and development expenses of $17.5
million for Fiscal 1997 (representing 6.9% 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 January 24, 1998, pro forma for the Stewart Warner Acquisition and the
General Eastern Disposition, the Company had a total of 1,973 employees, of whom
1,959 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 January 24, 1998, pro forma for
the Stewart Warner Acquisition and the General Eastern Disposition:
<TABLE>
<CAPTION>
TOTAL
OPERATING UNIT EMPLOYEES
- ------------------------------------------------------------------------------------------------------ -----------
<S> <C>
Robicon............................................................................................... 454
PHI................................................................................................... 394
Datcon(1)............................................................................................. 746
Anderson.............................................................................................. 140
Natvar................................................................................................ 149
HVE Europa............................................................................................ 76
-----
Total Operating Unit Employees.................................................................... 1,959
-----
-----
</TABLE>
- ------------
(1) Including 438 employees of Stewart Warner as of January 31, 1998.
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<PAGE>
PROPERTIES
The following are the principal operating facilities of the Company, pro
forma for the Stewart Warner Acquisition and the General Eastern Disposition,
listed by operating unit, each of which also has limited general office and
administrative space:
<TABLE>
<CAPTION>
USABLE SPACE
(SQUARE
OPERATING UNIT FUNCTION FEET) OWNED/LEASED
- ----------------------------------- ------------------------------------------- ------------ -------------
<S> <C> <C> <C>
ROBICON:
New Kensington,
Pennsylvania Design and assembly 124,800 Leased(a)
Pittsburgh, Pennsylvania Assembly 79,000 Owned
PHI:
Eden Prairie, Minnesota Design and assembly 207,000 Owned(b)
Redwood City, California Design 11,800 Leased
DATCON INSTRUMENT COMPANY:
Lancaster, Pennsylvania Design and assembly 70,700 Leased(a)
Barcelona, Spain Design and assembly 35,500 Leased(a)
STEWART WARNER:
Des Plaines, Illinois Design and administration 15,000 Leased
El Paso, Texas Warehouse 20,000 Leased
Juarez, Mexico Assembly 75,000 Leased
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
HVE EUROPA:
Amersfoort, The Netherlands Design and assembly 60,000 Owned
</TABLE>
- ------------
(a) The Company holds a purchase option on these facilities.
(b) 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>
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 owned and then 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 letter of credit of $1.2 million 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 paid
$200,000 in 1997 to settle claims with respect to one adjoining property, and in
1996 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 March 28,
1998, the Company's estimate of the costs that will be necessary to complete
these cleanups is $1.6 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 former 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
January 24, 1998, the Company's estimate of the costs that will be necessary to
complete the cleanup is $1.5 million. Expenditures for cleanup will be incurred
by the Company over a number of years. In accordance with the terms of the
Settlement Agreement and New Jersey law, the Company has posted financial
assurances currently consisting of a $1.4 million letter of credit. The Company
is also involved in arbitration with the current owner of the New Jersey Site in
which the Company is seeking limited monetary damages consisting of legal and
consulting fees as well as other relief arising from alleged violations of the
Settlement Agreement by the current owner.
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 (losses) of $2.1 million, $450,000,
($26,000) and ($458,000) for Fiscal 1995, Fiscal 1996 and Fiscal 1997, and the
nine months ended January 24, 1998, 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, $1.1 million and $0, respectively, for
such periods. 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
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<PAGE>
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 and the Company believes that
none of these proceedings are material. Natvar received a 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 participated in preliminary settlement negotiations, but on
March 18, 1998 the California citizens group -- The Working Group on Carcinogens
and Immune Suppressing Chemicals -- filed a complaint against Natvar in state
court in California alleging violations of Proposition 65. 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 Complaint 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. The Company intends to
defend the lawsuit vigorously; however, the Company believes, based on results
in similar cases and a preliminary review of the relevant facts, that this suit
can 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 this lawsuit.
In April 1998, the Company was dismissed without prejudice as a defendant in
an action commenced in November 1996 against the Company and six others by
Chicago-Dubuque Foundry Corporation ("Chicago Dubuque"), and its property
insurer, Employers Mutual Casualty Co., in Iowa state court. The suit concerned
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 was alleged, the Company's Anderson
division) or incorporated by others in products sold by others to
Chicago-Dubuque, caused or contributed to the casualty. Although the dismissal
without prejudice does not foreclose the Company from being brought back into
the action at a later date, it did dismiss and close the claims of the main
plaintiffs in the action against the Company.
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 of approximately $31.0 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 amended
their counterclaim to add, among other things, a claim for fraudulent
inducement. TVM and Mr. Morris are seeking actual damages in an amount which has
varied, but in each instance the amount claimed (including punitive,
consequential and multiple damages) has been less than $1.0 million. A motion
for summary judgment dismissing TVM and Mr. Morris' counterclaim is pending
before the court. In light of the current stage of the proceedings, the Company
is unable to assess the likelihood of liability in this action, the amount of
any damages that may be assessed against the Company, and the extent to which
any assessed liability will be covered by the Company's insurance; however, the
Company believes the counterclaim to be without merit.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and key employees of the Company as of
April [ ], 1998 were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------------ --- ---------------------------------------------------------
<S> <C> <C>
Laurence S. Levy................................ 41 Chairman of the Board, Chief Executive Officer, and Vice
President
Clifford Press.................................. 44 Deputy Chairman of the Board and President
Russell L. Shade, Jr............................ 47 Chief Operating Officer
Joseph W. McHugh, Jr............................ 43 Vice President and Chief Financial Officer
Jody E. Kurtzhalts.............................. 51 President of Robicon
David J. Chalmers............................... 57 President of PHI
Oddie V. Leopando............................... 52 President of Datcon Instrument Company
Daniel N. Scenna (1)............................ 38 President of Anderson
Scott M. Kelley................................. 44 President of Natvar
Renee Koudijs................................... 52 Managing Director of HVE Europa
Edward Levy..................................... 34 Director
H. Cabot Lodge III.............................. 42 Director
</TABLE>
(1) Acting President.
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.
RUSSELL L. SHADE, JR. is the Chief Operating Officer and a Director of the
Company. Prior to joining the Company, Mr. Shade was Vice President, Industrial
Systems, at General Electric Company. Mr. Shade was named a Corporate Officer of
GE and Vice President of GE Drive Systems in March 1995. During his 25-year
career with GE, Mr. Shade held numerous design, engineering, and manufacturing
positions in power generation, as well as general management positions in the
military and industrial product lines. Mr. Shade graduated from M.I.T with a
Master of Science degree in Mechanical Engineering and holds five U.S. patents.
JOSEPH W. MCHUGH, JR. is a Vice President and the Chief Financial Officer of
the Company. Mr. McHugh joined the Company in January 1992. From 1983 to 1992,
Mr. McHugh worked at GCA Corporation as a Division Controller and later as
Controller. In the former capacity, he participated in the workout and
recapitalization of GCA before its purchase in 1988 by General Signal. From 1977
to 1983, Mr. McHugh served in various financial management positions at
Honeywell Information Systems. Mr. McHugh is a Certified Management Accountant
and received both a Bachelor of Science degree in accounting and a Masters
degree in Business Administration from Bentley College.
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<PAGE>
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. 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 Instrument Company 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.
DANIEL N. SCENNA is currently serving as acting President and Vice President
of Finance of Anderson. Prior to joining the Company in 1989, Mr. Scenna served
as Corporate Cash Manager at Ausimont N.V., an international specialty chemical
company. Before that Mr. Scenna held various accounting positions at a major
supermarket chain. Mr. Scenna is a graduate of the University of Massachusetts.
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.
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.
EDWARD LEVY became a Director of the Company effective August 8, 1997. Mr.
Levy has been a Managing Director of CIBC Wood Gundy Securities Corp., a
predecessor of CIBC Oppenheimer 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 August 8,
1997. Mr. Lodge is a principal of Carmel Lodge LLC, a New York based financial
advisory firm he founded in 1996. Mr. Lodge also served as Executive Vice
President, Managing Director and in other senior management positions at
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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., TelAmerica Media, Inc.
and Chairman of Superconducting Core Technologies, Inc.
ELECTION; TERM OF OFFICE
All officers are elected at the annual meeting of the Board of Directors and
hold office until the next annual meeting of the Board of Directors or until
their respective successors are chosen and qualified. Directors are elected at
the annual meeting of the stockholders and hold office until the next annual
meeting of the stockholders or until their successors are elected. According to
the Company's By-Laws, the President of the Company must be a member of the
Board of Directors. In addition, holders of the Exchange Preferred Stock (acting
as a single class together with holders of any Series A Preferred Stock) have
the right to elect that number of directors constituting at least 25% of the
Board of Directors if cash dividends are in arrears and unpaid for two
semiannual periods after August 15, 2002.
BOARD COMMITTEES
In the third quarter of Fiscal 1998, the Board of Directors appointed an
Executive Committee, comprised of Clifford Press and Laurence S. Levy, which may
exercise any powers delegated to it by the full Board of Directors which the
corporation law of Massachusetts permits a corporation's board to delegate to a
committee. In addition, in the third quarter of Fiscal 1998 the Board of
Directors appointed an Audit Committee, comprised of H. Cabot Lodge III and
Laurence S. Levy, and a Compensation Committee, comprised of Clifford Press and
Edward Levy. The Audit Committee and the Compensation Committee were 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
Non-employee directors of the Company are paid an annual retainer of $10,000
plus expenses incurred by the directors in such capacity.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
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 Board of Directors
established the Compensation Committee and appointed Mr. Edward Levy and Mr.
Clifford Press as members during the third quarter of Fiscal 1998.
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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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL --------------------- OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION 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) -- 4,050
Clifford Press....................... 1997 $ 100,000(3) $ -- $ 3,300
President and Director 1996 100,000(3) 250,000(5) 4,000
1995 184,050(3) -- 4,050
Paul H. Snyder(4).................... 1997 $ 210,000 $ 50,000 $ 4,050
1996 203,850 45,600 4,500
1995 189,050 65,000 4,050
Oddie V. Leopando.................... 1997 1996(6) $ 181,750 $ 74,000 $ 5,850
President of Datcon 87,500 35,000 --
Instrument Company
Renee Koudijs........................ 1997 $ 162,614 $ 53,164 --
Managing Director of 1996 141,327 125,597 --
HVE Europa 1995 116,003 41,039 --
Jody E. Kurtzhalts................... 1997 $ 168,750 $ 40,000 51,$480 31,492 $ 3,415
President of Robicon 1996 165,000 18,250 -- 3,335
1995(7) 13,750 -- --
</TABLE>
- ------------
(1) Represents relocation expenses.
(2) Represents matching employer contributions and profit-sharing 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 and a Director of the
Company as of November 2, 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.
EMPLOYMENT AGREEMENTS
Russell L. Shade, Jr., the Company's Chief Operating Officer and a Director,
entered into an employment agreement with the Company (the "Employment
Agreement"), dated February 24, 1998. Pursuant to the Employment Agreement, Mr.
Shade receives an annual base salary of $250,000, reviewed annually. In
addition, for each year of Mr. Shade's employment, the Compensation Committee of
the Company's Board of Directors will establish an incentive compensation
program with a target of 80% of Mr. Shade's base salary, with payment under the
plan generally based upon the Company's performance. The Employment Agreement
contains a customary confidentiality provision and an agreement that
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Mr. Shade will not, for three years after his employment ends, engage in
business competitive with the Company or solicit customers or employees of the
Company.
The Employment Agreement also provides shadow stock benefits, shadow stock
appreciation benefits and deferred compensation benefits. Upon the commencement
of his employment with the Company, Mr. Shade received twenty-two shadow stock
units. The stock units vest in yearly increments over a period of five years,
beginning on April 30, 1998, with each vested stock unit representing the right
to receive, following the fifth anniversary after the vesting thereof, an amount
of cash equal to the market value of a share of the Letitia Common Stock
determined as of the end of the most recent fiscal quarter. Upon termination of
employment for any reason other than death, all unvested stock units shall be
forfeited, and any vested units shall become redeemable by the Company, at the
market value of a share of Letitia Common Stock determined as of the end of the
most recent fiscal quarter preceding redemption, at any time, but in any event
the Company shall redeem the vested units on the scheduled payment date
therefor. Upon death, all stock units vest and each stock unit shall be promptly
redeemed at the market value of a share of Letitia Common Stock at the end of
the most recent fiscal quarter.
The Employment Agreement further provides for a stock appreciation
arrangement whereby Mr. Shade is entitled to receive additional shadow stock
units each year during the term of the Employment Agreement. For the Company's
1999 fiscal year, the shadow stock units granted pursuant to this arrangement
shall represent 0.4% of the Company's outstanding common stock. For the
Company's fiscal year 2000 and each subsequent year, the number of shadow stock
units granted shall be calculated based on a formula taking into account Mr.
Shade's base salary and the market value of Letitia Common Stock.
Under the deferred compensation arrangement, the Company shall contribute
$35,000 per year into a designated account and Mr. Shade may elect to make
additional contributions. Mr. Shade will receive distributions from the account
in ten installments, commencing in 2011, or earlier upon termination of
employment or death.
The Employment Agreement terminates upon Mr. Shade's resignation or
discharge, with or without cause. Upon termination by reason of disability,
death, or resignation or discharge under certain circumstances, Mr. Shade shall
be entitled to receive compensation through the date of his termination,
including all benefits enjoyed under the Employment Agreement. Upon termination
by reason of resignation or discharge under certain other circumstances, Mr.
Shade shall be entitled to receive his base salary and all benefits until the
earlier of one year following the date of termination or receipt of income
earned from a source unaffiliated with the Company.
VALUE CREATION PLAN AND RELATED PLANS
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
5-7% 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.
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)
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from the date of grant to the end of the year prior to the determination date.
Vested interests are cashed out when an employee leaves the Company or retires,
when his operating unit is sold or he is transferred to another division;
provided that if he is dismissed for cause, his interests (vested and unvested)
are forfeited. Subject to the Company's discretion to defer cash payments, an
employee may cash out up to 50% of his vested interest while remaining employed.
The VCP is a non-qualified and non-funded plan. While Messrs. Leopando,
Kurtzhalts and Koudijs have each received interests in the VCP, Mr. Laurence S.
Levy, Mr. Press and Mr. Shade currently do not participate in the VCP. As of
March 28, 1998, the Company had an accrued liability of $1.8 million under the
VCP.
Paul H. Snyder, who was the Chief Operating Officer and a director of the
Company until November 2, 1997 was the beneficiary of an incentive compensation
plan of the Company pursuant to which Mr. Snyder received a one-time accrued
bonus payment of $120,000 upon his resignation in the third quarter of Fiscal
1998. This payment was calculated pursuant to a formula established by the
Company with respect to the value of the Letitia Common Stock (as defined
herein) at the time of such payment.
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, Leopando, [SHADE] and Kurtzhalts currently 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 payment 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. Leopando, Koudijs, Shade 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.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Laurence S. Levy and Clifford Press, officers and directors of the Company,
are directors of Letitia Corporation, which owns 92.4% of the Company's
outstanding Common 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 certain 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. 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. The Company did not pay an acquisition fee in connection
with either the PHI Merger or the Stewart Warner Acquisition and did not pay a
disposition fee in connection with the General Eastern Disposition.
In connection with the consummation of the Original Offering, the Company
redeemed all of its 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 100% of the outstanding common stock of Letitia
Corporation (the "Letitia Common Stock") and, accordingly, were the sole
beneficiaries of such redemption and could through dividends or other
distributions receive a majority of the proceeds of such redemption.
In connection with the consummation of the Original Offering, the Company
redeemed 6,871 shares of the Company's Series C Preferred Stock (the "Series C
Preferred Stock"), comprising all of the shares of Series C Preferred Stock then
issued or issuable, for its aggregate liquidation preference of $6.9 million.
All of the shares of Series C Preferred Stock were held by Letitia Corporation,
which had issued to Quest Equities Corp. ("Quest") a class of its own capital
stock (the "Letitia Preferred Stock") having identical rights and preferences to
the Series C Preferred Stock. Simultaneously with the closing of the Original
Offering, Letitia redeemed, from the proceeds of the redemption of the Series C
Preferred Stock, 6,871 shares of the Letitia Preferred Stock, comprising all of
the shares of Letitia Preferred Stock then issued or issuable, for its aggregate
liquidation preference of $6.9 million. In connection with the redemption of the
Letitia Preferred Stock, certain rights of Quest to demand "contingent interest
payments" equal to a minimum of 3.1% of HVE's common stock equity value at the
time payment is demanded, were extinguished.
Upon the consummation of the PHI Merger, CIBC Oppenheimer Corp. ("CIBC
Oppenheimer") received a transaction fee of $500,000 for advisory services
provided to the Company in connection with the transaction. A predecessor of
CIBC Oppenheimer 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 Oppenheimer purchased
existing Subordinated Notes Warrants to purchase 71.43 shares of HVE Common
Stock, representing 6.25% of the HVE Common
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Stock on a fully diluted basis, for an aggregate purchase price of $2.5 million.
Such Subordinated Notes Warrants were immediately thereafter repurchased from
CIBC Oppenheimer by the Company for the same purchase price from the proceeds of
the Original Offering. Mr. Edward Levy, who became a director of the Company
effective upon the consummation of the Original Offering, is a managing director
of CIBC Oppenheimer.
On October 3, 1997, Letitia Corporation repurchased 59.091 shares of Letitia
Common Stock from the High Voltage Engineering Retirement Plan for an aggregate
purchase price of $2.25 million. The purchase price for these shares of Letitia
Common Stock was determined based on an appraisal rendered by an independent
appraisal firm engaged by Letitia Corporation for this purpose. After the
completion of this purchase, all of the remaining outstanding shares of Letitia
Common Stock were held by Clifford Press, Laurence S. Levy or certain of their
affiliates or family members.
David J. Chalmers, the President of PHI, is party to an employment
agreement, dated as of February 14, 1997, with PHI pursuant to which, among
other things, PHI established an Executive Equity Compensation Plan (the "Equity
Plan") for Dr. Chalmers' benefit. The Equity Plan was 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, as the successor to PHI, deemed the
PHI Merger to constitute a sale of PHI for purposes of the Equity Plan and paid
an aggregate benefit of approximately $3.8 million to Dr. Chalmers under the
Equity Plan (comprising a portion of the aggregate consideration paid for PHI).
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 aggregate consideration paid)
in connection with the PHI Merger in exchange for their capital stock and
options to purchase capital stock of PHI.
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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
--------------------------------
<S> <C> <C>
NUMBER OF PERCENT OF
NAME OF STOCKHOLDERS, DIRECTORS AND EXECUTIVE OFFICERS SHARES COMMON SHARES
- ------------------------------------------------------------------------------------- ----------- -------------------
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.................................................................... -- --
Renee Koudijs........................................................................ -- --
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. Laurence
S. Levy is also a limited partner of, and an executive officer and 50%
shareholder of the corporate general partner of, a limited partnership that
owns all of the stock of Letitia Corporation. 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 the President of
Letitia Corporation. Mr. Press is also a limited partner of, and an
executive officer and 50% shareholder of the corporate general partner of, a
limited partnership that owns all of the stock of Letitia Corporation. Mr.
Press disclaims beneficial ownership of any shares of HVE Common Stock.
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EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $20.0 million
aggregate principal amount of Exchange Notes for a like aggregate principal
amount of New Notes properly tendered on or prior to the Expiration Date and not
withdrawn as permitted pursuant to the procedures described below. The Exchange
Offer is being made with respect to all of the New Notes; the total aggregate
principal amount of New Notes and Exchange Notes will in no event exceed $20.0
million.
PURPOSE OF THE EXCHANGE OFFER
Pursuant to the Offering, which closed on March 19, 1998, the Company issued
$20.0 million aggregate principal amount of New Notes. The issuance of the New
Notes was not registered under the Securities Act in reliance upon the exemption
provided in Section 4(2) of the Securities Act.
In connection with the issuance and sale of the New Notes, the Company
entered into the Registration Rights Agreement, which requires it, at its cost,
(i) within 45 days after the date of original issue of the New Notes, to use its
best efforts to file a registration statement (the "Exchange Offer Registration
Statement") with the Commission with respect to a registered offer to exchange
the New Notes for the Exchange Notes, which will have terms substantially
identical in all material respects to the New Notes (except that the New Notes
do not contain terms with respect to transfer restrictions), and (ii) use its
best efforts to cause, within 135 days after the Issue Date, 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 Notes in exchange for surrender of the New Notes. The
Company will keep the Exchange Offer open for not less than 30 days (or longer
if required by applicable law) after the date notice of the Exchange Offer is
mailed to the holders of the Existing Notes. For each $1,000 principal amount of
outstanding New Notes surrendered to the Company pursuant to the Exchange Offer,
the holder who surrendered such New Notes will receive $1,000 principal amount
of Exchange Notes. Under existing Commission interpretations, the Exchange Notes
will in general be freely transferable after the Exchange Offer without further
registration under the Securities Act; provided that in the case of
broker-dealers, a prospectus meeting the requirements of the Act be delivered as
required. The Company has agreed to use its best efforts to make this Prospectus
available to participating broker-dealers for a period necessary to permit
compliance of such broker-dealers with applicable prospectus delivery
requirements under the Securities Act, such period not to exceed 180 days except
under specified circumstances. 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 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 195 days of the date of the
Offering, the Company will, at its own expense, (a) promptly file a Shelf
Registration Statement covering resales of the New Notes (the "Shelf
Registration Statement"), (b) use its best efforts to cause the Shelf
Registration Statement to be declared effective under the Act within 135 days
following the date of the Offering, and (c) use its best efforts to keep
effective the Shelf Registration Statement until two years after the date of the
Offering (or such shorter period as is specified for certain circumstances
described in the Registration Rights Agreement). The Company will, in the event
of the Shelf Registration Statement, provide to each holder of the New Notes
copies of the prospectus which is a part of the Shelf Registration Statement,
notify each such holder when the Shelf Registration Statement for the New Notes
has become effective and take certain other actions as are required to permit
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unrestricted resales of the New Notes. A holder of the New Notes that sells such
Notes pursuant to the Shelf Registration Statement generally would be required
to be named as a selling securityholder in the Shelf Registration Statment and
the related prospectus and to deliver a prospectus to purchasers, will be
subject to certain of the civil liability provisions under the Securities Act in
connection with such sales and will be bound by the provisions of the
Registration Rights Agreement which are applicable to such a holder (including
certain indemnification rights and obligations).
If the Company fails to comply with the above provisions or if such
registration statement fails to become effective, then, as liquidated damages,
additional interest shall become payable in respect of the New Notes as follows:
If (i) the Exchange Offer Registration Statement or Shelf Registration
Statement is not filed within 45 days of the Issue Date, or, if required to
be filed on behalf of the holders, the Shelf Registration Statement is not
filed within 30 days following delivery of notice of a Shelf Registration
Statement;
(ii) the Exchange Offer Registration Statement or Shelf Registration
Statement is not declared effective within 135 days after the Issue Date;
and
(iii) either (A) the Company has not exchanged the Exchange Notes for all
New Notes validly tendered in accordance with the terms of the Exchange
Offer on or prior to 60 days after the date on which the Exchange Offer
Registration Statement was declared effective or (B) the Exchange Offer
Registration Statement ceases to be effective at any time prior to the time
that the Exchange Offer is consummated or (C) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
earlier of the date on which the notes coverd by the Shelf Registration
Statement have been sold or the second anniversary of its effective date;
(each of such events referred to in clauses (i) through (iii) above is a
"Registration Default"), the sole remedy available to holders of the New Notes
will be the immediate accrual of additional interest ("Additional Interest") as
follows: the per annum interest rate on the New Notes will increase by 50 basis
points; and the per annum interest rate will increase by an additional 25 basis
points for each subsequent 90-day period during which the Registration Default
remains uncured, up to a maximum additional interest rate of 200 basis points
per annum in excess of the interest rate on the cover of this Prospectus. All
Additional Interest will be payable to holders of the New Notes in cash on each
August 15 and February 15, commencing with the first such date occurring after
any such Additional Interest commences to accrue, until such Registration
Default is cured. After the date on which such Registration Default is cured,
the interest rate on the New Notes will revert to the interest rate originally
borne by the New Notes.
The Exchange Offer is being made by the Company to satisfy its obligations
under the Registration Rights Agreement. Pursuant to the 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 Existing Notes and no more than 60 days after
the date the Company's Registration Statement of which this Prospectus forms a
part is declared effective.
The summary herein of certain provisions of the 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 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 the thirtieth
day after the effective date of the Registration Statement of which this
Prospectus is a part, 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
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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 New Notes by giving oral
notice or written notice to the Exchange Agent (as defined herein) and by giving
written notice of such extension to the holders thereof no later than 9:00 A.M.
Boston time, on the next business day after the previously scheduled Expiration
Date. During any such extension, all New Notes previously tendered will remain
subject to the Exchange Offer.
In addition, the Company expressly reserves the right to terminate or amend
the Exchange Offer and not to accept for exchange any New Notes not theretofore
accepted for exchange upon the occurrence of any of the events specified below
under "-- Certain Conditions to the Exchange Offer." If any such termination or
amendment occurs, the Company will notify the Exchange Agent and will either
issue a press release or give oral or written notice to the holders of the New
Notes as promptly as practicable.
PROCEDURES FOR TENDERING NEW NOTES
The tender to the Company of New Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of New Notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the New Notes being tendered and any required signature guarantees,
to the Exchange Agent at its address set forth below on or prior to 5:00 p.m.,
Boston time, on the Expiration Date (or complying with the procedure for
book-entry transfer described below) or (ii) complying with the guaranteed
delivery procedures described below.
THE METHOD OF DELIVERY OF NEW NOTES, LETTERS OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDERS. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, OR AN OVERNIGHT OR HAND DELIVERY SERVICE, BE USED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO INSURE TIMELY DELIVERY. NO NEW NOTES
OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO THE COMPANY.
Any financial institution that is a participant in Depositary Trust
Company's ("DTC") book-entry transfer facility system may make book-entry
delivery of the New Notes by causing DTC to transfer such New Notes into the
Exchange Agent's account in accordance with DTC's procedures for such transfer.
In connection with a book-entry transfer, a Letter of Transmittal need not be
transmitted to the Exchange Agent, provided that the book-entry transfer
procedure is made in accordance with DTC's ATOP (as defined below) procedures
for transfer and such procedures are complied with on or prior to 5:00 p.m.,
Boston time, on the Expiration Date.
DTC'S Automated Tender Offer Program ("ATOP") is the only method of
processing exchange offers through DTC. To consummate the Exchange Offer through
ATOP, participants in DTC must send electronic instructions to DTC through DTC's
communication system, prior to 5:00 p.m., Boston time, on the Expiration Date,
in place of sending a signed, hard copy Letter of Transmittal. DTC is obligated
to communicate those electronic instructions to the Exchange Agent by an
"Agent's Message." To tender New Notes through ATOP, the electronic instructions
sent to DTC and transmitted by DTC to the Exchange Agent must contain the
participant's acknowledgment of its receipt of and agreement to be bound by the
Letter of Transmittal for such New Notes.
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Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the New Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the New Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein). In the event that signatures on a
Letter of Transmittal or a notice of withdrawal, as the case may be, are
required to be guaranteed, such guarantee must be by a firm which is a member of
a registered national securities exchange or a member of the National
Association of Securities Dealers, Inc. or by a commercial bank or trust company
having an office or correspondent in the United States (each an "Eligible
Institution"). If New Notes are registered in the name of a person other than a
signer of the Letter of Transmittal, the New Notes surrendered for exchange must
be endorsed by, or be accompanied by a written instrument 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 has or, promptly after the date of this Prospectus, will
have established accounts with respect to the New Notes at the book-entry
transfer facility, The Depository Trust Company, for the purpose of facilitating
the Exchange Offer, and subject to the establishment thereof, any financial
institution that is a participant in the book-entry transfer facility's system
may make book-entry delivery of New Notes by causing such book-entry transfer
facility to transfer such New Notes into the Exchange Agent's account with
respect to the New Notes in accordance with the book-entry transfer facility's
procedures for such transfer. Although delivery of New Notes may be effected
through book-entry transfer in the Exchange Agent's account at the book-entry
transfer facility, an appropriate Letter of Transmittal with any required
signature guarantee and other required documents must in each case be
transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to accept the Exchange Offer and time will not permit a
Letter of Transmittal or Existing Notes to reach the Exchange Agent before the
Expiration Date or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if the Exchange Agent has received at
its address or facsimile number set forth below on or prior to the Expiration
Date a letter, telegram or facsimile from an Eligible Institution setting forth
the name and address of the tendering holder, the name in which the New Notes
are registered and, if possible, the certificate number or numbers of the
certificate or certificates representing the New Notes to be tendered, and
stating that the tender is being made thereby and guaranteeing that within three
business days after the Expiration Date the New Notes in proper form for
transfer (or a confirmation of book-entry transfer of such New Notes into the
Exchange Agent's account at the book-entry transfer facility), will be delivered
by such Eligible Institution together with a properly completed and duly
executed Letter of Transmittal (and any other required documents). Unless New
Notes being tendered by the above-described method are deposited with the
Exchange Agent within the time period set forth above (accompanied or preceded
by a properly completed Letter of Transmittal and any other required documents),
the Company may, at its option, reject the tender. Copies of a Notice 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 New Notes (or a confirmation of book-entry transfer of such
New Notes into the Exchange Agent's account at the book-entry transfer facility)
is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile to similar effect (as provided above) from an
Eligible Institution is received by the Exchange Agent. Issuances of Exchange
Notes in exchange for New Notes tendered pursuant to a Notice of Guaranteed
Delivery or letter, telegram or facsimile to similar effect (as provided above)
by an Eligible
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Institution will be made only against deposit of the Letter of Transmittal (and
any other required documents) and the tendered New Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of New Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination will be final and
binding on all parties. The Company reserves the right to reject any and all
tenders of any particular New Notes not properly tendered or reject any
particular shares of New Notes the acceptance of which might, in the judgment of
the Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or condition of the Exchange Offer
as to any particular New Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender New Notes in the Exchange Offer). The interpretation of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of New
Notes for exchange must be cured within such time as the Company shall
determine. Neither the Company nor any other person shall be under any duty to
give notification of defects or irregularities with respect to tenders of New
Notes for exchange, nor shall any of them incur any liability for failure to
give such notification.
If the Letter of Transmittal or any New Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted.
Each holder who participates in the Exchange Offer will be required to
represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that at the time of the consummation of the
Exchange Offer such holder will have no arrangement or understanding with any
person to participate in the distribution of the Exchange Notes, and that such
holder is not an affiliate of the Company within the meaning of Rule 405
promulgated under the Securities Act or if it is such an affiliate, that it will
comply with the registration and prospectus delivery requirements of the
Securities Act, to the extent applicable. Each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that, to the extent required by law, it will deliver a prospectus in
connection with any resale of such Exchange Notes.
In addition, the Company reserves the right in its sole discretion to (a)
purchase or make offers for any New Notes that remain outstanding subsequent to
the Expiration Date, or, as set forth under
"-- Certain Conditions to the Exchange Offer," to terminate the Exchange Offer
and (b) to the extent permitted by applicable law, purchase New Notes in the
open market, in privately negotiated transactions or otherwise. The terms of any
such purchases or offers may differ from the terms of the Exchange Offer.
WITHDRAWAL RIGHTS
Tenders of New Notes may be withdrawn at any time prior to at any time prior
to 5:00 p.m., Boston time, on the business day prior to the Expiration Date. For
a withdrawal to be effective, a written notice of withdrawal sent by letter or
facsimile must be received by the Exchange Agent at any time prior to 5:00 p.m.,
Boston time, on the business day prior to the Expiration Date at its address or
facsimile number set forth below. Any such notice of withdrawal must (i) specify
the name of the person having tendered the New Notes to be withdrawn (the
"Depositor"), (ii) identify the New Notes to be withdrawn (including the
certificate number of numbers of the certificate or certificates representing
such New Notes and the aggregate principal amount of such New Notes), (iii) be
signed by the holder in the same manner as the original signature on the Letter
of Transmittal by which such New Notes were tendered (including any required
signature guarantees) or be accompanied by documents of transfer sufficient to
permit the Transfer Agent with respect to the New Notes to register the transfer
of such New Notes into the name of the person withdrawing the tender, and (iv)
specify the name in which any such New Notes are to be
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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 New Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Exchange Notes will be issued with respect thereto unless
the New Notes so withdrawn are validly retendered. Any New Notes which have been
tendered but which are withdrawn will be returned to the holder thereof without
cost to such holder as soon as practicable after such withdrawal. Properly
withdrawn New Notes may be retendered by following one of the procedures
described above under "-- Procedures for Tendering New Notes" at any time prior
to the Expiration Date.
ACCEPTANCE OF NEW NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all New Notes
properly tendered and will issue the Exchange Notes promptly after acceptance of
the Exchange Offer. See "-- Certain Conditions to the Exchange Offer" below. For
purposes of the Exchange Offer, the Company will be deemed to have accepted
properly tendered New Notes for exchange when the Company has given oral or
written notice thereof to the Exchange Agent.
In all cases, issuance of the Exchange Notes in exchange for New Notes
pursuant to the Exchange Offer will be made only after timely receipt by the
Company of such New Notes, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered New Notes are not
accepted for exchange for any reason set forth in the terms and conditions of
the Exchange Offer, such unaccepted New Notes will be returned without expense
to the tendering holder thereof as promptly as practicable after the rejection
of such tender or the expiration or termination of the Exchange Offer.
UNTENDERED EXISTING NOTES
Holders of New Notes whose New Notes are not tendered or are tendered but
not accepted in the Exchange Offer will continue to hold such New Notes and will
be entitled to all the rights and preferences and subject to the limitations
applicable thereto. Following consummation of the Exchange Offer, the holders of
New Notes will continue to be subject to the existing restrictions upon transfer
thereof and, except as provided herein, the Company will have no further
obligation to such holders to provide for the registration under the Securities
Act of the New Notes held by them. To the extent that New Notes are tendered and
accepted in the Exchange Offer, the trading market for untendered and tendered
but unaccepted New Notes could be adversely affected.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange, or issue Exchange Notes in exchange for, any
New Notes, and may terminate or amend the Exchange Offer, if at any time before
the acceptance of such New Notes for exchange, any of the following events shall
occur:
(A) an injunction, order or decree shall have been issued by any court
or governmental agency that would prohibit, prevent or otherwise materially
impair the ability of the Company to proceed with the Exchange Offer; or
(B) there shall occur a change in the current interpretation of the
staff of the Commission which current interpretation permits the Exchange
Notes issued pursuant to the Exchange Offer in exchange for the New Notes to
be offered for resale, resold and otherwise transferred by holders thereof
(other than (i) a broker-dealer who purchases such Exchange Notes directly
from the Company to resell pursuant to Rule 144A or any other available
exemption under the Securities Act or (ii) a person that is an affiliate of
the Company within the meaning of Rule 405 under the Securities Act),
without
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compliance with the registration and prospectus delivery provisions of the
Securities Act provided that such Exchange Notes are acquired in the
ordinary course of such holders' business and such holders have no
arrangement with any person to participate in the distribution of Exchange
Notes.
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 New Notes and return any
New Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all New Notes tendered prior to the Expiration Date,
subject to the rights of such holders of tendered shares of New Notes to
withdraw their tendered New Notes, or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered New Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of New
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders of the New Notes, if the Exchange Offer
would otherwise expire during such period.
In addition, the Company will not accept for exchange any New Notes
tendered, and no Exchange Notes will be issued in exchange for any such New
Notes, if at any time any stop order shall be threatened by the Commission or in
effect with respect to the Registration Statement.
The Exchange Offer is not conditioned on any minimum principal amount of
Existing Notes being tendered for exchange.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions regarding Exchange Offer procedures and requests
for additional copies of this Prospectus or the Letter of Transmittal should be
directed to the Exchange Agent addressed as follows:
State Street Bank and Trust Company
Corporate Trust Department, 4th Floor
Two International Place
Boston, Massachusetts 02110-2804
By Telephone:
(617) 664-5587
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 Existing Notes in any jurisdiction in
which the making of the Exchange Offer or the acceptance thereof would not be in
compliance with the laws of such jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of New Notes pursuant to the Exchange Offer. If, however, certificates
representing Exchange Notes or New Notes not tendered or accepted for exchange
are to be delivered to, or are to be registered or issued in the name of, any
person other than the registered holder of the New Notes tendered, or if
tendered New Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Exchange Notes pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holders.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. Expenses incurred in connection
with the issuance of the Exchange Notes will be amortized by the Company over
the term of the Exchange Notes 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 Notes issued pursuant to the
Exchange Offer in exchange for New Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than (i) a broker-dealer who
purchases such Exchange Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery requirements of the Securities Act provided that Exchange Notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangement with any person to participate in the distribution of such
Exchange Notes. Any holder of New Notes who tenders in the Exchange Offer for
the purpose of participating in a distribution of the Exchange Notes could not
rely on such interpretation by the staff of the Commission and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. Thus, any Exchange Notes acquired by
such holders will not be freely transferable except in compliance with the
Securities Act.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for New Notes acquired as a result of market-making or other trading
activities must acknowledge that, to the extent required by law, it will deliver
a prospectus in connection with any resale of such Exchange Notes. The Company
has agreed to use its best efforts to make this Prospectus available to
participating broker-dealers for a period necessary to permit compliance of such
broker-dealers with applicable prospectus delivery requirements under the
Securities Act, such period not to exceed 180 days except under specified
circumstances.
The Company will not receive any proceeds from any sale of Exchange Notes by
broker-dealers. Exchange Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the Exchange Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through broker-dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any person that participates in the
distribution of such Exchange Notes may be deemed to be an "underwriter" within
the meaning of the Securities Act and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such broker-dealers may
be deemed to be underwriting compensation under the Securities Act. The Letter
of Transmittal states that a broker-dealer, by acknowledging that it will
deliver and by delivering a prospectus, will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act.
The Company will indemnify the holders of the Exchange Notes (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
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DESCRIPTION OF THE NOTES
Except as otherwise indicated, the following description relates to the
Existing Notes, the New Notes issued in the Offering, and the Exchange Notes.
The form and terms of the Exchange Notes are the same as the form and terms of
the Existing Notes and the New Notes, except that the Existing Notes and
Exchange Notes have been registered under the Securities Act and therefore do
not bear legends restricting the transfer thereof. The New Notes are, and the
Exchange Notes will be, obligations of the Company evidencing the same
indebtedness as the Existing Notes and will be entitled to the benefits of the
Indenture, dated as of August 8, 1997, as amended by the Amendments (as so
amended, the "Indenture") by and between the Company and State Street Bank and
Trust Company, as trustee (the "Trustee"). The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act") as in effect
on the date of the Indenture. The Notes are subject to all such terms, and
holders of the Notes are referred to the Indenture and the Trust Indenture Act
for a statement of them.
The following is a summary of the material terms and provisions of the Notes
after giving effect to the Amendments. This summary does not purport to be a
complete description of the Notes and is subject to the detailed provisions of,
and qualified in its entirety by reference to, the Notes and the Indenture
(including the definitions contained therein). A copy of the form of Indenture
may be obtained from the Company by any holder or prospective investor upon
request. In addition, the Company has filed the Indenture (prior to its
amendment) as an exhibit to a Registration Statement filed by the Company in
connection with the exchange of a majority of the Existing Notes for Original
Notes on January 16, 1998 and has filed a First Supplemental Indenture
containing the Amendments as an exhibit to the Registration Statement of which
this Prospectus is a part. Definitions relating to certain capitalized terms are
set forth under "-- Certain Definitions" and throughout this description.
Capitalized terms that are used but not otherwise defined herein have the
meanings assigned to them in the Indenture and such definitions are incorporated
herein by reference. As used in this description, the "Company" means HVE only.
As of March 28, 1998, $135.0 million aggregate principal amount of Existing
Notes were outstanding under the Indenture. The form and terms of the Exchange
Notes are the same as the form and terms of the New Notes and the Existing
Notes, except that (i) the Existing Notes and the Exchange Notes have been
registered under the Securities Act and, therefore, do not bear legends
restricting the transfer thereof and (ii) neither the holders of the New Notes
nor the holders of the Existing Notes are entitled to any rights under the
Exchange Offer Registration Rights Agreement, which will terminate (with respect
to the New Notes) when the Exchange Offer is consummated.
GENERAL
The Notes are limited in aggregate principal amount to $155.0 million. The
Notes are general unsecured obligations of the Company ranking PARI PASSU in
right of payment to all existing and future senior indebtedness of the Company
and senior in right of payment to any current or future subordinated
indebtedness of the Company.
The Indenture, the Notes, the Intercompany Notes and the agreement governing
the pledge of the Intercompany Notes to the Trustee, as collateral agent, are
governed by the laws of the Commonwealth of Massachusetts.
MATURITY, INTEREST AND PRINCIPAL
The Notes will mature on August 15, 2004. The Existing Notes bear interest
at a rate of 10 1/2% per annum from August 8, 1997 until maturity. The New Notes
bear, and the Exchange Notes will bear, interest at a rate of 10 1/2% per annum
from February 15, 1998 to maturity. Interest is payable semiannually in arrears
on August 15 and February 15, commencing February 15, 1998, with respect to the
Existing
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Notes, and August 15, 1998, with respect to the New Notes and the Exchange
Notes, to holders of record of the Notes at the close of business on the
immediately preceding August 1, and February 1, respectively.
OPTIONAL REDEMPTION
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after August 15, 2001 at the following redemption prices
(expressed as a percentage of principal amount), together, in each case, with
accrued and unpaid interest to the redemption date, if redeemed during the
twelve-month period beginning on August 15, of each year listed below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------------------------------------------------------- -----------
<S> <C>
2001................................................................................. 105.250%
2002................................................................................. 102.625%
2003 and thereafter.................................................................. 100.000%
</TABLE>
Notwithstanding the foregoing, the Company may redeem in the aggregate up to
35% of the original principal amount of Notes at any time and from time to time
prior to August 15, 2000, at a redemption price equal to 110.500% of the
aggregate principal amount so redeemed, plus accrued and unpaid interest to the
redemption date with the Net Proceeds of one or more Qualified Equity Offerings
of the Company, or Parent to the extent such proceeds were contributed to the
Company as common equity; provided that at least $100.8 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.
In the event of redemption of fewer than all of the Notes, the Trustee shall
select by lot or in such other manner as it shall deem fair and equitable the
Notes to be redeemed. The Notes will be redeemable in whole or in part upon not
less than 30 nor more than 60 days' prior written notice, mailed by first class
mail to a holder's last address as it shall appear on the register maintained by
the Registrar of the Notes. On and after any redemption date, interest will
cease to accrue on the Notes or portions thereof called for redemption unless
the Company shall fail to redeem any such Note.
INTERCOMPANY NOTES
Upon the issuance of the Original Notes, the aggregate principal amount of
the Original Notes was allocated among the Company and each of its direct
Restricted Subsidiaries in consideration for the release of certain obligations
of such Restricted Subsidiaries relating to the indebtedness being repaid in
connection with such offering. Upon consummation of the Offering, Stewart Warner
issued the Stewart Warner Intercompany Note to the Company. HVE Acquisition
Corp. and TTS are co-obligors under the Stewart Warner Intercompany Note.
Amounts allocated to individual Restricted Subsidiaries are evidenced by the
Intercompany Notes. The Intercompany Notes: (i) are senior obligations of each
Restricted Subsidiary; (ii) bear interest at least at the rate borne by the
Notes; (iii) mature on the maturity date of the Notes or such earlier time when
no Notes remain outstanding; (iv) not be subject to redemption, repayment or
repurchase prior to the stated maturity thereof except as set forth under "--
Offer to Repurchase Upon a Qualified Subsidiary IPO" and "-- Limitation on
Transfer of Intercompany Notes; Repayment of Intercompany Notes;" and (v) are
pledged by the Company as collateral on the Notes. See "The Transactions --
Intercompany Notes."
OFFER TO REPURCHASE UPON A QUALIFIED SUBSIDIARY IPO
The Indenture allows each Restricted Subsidiary that is an obligor under an
Intercompany Note to effect a Qualified Subsidiary IPO; provided that (i) the
Restricted Subsidiary consummating such Qualified Subsidiary IPO will have
repaid in full its applicable Intercompany Note, together with all accrued and
unpaid interest, if any, thereon, (ii) immediately after giving pro forma effect
to such Qualified Subsidiary
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IPO, the Company (excluding the EBITDA and Consolidated Fixed Charges of the
Restricted Subsidiary effecting the Qualified Subsidiary IPO) could incur $1.00
of additional Indebtedness (other than Permitted Indebtedness) under the
covenant set forth under "-- Limitation on Additional Indebtedness," assuming
for the purposes of this calculation only, that the offer to repurchase referred
to in the following paragraph has been subscribed in full, and (iii) no Default
or Event of Default shall have occurred and be continuing. Upon completion of a
Qualified Subsidiary IPO and the repayment of its Intercompany Note, such
Restricted Subsidiary will become an Unrestricted Subsidiary.
Within 30 days of the consummation of a Qualified Subsidiary IPO, the
Company shall mail a notice to each holder of Notes stating, among other things:
(1) that the holders of the Notes have the right to require the Company to apply
the Net Proceeds received from the repayment of the applicable Intercompany Note
to repurchase Notes from the holders thereof at a purchase price in cash equal
to 101% of the aggregate principal amount thereof (plus accrued and unpaid
interest to the purchase date) in the principal amount of the Intercompany Note
being repaid by such Restricted Subsidiary; (2) the purchase date, which shall
be no earlier than 30 days and not later than 60 days from the date such notice
is mailed; (3) the instructions, determined by the Company, that each holder
must follow in order to have such Notes repurchased; and (4) if the aggregate
principal amount of Notes surrendered by Holders exceeds the principal amount of
such Intercompany Note, the Company shall select the Notes to be purchased on a
pro rata basis.
Following the consummation of any such offer to holders of the Notes
following a Qualified Subsidiary IPO, the remaining Net Proceeds from the
payment of the Intercompany Note repurchased by the Company in connection
therewith shall be proceeds of an Asset Sale and shall be applied in accordance
with the "Limitation on Certain Asset Sales" covenant.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants. Except as
otherwise specified, all of the covenants described below appear in the
Indenture.
LIMITATION ON ADDITIONAL INDEBTEDNESS
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, directly or indirectly, incur (as defined) any Indebtedness
(including Acquired Indebtedness); provided that the Company may incur
Indebtedness if (i) after giving effect to the incurrence of such Indebtedness
and the receipt and application of the proceeds thereof, the Company's
consolidated Fixed Charge Coverage Ratio (determined on a pro forma basis for
the last four fiscal quarters of the Company for which financial statements are
available at the date of determination) is at least 2.00 to 1, and (ii) no
Default or Event of Default shall have occurred and be continuing at the time or
as a consequence of the incurrence of such Indebtedness; and, provided, further,
that any Restricted Subsidiary may incur Indebtedness if (i) after giving effect
to the incurrence of such Indebtedness and the receipt and application of the
proceeds thereof, such Restricted Subsidiary's Fixed Charge Coverage Ratio
(determined on a pro forma basis for the last four fiscal quarters of such
Restricted Subsidiary for which financial statements are available at the date
of determination) is at least 2.50 to 1, and (ii) no Default or Event of Default
shall have occurred and be continuing at the time or as a consequence of the
incurrence of such Indebtedness. For purposes of computing the Fixed Charge
Coverage Ratio, (A) if the Indebtedness which is the subject of a determination
under this provision is Acquired Indebtedness, or Indebtedness incurred in
connection with the simultaneous acquisition (by way of merger, consolidation or
otherwise) of any Person, business, property or assets (an "Acquisition"), then
such ratio shall be determined by giving effect (on a pro forma basis, as if the
transaction had occurred at the beginning of the four-quarter period) to both
the incurrence or assumption of such Acquired Indebtedness or such other
Indebtedness by the Company and the inclusion in the Company's or such
Restricted Subsidiary's EBITDA of the EBITDA of the acquired Person, business,
property or assets, (B) if any Indebtedness to be incurred (x) bears a floating
rate of
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interest, the interest expense on such Indebtedness shall be calculated as if
the rate in effect on the date of determination had been the applicable rate for
the entire period (taking into account on a pro forma basis any Interest Rate
Agreement applicable to such Indebtedness if such Interest Rate Agreement has a
remaining term as at the date of determination in excess of 12 months), (y)
bears, at the option of the Company or a Subsidiary, a fixed or floating rate of
interest, the interest expense on such Indebtedness shall be computed by
applying, at the option of the Company or such Subsidiary, either a fixed or
floating rate and (z) was incurred under a revolving credit facility, the
interest expense on such Indebtedness shall be computed based upon the average
daily balance of such Indebtedness during the applicable period, (C) for any
quarter prior to the date hereof included in the calculation of such ratio, such
calculation shall be made on a pro forma basis, giving effect to the PHI
Acquisition, the issuance of the Notes and the use of the net proceeds therefrom
as if the same had occurred at the beginning of the four-quarter period used to
make such calculation and (D) for any quarter included in the calculation of
such ratio prior to the date that any Asset Sale was consummated, or that any
Indebtedness was incurred, or that any Acquisition was effected, by the Company
or any of its Restricted Subsidiaries, such calculation shall be made on a pro
forma basis, giving effect to each Asset Sale, incurrence of Indebtedness or
Acquisition, as the case may be, and the use of any proceeds therefrom, as if
the same had occurred at the beginning of the four-quarter period used to make
such calculation.
Notwithstanding the foregoing, the Company and its Restricted Subsidiaries
may incur Permitted Indebtedness.
The Company will not, directly or indirectly, in any event incur any
Indebtedness which by its terms (or by the terms of any agreement governing such
Indebtedness) is subordinated to any other Indebtedness of the Company unless
such Indebtedness is also by its terms (or by the terms of any agreement
governing such Indebtedness) made expressly subordinate to the Notes to the same
extent and in the same manner as such Indebtedness is subordinated pursuant to
subordination provisions that are most favorable to the holders of any other
Indebtedness of the Company.
LIMITATION ON RESTRICTED PAYMENTS
The Company will not make, and will not permit any of its Restricted
Subsidiaries to, directly or indirectly, make, any Restricted Payment, unless:
(a) no Default or Event of Default shall have occurred and be continuing
at the time of or immediately after giving effect to such Restricted
Payment;
(b) immediately after giving pro forma effect to such Restricted
Payment, the Company could incur $1.00 of additional Indebtedness (other
than Permitted Indebtedness) under the covenant set forth under "--
Limitation on Additional Indebtedness"; and
(c) immediately after giving effect to such Restricted Payment, the
aggregate of all Restricted Payments declared or made after the Issue Date
does not exceed the sum of (1) 50% of the Company's cumulative Consolidated
Net Income after the Issue Date (or minus 100% of any cumulative deficit in
Consolidated Net Income during such period), (2) 100% of the aggregate Net
Proceeds and the fair market value of securities or other property received
by the Company as a capital contribution to the common equity of the Company
after the Issue Date and from the issue or sale, after the Issue Date, of
Capital Stock (other than Disqualified Capital Stock or Capital Stock of the
Company issued to any Subsidiary of the Company) of the Company or any
Indebtedness or other securities of the Company convertible into or
exercisable or exchangeable for Capital Stock (other than Disqualified
Capital Stock) of the Company which has been so converted or exercised or
exchanged, as the case may be and (3) $350,000. For purposes of determining
under this clause (c) the amount expended for Restricted Payments, cash
distributed shall be valued at the face amount thereof and property other
than cash shall be valued at its fair market value.
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The provisions of this covenant shall not prohibit (i) the payment of any
distribution within 60 days after the date of declaration thereof, if at such
date of declaration such payment would comply with the provisions of the
Indenture, (ii) the retirement of any shares of Capital Stock of the Company or
subordinated Indebtedness by conversion into, or by or in exchange for, shares
of Capital Stock (other than Disqualified Capital Stock), or out of, the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company) of other shares of Capital Stock of the Company (other than
Disqualified Capital Stock), (iii) the redemption or retirement of Indebtedness
of the Company subordinated to the Notes in exchange for, by conversion into, or
out of the Net Proceeds of, a substantially concurrent sale or incurrence of
Indebtedness (other than any Indebtedness owed to a Subsidiary) of the Company
that is contractually subordinated in right of payment to the Notes to at least
the same extent as the Subordinated Indebtedness being redeemed or retired, (iv)
the retirement of any shares of Disqualified Capital Stock by conversion into,
or by exchange for, shares of Disqualified Capital Stock, or out of the Net
Proceeds of the substantially concurrent sale (other than to a Subsidiary of the
Company) of other shares of Disqualified Capital Stock, (v) so long as no
Default or Event of Default shall have occurred and be continuing, the payment
of cash dividends on the Series A Preferred Stock when such dividends are
required to be paid in cash in accordance with the Restated Articles, (vi)
payment from the net proceeds of the Original Offering, of up to $2.25 million
to Letitia Corporation to be used to repurchase from the High Voltage
Engineering Corporation Retirement Plan shares of Letitia Common Stock within 60
days of the Issue Date for not more than $2.25 million, and fund a proportional
accrual relating to the Subordinated Notes Warrants of up to $150,000, (vii) so
long as no Default or Event of Default shall have occurred and be continuing,
the exchange of Warrants for Subsidiary Warrants or Common Shares for Subsidiary
Shares in the event of a Qualified Subsidiary IPO, (viii) payments required to
effect the reclassification of an Unrestricted Subsidiary as a Restricted
Subsidiary in compliance with "-- Offer to Repurchase Upon a Qualified
Subsidiary IPO," and (ix) the payment of management fees for services provided
by Parent or its employees in an aggregate annual amount not to exceed $750,000;
provided, however, that any amounts paid by the Company pursuant to clauses (i),
(v) and (vii) shall reduce amounts otherwise available for Restricted Payments.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "-- Limitation on Restricted Payments" were computed,
which calculations may be based upon the Company's latest available financial
statements, and that no Default or Event of Default exists and is continuing and
no Default or Event of Default will occur immediately after giving effect to any
Restricted Payments.
LIMITATIONS ON INVESTMENTS
The Company will not, and will not permit any of its Restricted Subsidiaries
to, make any Investment other than (i) a Permitted Investment or (ii) an
Investment that is made as a Restricted Payment in compliance with the "--
Limitation on Restricted Payments" covenant, after the Issue Date.
LIMITATIONS ON LIENS
The Company will not, and will not permit any of its Restricted Subsidiaries
to, create, incur or otherwise cause or suffer to exist or become effective any
Liens of any kind (other than Permitted Liens and other than a pledge of the
Intercompany Notes to the Trustee as security for the Notes) upon any property
or asset of the Company or any Restricted Subsidiary or any shares of stock or
debt of any Restricted Subsidiary which owns property or assets, now owned or
hereafter acquired, unless (i) if such Lien secures Indebtedness which is pari
passu with the Notes, then the Notes are secured on an equal and ratable basis
with the obligations so secured until such time as such obligation is no longer
secured by a Lien or (ii) if such Lien secures Indebtedness which is
subordinated to the Notes, any such Lien shall be subordinated to a Lien on such
property or asset or shares of stock or debt granted to the Holders of the
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Notes to the same extent as such subordinated Indebtedness is subordinated to
the Notes; provided, however, that in no event will the Company create, incur or
otherwise cause or suffer to exist or become effective any Liens of any kind on
any of the Intercompany Notes other than a pledge of the Intercompany Notes to
the Trustee as security for the Notes.
LIMITATION ON TRANSACTIONS WITH AFFILIATES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions (including, without limitation, the sale,
purchase, exchange or lease of assets, property or services) with any Affiliate
(including entities in which the Company or any of its Restricted Subsidiaries
owns a minority interest) or holder of 10% or more of the Company's Common Stock
(an "Affiliate Transaction") or extend, renew, waive or otherwise modify the
terms of any Affiliate Transaction entered into prior to the Issue Date unless
(i) such Affiliate Transaction is between or among the Company and its Wholly
Owned Subsidiaries; or (ii) the terms of such Affiliate Transaction are fair and
reasonable to the Company or such Restricted Subsidiary, as the case may be, and
the terms of such Affiliate Transaction are at least as favorable as the terms
which could be obtained by the Company or such Restricted Subsidiary, as the
case may be, in a comparable transaction made on an arm's length basis between
unaffiliated parties. In any Affiliate Transaction involving an amount or having
a value in excess of $1.0 million which is not permitted under clause (i) above,
the Company must obtain a resolution of the Board of Directors certifying that
such Affiliate Transaction complies with clause (ii) above. In transactions with
a value in excess of $3.0 million which are not permitted under clause (i)
above, the Company must obtain a written opinion as to the fairness of such a
transaction from an independent investment banking firm selected by the Company.
The foregoing provisions will not apply to (i) any Restricted Payment that
is not prohibited by the provisions described under "-- Limitation on Restricted
Payments" contained herein or (ii) any transaction, approved by the Board of
Directors of the Company, with an officer or director of the Company or of any
Subsidiary in his or her capacity as officer or director entered into in the
ordinary course of business, including compensation and employee benefit
arrangements with any officer or director of the Company or of any Subsidiary
that are customary for public companies in the manufacturing industry.
LIMITATION ON CERTAIN ASSET SALES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, consummate an Asset Sale unless (i) the Company or its Restricted
Subsidiaries, as the case may be, receives consideration at the time of such
sale or other disposition at least equal to the fair market value thereof (as
determined in good faith by the Company's Board of Directors, and evidenced by a
board resolution); (ii) not less than 85% of the consideration received by the
Company or its Subsidiaries, as the case may be, is in the form of cash or cash
equivalents (those equivalents allowed under "Temporary Cash Investments"); and
(iii) subject to the Company's obligations with respect to the Intercompany
Notes in the event of a Qualified Subsidiary IPO, the Asset Sale Proceeds
received by the Company or such Restricted Subsidiary are applied (a) first, to
the extent the Company elects, or is required, to prepay, repay or purchase debt
under any then existing Indebtedness of the Company or any Restricted Subsidiary
ranking PARI PASSU to the Notes within 180 days following the receipt of the
Asset Sale Proceeds from any Asset Sale, provided that any such repayment shall
result in a permanent reduction of the commitments thereunder in an amount equal
to the principal amount so repaid; (b) second, to the extent of the balance of
Asset Sale Proceeds after application as described above, to the extent the
Company elects, to an investment in assets (including Capital Stock or other
securities purchased in connection with the acquisition of Capital Stock or
property of another person) used or useful in businesses similar or ancillary to
the business of the Company or any Restricted Subsidiary as conducted at the
time of such Asset Sale, provided that such investment occurs or the Company or
a Restricted Subsidiary enters into contractual commitments to make such
investment, subject
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only to customary conditions (other than the obtaining of financing), on or
prior to the 181st day following receipt of such Asset Sale Proceeds and Asset
Sale Proceeds contractually committed are so applied within 360 days following
the receipt of such Asset Sale Proceeds (the "Reinvestment Date"); and (c)
third, if on the Reinvestment Date with respect to any Asset Sale, the Available
Asset Sale Proceeds exceed $10 million, the Company shall apply an amount equal
to Available Asset Sale Proceeds to an offer to repurchase the Notes, at a
purchase price in cash equal to 100% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase (an "Excess
Proceeds Offer"). If an Excess Proceeds Offer is not fully subscribed, the
Company may retain the portion of the Available Asset Sale Proceeds not required
to repurchase Notes and the Available Asset Sale Proceeds shall be reset to
zero.
If the Company is required to make an Excess Proceeds Offer, the Company
shall mail, within 30 days following the Reinvestment Date, a notice to the
Holders stating, among other things: (1) that such Holders have the right to
require the Company to apply the Available Asset Sale Proceeds to repurchase
such Notes at a purchase price in cash equal to 100% of the principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase; (2)
the purchase date, which shall be no earlier than 30 days and not later than 60
days from the date such notice is mailed; (3) the instructions, determined by
the Company, that each Holder must follow in order to have such Notes
repurchased; and (4) the calculations used in determining the amount of
Available Asset Sale Proceeds to be applied to the repurchase of such Notes.
LIMITATION ON DISPOSITION OF ASSETS
The Company will not, and will not permit any Restricted Subsidiary of the
Company to, sell, convey, lease, transfer or otherwise contribute or dispose of
any of its assets or property or the proceeds from the sale or other disposition
of any such assets or property (including any shares of Capital Stock of any
Restricted Subsidiary of the Company) existing on the date the Original Notes
were issued (each referred to for the purpose of this covenant as a
"disposition") to any other Subsidiary of the Company, other than (a) DE MINIMIS
dispositions made in the ordinary course of business, (b) intercompany loans and
cash equity contributions (other than the Intercompany Notes), including,
without limitation, any such loans or contributions for the purpose of effecting
the payment of any tax owed by any such Subsidiary to any governmental entity),
(c) dispositions of trade or other receivables and assets relating to trade and
(d) dispositions permitted by the covenant "-- Limitation on Restricted
Payments."
LIMITATION ON PREFERRED STOCK OF RESTRICTED SUBSIDIARIES
The Company will not permit any Restricted Subsidiary to issue any Preferred
Stock (except Preferred Stock issued to the Company or a Restricted Subsidiary)
or permit any Person (other than the Company or a Restricted Subsidiary) to hold
any such Preferred Stock unless the Company or such Restricted Subsidiary would
be entitled to incur or assume Indebtedness under the covenant described under
"-- Limitation on Additional Indebtedness" in the aggregate principal amount
equal to the aggregate liquidation value of the Preferred Stock to be issued.
LIMITATION ON CAPITAL STOCK OF RESTRICTED SUBSIDIARIES
The Company will not (i) sell, pledge, hypothecate or otherwise convey or
dispose of any Capital Stock of a Restricted Subsidiary or (ii) permit any of
its Restricted Subsidiaries to issue any Capital Stock, other than to the
Company or a Wholly Owned Subsidiary of the Company. The foregoing restrictions
shall not apply to the issuance and sale of Capital Stock of a Restricted
Subsidiary that is an obligor under an Intercompany Note in compliance with
"Offer to Repurchase Upon a Qualified Subsidiary IPO," an Asset Sale made in
compliance with "-- Limitation on Certain Asset Sales" or the issuance of
Preferred Stock in compliance with the covenant described under "-- Limitation
on Preferred Stock of Restricted Subsidiaries."
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LIMITATION ON TRANSFER OF INTERCOMPANY NOTES; REPAYMENT OF INTERCOMPANY NOTES
With the exception of the pledge of the Intercompany Notes to the Trustee as
security for the Notes, the Company will not sell, pledge, hypothecate or
otherwise convey or dispose of any Intercompany Note except in accordance with
"-- Offer to Repurchase upon a Qualified Subsidiary IPO." The Company shall
agree not to reduce the principal amount of any Intercompany Note or otherwise
amend or modify the terms of any Intercompany Note as in effect on the Issue
Date.
Limitation on Business of HIVEC Holdings; Capital Stock of Foreign
Subsidiaries
HIVEC Holdings shall not engage in any trade or business, incur any
Indebtedness other than Permitted Indebtedness, incur any liabilities other than
nominal expenses necessary to maintain its corporate existence, hold any assets
other than the capital stock of HIVEC, B.V., or sell, pledge, encumber or
transfer or cause or permit the sale, pledge, encumbrance or transfer of Capital
Stock of any of its direct or indirect Subsidiaries. Datcon Instrument Company
shall not sell, pledge, encumber or transfer the Capital Stock of any of its
direct or indirect foreign subsidiaries including, but not limited to,
Instrumentos Stewart Warner de Mexico, S.A. de C.V. Notwithstanding the
foregoing, by May 31, 1998, the Company shall cause HIVEC Holdings and HIVEC,
B.V. to: (i) transfer (directly or indirectly) to Datcon Instrument Company all
of the capital stock of Industrias Jorda that is not held by Datcon Instrument
Company (or a direct or indirect subsidiary of Datcon Instrument Company); and
(ii) transfer (directly or indirectly) all of the asset of Anderson Ireland (as
defined herein) to Anderson (or a direct or indirect subsidiary of Anderson)
((i) and (ii) together, the "Foreign Realignment").
LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale and Lease-Back Transaction unless (i) the consideration
received in such Sale and Lease-Back Transaction is at least equal to the fair
market value of the property sold, as determined by a board resolution of the
Company and (ii) the Company could incur the Attributable Indebtedness in
respect of such Sale and Lease-Back Transaction in compliance with the covenant
described under "-- Limitation on Additional Indebtedness."
LIMITATION ON DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Company will not, and will not permit any of its Restricted Subsidiaries
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction on the ability of any Restricted
Subsidiary to meet its principal and interest obligations on the Notes (a)(i)
through the payment of dividends or make any other distributions to the Company
or any of its Restricted Subsidiaries (A) on its Capital Stock or (B) with
respect to any other interest or participation in, or measured by, its profits,
or (ii) through the payment of any Indebtedness owed to the Company or any of
its Restricted Subsidiaries, (b) through the making of loans or advances or
capital contributions to the Company or any of its Restricted Subsidiaries or
(c) through the transfer of any of its properties or assets to the Company or
any of its Restricted Subsidiaries, except for such encumbrances or restrictions
existing under or by reason of (i) encumbrances or restrictions existing on the
Issue Date, (ii) the Indenture and the Notes, (iii) applicable law, (iv) any
instrument governing Indebtedness or Capital Stock of a Person acquired by the
Company or any of its Restricted Subsidiaries or of any Person that becomes a
Restricted Subsidiary as in effect at the time of such acquisition or such
Person becoming a Restricted Subsidiary (except to the extent such Indebtedness
was incurred in connection with or in contemplation of such acquisition of such
Person becoming a Restricted Subsidiary), which encumbrance or restriction is
not applicable to any Person, or the properties or assets of any Person, other
than the Person, or the property of assets of the Person (including any
Subsidiary of the Person), so acquired, (v) customary non-assignment provisions
in leases or other agreements entered into in the ordinary course of business
and consistent with past practices, (vi) Refinancing Indebtedness; provided that
such restrictions are in the aggregate no more
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restrictive than those contained in the agreements governing the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded or (vii)
customary restrictions in security agreements or mortgages securing Indebtedness
of the Company or a Restricted Subsidiary to the extent such restrictions
restrict the transfer or encumbrance of the property subject to such security
agreements and mortgages.
GUARANTEES OF CERTAIN INDEBTEDNESS
The Company will not permit any of its Restricted Subsidiaries, directly or
indirectly, to Guarantee any Indebtedness of the Company or a Guarantor (except
as permitted under clause (i) of the definition of "Permitted Indebtedness"
below) unless, in the case of a domestic Restricted Subsidiary, such Restricted
Subsidiary simultaneously executes and delivers to the Trustee a supplemental
indenture, in form reasonably satisfactory to the Trustee, providing for the
Guarantee by such Restricted Subsidiary of the payment of the obligations of the
Company under the Notes in the manner set forth under "-- Guarantees." Neither
the Company nor any such Guarantor shall be required to make a notation on the
Notes to reflect any such Guarantee. Nothing in this covenant shall be construed
to permit any Restricted Subsidiary of the Company to incur Indebtedness
otherwise prohibited by the "-- Limitation on Additional Indebtedness" covenant.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes which so consent, waive or agree to amend
in the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
CHANGE OF CONTROL OFFER
Within 20 days of the occurrence of a Change of Control, the Company shall
notify the Trustee in writing of such occurrence and shall make an offer to
purchase (the "Change of Control Offer") the outstanding Notes at a purchase
price equal to 101% of the principal amount thereof plus any accrued and unpaid
interest thereon to the Change of Control Payment Date (as hereinafter defined)
(such applicable purchase price being hereinafter referred to as the "Change of
Control Purchase Price") in accordance with the procedures set forth in this
covenant.
Within 20 days of the occurrence of a Change of Control, the Company also
shall (i) cause a notice of the Change of Control Offer to be sent at least once
to the Dow Jones News Service or similar business news service in the United
States and (ii) send by first-class mail, postage prepaid, to the Trustee and to
each Holder of the Notes, at the address appearing in the register maintained by
the Registrar of the Notes, a notice stating:
(1) that the Change of Control Offer is being made pursuant to this
covenant and that all Notes tendered will be accepted for payment, and
otherwise subject to the terms and conditions set forth herein;
(2) the Change of Control Purchase Price and the purchase date (which
shall be a Business Day no earlier than 20 business days nor more than 60
days from the date such notice is mailed (the "Change of Control Payment
Date"));
(3) that any Note not tendered will continue to accrue interest;
(4) that, unless the Company defaults in the payment of the Change of
Control Purchase Price, any Notes accepted for payment pursuant to the
Change of Control Offer shall cease to accrue interest after the Change of
Control Payment Date;
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(5) that Holders accepting the offer to have their Notes purchased
pursuant to a Change of Control Offer will be required to surrender the
Notes to the Paying Agent at the address specified in the notice prior to
the close of business on the second Business Day preceding the Change of
Control Payment Date;
(6) that Holders will be entitled to withdraw their acceptance if the
Paying Agent receives, not later than the close of business on the third
Business Day preceding the Change of Control Payment Date, a telegram,
telex, facsimile transmission or letter setting forth the name of the
Holder, the principal amount of the Notes delivered for purchase, and a
statement that such Holder is withdrawing his election to have such Notes
purchased;
(7) that Holders whose Notes are being purchased only in part will be
issued new Notes equal in principal amount to the unpurchased portion of the
Notes surrendered, provided that each Note purchased and each such new Note
issued shall be in an original principal amount in denominations of $1,000
and integral multiples thereof;
(8) any other procedures that a Holder must follow to accept a Change of
Control Offer or effect withdrawal of such acceptance; and
(9) the name and address of the Paying Agent.
On the Change of Control Payment Date, the Company shall, to the extent
lawful, (i) accept for payment Notes or portions thereof tendered pursuant to
the Change of Control Offer, (ii) deposit with the Paying Agent money sufficient
to pay the purchase price of all Notes or portions thereof so tendered, and
(iii) deliver or cause to be delivered to the Trustee Notes so accepted together
with an Officers' Certificate stating the Notes or portions thereof tendered to
the Company. The Paying Agent shall promptly mail to each Holder of Notes so
accepted payment in an amount equal to the purchase price for such Notes, and
the Company shall execute and issue, and the Trustee shall promptly authenticate
and mail to such Holder, a new Note equal in principal amount to any unpurchased
portion of the Notes surrendered; provided that each such new Note shall be
issued in an original principal amount in denominations of $1,000 and integral
multiples thereof.
The Indenture will provide that, (A) if the Company or any Subsidiary
thereof has issued any outstanding (i) Indebtedness that is subordinated in
right of payment to the Notes or (ii) Preferred Stock, and the Company or such
Subsidiary is required to make a Change of Control Offer or to make a
distribution with respect to such subordinated Indebtedness or Preferred Stock
in the event of a Change of Control, the Company shall not consummate any such
offer or distribution with respect to such subordinated Indebtedness or
Preferred Stock until such time as the Company shall have paid the Change of
Control Purchase Price in full to the holders of Notes that have accepted the
Company's Change of Control Offer and shall otherwise have consummated the
Change of Control Offer made to holders of the Notes and (B) the Company will
not issue Indebtedness that is subordinated in right of payment to the Notes or
Preferred Stock with change of control provisions requiring the payment of such
Indebtedness or Preferred Stock prior to the payment of the Notes in the event
of a Change in Control under the Indenture.
In the event that a Change of Control occurs and the holders of Notes
exercise their right to require the Company to purchase Notes, if such purchase
constitutes a "tender offer" for purposes of Rule 14e-1 under the Exchange Act
at that time, the Company will comply with the requirements of Rule 14e-1 as
then in effect with respect to such repurchase.
MERGER, CONSOLIDATION OR SALE OF ASSETS
The Company will not and will not permit any Restricted Subsidiary to
consolidate with, merge with or into, or transfer all or substantially all of
its assets (as an entirety or substantially as an entirety in one transaction or
a series of related transactions), to any Person unless: (i) the Company or the
Restricted
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Subsidiary, as the case may be, shall be the continuing Person, or the Person
(if other than the Company or the Restricted Subsidiary) formed by such
consolidation or into which the Company or the Restricted Subsidiary, as the
case may be, is merged or to which the properties and assets of the Company or
the Restricted Subsidiary, as the case may be, are transferred shall be a
corporation organized and existing under the laws of the United States or any
state thereof or the District of Columbia and shall expressly assume, by a
supplemental indenture, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all of the obligations of the Company or the
Restricted Subsidiary, as the case may be, under the Notes and the Indenture,
and the obligations under the Indenture shall remain in full force and effect;
(ii) immediately before and immediately after giving effect to such transaction,
no Default or Event of Default shall have occurred and be continuing; and (iii)
immediately after giving effect to such transaction on a pro forma basis the
Company or such Person could incur at least $1.00 of additional Indebtedness
(other than Permitted Indebtedness) under the covenant set forth under "--
Limitation on Additional Indebtedness;" provided that a Person that is a
Restricted Subsidiary may merge into the Company or another Person that is a
Restricted Subsidiary without complying with this clause (iii).
In connection with any consolidation, merger or transfer of assets
contemplated by this provision, the Company shall deliver, or cause to be
delivered, to the Trustee, in form and substance reasonably satisfactory to the
Trustee, an Officers' Certificate and an opinion of counsel, each stating that
such consolidation, merger or transfer and the supplemental indenture in respect
thereto comply with this provision and that all conditions precedent herein
provided for relating to such transaction or transactions have been complied
with.
GUARANTEES
Under the circumstances described above in "Guarantees of Certain
Indebtedness," the Company's payment obligations under the Notes may in the
future be jointly and severally guaranteed (a "Guarantee") on a senior unsecured
basis by existing or future domestic Restricted Subsidiaries of the Company as
guarantors (each, a "Guarantor"). It is not expected that any Restricted
Subsidiary of the Company will initially execute and deliver the Indenture as a
Guarantor. Each Guarantor will guarantee to each holder of the Notes and the
Trustee, the full and prompt performance of the obligations of the Company under
the Notes, including the payment of principal of premium, if any, on and
interest on the Notes pursuant to its Guarantee. Any of the Company's Restricted
Subsidiaries which become Unrestricted Subsidiaries pursuant to the terms and
provisions of the Indenture shall be released from their obligations under the
Guarantees.
The obligations of each Guarantor will be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor (including, without limitation, any guarantees of other Indebtedness)
and after giving effect to any collections from or payments made by or on behalf
of any other Guarantor in respect of the obligations of such other Guarantor
under its Guarantee or pursuant to its contribution obligations under the
Indenture, result in the obligations of such Guarantor under the Guarantee not
constituting a fraudulent conveyance or fraudulent transfer under federal or
state law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Guarantor.
A Guarantor shall be released from all of its obligations under its
Guarantee if all or substantially all of its assets are sold or all of its
Capital Stock is sold, in each case in a transaction in compliance with the
covenant described under "-- Limitation on Certain Asset Sales," the Guarantor
merges with or into or consolidates with, or transfers all or substantially all
of its assets to, the Company, another Guarantor or a Restricted Subsidiary that
is an obligor under an Intercompany Note in a transaction in compliance with "--
Merger, Consolidation or Sale of Assets," or, in the case of a Restricted
Subsidiary that is an obligor under an Intercompany Note, upon the consummation
of a Qualified Subsidiary IPO, complying with "Offer to Repurchase Upon a
Qualified Subsidiary IPO" and, in each case, such Guarantor has delivered
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to the Trustee an Officers' Certificate and an opinion of counsel, each stating
that all conditions precedent herein provided for relating to such transaction
have been complied with.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) default in payment of any principal of, or premium, if any, on the
Notes;
(ii) default for 30 days in payment of any interest on the Notes;
(iii) default by the Company or any Guarantor in the observance or
performance of any other covenant in the Notes or the Indenture for 60 days
after written notice from the Trustee or the holders of not less than 25% in
aggregate principal amount of the Notes then outstanding;
(iv) failure to pay when due principal, interest or premium in an
aggregate amount of $3,000,000 or more with respect to any Indebtedness of
the Company or any Restricted Subsidiary thereof, or the acceleration of any
such Indebtedness aggregating $3,000,000 or more which default shall not be
cured, waived or postponed pursuant to an agreement with the holders of such
Indebtedness within 60 days after written notice as provided in the
Indenture, or such acceleration shall not be rescinded or annulled within 20
days after written notice as provided in the Indenture;
(v) any final judgment or judgments which can no longer be appealed for
the payment of money in excess of $3,000,000 shall be rendered against the
Company or any Restricted Subsidiary thereof, and shall not be discharged
for any period of 60 consecutive days during which a stay of enforcement
shall not be in effect;
(vi) certain events involving bankruptcy, insolvency or reorganization
of the Company or any Restricted Subsidiary thereof;
(vii) the failure of the Company to cause up to $2.25 million of the
proceeds of the Original Offerings to be applied, as completely as possible,
to the repurchase of Letitia Common Stock held by the High Voltage
Engineering Corporation Retirement Plan within 60 days of the Issue Date; or
(viii) the failure of the Company to cause the Foreign Realignment to
occur.
The Indenture provides that the Trustee may withhold notice to the Holders
of the Notes of any default (except in payment of principal or premium, if any,
or interest on the Notes) if the Trustee considers it to be in the best interest
of the Holders of the Notes to do so.
The Indenture provides that if an Event of Default (other than an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization) shall have occurred and be continuing, then the Trustee or the
holders of not less than 25% in aggregate principal amount of the Notes then
outstanding may declare to be immediately due and payable the entire principal
amount of all the Notes then outstanding plus accrued interest to the date of
acceleration; provided, however, that after such acceleration but before a
judgment or decree based on acceleration is obtained by the Trustee, the holders
of a majority in aggregate principal amount of outstanding Notes may, under
certain circumstances, rescind and annul such acceleration if all Events of
Default, other than nonpayment of accelerated principal, premium or interest,
have been cured or waived as provided in the Indenture. In case an Event of
Default resulting from certain events of bankruptcy, insolvency or
reorganization shall occur, the principal, premium and interest amount with
respect to all of the Notes shall be due and payable immediately without any
declaration or other act on the part of the Trustee or the Holders of the Notes.
The holders of a majority in principal amount of the Notes then outstanding
shall have the right to waive any existing default or compliance with any
provision of the Indenture or the Notes and to direct the time, method and place
of conducting any proceeding for any remedy available to the Trustee, subject to
certain limitations specified in the Indenture.
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No Holders of any Note will have any right to institute any proceeding with
respect to the Indenture or for any remedy thereunder, unless such Holders shall
have previously given to the Trustee written notice of a continuing Event of
Default and unless also the holders of at least 25% in aggregate principal
amount of the outstanding Notes shall have made written request and offered
reasonable indemnity to the Trustee to institute such proceeding as a trustee,
and unless the Trustee shall not have received from the holders of a majority in
aggregate principal amount of the outstanding Notes a direction inconsistent
with such request and shall have failed to institute such proceeding within 60
days. However, such limitations do not apply to a suit instituted on such Note
on or after the respective due dates expressed in such Note.
DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides the Company may elect either (a) to defease and be
discharged from any and all obligations with respect to the Notes (except for
the obligations to register the transfer or exchange of such Notes, to replace
temporary or mutilated, destroyed, lost or stolen Notes, to maintain an office
or agency in respect of the Notes and to hold monies for payment in trust)
("defeasance") or (b) to be released from its obligations with respect to the
Notes under certain covenants contained in the Indenture and described above
under "-- Certain Covenants" ("covenant defeasance"), upon the deposit with the
Trustee (or other qualifying trustee), in trust for such purpose, of money
and/or U.S. Government Obligations which through the payment of principal and
interest in accordance with their terms will provide money, in an amount
sufficient to pay the principal of, premium, if any, and interest on the Notes,
on the scheduled due dates therefor or on a selected date of redemption in
accordance with the terms of the Indenture. Such a trust may only be established
if, among other things, the Company has delivered to the Trustee an opinion of
counsel (as specified in the Indenture) (i) to the effect that neither the trust
nor the Trustee will be required to register as an investment company under the
Investment Company Act of 1940, as amended, and (ii) describing either a private
ruling concerning the Notes or a published ruling of the Internal Revenue
Service, to the effect that holders of the Notes or persons in their positions
will not recognize income, gain or loss for federal income tax purposes as a
result of such deposit, defeasance and discharge and will be subject to federal
income tax on the same amount and in the same manner and at the same times, as
would have been the case if such deposit, defeasance and discharge had not
occurred.
MODIFICATION OF INDENTURE
From time to time, the Company and the Trustee may, without the consent of
holders of the Notes, amend the Indenture or the Notes or supplement the
Indenture for certain specified purposes, including providing for uncertificated
Notes in addition to certificated Notes, and curing any ambiguity, defect or
inconsistency, or making any other change that does not materially and adversely
affect the rights of any holder. The Indenture contains provisions permitting
the Company and the Trustee, with the consent of holders of at least a majority
in principal amount of the outstanding Notes, to modify or supplement the
Indenture or the Notes, except that no such modification shall, without the
consent of each holder affected thereby, (i) reduce the amount of Notes whose
holders must consent to an amendment, supplement, or waiver to the Indenture or
the Notes, (ii) reduce the rate of or change the time for payment of interest on
any Note, (iii) reduce the principal of or premium on or change the stated
maturity of any Note, (iv) make any Note payable in money other than that stated
in the Note or change the place of payment from New York, New York, (v) change
the amount or time of any payment required by the Notes or reduce the premium
payable upon any redemption of Notes, or change the time before which no such
redemption may be made, (vi) waive a default on the payment of the principal of,
interest on, or redemption payment with respect to any Note, or (vii) take any
other action otherwise prohibited by the Indenture to be taken without the
consent of each holder affected thereby.
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REPORTS TO HOLDERS
So long as the Company is subject to the periodic reporting requirements of
the Exchange Act, it will continue to furnish the information required thereby
to the Commission and to the holders of the Notes, the Indenture provides that
even if the Company is not subject to the reporting requirements of Section 13
or Section 15(d) of the Exchange Act, the Company will be obligated to provide
to the holders of Notes all annual and quarterly reports and other documents
which the Company would have been required to file with the Commission pursuant
to such Sections 13 and 15(d) had it been so subject and provide to all holders
of Notes, without costs to such holders, copies of such reports and documents.
COMPLIANCE CERTIFICATE
The Company will deliver to the Trustee on or before 100 days after the end
of the Company's fiscal year and on or before 50 days after the end of each of
the first, second and third fiscal quarters in each year an Officers'
Certificate stating whether or not the signers know of any Default or Event of
Default that has occurred. If they do, the certificate will describe the Default
or Event of Default and its status.
THE TRUSTEE
The Trustee under the Indenture will be the Registrar and Paying Agent with
regard to the Notes. The Indenture provides that, except during the continuance
of an Event of Default, the Trustee will perform only such duties as are
specifically set forth in the Indenture. During the existence of an Event of
Default, the Trustee will exercise such rights and powers vested in it under the
Indenture and use the same degree of care and skill in its exercise as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
TRANSFER AND EXCHANGE
Holders of the Notes may transfer or exchange Notes in accordance with the
Indenture. The Registrar under such Indenture may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents, and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
is not required to transfer or exchange any Note selected for redemption. Also,
the Registrar is not required to transfer or exchange any Note for a period of
15 days before selection of the Notes to be redeemed.
The registered Holder of a Note may be treated as the owner of it for all
purposes.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants contained in the Indenture. Reference is made to the Indenture for the
full definition of all such terms as well as any other capitalized terms used
herein for which no definition is provided.
"ACQUIRED INDEBTEDNESS" means Indebtedness of a Person (including an
Unrestricted Subsidiary) existing at the time such Person becomes a Restricted
Subsidiary or assumed in connection with the acquisition of assets from such
Person.
"ADJUSTED NET ASSETS" of a Guarantor at any date shall mean the lesser of
(x) the amount by which the fair value of the property of such Guarantor exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities),
but excluding liabilities under the Guarantee, of such Guarantor at such date
and (y) the amount by which the present fair salable value of the assets of such
Guarantor at such date exceeds the amount that will be required to pay the
probable liability of such Guarantor on its debts (after giving effect to all
other fixed and contingent liabilities and after giving effect to any collection
from any subsidiary of such Guarantor in
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respect of the obligations of such Subsidiary under the Guarantee), excluding
Indebtedness in respect of the Guarantee, as they become absolute and matured.
"AFFILIATE" of any specified Person means any other Person which directly or
indirectly through one or more intermediaries controls, or is controlled by, or
is under common control with, such specified Person. For the purposes of this
definition, "control" (including, with correlative meanings, the terms
"controlling," "controlled by," and "under common control with"), as used with
respect to any Person, means the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
"ASSET SALE" means the sale, transfer, repayment or other disposition (other
than to the Company or any of its Restricted Subsidiaries) in any single
transaction or series of related transactions with a fair market value in excess
of $1.0 million of (a) any Capital Stock of or other equity interest in any
Restricted Subsidiary of the Company, (b) all or substantially all of the assets
of the Company or of any Restricted Subsidiary thereof, (c) real property, (d)
all or substantially all of the assets of any business owned by the Company or
any Restricted Subsidiary thereof, or a division, line of business or comparable
business segment of the Company or any Restricted Subsidiary thereof; or (e) any
of the Intercompany Notes; provided that Asset Sales shall not include sales,
leases, conveyances, transfers or other dispositions to the Company or to a
Restricted Subsidiary or to any other Person if after giving effect to such
sale, lease, conveyance, transfer or other disposition such other Person becomes
a Restricted Subsidiary; and provided, further that any sale of capital stock of
any Restricted Subsidiary pursuant to a Qualified Subsidiary IPO shall be an
Asset Sale only to the extent provided under "-- Offer to Repurchase Upon a
Qualified Subsidiary IPO."
"ASSET SALE PROCEEDS" means, with respect to any Asset Sale, (i) cash
received by the Company or any Restricted Subsidiary from such Asset Sale
(including cash received as consideration for the assumption of liabilities
incurred in connection with or in anticipation of such Asset Sale), after (a)
provision for all income or other taxes measured by or resulting from such Asset
Sale, (b) payment of all brokerage commissions, underwriting and other fees and
expenses related to such Asset Sale, (c) provision for minority interest holders
in any Restricted Subsidiary as a result of such Asset Sale and (d) deduction of
appropriate amounts to be provided by the Company or a Restricted Subsidiary as
a reserve, in accordance with GAAP, against any liabilities associated with the
assets sold or disposed of in such Asset Sale and retained by the Company or a
Restricted Subsidiary after such Asset Sale, including, without limitation,
pension and other post employment benefit liabilities and liabilities related to
environmental matters or against any indemnification obligations associated with
the assets sold or disposed of in such Asset Sale, and (ii) promissory notes and
other noncash consideration received by the Company or any Restricted Subsidiary
from such Asset Sale or other disposition, but only upon the liquidation or
conversion of such notes or noncash consideration into cash.
"ATTRIBUTABLE INDEBTEDNESS" under the Indenture in respect of a Sale and
Lease- Back Transaction means, as at the time of determination, the greater of
(i) the fair value of the property subject to such arrangement (as determined by
the Board of Directors) and (ii) the present value of the obligation (discounted
at a rate of 10%, compounded annually) of the lessee for rental payments during
the remaining term of the lease included in such Sale and Lease-Back Transaction
(including any period for which such lease has been extended).
"AVAILABLE ASSET SALE PROCEEDS" means, with respect to any Asset Sale, the
aggregate Asset Sale Proceeds from such Asset Sales that have not been applied
in accordance with clauses (iii)(a) or (iii)(b), and which has not yet been the
basis for an Excess Proceeds Offer in accordance with clause (iii)(c) of the
first paragraph of "-- Limitation on Certain Asset Sales."
"BENNER BERG" means Benner Berg, Inc., an Illinois corporation.
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"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, and the Permitted Holders beneficially own, in the aggregate, a lesser
percentage of the total voting power of the Company or Parent, as the case may
be, than such other Person and do not have the right or ability by voting power,
contract or otherwise to elect or designate for election a majority of the Board
of Directors of the Company or Parent, as the case may be, (iii) there shall be
consummated any consolidation or merger of the Company or Parent in which the
Company or Parent, as the case may be, is not the continuing or surviving
corporation or pursuant to which the Common Stock of the Company or Parent, as
the case may be, would be converted into cash, securities or other property,
other than a merger or consolidation of the Company or Parent, as the case may
be, in which the holders of the Common Stock of the Company or Parent, as the
case may be, outstanding immediately prior to the consolidation or merger hold,
directly or indirectly, at least a majority of the Common Stock of the surviving
corporation immediately after such consolidation or merger, or (iv) during any
period of two consecutive years, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the shareholders of the Company or Parent, as the case may be, has
been approved by 66 2/3% of the directors then still in office who either were
directors at the beginning of such period or whose election or recommendation
for election was previously so approved) cease to constitute a majority of the
Board of Directors of the Company or Parent, as the case may be.
"COMMON STOCK" of any Person means all Capital Stock of such Person that is
generally entitled to (i) vote in the election of directors of such Person or
(ii) if such Person is not a corporation, vote or otherwise participate in the
selection of the governing body, partners, managers or others that will control
the management and policies of such Person.
"CONSOLIDATED FIXED CHARGES" means, with respect to any Person and with
respect to any determination date, the sum of a Person's (i) Consolidated
Interest Expense, plus (ii) the product of (x) the aggregate amount of all
dividends paid on Disqualified Capital Stock of the Company or on each series of
preferred stock of each Subsidiary of such Person (other than dividends paid or
payable in additional shares of preferred stock or to the Company or any of its
Wholly Owned Subsidiaries) times (y) a fraction, the numerator of which is one
and the denominator of which is one minus the then current effective combined
federal, state and local tax rate of such Person (expressed as a decimal), in
each case, for the prior four full fiscal quarter periods for which financial
results are available.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person, for any
period, the aggregate amount of interest which, in conformity with GAAP, would
be set forth opposite the caption "interest expense" or any like caption on an
income statement for such Person and its Restricted Subsidiaries on a
consolidated basis (including, but not limited to, Redeemable Dividends, whether
paid or accrued, on Subsidiary Preferred Stock (as defined below in these
"Certain Definitions"), imputed interest included in
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Capitalized Lease Obligations, all commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers' acceptance
financing, the net costs associated with hedging obligations, amortization of
other financing fees and expenses, the interest portion of any deferred payment
obligation, amortization of discount or premium, if any, and all other non-cash
interest expense) plus, without duplication, all net capitalized interest for
such period and all interest paid under any guarantee of Indebtedness (including
a guarantee of principal, interest or any combination thereof) of any Person,
plus, without duplication, the amount of all dividends or distributions paid on
Disqualified Capital Stock (other than dividends paid or payable in shares of
Capital Stock of the Company) and, minus: (i) amortization of deferred financing
costs and expenses; (ii) prepayment penalties on outstanding indebtedness of the
Company retired on the Issue Date; (iii) accrual, redemption or payment of
Contingent Interest Payments, and (iv) any accretions with respect to any of the
Warrants.
"CONSOLIDATED NET INCOME" means, with respect to any Person, for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided, however, that (a) the Net Income of any Person, including any
Unrestricted Subsidiary of the Company or a Restricted Subsidiary (the "other
Person") in which the Person in question or any of its Restricted Subsidiaries
has less than a 100% interest (which interest does not cause the net income of
such other Person to be consolidated into the net income of the Person in
question in accordance with GAAP) shall be included only to the extent of the
amount of dividends or distributions actually paid to the Person in question or
the Restricted Subsidiary, (b) the Net Income of any Restricted Subsidiary of
the Person in question that is subject to any restriction or limitation on the
payment of dividends or the making of other distributions to the Company (other
than pursuant to the Notes or the Indenture) shall be excluded to the extent of
such restriction or limitation, (c)(i) the Net Income of any Person acquired in
a pooling of interests transaction for any period prior to the date of such
acquisition and (ii) any net gain (but not loss) resulting from an Asset Sale by
the Person in question or any of its Restricted Subsidiaries other than in the
ordinary course of business shall be excluded, (d) extraordinary, unusual and
non-recurring gains and losses shall be excluded and (e) without duplication,
the tax effected non-cash accrual or accretion of, and payment of, Contingent
Interest Payments or Warrants during such period shall be excluded.
"CONTINGENT INTEREST PAYMENTS" means the contingent interest payments
payable by the Company to BancBoston Capital, Inc. pursuant to the Contingent
Interest Payment Agreement, dated as of April 27, 1991, between the Company,
Robicon and Datcon Instrument Company and BancBoston Capital, Inc.
("BancBoston"), as amended, and that Agreement for Additional Contingent
Interest Payments (Quest), dated as of June 29, 1995, between the Company,
Robicon and Datcon Instrument Company and BancBoston.
"DISQUALIFIED CAPITAL STOCK" means any Capital Stock of the Company or a
Restricted Subsidiary thereof which, by its terms (or by the terms of any
security into which it is convertible or for which it is exchangeable at the
option of the holder), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the option of the holder thereof, in whole or in part, on or
prior to the maturity date of the Notes, for cash or securities constituting
Indebtedness. Without limitation of the foregoing, Disqualified Capital Stock
shall be deemed to include (i) any Preferred Stock of a Restricted Subsidiary of
the Company and (ii) any Preferred Stock of the Company, with respect to either
of which, under the terms of such Preferred Stock, by agreement or otherwise,
such Restricted Subsidiary or the Company is obligated to pay current dividends
or distributions in cash during the period prior to the maturity date of the
Notes; provided, however, that Preferred Stock of the Company or any Restricted
Subsidiary thereof that is issued with the benefit of provisions requiring a
change of control offer to be made for such Preferred Stock in the event of a
change of control of the Company or Restricted Subsidiary, which provisions have
substantially the same effect as the provisions of the Indenture described under
"Change of Control," shall not be deemed to be Disqualified Capital Stock
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solely by virtue of such provisions; and, provided, further, that the Series A
Preferred Stock shall be deemed not to be Disqualified Capital Stock.
"EBITDA" means, for any Person, for any period, an amount equal to (a) the
sum of (i) Consolidated Net Income for such period, plus (ii) the provision for
taxes for such period based on income or profits to the extent such income or
profits were included in computing Consolidated Net Income and any provision for
taxes utilized in computing net loss under clause (i) hereof, plus (iii)
Consolidated Interest Expense for such period (but only including Redeemable
Dividends in the calculation of such Consolidated Interest Expense to the extent
that such Redeemable Dividends have been included in the calculation of
Consolidated Net Income), plus (iv) depreciation for such period on a
consolidated basis, plus (v) amortization of intangibles for such period on a
consolidated basis, plus (vi) any other non-cash items reducing Consolidated Net
Income for such period, minus (b) all non-cash items increasing Consolidated Net
Income for such period, all for such Person and its Subsidiaries determined in
accordance with GAAP, except that with respect to the Company each of the
foregoing items shall be determined on a consolidated basis with respect to the
Company and its Restricted Subsidiaries only; and provided, however, that, for
purposes of calculating EBITDA during any fiscal quarter, cash income from a
particular Investment of such Person shall be included only (x) if cash income
has actually been received by such Person with respect to such Investment, or
(y) if the cash income derived from such Investment is attributable to Temporary
Cash Investments.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FIXED CHARGE COVERAGE RATIO" of any Person means, with respect to any
determination date, the ratio of (i) EBITDA for such Person's prior four
full-fiscal quarters for which financial results have been reported prior to the
determination date to (ii) Consolidated Fixed Charges of such Person for such
period.
"GAAP" means generally accepted accounting principles consistently applied
as in effect in the United States from time to time.
"HVE ACQUISITION CORP." means HVE Acquisition Corp., an Illinois
corporation.
"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
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
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Company or any Restricted Subsidiary thereof, and (vi) obligations of any such
Person under any Interest Rate Agreement applicable to any of the foregoing (if
and to the extent such Interest Rate Agreement obligations would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP).
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and,
with respect to contingent obligations, the maximum liability upon the
occurrence of the contingency giving rise to the obligation; provided (i) that
the amount outstanding at any time of any Indebtedness issued with original
issue discount, including the Notes, is the principal amount of such
Indebtedness less the remaining unamortized portion of the original issue
discount of such Indebtedness at such time as determined in conformity with GAAP
and (ii) that Indebtedness shall not include any liability for federal, state,
local or other taxes. Notwithstanding any other provision of the foregoing
definition, any trade payable arising from the purchase of goods or materials or
for services obtained in the ordinary course of business shall not be deemed to
be "Indebtedness" of the Company or any Restricted Subsidiaries for purposes of
this definition. Furthermore, guarantees of (or obligations with respect to
letters of credit supporting) Indebtedness otherwise included in the
determination of such amount shall not also be included.
"INTEREST RATE AGREEMENT" means, for any Person, any interest rate swap
agreement, interest rate cap agreement, interest rate collar agreement or other
similar agreement designed to protect the party indicated therein against
fluctuations in interest rates.
"INVESTMENTS" means, directly or indirectly, any advance (other than
advances to employees and directors of the Company and its Restricted
Subsidiaries in the ordinary course of business of the Company and its
Restricted Subsidiaries), account receivable (other than an account receivable
arising in the ordinary course of business), loan or capital contribution to (by
means of transfers of property to others, payments for property or services for
the account or use of others or otherwise), the purchase of any stock, bonds,
notes, debentures, partnership or joint venture interests or other securities
of, the acquisition, by purchase or otherwise, of all or substantially all of
the business or assets or stock or other evidence of beneficial ownership of,
any Person or the making of any investment in any Person. Investments shall
exclude extensions of trade credit on commercially reasonable terms in
accordance with normal trade practices.
"ISSUE DATE" means the date the Notes are first issued by the Company and
authenticated by the Trustee under the Indenture.
"LIEN" means with respect to any property or assets of any Person, any
mortgage or deed of trust, pledge, hypothecation, assignment, deposit
arrangement, security interest, lien, charge, easement, encumbrance, preference,
priority, or other security agreement or preferential arrangement of any kind or
nature whatsoever on or with respect to such property or assets (including
without limitation, any Capitalized Lease Obligation, conditional sales, or
other title retention agreement having substantially the same economic effect as
any of the foregoing).
"NET INCOME" means, with respect to any Person for any period, the net
income (loss) of such Person determined in accordance with GAAP.
"NET INVESTMENT" means the excess of (i) the aggregate amount of all
Investments in Unrestricted Subsidiaries made by the Company on or after the
Issue Date (in the case of an Investment made other than in cash, the amount
shall be the fair market value of such Investment as determined in good faith by
the board of directors of the Company) over (ii) the sum of (A) the aggregate
amount returned in cash on such Investments whether through interest payments,
principal payments, dividends or other distributions and (B) the net cash
proceeds received by the Company from the disposition of all or any portion of
such Investments (other than to a Subsidiary of the Company); provided, however,
that with respect to all Investments made in an Unrestricted Subsidiary the sum
of clauses (A) and (B) above with respect to such Investments shall not exceed
the aggregate amount of all such Investments made in such Unrestricted
Subsidiary.
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"NET PROCEEDS" means (a) in the case of any sale of Capital Stock by any
Person, the aggregate net proceeds received by such Person, after payment of
expenses, commissions and the like incurred in connection therewith, whether
such proceeds are in cash or in property (valued at the fair market value
thereof, as determined in good faith by the board of directors, at the time of
receipt), (b) in the case of any exchange, exercise, conversion or surrender of
outstanding securities of any kind for or into shares of Capital Stock of the
Company which is not Disqualified Capital Stock, the net book value of such
outstanding securities on the date of such exchange, exercise, conversion or
surrender (plus any additional amount required to be paid by the holder to the
Company upon such exchange, exercise, conversion or surrender, less any and all
payments made to the holders, e.g., on account of fractional shares and less all
expenses incurred by the Company in connection therewith) and (c) in the case of
any issuance of any Indebtedness by the Company or any Restricted Subsidiary,
the aggregate net cash proceeds received by such Person after the payment of
expenses, commissions, underwriting discounts and the like incurred in
connection therewith.
"NEW REVOLVING CREDIT FACILITY" means the credit agreement or credit
agreements to be entered into by and among the Company, the Restricted
Subsidiaries and any one or more lenders from time to time parties thereto, as
the same may be amended, extended, increased, renewed, restated, supplemented or
otherwise modified (in whole or in part, and without limitation as to amount,
terms, conditions, covenants and other provisions) from time to time and any
agreement or agreements governing Indebtedness incurred to refinance, replace,
restructure or refund in whole or in part the borrowings and then maximum
commitments under the New Revolving Credit Facility or such agreement (whether
with the original administrative agent and lenders or other lenders or other
agents and lenders or otherwise and whether provided under the original credit
facility or other credit agreements or otherwise). The Company shall promptly
notify the Trustee of any such refunding, replacement, restructuring or
refinancing of the New Revolving Credit Facility.
"OFFICERS' CERTIFICATE" means, with respect to any Person, a certificate
signed by the Chairman of the Board, the Chief Executive Officer, the Deputy
Chairman of the Board, the President, the Chief Operating Officer or any Vice
President and the Chief Financial Officer or any Treasurer of such Person that
shall comply with applicable provisions of the Indenture.
"PARENT" means Letitia Corporation, a Delaware corporation and the Company's
sole stockholder.
"PERMITTED HOLDERS" means (a) Parent, (b) Laurence S. Levy, (c) Clifford
Press and (d) any spouse and any trust, holding company, or similar entity
established by and or controlled by either or both of Laurence S. Levy and
Clifford Press for the principal benefit of any of them or their spouses, lineal
descendants or other family members.
"PERMITTED INDEBTEDNESS" means:
(i) Indebtedness of the Company or any Restricted Subsidiary arising
under or in connection with the New Revolving Credit Facility in an amount
not to exceed $25,000,000 less any mandatory prepayments actually made
thereunder (to the extent, in the case of payments of revolving credit
indebtedness, that the corresponding commitments have been permanently
reduced);
(ii) Indebtedness under the Notes and the Guarantees, if applicable;
(iii) (A) Indebtedness of foreign Restricted Subsidiaries outstanding
under one or more working capital facilities not to exceed the aggregate of
85% of eligible accounts receivable and 60% of eligible inventory of each
such Restricted Subsidiary and (B) additional Indebtedness of such
Restricted Subsidiaries not to exceed $2,000,000 in aggregate principal
amount outstanding at any one time;
(iv) Indebtedness not covered by any other clause of this definition
which is outstanding on the date of the Indenture;
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(v) Indebtedness of the Company to any Restricted Subsidiary and
Indebtedness of any Restricted Subsidiary to the Company or another
Restricted Subsidiary;
(vi) Purchase Money Indebtedness and Capitalized Lease Obligations
incurred to acquire property in the ordinary course of business which
Indebtedness and Capitalized Lease Obligations do not in the aggregate
exceed $5,000,000;
(vii) Interest Rate Agreements;
(viii) additional Indebtedness of the Company not to exceed $2,000,000 in
principal amount outstanding at any time; and
(ix) Refinancing Indebtedness.
"PERMITTED INVESTMENTS" means, for any Person, Investments made on or after
the date of the Indenture consisting of:
(i) Investments by the Company, or by a Restricted Subsidiary thereof,
in the Company or a Restricted Subsidiary, provided that any such Investment
is permitted under clauses (a), (b) or (c) of the "-- Limitation on
Disposition of Assets" covenant;
(ii) Temporary Cash Investments;
(iii) Investments by the Company, or by a Restricted Subsidiary thereof,
in a Person, if as a result of such Investment (a) such Person becomes a
Restricted Subsidiary of the Company or (b) such Person is merged,
consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Restricted Subsidiary thereof;
(iv) Existing Investments in a Restricted Subsidiary which becomes an
Unrestricted Subsidiary after a Qualified Subsidiary IPO; provided, however,
that investments by the Company in a Restricted Subsidiary in anticipation
of a Qualified Subsidiary IPO shall not be considered Permitted Investments;
(v) reasonable and customary loans made to employees in connection with
their relocation not to exceed $1,000,000 in the aggregate at any one time
outstanding;
(vi) an Investment that is made by the Company or a Restricted
Subsidiary thereof in the form of any stock, bonds, notes, debentures,
partnership or joint venture interests or other securities that are issued
by a third party to the Company or Restricted Subsidiary solely as partial
consideration for the consummation of an Asset Sale that is otherwise
permitted under the covenant described under "-- Limitation on Certain Asset
Sales," and
(vii) other Investments that do not exceed $1,000,000 at any time
outstanding plus, the aggregate amount returned in cash on or with respect
to Investments made pursuant to this clause (vii) not to exceed the
aggregate amount invested by the Company therein.
"PERMITTED LIENS" means (i) Liens on property or assets of, or any shares of
stock of or secured debt of, any corporation existing at the time such
corporation becomes a Restricted Subsidiary of the Company or at the time such
corporation is merged into the Company or any of its Restricted Subsidiaries;
provided that such Liens are not incurred in connection with, or in
contemplation of, such corporation becoming a Restricted Subsidiary of the
Company or merging into the Company or any of its Restricted Subsidiaries, (ii)
Liens securing Refinancing Indebtedness; provided that any such Lien does not
extend to or cover any Property, shares or debt other than the Property, shares
or debt securing the Indebtedness so refunded, refinanced or extended, (iii)
Liens in favor of the Company or any of its Restricted Subsidiaries, (iv) Liens
securing industrial revenue bonds, (v) Liens to secure Purchase Money
Indebtedness that is otherwise permitted under the Indenture; provided that (a)
any such Lien is created solely for the purpose of securing Indebtedness
representing, or incurred to finance, refinance or refund, the cost (including
sales
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and excise taxes, installation and delivery charges and other direct costs of,
and other direct expenses paid or charged in connection with, such purchase or
construction) of such Property, (b) the principal amount of the Indebtedness
secured by such Lien does not exceed 100% of such costs, and (c) such Lien does
not extend to or cover any Property other than such item of Property and any
improvements on such item, (vi) statutory liens or landlords', carriers',
warehouseman's, mechanics', suppliers', materialmen's, repairmen's or other like
Liens arising in the ordinary course of business which do not secure any
Indebtedness and with respect to amounts not yet delinquent or being contested
in good faith by appropriate proceedings, if a reserve or other appropriate
provision, if any, as shall be required in conformity with GAAP shall have been
made therefor, (vii) other Liens securing obligations incurred in the ordinary
course of business which obligations do not exceed $1,000,000 in the aggregate
at any one time outstanding, (viii) any extensions, substitutions, replacements
or renewals of the foregoing, (ix) Liens for taxes, assessments or governmental
charges that are being contested in good faith by appropriate proceedings, (x)
Liens securing Capitalized Lease Obligations permitted to be incurred under
clause (vi) of the definition of "Permitted Indebtedness" provided that such
Lien does not extend to any property other than that subject to the underlying
lease; (xi) Liens to secure Indebtedness consisting of Interest Rate Agreements;
and (xii) Liens securing the New Revolving Credit Facility.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government (including any agency or political subdivision thereof).
"PHI ACQUISITION" means the acquisition of PHI Acquisition Holdings, Inc. by
the Company and Lauren Corporation pursuant to an Agreement and Plan of Merger
dated as of May 7, 1997.
"PREFERRED STOCK" means any Capital Stock of a Person, however designated,
which entitles the holder thereof to a preference with respect to dividends,
distributions or liquidation proceeds of such Person over the holders of other
Capital Stock issued by such Person.
"PROPERTY" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in the
most recent consolidated balance sheet of such Person and its Subsidiaries under
GAAP.
"PURCHASE MONEY INDEBTEDNESS" means any Indebtedness incurred in the
ordinary course of business by a Person to finance the cost (including the cost
of construction) of an item of property, the principal amount of which
Indebtedness does not exceed the sum of (i) 100% of such cost and (ii)
reasonable fees and expenses of such Person incurred in connection therewith.
"QUALIFIED EQUITY OFFERING" means a public offering by the Company or Parent
of shares of its common stock (however designated and whether voting or
non-voting) and any and all rights, warrants or options to acquire such common
stock.
"QUALIFIED SUBSIDIARY IPO" means a public offering by a Restricted
Subsidiary that is an obligor under an Intercompany Note of shares of its
Capital Stock (however designated and whether voting or non-voting) and any and
all rights, warrants or options to acquire such Capital Stock.
"REDEEMABLE DIVIDEND" means, for any dividend or distribution with regard to
Disqualified Capital Stock, the quotient of the dividend or distribution divided
by the difference between one and the maximum statutory federal income tax rate
(expressed as a decimal number between 1 and 0) then applicable to the issuer of
such Disqualified Capital Stock.
"REFINANCING INDEBTEDNESS" means Indebtedness that refunds, refinances or
extends any Indebtedness of the Company or any Restricted Subsidiary outstanding
on the Issue Date or other Indebtedness permitted to be incurred by the Company
or its Restricted Subsidiaries pursuant to the terms of the Indenture, but only
to the extent that (i) the Refinancing Indebtedness is subordinated to the Notes
to at least the same extent as the Indebtedness being refunded, refinanced or
extended, if at all, (ii) the
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Refinancing Indebtedness is scheduled to mature either (a) no earlier than the
Indebtedness being refunded, refinanced or extended, or (b) after the maturity
date of the Notes, (iii) the portion, if any, of the Refinancing Indebtedness
that is scheduled to mature on or prior to the maturity date of the Notes has a
weighted average life to maturity at the time such Refinancing Indebtedness is
incurred that is equal to or greater than the weighted average life to maturity
of the portion of the Indebtedness being refunded, refinanced or extended that
is scheduled to mature on or prior to the maturity date of the Notes, (iv) such
Refinancing Indebtedness is in an aggregate principal amount that is equal to or
less than the sum of (a) the aggregate principal amount then outstanding under
the Indebtedness being refunded, refinanced or extended, (b) the amount of
accrued and unpaid interest, if any, and premiums owed, if any, not in excess of
preexisting prepayment provisions on such Indebtedness being refunded,
refinanced or extended and (c) the amount of customary fees, expenses and costs
related to the incurrence of such Refinancing Indebtedness, and (v) such
Refinancing Indebtedness is incurred by the same Person that initially incurred
the Indebtedness being refunded, refinanced or extended, except that the Company
may incur Refinancing Indebtedness to refund, refinance or extend Indebtedness
of any Wholly Owned Subsidiary of the Company and any Wholly Owned Subsidiary of
the Company which becomes a Guarantor may incur Refinancing Indebtedness to
refund, refinance or extend Indebtedness of the Company.
"RESTRICTED PAYMENT" means any of the following: (i) the declaration or
payment of any dividend or any other distribution or payment on Capital Stock of
the Company or any Restricted Subsidiary of the Company or any payment made to
the direct or indirect holders (in their capacities as such) of Capital Stock of
the Company or any Restricted Subsidiary of the Company (other than (x)
dividends or distributions payable solely in Capital Stock (other than
Disqualified Capital Stock) or in options, warrants or other rights to purchase
Capital Stock (other than Disqualified Capital Stock), and (y) in the case of
Subsidiaries of the Company, dividends or distributions payable to the Company
or to a Wholly Owned Subsidiary of the Company), (ii) the purchase, redemption
or other acquisition or retirement for value of any Capital Stock of the Company
or any of its Restricted Subsidiaries (other than Capital Stock owned by the
Company or a Wholly Owned Subsidiary of the Company, excluding Disqualified
Capital Stock), (iii) the making of any principal payment on, or the purchase,
defeasance, repurchase, redemption or other acquisition or retirement for value,
prior to any scheduled maturity, scheduled repayment or scheduled sinking fund
payment, of any Indebtedness which is subordinated in right of payment to the
Notes (other than subordinated Indebtedness acquired in anticipation of
satisfying a scheduled sinking fund obligation, principal installment or final
maturity, in each case due within one year of the date of acquisition), (iv) the
making of any Investment or guarantee of any Investment in any Person other than
a Permitted Investment, (v) any designation of a Restricted Subsidiary as an
Unrestricted Subsidiary on the basis of the amount of the Net Investment by the
Company therein (other than in connection with a Qualified Subsidiary IPO), (vi)
the redemption of or the making of any Contingent Interest Payments, (vii)
forgiveness of any Indebtedness of an Affiliate of the Company to the Company or
a Restricted Subsidiary and (viii) the exchange of Warrants for Subsidiary
Warrants or Common Shares for Subsidiary Shares. For purposes of determining the
amount expended for Restricted Payments, cash distributed or invested shall be
valued at the face amount thereof and property other than cash shall be valued
at its fair market value.
"RESTRICTED SUBSIDIARY" means a Subsidiary of the Company other than an
Unrestricted Subsidiary and includes (i) all of the direct or indirect
Subsidiaries of the Company existing as of the Issue Date and (ii) Stewart
Warner, Benner Berg, HVE Acquisition Corp. and each of Stewart Warner's wholly
owned subsidiaries. The Board of Directors of the Company may designate any
Unrestricted Subsidiary or any Person to be acquired that is to become a
Subsidiary as a Restricted Subsidiary if immediately after giving effect to such
action (and treating any Acquired Indebtedness as having been incurred at the
time of such action), (i) the Company could have incurred at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Additional Indebtedness" covenant or (ii) the Company's Fixed
Charge Coverage Ratio (determined on a pro forma basis for the last four fiscal
quarters of the Company for which financial statements are available at the date
of determination in accordance with the "Limitation of Additional Indebtedness"
covenant) does not decrease, the Company does not
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incur any Indebtedness (other than Indebtedness under the Notes permitted under
clause (ii) of the definition of "Permitted Indebtedness") and such Subsidiary
shall execute and deliver to the Trustee a supplemental indenture, in form
reasonably satisfactory to the Trustee, providing for the Guarantee by such
Subsidiary of the payment of the obligations of the Company under the Notes in
the manner set forth under "-- Guarantees"; provided, however, that the
foregoing Indebtedness incurrence condition set forth under clause (i) above
shall not apply to the designation as a Restricted Subsidiary of the Subsidiary
("Anderson Ireland") to which is to be transferred the assets and liabilities of
the Fermoy, Ireland division of HIVEC, B.V. that is associated with the business
of Anderson.
"SALE AND LEASE-BACK TRANSACTION" means any arrangement with any Person
providing for the leasing by the Company or any Restricted Subsidiary of the
Company of any real or tangible personal property, which property has been or is
to be sold or transferred by the Company or such Restricted Subsidiary to such
Person in contemplation of such leasing.
"SERIES A PREFERRED STOCK" means the 12 1/2% Series A Exchange Senior
Redeemable Preferred Stock of the Company.
"STEWART WARNER" means Stewart Warner Instrument Corporation, an Illinois
corporation.
"STEWART WARNER ACQUISITION" means the acquisition directly or indirectly of
all of the issued and outstanding shares of capital stock of Stewart Warner and
of each of Benner Berg, Stewart Warner Instruments (Barbados) Inc., a Barbados
corporation, TTS Mexican Holding Company, Inc., an Illinois corporation, and
Instrumentos Stewart Warner de Mexico, S.A. de C.V., a Mexican corporation,
pursuant to the certain Stock Purchase Agreement, dated as of February 4, 1998,
by and among Carolyn Corporation, a wholly owned subsidiary of the Company, and
the direct and indirect selling shareholders of Stewart Warner listed on the
signature pages attached thereto.
"SUBSIDIARY" of any specified Person means any corporation, partnership,
joint venture, association or other business entity, whether now existing or
hereafter organized or acquired, (i) in the case of a corporation, of which more
than 50% of the total voting power of the Capital Stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
officers or trustees thereof is held by such first named Person or any of its
Subsidiaries; or (ii) in the case of a partnership, joint venture, association
or other business entity, with respect to which such first-named Person or any
of its Subsidiaries has the power to direct or cause the direction of the
management and policies of such entity by contract or otherwise or if in
accordance with generally accepted accounting principles such entity is
consolidated with the first named Person for financial statement purposes.
"SUBSIDIARY WARRANTS" means warrants of a Subsidiary that may be issued in
exchange for the Warrants in connection with a Qualified Subsidiary IPO.
"TEMPORARY CASH INVESTMENTS" means (i) Investments in marketable, direct
obligations issued or guaranteed by the United States of America, or of any
governmental agency or political subdivision thereof, maturing within 365 days
of the date of purchase; (ii) Investments in certificates of deposit issued by a
bank organized under the laws of the United States of America or any state
thereof or the District of Columbia, in each case having capital, surplus and
undivided profits totaling more than $500,000,000 and rated at least A by
Standard & Poor's Corporation and A-2 by Moody's Investors Service, Inc.,
maturing within 365 days of purchase; or (iii) Investments not exceeding 365
days in duration in money market funds that invest substantially all of such
funds' assets in the Investments described in the preceding clauses (i) and
(ii).
"UNRESTRICTED SUBSIDIARY" means (a) any Subsidiary of an Unrestricted
Subsidiary and (b) any Subsidiary of the Company which is classified after the
Issue Date as an Unrestricted Subsidiary by a resolution adopted by the Board of
Directors of the Company; provided that, other than a Restricted Subsidiary
which may be classified as an Unrestricted Subsidiary upon consummation of a
Qualified Subsidiary IPO in compliance with "-- Offer to Repurchase upon a
Qualified Subsidiary IPO," a
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Subsidiary may be so classified as an Unrestricted Subsidiary only if (x) the
Restricted Subsidiary to be so designated has total assets of $1,000 or less or
(y) immediately after giving effect to such designation, the Company could incur
at least $1.00 of additional Indebtedness pursuant to the first paragraph under
"-- Limitation on Additional Indebtedness," and provided, further, that the
Company could make a Restricted Payment in an amount equal to the greater of the
fair market value (as determined by the Board of Directors in good faith) and
book value of such Restricted Subsidiary pursuant to the "-- Limitation on
Restricted Payments" covenant and such amount is thereafter treated as a
Restricted Payment for the purpose of calculating the aggregate amount available
for Restricted Payments thereunder. The Trustee shall be given prompt notice by
the Company of each resolution adopted by the Board of Directors of the Company
under this provision, together with a copy of each such resolution adopted.
"WARRANTS" means the warrants issued in connection with the issuance of the
Original Series A Preferred Stock.
"WHOLLY OWNED SUBSIDIARY" means any Restricted Subsidiary, all of the
outstanding voting securities (other than directors' qualifying shares) of which
are owned, directly or indirectly, by the Company.
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DESCRIPTION OF OTHER INDEBTEDNESS
The Company has certain other outstanding indebtedness and other payment
obligations (including guarantees of a subsidiary's indebtedness) which contain
a number of covenants that, among other things, restrict the ability of the
Company and its subsidiaries to incur additional indebtedness, pay certain
dividends, prepay indebtedness, dispose of certain assets, create liens, make
capital expenditures, make certain investments or acquisitions and otherwise
restrict corporate activities. Certain of these agreements also contain
provisions relating to a change of control of the Company and requirements that
the Company comply with certain financial ratios and tests. 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.
REVOLVING CREDIT FACILITY
Concurrently with the closing of the sale of the Original Notes, the Company
entered into a $25.0 million senior secured revolving credit facility, including
a $5.1 million sublimit for the issuance of standby letters of credit (the
"Revolving Credit Facility"), with Fleet National Bank (the "Lender").
INTEREST RATE AND SECURITY. Availability under the Revolving Credit
Facility is limited to the sum of 85% of eligible accounts receivable and 60% of
eligible inventory. The term of the Revolving Credit Facility is five years.
Amounts borrowed under the Revolving Credit Facility will bear interest, at the
option of the Company, at either (i) the Lender's Base Rate plus 0.25% or (ii)
LIBOR plus 1.50%. Obligations under the 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 Revolving Credit Facility contains a number of
covenants that restrict the operations 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 Revolving
Credit Facility also includes certain financial covenants, including without
limitation, a maximum total leverage ratio and a minimum fixed charge coverage
ratio. The Revolving Credit Facility also contains customary representations,
warranties, affirmative and negative covenants and events of default for a
facility of this type.
As of March 28, 1998, borrowings outstanding under the Revolving Credit
Facility were $5.1 million and there were $5.1 million in letter of credit
commitments outstanding.
GUARANTEES OF ROBICON INDUSTRIAL REVENUE BONDS
PENNSYLVANIA ECONOMIC DEVELOPMENT FINANCING AUTHORITY. HVE is the guarantor
of Robicon's obligations to the Pennsylvania Economic Development Financing
Authority ("PEDFA") under a certain loan agreement among Robicon, PEDFA and
Dollar Bank, Federal Savings Bank ("Dollar Bank"), pursuant to which Robicon
borrowed $4.2 million from PEDFA to finance the construction of Robicon's
manufacturing facility in New Kensington, Pennsylvania. In connection with the
loan, PEDFA issued a Pennsylvania Economic Development Revenue Bond (1995 Series
C) (the "PEDFA IRB") to Dollar Bank for $4.2 million. PEDFA simultaneously
assigned most of its rights to reimbursement under the loan agreement to Dollar
Bank pursuant to an indenture between PEDFA and Dollar Bank. The PEDFA IRB is a
special limited obligation of PEDFA, payable solely from funds received from
Robicon and under the guarantee (the "PEDFA Guarantee") from HVE and an Open-End
Mortgage and Security Agreement granting a first priority security interest in
the land and improvements at the New Kensington facility.
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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 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 March 28, 1998 was $3.7 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 Dollar Bank. 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 March 28, 1998 was
approximately $1.6 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>
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").
110,000 shares of Preferred Stock have been designated as 12 1/2% Series A
Senior Redeemable Preferred Stock, no shares of which were issued and
outstanding as of March 28, 1998. 110,000 shares of Preferred Stock have been
designated as 12 1/2% Series A Exchange Senior Redeemable Preferred Stock,
33,000 shares of which were issued and outstanding as of March 28, 1998.
HVE COMMON STOCK
At March 28, 1998, 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 HVE
may designate and issue in the future.
Holders of the Common Shares included in the Units sold in the Original
Offering 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 under certain other
circumstances. 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 Oppenheimer Corp.
purchased
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<PAGE>
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 Original Offering at the same purchase price.
Contemporaneous with the sale of the Original Notes, HVE issued, as part of
33,000 Units also comprising in the aggregate 33,000 shares of Series A
Preferred Stock and 82.7429 Common Shares, Warrants to purchase an aggregate of
82.7429 shares of HVE Common Stock.
Each of these Warrants, 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 and Warrant
and Common Stock Exchange Agreement, dated as of August 8, 1997, as amended, by
and among HVE, the subsidiaries of HVE named therein, and State Street Bank and
Trust Company, as successor by assignment to Boston EquiServe, L.P., as Warrant
Agent (the "Warrant Agreement"). The Warrants are presently exercisable and,
unless exercised, will automatically expire on August 15, 2005 (the "Expiration
Date"). The Warrants 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 12 1/2% Series A Senior Redeemable Preferred Stock and an
additional 110,000 of these shares have been designated as 12 1/2% Series A
Exchange Senior Redeemable Preferred Stock. The creation and issuance of any
additional series of Preferred Stock may have the effect of delaying, deferring
or preventing a change of control of the Company.
The Company issued an aggregate of 33,000 shares of Original Series A
Preferred Stock with a liquidation preference of $1,000 per share on August 8,
1997 in the sale of the Units. Pursuant to a registration statement filed by the
Company, the Company exchanged shares of Series A Preferred Stock for all of the
outstanding shares of Original Series A Preferred Stock. The terms of the
Original Series A Preferred Stock are substantially identical to the terms of
the Series A Preferred Stock, except that the shares of Series A Preferred Stock
have been registered under the Securities Act and do not bear legends
restricting the transfer of such shares.
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<PAGE>
The Original Series A Preferred Stock and Series A 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 issuance of the original Series A
Preferred Stock (collectively, "Junior Securities"). The Company may not issue
any class or series of capital stock ranking senior to or on a parity with the
Original Series A Preferred Stock and Series A Preferred Stock (or amend the
provisions of any existing class of capital stock or series of preferred stock
to make such class or series rank senior to or on a parity with the Series A
Preferred Stock) with respect to dividend distributions or distributions upon
liquidation, dissolution or winding-up of the Company without the approval of
the holders of at least a majority of the shares of Series A Preferred Stock and
Original Series A Preferred Stock then outstanding, voting or consenting, as the
case may be, together as one class; provided, however, that the Company can
issue, from time to time, (i) additional shares of Series A Preferred Stock to
satisfy dividend payments on outstanding shares of Series A Preferred Stock, and
(ii) up to 5,000 shares of Series A Preferred Stock, along with sufficient
additional shares of Series A Preferred Stock to satisfy the payment of
dividends thereon.
Holders of Series A Preferred Stock are entitled to receive, when, as and if
declared by the Board of Directors of the Company, out of funds legally
available therefor, dividends on the Series A Preferred Stock at a rate per
annum equal to 12 1/2% of the liquidation preference per share of Series A
Preferred Stock, payable semiannually. All dividends will be cumulative whether
or not earned or declared on a daily basis from the date on which such stock is
issued and will be payable semiannually in arrears on August 15 and February 15
of each year, commencing on February 15, 1998, to holders of record on the
August 1 and February 1 immediately preceding the relevant dividend payment
date. Dividends may be paid, at the Company's option, on any dividend payment
date occurring on or prior to August 15, 2002 either in cash or by the issuance
of additional shares of Series A Preferred Stock (including fractional shares)
having an aggregate liquidation preference equal to the amount of such
dividends. In the event that on or prior to August 15, 2002 dividends are
declared and paid through the issuance of additional shares of Series A
Preferred Stock, as provided in the previous sentence, such dividends shall be
deemed paid in full and will not accumulate. If any dividend payable on any
dividend payment date subsequent to August 15, 2000 is not paid in full in cash,
the per annum dividend rate will be increased by 0.50% from such dividend
payment date, and following two such non-cash payments, the per annum dividend
rate will be increased by 1.00% for each additional semiannual period in which
such non-cash payment occurs, up to a maximum rate of 200 basis points in excess
of the dividend rate originally borne by the Series A Preferred Stock. After the
date on which such dividend 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. After August 15, 2002, dividends on such classes of Preferred
Stock must be paid in cash.
The Series A Preferred Stock may be redeemed (subject to contractual and
other restrictions with respect thereto and to the legal availability of funds
therefor) at any time on or after August 15, 2002, in whole or in part, at the
option of the Company, at the redemption prices (expressed in percentages of the
then effective liquidation preference thereof) set forth below, plus, without
duplication, an amount in cash equal to all accumulated and unpaid dividends
(including an amount in cash equal to a prorated dividend for the period from
the dividend payment date immediately prior to the redemption date to the
redemption date), if redeemed during the 12-month period beginning August 15 of
each of the years set forth below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- --------------------------------------------------------------------------------- -----------
<S> <C>
2002............................................................................. 106.250%
2003............................................................................. 103.125%
2004............................................................................. 101.563%
2005 and thereafter.............................................................. 100.000%
</TABLE>
127
<PAGE>
The Series A Preferred Stock will also be subject to mandatory redemption
(subject to contractual and other restrictions with respect thereto and to the
legal availability of funds therefor) in whole on August 15, 2005 at a price
equal to 100% of the liquidation preference thereof, payable in cash, plus,
without duplication, all accumulated and unpaid dividends, which will also be
paid in cash (whether or not otherwise payable in cash) to the date of
redemption.
Upon any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, holders of the Series A Preferred Stock will initially be entitled
to be paid, out of the assets of the Company available for distribution, $1,000
per share, plus an amount in cash equal to accumulated and unpaid dividends
thereon to the date fixed for liquidation, dissolution or winding-up (including
an amount equal to a prorated dividend for the period from the immediately
preceding dividend payment date to the date fixed for liquidation, dissolution
or winding-up), before any distribution is made on any Junior Securities. If
upon any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the amounts payable with respect to the Series A Preferred Stock are
not paid in full, the holders of the 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.
Holders of the Series A Preferred Stock will have no voting rights with
respect to general corporate matters except as provided by law or upon the
occurrence of certain events as set forth in the Restated Articles.
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 Series
A 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) in accordance with the procedures
set forth in this covenant.
The Restated Articles impose certain restrictions on the ability of Company
to declare or pay dividends or make distributions with respect to, or purchase,
or redeem or exchange, any capital stock of the Company other than the Series A
Preferred Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Restated Articles contain certain provisions permitted under
Massachusetts law relating to the liability of directors. These provisions
eliminate a director's personal liability for monetary damages resulting from a
breach of fiduciary duty, except in certain circumstances involving certain
wrongful acts, such as the breach of a director's duty of loyalty or acts or
omissions that involve intentional misconduct or a knowing violation of law.
These provisions do not limit or eliminate the rights of the Company or any
stockholder to seek non-monetary relief, such as an injunction or rescission, in
the event of a breach of a director's fiduciary duty. These provisions will not
alter a director's liability under federal securities laws. The Company's
Restated Articles and By-laws also contain provisions indemnifying the directors
and officers of the Company to the fullest extent permitted by Massachusetts
law. The Company believes that these provisions will assist the Company in
attracting and retaining qualified individuals to serve as directors.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion of certain of the anticipated federal income tax
consequences of an exchange of the New Notes for Exchange Notes and of the
purchase, ownership, and disposition of the Exchange Notes is based upon the
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
final, temporary, and proposed regulations promulgated thereunder, and
administrative rulings and judicial decisions now in effect, all of which are
subject to change (possibly with retroactive effect) or different
interpretations. This summary does not purport to deal with all aspects of
federal income taxation that may be relevant to a particular investor, nor any
tax consequences arising under the laws of any state, locality, or foreign
jurisdiction, and it is not intended to be applicable to all categories of
investors, some of which, such as dealers in securities, banks, insurance
companies, tax-exempt organizations, foreign persons, persons that hold Exchange
Notes as part of a straddle or conversion transactions or holders subject to the
alternative minimum tax, may be subject to special rules. In addition, the
summary is limited to persons that will hold the Exchange Notes as "capital
assets" (generally, property held for investment) within the meaning of Section
1221 of the Code. ALL INVESTORS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS
REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE
EXCHANGE AND THE OWNERSHIP AND DISPOSITION OF EXCHANGE NOTES.
TAXATION OF HOLDERS ON EXCHANGE
Although the matter is not free from doubt, an exchange of New Notes for
Exchange Notes should not be a taxable event to holders of New Notes, and
holders should not recognize any taxable gain or loss as a result of such an
exchange. Accordingly, a holder would have the same adjusted basis and holding
period in the Exchange Notes as it had in the New Notes immediately before the
exchange. Further, the tax consequences of ownership and disposition of any
Exchange Notes should be the same as the tax consequences of ownership and
disposition of New Notes.
MARKET DISCOUNT
If a holder purchases a Note for an amount that is less than its principal
amount, the amount of the difference will be treated as "market discount" for
federal income tax purposes, unless such difference is less than a specified de
minimis amount. Under the market discount rules, a holder will be required to
treat any principal payment on, or any gain on the sale, exchange, retirement or
other disposition of, a Note as ordinary income to the exchange of the market
discount which has not previously been included in income and is treated as
having accrued on such a Note at the time of such payment or disposition. In
addition, the holder may be required to defer, until the maturity of the Note or
its earlier disposition in a taxable transaction, the deduction of all or a
portion of the interest expense on any indebtedness incurred or continued to
purchase or carry such Note.
Any market discount will be considered to accrue ratably during the period
from the date of acquisition to the maturity date of the Note, unless the holder
elects to accrue on a constant interest method. A holder of a Note may elect to
include market discount in income currently as it accrues (on either a ratable
or constant interest method), in which case the rule described above regarding
deferral of interest deductions will not apply. This election to include market
discount in income currently, once made, applies to all market discount
obligations acquired on or after the first taxable year to which the election
applies and may not be revoked without the consent of the Internal Revenue
Service (the "IRS").
AMORTIZABLE BOND PREMIUM
A holder that purchases a Note for an amount in excess of the sum of its
principal amount will be considered to have purchased the Note at a "premium." A
holder generally may elect to amortize the premium over the remaining term of
the Note on a constant yield method. The amount amortized in any
129
<PAGE>
year will be treated as a reduction of the holder's interest income from the
Note. Bond premium on a Note held by a holder that does not make such an
election will decrease the gain or increase the loss otherwise recognized on
disposition of the Note. The election to amortize premium on a constant yield
method once made applies to all debt obligations held or subsequently acquired
by the electing holder on or after the first day of the first taxable year to
which the election applies and may not be revoked without the consent of the
IRS.
SALE, EXCHANGE AND RETIREMENT OF NOTES
A holder's tax basis in a Note will, in general, be the holder's cost
therefor, increased by market discount previously included in income by the
holder and reduced by any amortized premium. Upon the sale, exchange or
retirement of a Note, a holder will recognize gain or loss equal to the
difference between the amount realized upon the sale, exchange or retirement
(less any accrued interest, which will be taxable as such) and the adjusted tax
basis of the Note. Except as described above with respect to market discount,
such gain or loss will be capital gain or loss and will, as a general rule, be
long-term capital gain or loss if at the time of sale, exchange or retirement
the Note has been held for more than eighteen months. Under current law,
long-term capital gains of individuals are, under certain circumstances, taxed
at lower rates than items of ordinary income. The deductibility of capital
losses is subject to limitations.
BACKUP WITHHOLDING
In general, information reporting requirements will apply to certain
payments of principal, interest and premium paid on Notes and to the proceeds of
sale of a Note made to holders other than certain exempt recipients (such as
corporations). A 31% backup withholding tax will apply to such payments if the
holder fails to provide a taxpayer identification number or certification of
foreign or other exempt status or fails to report in full dividend and interest
income.
Any amounts withheld under the backup withholding rules will be allowed as a
refund or a credit against such holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
THE UNITED STATES FEDERAL TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR
GENERAL INFORMATION ONLY AND MAY OR MAY NOT BE APPLICABLE DEPENDING UPON A
HOLDER'S PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISERS WITH
RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE EXCHANGE OF NEW NOTES FOR
EXCHANGE NOTES AND OF THE OWNERSHIP AND DISPOSITION OF THE EXCHANGE NOTES,
INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN AND OTHER TAX LAWS
AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR OTHER TAX LAWS.
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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 certified public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said expert firm as 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 certified public accountants, as indicated in
their report with respect thereto, and are included herein in reliance upon the
authority of said firm as in auditing and accounting.
The consolidated historical financial statements of Stewart Warner and
Subsidiaries as of and for the years ended April 30, 1996 and 1997 and as of and
for the nine-month period ended January 31, 1998, included in this Prospectus
and elsewhere in this Registration Statement have been audited by Deloitte &
Touche LLP, independent certified public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said expert firm as experts in auditing and accounting.
LEGAL MATTERS
The validity of the Exchange Notes has been passed upon for the Company by
Bingham Dana LLP, Boston, Massachusetts.
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, the PHI Merger and
Stewart Warner Acquisition and PHI's and Stewart Warner's contributions 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 Notes offered hereby are cautioned that although the Company
believes that the assumptions on which the forward-looking statements contained
herein are based are reasonable, any of those assumptions could prove to be
inaccurate and, as a result, the forward-looking statements based on those
assumptions also could be materially incorrect. The uncertainties in this regard
include, but are not limited to, those identified in the section of this
Prospectus entitled "Risk Factors." In light of these and other uncertainties,
the inclusion of a forward-looking statement herein should not be regarded as a
representation by the Company that the Company's plans and objectives will be
achieved and prospective investors in the New Notes should not place undue
reliance on such forward-looking statements.
131
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements -- April 29, 1995, April 27, 1996, April 26, 1997,
January 25, 1997 (unaudited) and January 24, 1998 (unaudited)
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 Stockholders' Deficiency........................................................ F-5
Consolidated Statements of Cash Flows...................................................................... F-6
Notes to Consolidated Financial Statements................................................................. F-7
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Financial Statements -- June 28, 1996 and June 27, 1997
Report of KPMG Peat Marwick LLP, Independent Auditors...................................................... F-34
Consolidated Balance Sheets................................................................................ F-35
Consolidated Statements of Operations...................................................................... F-36
Consolidated Statements of Stockholders' Equity............................................................ F-37
Consolidated Statements of Cash Flows...................................................................... F-38
Notes to Consolidated Financial Statements................................................................. F-39
STEWART WARNER INSTRUMENT CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements -- April 30, 1996 and 1997, January 31, 1997 (unaudited) and January 31,
1998
Report of Deloitte & Touche LLP, Independent Auditors...................................................... F-51
Consolidated Balance Sheets................................................................................ F-52
Consolidated Statements of Income.......................................................................... F-53
Statements of Stockholders' Equity......................................................................... F-54
Consolidated Statements of Cash Flows...................................................................... F-55
Notes to Consolidated Financial Statements................................................................. F-56
</TABLE>
F-1
<PAGE>
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,
stockholders' 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of the Company as
of April 27, 1996 and April 26, 1997 and the consolidated results of its
operations and its consolidated cash flows for each of the three years in the
period ended April 26, 1997, in conformity with generally accepted accounting
principles.
/S/ GRANT THORNTON LLP
Boston, Massachusetts GRANT THORNTON LLP
June 18, 1997 (except for notes N and P
as to which the dates are March 19, 1998
and April 15, 1998, respectively)
F-2
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
APRIL 27, APRIL 26, JANUARY 24,
1996 1997 1998
---------- ---------- ------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................... $ 2,107 $ 1,542 $ 15,105
Restricted cash......................................................... 4,595 2,210 3,973
Accounts receivable -- net of allowance for doubtful accounts........... 33,340 33,333 42,918
Refundable income taxes................................................. -- -- 2,157
Inventories............................................................. 20,972 22,334 39,146
Prepaid expenses and other current assets............................... 1,971 1,164 1,676
---------- ---------- ------------
Total current assets................................................ 62,985 60,583 104,975
PROPERTY, PLANT AND EQUIPMENT -- Net........................................ 29,222 30,966 49,130
INVESTMENT IN JOINT VENTURE................................................. -- -- 1,843
ASSETS HELD FOR SALE........................................................ 6,173 5,248 3,858
OTHER ASSETS -- Net......................................................... 5,627 7,432 16,598
COST IN EXCESS OF NET ASSETS ACQUIRED....................................... 9,711 9,358 16,883
---------- ---------- ------------
$ 113,718 $ 113,587 $ 193,287
---------- ---------- ------------
---------- ---------- ------------
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES
Current maturities of long-term debt obligations........................ $ 1,909 $ 2,609 $ 1,308
Foreign credit line..................................................... 2,753 2,284 2,610
Accounts payable........................................................ 18,119 17,199 17,290
Accrued interest........................................................ 6,211 8,394 6,781
Accrued liabilities..................................................... 11,530 12,000 21,955
Advance payments by customers........................................... 6,324 5,294 6,605
Federal, foreign and state income taxes payable......................... 997 1,261 1,270
Deferred income taxes................................................... 3,248 2,171 2,322
---------- ---------- ------------
Total current liabilities........................................... 51,091 51,212 60,141
REDEEMABLE PUT WARRANTS..................................................... -- 2,800 2,500
LONG-TERM OBLIGATIONS, LESS CURRENT MATURITIES.............................. 80,009 80,508 152,997
DEFERRED INCOME TAXES....................................................... 1,900 1,834 4,423
OTHER LIABILITIES........................................................... 3,205 2,495 3,252
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK (aggregate liquidation preference of $33,000 as
of January 24, 1998)...................................................... 10,995 11,474 29,567
STOCKHOLDERS' DEFICIENCY
Common stock............................................................ 1 1 1
Paid-in-capital......................................................... 17,326 17,326 19,527
Accumulated deficit..................................................... (50,869) (54,104) (81,155)
Common stock warrants................................................... -- -- 2,200
Cumulative foreign currency translation adjustment...................... 60 41 (166)
---------- ---------- ------------
Total stockholders' deficiency...................................... (33,482) (36,736) (59,593)
---------- ---------- ------------
$ 113,718 $ 113,587 $ 193,287
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
APRIL 29, APRIL 27, APRIL 26, JANUARY 25 JANUARY 24,
1995 1996 1997 1997 1998
----------- ----------- ----------- ----------- -----------
<CAPTION>
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales.......................................... $ 116,551 $ 149,100 $ 173,103 $ 122,046 $ 164,976
Cost of sales...................................... 73,424 97,386 114,848 81,249 105,962
----------- ----------- ----------- ----------- -----------
Gross profit................................... 43,127 51,714 58,255 40,797 59,014
Administrative and selling expenses................ 26,113 34,915 36,967 26,897 38,755
Research and development expenses.................. 8,094 8,071 9,361 6,962 17,731
Restructuring charge............................... 1,294 150 -- -- --
Reimbursed environmental and litigation costs --
net.............................................. (2,130) (450) 26 228 458
Other.............................................. 892 1,163 2,234 788 44
----------- ----------- ----------- ----------- -----------
Income from operations......................... 8,864 7,865 9,667 5,922 2,026
Interest expense................................... 8,573 11,225 11,989 8,250 14,291
Interest income.................................... (74) (278) (351) (206) (476)
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations before
income taxes, discontinued operations and
extraordinary item........................... 365 (3,082) (1,971) (2,122) (11,789)
Income taxes (credit).............................. 196 (2,619) 526 (2,522) 2,769
----------- ----------- ----------- ----------- -----------
Income (loss) from continuing operations before
discontinued operations and extraordinary
item......................................... 169 (463) (2,497) 400 (14,558)
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) (7,861)
----------- ----------- ----------- ----------- -----------
Net income (loss).................................. 445 613 (2,756) 141 (22,419)
Preferred dividends................................ (415) (446) (479) (356) (2,057)
Accretion of redeemable preferred stock............ -- -- -- -- (175)
----------- ----------- ----------- ----------- -----------
Net income (loss) applicable to common
stockholders..................................... $ 30 $ 167 $ (3,235) $ (215) $ (24,651)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per common share:
Continuing operations.......................... $ (246.00) $ (909.00) $(2,976.00) $ 44.00 ($15,975.26)
Discontinued operations........................ 276.00 1,498.00 -- -- --
Extraordinary item............................. -- (422.00) (259.00) (259.00) (7,479.54)
----------- ----------- ----------- ----------- -----------
Net income (loss) applicable to common
stockholders................................. $ 30.00 $ 167.00 $(3,235.00) $ (215.00) ($23,454.80)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per common share (assuming
dilution):
Continuing operations.......................... $ (246.00) $ (909.00) $(2,299.21) $ 38.50 ($12,331.39)
Discontinued operations........................ 276.00 1,498.00 -- -- --
Extraordinary item............................. -- (422.00) (226.60) (226.60) (6,545.38)
----------- ----------- ----------- ----------- -----------
Net income (loss) applicable to common
stockholders................................. $ 30.00 $ 167.00 $(2,525.81) $ (188.10) ($18,876.77)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Weighted average common stock outstanding.......... 1,000 1,000 1,000 1,000 1,051
Weighted average common stock and dilutive
equivalents outstanding.......................... 1,000 1,000 1,143 1,143 1,201
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIENCY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN
COMMON CURRENCY PENSION
COMMON PAID-IN ACCUMULATED STOCK TRANSLATION LIABILITY
STOCK CAPITAL DEFICIT WARRANTS ADJUSTMENT ADJUSTMENT
--------------- ----------- ---------------- ----------- ----------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Balance, April 30, 1994 as
restated (note A)......... $ 1 $ 17,326 $ (51,066) $ -- $ (915) $ (74)
Net income, as restated..... 445
Preferred stock dividends... (415)
Change in foreign currency
translation............... 201
Liquidation of foreign
subsidiary................ 526
Pension liability
adjustment................ 74
--
----------- -------- ----------- ------ ---
Balance, April 29, 1995..... 1 17,326 (51,036) -- (188) --
Net income, as restated..... 613
Preferred stock dividends... (446)
Change in foreign currency
translation............... 248
--
----------- -------- ----------- ------ ---
Balance, April 27, 1996..... 1 17,326 (50,869) -- 60 --
Net loss.................... (2,756)
Preferred stock dividends... (479)
Change in foreign currency
translation............... (19)
--
----------- -------- ----------- ------ ---
Balance, April 26, 1997..... 1 17,326 (54,104) -- 41 --
Nine Months Ended January
24, 1998 (unaudited):
Net loss.................... (22,419)
Preferred stock
dividends................. (2,057)
Accretion of redeemable
preferred stock........... (175)
Distribution to fund Letitia
common stock repurchase... (2,400)
Change in foreign currency
translation............... (207)
Common stock warrants....... 2,200
Proceeds from issuance of
common stock.............. 2,201
--
----------- -------- ----------- ------ ---
Balance, January 24, 1998
(unaudited)............... $ 1 $ 19,527 $ (81,155) $ 2,200 $ (166) $ --
--
--
----------- -------- ----------- ------ ---
----------- -------- ----------- ------ ---
<CAPTION>
TOTAL
---------
<S> <C>
Balance, April 30, 1994 as
restated (note A)......... $ (34,728)
Net income, as restated..... 445
Preferred stock dividends... (415)
Change in foreign currency
translation............... 201
Liquidation of foreign
subsidiary................ 526
Pension liability
adjustment................ 74
---------
Balance, April 29, 1995..... (33,897)
Net income, as restated..... 613
Preferred stock dividends... (446)
Change in foreign currency
translation............... 248
---------
Balance, April 27, 1996..... (33,482)
Net loss.................... (2,756)
Preferred stock dividends... (479)
Change in foreign currency
translation............... (19)
---------
Balance, April 26, 1997..... (36,736)
Nine Months Ended January
24, 1998 (unaudited):
Net loss.................... (22,419)
Preferred stock
dividends................. (2,057)
Accretion of redeemable
preferred stock........... (175)
Distribution to fund Letitia
common stock repurchase... (2,400)
Change in foreign currency
translation............... (207)
Common stock warrants....... 2,200
Proceeds from issuance of
common stock.............. 2,201
---------
Balance, January 24, 1998
(unaudited)............... $ (59,593)
---------
---------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
<S> <C> <C> <C>
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
----------- ----------- -----------
<CAPTION>
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income (loss)......................................................................... $ 445 613 $ (2,756)
Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary item, net of income taxes................................................. -- 422 --
Depreciation and amortization........................................................... 4,234 4,134 4,376
Write-off of other assets............................................................... 650 1,200 --
Non-cash interest....................................................................... 2,104 2,533 2,897
Deferred income taxes................................................................... (410) (2,714) (1,143)
Undistributed earnings ofaffiliate...................................................... (250) (88) (201)
(Gain) loss on sale of discontinued operations.......................................... 331 (1,633) --
Other................................................................................... 456 (37) (186)
Change in assets and liabilities, net of effects of business acquisitions and
divestitures:
Accounts receivable................................................................... (1,137) (7,547) 257
Refundable income taxes............................................................... (997) 997 --
Inventories........................................................................... 644 (5,754) (1,482)
Prepaid expenses and other current assets............................................. 147 67 857
Other assets.......................................................................... (304) (576) (3,094)
Accounts payable, accrued interest and accrued liabilities............................ 1,670 893 1,868
Advance payments by customers......................................................... 1,965 2,511 (1,030)
Federal, foreign and state income taxes payable....................................... 579 (1,381) 264
----------- ----------- -----------
Net cash provided by (used in) operating activities................................. 10,127 (6,360) 627
----------- ----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment................................................ (9,873) (5,791) (3,516)
Proceeds from sales of discontinued operation............................................. 2,194 11,000 --
Proceeds from sales of assets net of expenses............................................. 950 402 260
Acquisition of Industrias Jorda S.L. ..................................................... (5,946) -- --
Acquisition of Physical Electronics net of cash acquired.................................. -- -- --
Other..................................................................................... 397 118 190
----------- ----------- -----------
Net cash provided by (used in) investing activities................................. (12,278) 5,729 (3,066)
----------- ----------- -----------
Cash flows from financing activities:
Cash overdraft............................................................................ 797 2,416 (1,306)
Proceeds from the issuance of long-term obligations net of issuance costs................. 3,628 4,813 66,267
Proceeds from the issuance of preferred stock, net of issuance costs...................... -- -- --
Proceeds from the issuance of common stock................................................ -- -- --
Net proceeds from the issuance of redeemable put warrants and common stock warrants....... -- -- 2,413
Net proceeds/(payments) from foreign credit line.......................................... 2,090 663 (469)
Net (increase) decrease in restricted cash................................................ (2,123) (1,696) 2,385
Net proceeds/(payments) under senior credit agreement..................................... (2,300) (515) (2,957)
Distribution to fund Letitia common stock repurchase...................................... -- -- --
Redemption of redeemable put warrants..................................................... -- -- --
Redemption of redeemable preferred stock.................................................. -- -- --
Principal payments on long-term obligations............................................... (871) (3,828) (64,440)
----------- ----------- -----------
Net cash provided by financing activities........................................... 1,221 1,853 1,893
----------- ----------- -----------
Effect of foreign exchange rate changes on cash............................................. 391 380 (19)
----------- ----------- -----------
Net (decrease) increase in cash and cash equivalents................................ (539) 1,602 (565)
Cash and cash equivalents, beginning of year................................................ 1,044 505 2,107
----------- ----------- -----------
Cash and cash equivalents, end of year...................................................... $ 505 $ 2,107 $ 1,542
----------- ----------- -----------
----------- ----------- -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest................................................................................ $ 6,542 $ 8,272 $ 7,568
Income taxes............................................................................ 905 408 1,246
Supplemental Schedule of Non-cash Investing and Financing Activities:
Preferred stock dividends-in-kind and issuable preferred stock
dividends-in-kind....................................................................... $ 415 $ 446 $ 479
Leased asset additions.................................................................... 96 172 1,494
Transfer from property, plant and equipment to assets held for sale, net.................. 6,195 1,178 (1,378)
<CAPTION>
NINE MONTHS ENDED
------------------------
<S> <C> <C>
JANUARY 25, JANUARY 24,
1997 1998
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net income (loss)......................................................................... $ 141 $ (22,419)
Adjustments to reconcile net income to net cash provided by operating activities:
Extraordinary item, net of income taxes................................................. -- 1,574
Depreciation and amortization........................................................... 3,211 6,076
Write-off of other assets............................................................... -- 5,800
Non-cash interest....................................................................... 1,370 3,231
Deferred income taxes................................................................... (803) (3,496)
Undistributed earnings ofaffiliate...................................................... (99) (131)
(Gain) loss on sale of discontinued operations.......................................... (246) (1,417)
Other................................................................................... -- --
Change in assets and liabilities, net of effects of business acquisitions and
divestitures:
Accounts receivable................................................................... 1,325 6,079
Refundable income taxes............................................................... -- --
Inventories........................................................................... (3,345) (1,569)
Prepaid expenses and other current assets............................................. 372 372
Other assets.......................................................................... (230) 28
Accounts payable, accrued interest and accrued liabilities............................ (3,716) (4,459)
Advance payments by customers......................................................... 1,099 (2,787)
Federal, foreign and state income taxes payable....................................... (3,307) 974
----------- -----------
Net cash provided by (used in) operating activities................................. (4,228) (12,144)
----------- -----------
Cash flows from investing activities:
Additions to property, plant and equipment................................................ (2,945) (4,336)
Proceeds from sales of discontinued operation............................................. -- --
Proceeds from sales of assets net of expenses............................................. 157 3,352
Acquisition of Industrias Jorda S.L. ..................................................... -- --
Acquisition of Physical Electronics net of cash acquired.................................. -- (54,272)
Other..................................................................................... 49 (166)
----------- -----------
Net cash provided by (used in) investing activities................................. (2,739) (55,422)
----------- -----------
Cash flows from financing activities:
Cash overdraft............................................................................ (1,196) 269
Proceeds from the issuance of long-term obligations net of issuance costs................. 63,079 129,466
Proceeds from the issuance of preferred stock, net of issuance costs...................... -- 29,392
Proceeds from the issuance of common stock................................................ -- 2,200
Net proceeds from the issuance of redeemable put warrants and common stock warrants....... 2,413 2,200
Net proceeds/(payments) from foreign credit line.......................................... (217) 326
Net (increase) decrease in restricted cash................................................ 1,406 (1,763)
Net proceeds/(payments) under senior credit agreement..................................... 4,444 (7,702)
Distribution to fund Letitia common stock repurchase...................................... -- (2,250)
Redemption of redeemable put warrants..................................................... -- (2,500)
Redemption of redeemable preferred stock.................................................. -- (11,621)
Principal payments on long-term obligations............................................... (63,812) (56,649)
----------- -----------
Net cash provided by financing activities........................................... 6,117 81,368
----------- -----------
Effect of foreign exchange rate changes on cash............................................. (55) (239)
----------- -----------
Net (decrease) increase in cash and cash equivalents................................ (905) 13,563
Cash and cash equivalents, beginning of year................................................ 2,107 1,542
----------- -----------
Cash and cash equivalents, end of year...................................................... $ 1,202 $ 15,105
----------- -----------
----------- -----------
Supplemental Disclosure of Cash Flow Information:
Cash paid for:
Interest................................................................................ $ 5,116 $ 12,756
Income taxes............................................................................ 604 1,635
Supplemental Schedule of Non-cash Investing and Financing Activities:
Preferred stock dividends-in-kind and issuable preferred stock
dividends-in-kind....................................................................... $ 356 $ 322
Leased asset additions.................................................................... 438 276
Transfer from property, plant and equipment to assets held for sale, net.................. -- --
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 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 January 24, 1998, the consolidated
statements of operations, consolidated statement of stockholder's deficiency and
the consolidated statement of cash flows for the three months ended January 25,
1997 and January 24, 1998 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 nine months ended January 25, 1997
and January 24, 1998 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.
F-7
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
A summary of activity in the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
<S> <C> <C> <C>
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
----------- ----------- -----------
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.
F-8
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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:
<TABLE>
<S> <C>
Building and building improvements........................... 30 to 40
years
Leasehold improvements....................................... 5 to 20 years
Machinery and equipment...................................... 2 to 10 years
</TABLE>
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.
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.
F-9
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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-10
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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 SHARE
During 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings per
Share," which changes the calculation of earnings per share to be more
consistent with countries outside the United States. In general, the statement
requires two calculations of earnings per share to be disclosed, basic EPS and
diluted EPS. Basic EPS is to be computed using only weighted average shares
outstanding, while diluted EPS is computed considering the dilution of options
and warrants. This statement has been adopted by the Company and all prior,
interim and annual periods have been restated.
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.
F-11
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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).
NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which establishes standards for the reporting and display of
comprehensive income and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which introduces a new model for segment
reporting. The Company does not believe adoption will have a material impact on
its financial statement disclosures.
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.
F-12
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE B -- INVENTORIES
Inventories consisted of the following as of:
<TABLE>
<CAPTION>
APRIL 27, APRIL 26, JANUARY 24,
1997 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
Raw materials.............................................. $ 13,461 $ 14,912 $ 17,832
Work in process............................................ 4,462 3,977 11,825
Finished goods............................................. 3,049 3,445 9,489
--------- --------- -----------
Total...................................................... $ 20,972 $ 22,334 $ 39,146
--------- --------- -----------
--------- --------- -----------
</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.
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.
F-13
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
Other assets and costs in excess of net assets acquired consisted of the
following as of:
<TABLE>
<CAPTION>
APRIL 27,
1996 APRIL 26, 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.......................................................... $ 5,627 $ 10,365 $ (2,933) $ 7,432
--------- --------- ------------ ---------
--------- --------- ------------ ---------
</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, JANUARY 24,
1996 1997 1998
--------- --------- -----------
<S> <C> <C> <C>
(UNAUDITED)
1997 Senior Notes.......................................... -- -- $ 135,000
1996 Senior Credit Agreement............................... $ -- $ 16,630 --
1996 Senior Secured Notes.................................. -- 20,000 --
1996 Senior Unsecured Notes................................ -- 7,000 --
1996 Senior Subordinated Notes
(face value $25,000)..................................... -- 19,374 --
1995 Senior Credit Agreement............................... 30,485 -- --
1995 Senior Subordinated Note.............................. 13,808 -- --
1995 Junior Subordinated Note.............................. 18,230 -- --
Capital lease obligations (note M)......................... 9,143 10,382 10,090
Mortgage notes payable..................................... 8,271 8,035 7,581
Notes payable.............................................. 1,981 1,696 1,634
--------- --------- -----------
Total (see note P)..................................... 81,918 83,117 154,305
Less current maturities................................ (1,909) (2,609) (1,308)
--------- --------- -----------
Long-term obligations, net of current maturities....... $ 80,009 $ 80,508 $ 152,997
--------- --------- -----------
--------- --------- -----------
</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
F-14
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE E -- LONG-TERM OBLIGATIONS AND FOREIGN CREDIT LINE (CONTINUED)
1995 Junior Subordinated Note. In connection with this refinancing the Company
incurred financing costs of approximately $3,192 (see note D).
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
F-15
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE E -- LONG-TERM OBLIGATIONS AND FOREIGN CREDIT LINE (CONTINUED)
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).
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.
F-16
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE E -- LONG-TERM OBLIGATIONS AND FOREIGN CREDIT LINE (CONTINUED)
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>
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
------------------------
<S> <C> <C> <C> <C>
PAR SHARES APRIL 27, APRIL 26,
VALUE AUTHORIZED 1996 1997
----- ----------- ----------- -----------
Series A................................................................. $ 1 25,000 -- --
Series B................................................................. $ 1 30,000 25,705 25,705
Series C................................................................. $ 1 10,000 6,245 6,724
</TABLE>
F-17
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE G -- REDEEMABLE PREFERRED STOCK (CONTINUED)
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 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.
F-18
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE G -- REDEEMABLE PREFERRED STOCK (CONTINUED)
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."
F-19
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE I -- BENEFIT PLANS (CONTINUED)
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.
Domestic net pension costs are summarized as follows:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------
<S> <C> <C> <C>
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
--------- --------- ---------
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).
F-20
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE I -- BENEFIT PLANS (CONTINUED)
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 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.
F-21
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
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>
The components of income taxes expense (credit) are:
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------
<S> <C> <C> <C>
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
----------- --------- ---------
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>
F-22
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
DEFINED BENEFIT PLAN (CONTINUED)
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-23
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
DEFINED BENEFIT PLAN (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.
F-24
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
DEFINED BENEFIT PLAN (CONTINUED)
A summary of the activity in the allowance for deferred tax assets is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
<S> <C> <C> <C>
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
----------- ----------- -----------
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>
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.
F-25
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE K -- OTHER STATEMENT OF OPERATIONS ITEMS (CONTINUED)
OTHER EXPENSE -- NET
Other expense -- net includes the following:
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------
<S> <C> <C> <C>
APRIL 29, APRIL 27, APRIL 26,
1995 1996 1997
----------- ----------- -----------
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.
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.
F-26
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE M -- LEASES (CONTINUED)
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 longterm 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
F-27
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE N -- LITIGATION, CLAIMS AND ENVIRONMENTAL MATTERS (CONTINUED)
Costs, net 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, was named as 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 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 March,
1998, the plaintiffs voluntarily dismissed the Company as a defendant in the
litigation. This dismissal is without prejudice to the refiling of the
plaintiffs' claims at some future date, but the plaintiffs have indicated no
intention to refile. There remain claims by two plaintiff-intervenors which must
be resolved if the Company is to be entirely dismissed from the action. The
intervenors have, to date, made no effort to prosecute their claims against the
Company. The Company's counsel has requested that the intervenor-plaintiffs
submit a voluntary dismissal of the claims against the Company and that request
remains outstanding. 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.
F-28
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE N -- LITIGATION, CLAIMS AND ENVIRONMENTAL MATTERS (CONTINUED)
The Company received a 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. After brief settlement
discussions, on March 19, 1998, the citizens group filed a complaint against the
Company in California State Court alleging violations of Proposition 65. 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 complaint 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, but is
also currently in settlement negotiations. The Company believes it will settle
the case for an amount substantially less than the maximum penalty available
under the statute, but if it does not, it intends to defend it vigorously. 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.
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.
F-29
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE O -- ACQUISITIONS AND DIVESTITURES (CONTINUED)
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
FINANCING AND PHI MERGER
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 Company paid aggregate consideration of
$54.6 million, including transaction costs and net of cash acquired. In
addition, the former shareholders of PHI will receive an amount equal to any
income tax refunds the Company receives after the closing of the Merger of taxes
paid by PHI for periods prior to the closing of the Merger.
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. These
financings contain certain restrictive covenants, including restrictions on
certain payments, sales of certain assets and other matters, as defined. Upon
consummation of the Rule 144A offering, the Company charged 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
F-30
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
NOTE P -- SUBSEQUENT EVENTS (CONTINUED)
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, August 8, 1997, for a cash payment of $6,750. As a result of the
Agreement, the Company recorded interest expense of approximately $951 during
the nine months ended January 24, 1998.
THE STEWART WARNER ACQUISITION
On March 19, 1998, a wholly owned subsidiary of the Company acquired all of
the capital stock of Stewart Warner Instrument Corporation ("Stewart Warner"),
for an aggregate consideration of $24.7 million subject to possible reduction
based on the net amount of certain of Stewart Warner's assets and liabilities as
of the closing. The acquisition was accounted for using the purchase method of
accounting and accordingly, the purchase price was allocated to the assets
acquired and the liabilities assumed based on their fair values at the date of
acquisition.
FINANCING
In connection with the Stewart Warner acquisition, the Company completed an
add-on Rule 144A offering (the "Offering") in the amount of $20 million of
10 1/2% Senior Notes due 2004. Simultaneously with the Rule 144A offering, the
Company obtained the consent of the holders of a majority of the Company's
existing 10 1/2% Senior notes due 2004 to make certain amendments to, and to
waive the restricted payments covenants of, the indenture of such Notes. The
Company paid a consent fee in the aggregate amount of $675,000 to the holders of
the Existing Notes prior to the closing of the Offering.
SALE OF ASSETS OF GENERAL EASTERN INSTRUMENTS
On April 15, 1998, the Company sold all of the assets, and certain trade
payables and lease obligations of its division, General Eastern Instruments,
pursuant to an Asset Purchase Agreement, dated as of March 25, 1998, as amended
(the "Asset Purchase Agreement"). The total purchase price for the General
Eastern Instruments division's net assets was $21.0 million, subject to increase
or decrease depending on the Net Worth (as defined therein) of General Eastern
at the closing of the sale. A portion of the purchase price paid at closing was
allocated to an agreement on the part of the Company not to compete in the
conduct of the business of General Eastern for a period of three years from the
closing. The cash proceeds from the sale of General Eastern are subject to a
covenant of the Indenture, as amended, with respect to the Senior Notes,
requiring that the Company elect within 180 days of the sale to either repay
indebtedness, as defined, or invest in assets, as defined.
INDENTURE AGREEMENT
On February 17, 1998, in connection with a misinterpretation of certain
provisions of the Indenture, as amended, with respect to the Senior Notes, the
Company paid a cash dividend in the amount of $2.1 million to the holders of the
Series A Preferred Stock pursuant to the terms thereof. This payment constituted
a Restricted Payment that was at the time prohibited under the terms of the
Indenture and thus constituted a default thereunder. On March 13, 1998, the
Company obtained a waiver of this default.
F-31
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
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.
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-32
<PAGE>
HIGH VOLTAGE ENGINEERING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(Information as of January 24, 1998 and for the nine months ended
January 25, 1997 and January 24, 1998 is unaudited)
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>
OPERATING DEPRECIATION
NET INCOME IDENTIFIABLE AND CAPITAL
SALES (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 $ 5,292 $ 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 (2,401) 22,467 239 1,308
--------- ----------- ----------- ------ ------
Consolidated.......................................... $ 173,103 $ 9,667 $ 113,587 $ 4,376 $ 5,010
--------- ----------- ----------- ------ ------
--------- ----------- ----------- ------ ------
</TABLE>
F-33
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
PHI Acquisition Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of PHI
Acquisition Holdings, Inc. and subsidiaries as of June 28, 1996 and June 27,
1997, 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 28, 1996 and June 27,
1997, 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.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
August 20, 1997
F-34
<PAGE>
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 28, 1996 AND JUNE 27, 1997
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
ASSETS
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-35
<PAGE>
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-36
<PAGE>
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
THE YEARS ENDED JUNE 30, 1995, JUNE 28, 1996, AND JUNE 27, 1997
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
---------------------- ---------------------- ----------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
--------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1994...................................... 398,070 $ 3,981 398,070 $ 3,981 203,860 $ 2,038
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
Net income for the fiscal year ended June 28, 1996.......
Gain (loss) on currency translation......................
Repurchase of common and preferred stock................. (1,430) (13)
Compensation expense associated with granting of
options................................................
--------- ----------- --------- ----------- --------- -----------
Balance, June 28, 1996..................................... 191,660 1,917 398,070 3,981 461,472 4,615
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)
Preferred dividend paid..................................
--------- ----------- --------- ----------- --------- -----------
Balance, June 27, 1997..................................... 191,660 $ 1,917 398,070 $ 3,981 411,472 $ 4,115
--------- ----------- --------- ----------- --------- -----------
--------- ----------- --------- ----------- --------- -----------
<CAPTION>
PREFERRED STOCK
----------------------
SHARES AMOUNT
--------- -----------
<S> <C> <C>
Balance, July 1, 1994...................................... 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......................
Repurchase of common and preferred stock.................
Shares issued upon conversion of convertible note........
--------- -----------
Balance, June 30, 1995..................................... 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................. (857) (9)
Compensation expense associated with granting of
options................................................
--------- -----------
Balance, June 28, 1996..................................... 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................. (30,000) (300)
Preferred dividend paid..................................
--------- -----------
Balance, June 27, 1997..................................... 569,143 $ 5,691
--------- -----------
--------- -----------
</TABLE>
<TABLE>
<CAPTION>
ADDITIONAL ADDITIONAL RETAINED FOREIGN
PAID-IN PAID-IN EARNINGS CURRENCY
CAPITAL CAPITAL (ACCUMULATED TRANSLATION
COMMON PREFERRED DEFICIT) ADJUSTMENT
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Balance, July 1, 1994................................................ $ 990,000 $ 5,994,000 $(1,044,500) $ 62,000
Net income for the fiscal year ended June 30, 1995................. 2,707,700
Gain (loss) on currency translation................................ 61,000
Sales of common and preferred stock................................
Repurchase of common and preferred stock...........................
Shares issued upon conversion of convertible note.................. 49,474
---------- ----------- ------------ -----------
Balance, June 30, 1995............................................... 1,039,474 5,994,000 1,663,200 123,000
Net income for the fiscal year ended June 28, 1996................. 2,975,300
Gain (loss) on currency translation................................ (462,610)
Repurchase of common and preferred stock........................... (6,953) (9,615)
Compensation expense associated with granting of options........... 80,000
---------- ----------- ------------ -----------
Balance, June 28, 1996............................................... 1,112,521 5,984,385 4,638,500 (339,610)
Net income for the fiscal year ended June 27, 1997................. 3,439,500
Gain (loss) on currency translation................................ (114,390)
Compensation expense associated with granting of options........... 421,390
Repurchase of common and preferred stock........................... (573,000) (299,700)
Preferred dividend paid............................................ (90,300)
---------- ----------- ------------ -----------
Balance, June 27, 1997............................................... $ 960,911 $ 5,594,385 $8,078,000 $(454,000)
---------- ----------- ------------ -----------
---------- ----------- ------------ -----------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
------------
<S> <C>
Balance, July 1, 1994................................................ $6,017,500
Net income for the fiscal year ended June 30, 1995................. 2,707,700
Gain (loss) on currency translation................................ 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.................. 50,000
------------
Balance, June 30, 1995............................................... 8,836,200
Net income for the fiscal year ended June 28, 1996................. 2,975,300
Gain (loss) on currency translation................................ (462,610)
Repurchase of common and preferred stock........................... (16,590)
Compensation expense associated with granting of options........... 80,000
------------
Balance, June 28, 1996............................................... 11,412,300
Net income for the fiscal year ended June 27, 1997................. 3,439,500
Gain (loss) on currency translation................................ (114,390)
Compensation expense associated with granting of options........... 421,390
Repurchase of common and preferred stock........................... (873,500)
Preferred dividend paid............................................ (90,300)
------------
Balance, June 27, 1997............................................... $14,195,000
------------
------------
</TABLE>
See accompanying notes to the consolidated financial statements.
F-37
<PAGE>
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 flows from 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 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 --
Prepaid expenses and other current assets............................ (694,400) 217,100 327,300
Other noncurrent assets.............................................. -- (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............................................ -- 100,000 --
Other long-term liabilities.......................................... -- 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 flows from investing activities:
Proceeds from sale of land............................................... -- 1,440,000 --
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 flows from financing activities:
Purchase of common and preferred stock................................... -- (16,600) (963,800)
Proceeds from issuance of note payable................................... 50,000 -- --
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 year............................. 3,242,000 4,469,000 437,900
----------- ----------- -----------
Cash and cash equivalents at end of year................................... $ 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-38
<PAGE>
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 1995 was June 30, for fiscal 1996 was June 28, and for 1997 was
June 27.
INVENTORIES
As of June 28, 1996 and June 27, 1997, 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-39
<PAGE>
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, JUNE 28, 1996
AND JUNE 27, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (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.
F-40
<PAGE>
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, JUNE 28, 1996
AND JUNE 27, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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 Opinion 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>
F-41
<PAGE>
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, JUNE 28, 1996
AND JUNE 27, 1997
(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>
(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>
F-42
<PAGE>
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, JUNE 28, 1996
AND JUNE 27, 1997
(6) INCOME TAXES
Income tax expense for the years ended June 30, 1995, June 28, 1996 and June
27, 1997 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:
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.
A reconciliation of the expected federal income taxes at the statutory rate
of 34% with the provision for 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>
F-43
<PAGE>
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, JUNE 28, 1996
AND JUNE 27, 1997
(6) INCOME TAXES (CONTINUED)
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 27,
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)
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>
<CAPTION>
<S> <C>
Valuation allowance at June 30, 1995............................................... $ 41,700
Decrease in valuation allowance.................................................... (41,700)
---------
Valuation allowance at June 28, 1996............................................... $ --
---------
---------
</TABLE>
The Company had a net operating loss carryover for tax purposes of
approximately $104,000, at June 30, 1995 which was utilized in fiscal 1996. 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
F-44
<PAGE>
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, JUNE 28, 1996
AND JUNE 27, 1997
(7) CREDIT AGREEMENT (CONTINUED)
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 28, 1996 and June 27, 1997, the effective rate was 7.98% and 9.36%,
respectively. At June 28, 1996 and June 27, 1997, the balance outstanding on the
line of credit was $261,000 and $0, respectively.
(8) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 28, JUNE 27,
1996 1997
------------- -------------
<S> <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)........................................ $ 9,519,000 $ 7,832,000
Less current installments........................................................... (2,250,000) (2,375,000)
------------- -------------
Long-term debt, less current installments..................................... $ 7,269,000 $ 5,457,000
------------- -------------
------------- -------------
</TABLE>
The minimum annual maturities of long-term debt as of June 27, 1997 are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1998............................................................................ $ 2,375,000
1999............................................................................ 2,937,000
2000............................................................................ 2,520,000
------------
$ 7,832,000
------------
------------
</TABLE>
(9) NOTE PAYABLE TO SELLER
In connection with the business acquisition described in note 1, the Company
entered into a convertible subordinated promissory note with Perkin Elmer. The
outstanding balance at June 27, 1997 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-45
<PAGE>
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, JUNE 28, 1996
AND JUNE 27, 1997
(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>
<CAPTION>
<S> <C>
1998............................................................................ $ 588,000
1999............................................................................ 351,000
2000............................................................................ 257,000
------------
Total minimum lease payments................................................ $ 1,196,000
------------
------------
</TABLE>
Rental expense for all operating leases for the years ended June 30, 1995,
June 28, 1996, and June 27, 1997 were $583,000, $829,000, and $801,000,
respectively.
(11) CAPITAL STOCK AND ADDITIONAL PAID-IN CAPITAL
Capital stock consists of the following:
<TABLE>
<CAPTION>
JUNE 28, JUNE 27,
1996 1997
------------ ------------
<S> <C> <C>
Class A common stock; $.01 par value. Authorized 1,000,000 shares; issued and
outstanding 191,660 shares.......................................................... $ 1,917 $ 1,917
------------ ------------
Class B common stock; $.01 par value. Authorized 1,000,000 shares; issued and
outstanding 398,070 shares.......................................................... $ 3,981 $ 3,981
------------ ------------
Class C common stock; $.01 par value. Authorized 1,000,000 shares; issued and
outstanding 461,472 shares in 1996 and 411,472 shares in 1997....................... $ 4,615 $ 4,115
------------ ------------
Additional paid-in capital on common stock............................................ $ 1,112,521 $ 960,911
------------ ------------
Series A 10% redeemable cumulative preferred stock; $.01 par value. Authorized 700,000
shares; issued and outstanding 599,143 shares in 1996 and 569,143 shares in 1997.... $ 5,991 $ 5,691
------------ ------------
Additional paid-in capital on preferred stock......................................... $ 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.
F-46
<PAGE>
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, JUNE 28, 1996
AND JUNE 27, 1997
(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 $643,000, $835,000 and $843,000 in 1995, 1996 and
1997, respectively.
(13) PENSION PLAN
The Company's wholly owned subsidiary, Physical Electronics, GmbH, has a
defined benefit pension plan which is covered by a group insurance policy. The
plan covers 20 employees. The benefits are based upon the number of years of
service and the employee's past compensation.
The following table sets forth the plan's funded status as of June 27, 1997,
and the net periodic pension expense for the year then ended. The Company
adopted FASB #87 treatment in the year ended June 27, 1997.
<TABLE>
<CAPTION>
<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>
F-47
<PAGE>
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, JUNE 28, 1996
AND JUNE 27, 1997
(13) PENSION PLAN (CONTINUED)
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 on 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.
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
F-48
<PAGE>
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, JUNE 28, 1996
AND JUNE 27, 1997
(14) EMPLOYEE STOCK PURCHASE AND STOCK OPTION PLAN (CONTINUED)
$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 OF
PER SHARE 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> <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
</TABLE>
(15) FOREIGN SALES
International sales represented 48%, 54%, and 52% of the Company's net sales
for the years ended June 30, 1995, June 28, 1996 and June 27, 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 37%, 43% and 44% of the
Company's net sales for the years ended June 30, 1995, June 28, 1996 and June
27, 1997, respectively.
F-49
<PAGE>
PHI ACQUISITION HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1995, JUNE 28, 1996
AND JUNE 27, 1997
(15) FOREIGN SALES (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-50
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors
Stewart Warner Instrument Corporation
El Paso, Texas
We have audited the accompanying consolidated balance sheets of Stewart Warner
Instrument Corporation and subsidiary (the Company) as of April 30, 1996, April
30, 1997 and January 31, 1998, and the related consolidated statements of
income, stockholders' equity, and cash flows for the years ended April 30, 1996
and 1997 and the nine-month period ended January 31, 1998. 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 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, such consolidated financial statements present fairly, in all
material respects, the financial position of Stewart Warner Instrument
Corporation and subsidiary at April 30, 1996, April 30, 1997, and January 31,
1998 and the results of their operations and their cash flows for the years
ended April 30, 1996 and 1997 and the nine-month period ended January 31, 1998
in conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
San Antonio, TX
March 13, 1998
F-51
<PAGE>
STEWART WARNER INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
APRIL 30, 1996, APRIL 30, 1997 AND JANUARY 31, 1998
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, JANUARY 31,
1996 1997 1998
------------- ------------- ---------------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..................................... $ 60,568 $ 22,020 $ 8,187
Trade accounts receivable, net of allowance for doubtful
accounts of $75,407, $41,191 and $40,000, respectively...... 3,123,924 3,913,527 3,170,881
Inventories:
Raw materials............................................... 3,555,508 3,354,617 3,462,431
Work in process............................................. 106,811 218,989 230,855
Finished goods.............................................. 2,580,864 2,723,605 2,606,220
Refundable income taxes....................................... 124,650 42,200 191,097
Prepayments and other......................................... 175,665 177,840 275,856
------------- ------------- ---------------
Total current assets...................................... 9,727,990 10,452,798 9,945,527
PROPERTY, PLANT AND EQUIPMENT:
Machinery and equipment....................................... 181,117 243,346 289,305
Molds, tools and dies......................................... 167,170 249,566 497,244
Offce equipment............................................... 182,108 274,150 341,650
Leasehold improvements........................................ 76,238 204,866 420,930
Construction in process....................................... 9,200 158,369 97,060
Accumulated depreciation...................................... (118,433) (280,783) (489,077)
------------- ------------- ---------------
Property, plant and equipment, net............................ 497,400 849,514 1,157,112
DEFERRED TAXES.................................................... 528,018 552,800 372,338
OTHER............................................................. 40,535 76,122 61,317
------------- ------------- ---------------
TOTAL............................................................. $ 10,793,943 $ 11,931,234 $ 11,536,294
------------- ------------- ---------------
------------- ------------- ---------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit................................................ $ 4,948,165 $ 4,583,550 $ 3,933,514
Bank checks outstanding....................................... 574,690 756,183 560,141
Trade accounts payable........................................ 1,454,268 1,631,972 1,577,482
Accrued warranty liabilities.................................. 1,065,000 935,962 923,286
Other accrued liabilities..................................... 426,502 419,677 441,430
Federal and state income taxes payable........................ -- 62,638 128,379
Accrued interest payable...................................... -- 33,954 19,000
Deferred taxes................................................ 406,229 487,500 520,592
------------- ------------- ---------------
Total current liabilities................................. 8,874,854 8,911,436 8,103,824
SENIORITY PREMIUMS PAYABLE........................................ 9,062 17,900 22,801
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY:
Common Stock -- authorized, 1,000,000 shares of no par value;
issued and outstanding, 100,000 shares...................... 1,001,500 1,001,500 1,001,500
Retained earnings............................................. 908,527 2,000,398 2,408,169
------------- ------------- ---------------
Total stockholders' equity................................ 1,910,027 3,001,898 3,409,669
------------- ------------- ---------------
TOTAL............................................................. $ 10,793,943 $ 11,931,234 $ 11,536,294
------------- ------------- ---------------
------------- ------------- ---------------
</TABLE>
See notes to consolidated financial statements.
F-52
<PAGE>
STEWART WARNER INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED APRIL 30, 1996 AND 1997,
NINE-MONTH PERIODS ENDED JANUARY 31, 1997 AND 1998
<TABLE>
<CAPTION>
NINE-MONTH
PERIOD ENDED NINE-MONTH
YEAR ENDED YEAR ENDED JANUARY 31, PERIOD ENDED
APRIL 30, APRIL 30, 1997 JANUARY 31,
1996 1997 ------------- 1998
------------- ------------- (UNAUDITED) -------------
<S> <C> <C> <C> <C>
NET SALES........................................... $ 22,521,096 $ 24,228,419 $ 17,386,021 $ 19,616,285
COST OF SALES....................................... 15,653,193 16,651,122 12,109,852 13,784,328
------------- ------------- ------------- -------------
GROSS PROFIT........................................ 6,867,903 7,577,297 5,276,169 5,831,957
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE......... 5,061,281 4,417,326 3,285,118 3,792,310
RESEARCH AND DEVELOPMENT EXPENSE.................... 966,134 942,336 655,066 1,006,824
------------- ------------- ------------- -------------
OPERATING INCOME.................................... 840,488 2,217,635 1,335,985 1,032,823
INTEREST EXPENSE.................................... (526,141) (397,759) (303,027) (289,217)
GAIN FROM INSURANCE CLAIM........................... -- 32,750 28,250 --
------------- ------------- ------------- -------------
INCOME BEFORE PROVISION FOR INCOME TAXES............ 314,347 1,852,626 1,061,208 743,606
INCOME TAXES........................................ (95,672) (760,755) (379,645) (335,835)
------------- ------------- ------------- -------------
NET INCOME.......................................... $ 218,675 $ 1,091,871 $ 681,563 $ 407,771
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
</TABLE>
See notes to consolidated financial statements.
F-53
<PAGE>
STEWART WARNER INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED APRIL 30, 1996 AND 1997,
NINE-MONTH PERIOD ENDED JANUARY 31, 1998
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------------ ----------- ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, May 1, 1995........................................ $ 1,001,500 $ 50,075 $ 889,777 $ 1,941,352
REPURCHASE OF COMMON STOCK WARRANTS......................... -- (50,075) (199,925) (250,000)
NET INCOME.................................................. -- -- 218,675 218,675
------------ ----------- ------------ ------------
BALANCE, April 30, 1996..................................... 1,001,500 -- 908,527 1,910,027
NET INCOME.................................................. -- -- 1,091,871 1,091,871
------------ ----------- ------------ ------------
BALANCE, April 30, 1997..................................... 1,001,500 -- 2,000,398 3,001,898
NET INCOME.................................................. -- -- 407,771 407,771
------------ ----------- ------------ ------------
BALANCE, January 31, 1998................................... $ 1,001,500 $ -- $ 2,408,169 $ 3,409,669
------------ ----------- ------------ ------------
------------ ----------- ------------ ------------
</TABLE>
See notes to consolidated financial statements.
F-54
<PAGE>
STEWART WARNER INSTRUMENT CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED APRIL 30, 1996 AND 1997,
NINE-MONTH PERIODS ENDED JANUARY 31, 1997 AND 1998
<TABLE>
<CAPTION>
NINE-MONTH
PERIOD ENDED NINE-MONTH
YEAR ENDED YEAR ENDED JANUARY 31, PERIOD ENDED
APRIL 30, APRIL 30, 1997 JANUARY 31,
1996 1997 ------------ 1998
----------- ----------- (UNAUDITED) ------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income............................................... $ 218,675 $ 1,091,871 681,563 $ 407,771
Adjustments to reconcile net income to net cash provided
by
operating activities:
Depreciation and amortization.......................... 281,604 162,350 117,949 208,294
Gain from insurance claim.............................. -- (32,750) (28,250) --
Changes in operating assets and liabilities:
Trade accounts receivable.............................. 453,560 (789,603) 359,064 742,646
Inventories............................................ 359,027 (54,028) 466,336 (2,295)
Refundable income taxes................................ (124,650) 82,450 124,650 (148,897)
Prepayments and other.................................. (91,340) (37,762) (48,908) (83,211)
Bank checks outstanding................................ (386,036) 181,493 (25,025) (196,042)
Trade accounts payable................................. 59,862 177,704 138,906 (54,490)
Accrued liabilities.................................... (307,220) (101,909) (246,377) (5,877)
Federal and state income taxes payable................. (344,555) 62,638 (71,698) 65,741
Seniority premiums payable............................. 6,343 8,838 7,921 4,901
Deferred taxes......................................... 41,925 56,489 28,089 213,554
----------- ----------- ------------ ------------
Net cash provided by operating activities................ 167,195 807,781 1,504,220 1,152,095
----------- ----------- ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...................... (367,083) (514,464) (401,736) (515,892)
Proceeds from insurance claim............................ -- 32,750 28,250 --
----------- ----------- ------------ ------------
Net cash used in investing activities.................. (367,083) (481,714) (373,486) (515,892)
----------- ----------- ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from borrowing on line of credit................ 22,853,535 22,174,880 15,900,905 18,653,228
Payments on line of credit............................... (22,343,944) (22,539,495) (17,077,071) (19,303,264)
Payment of debt issue costs.............................. (30,000) -- -- --
Payment for repurchase of common stock warrants.......... (250,000) -- -- --
----------- ----------- ------------ ------------
Net cash (used in) provided by financing activities...... 229,591 (364,615) (1,176,166) (650,036)
----------- ----------- ------------ ------------
Net (decrease) increase in cash and cash equivalents..... 29,703 (38,548) (45,432) (13,833)
CASH AND CASH EQUIVALENTS, beginning of period........... 30,865 60,568 60,568 22,020
----------- ----------- ------------ ------------
CASH AND CASH EQUIVALENTS, end of period................. $ 60,568 $ 22,020 $ 15,136 $ 8,187
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest................................... $ 386,968 $ 367,270 $ 275,716 $ 304,171
Cash paid for income taxes............................... 549,418 578,409 293,557 128,220
Cash refunds received for income taxes................... 26,508 -- -- --
</TABLE>
See notes to consolidated financial statements.
F-55
<PAGE>
STEWART WARNER INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1997,
NINE-MONTH PERIODS ENDED JANUARY 31, 1997 AND 1998
1. ORGANIZATION AND OPERATIONS
TTS, Inc. (TTS), an Illinois corporation, was formed in February 1994 and
purchased the assets and assumed certain liabilities of Stewart Warner
Instrument Corporation on April 22, 1994. Subsequently, TTS changed its name to
Stewart Warner Instrument Corporation (the "Company") and relocated its
headquarters from Chicago, Illinois to El Paso, Texas.
The Company manufactures, markets, sells and distributes gauges, switches,
senders and related instruments to the automotive, marine, and heavy-duty
equipment markets worldwide.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION -- The accompanying consolidated financial
statements include the accounts of the Company and its wholly-owned subsidiary,
Instrumentos Stewart Warner de Mexico (ISW). All material intercompany accounts
and transactions have been eliminated in consolidation.
UNAUDITED INTERIM FINANCIAL STATEMENTS -- The unaudited consolidated
financial statements for the nine-month period ended January 31, 1997 include
all adjustments, consisting of normal, recurring adjustments and accruals, which
the Company considers necessary for fair presentation of financial position and
the results of operations for the periods presented. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted. The interim financial statements should be read in conjunction with the
audited financial statements for the periods ended April 30, 1996, April 30,
1997 and January 31, 1998.
REVENUE RECOGNITION POLICY -- Revenue, including revenue from sales to
distributors and resellers, is recognized when products are shipped or services
are provided.
FOREIGN CURRENCY REMEASUREMENT -- The financial statements of the foreign
subsidiary are remeasured into the functional currency, the United States
dollar, as follows: property and accumulated depreciation at historical rates;
other assets and liabilities principally at rates in effect on the balance sheet
date; and income and expense accounts, other than depreciation and amortization,
at average rates of exchange in effect during the period. Gains and losses
resulting from the remeasurement are included in the statement of income.
INVENTORIES -- Inventories are stated at the lower of cost or market
determined by the last-in, first-out (LIFO) method. Inventory replacement cost
exceeds the LIFO value by approximately $380,000, $39,000 and $39,000 at April
30, 1996, April 30, 1997 and January 31, 1998, respectively.
PROPERTY, PLANT AND EQUIPMENT -- Property, plant and equipment are stated at
cost and are depreciated using the straight-line method over the estimated
useful lives of the assets.
PRODUCT WARRANTIES -- Some of the Company's products are under warranty
against defects in material and workmanship for a period of two years from the
date of installation. Warranty costs are estimated, and a provision is recorded
based on returns and sales volumes.
SENIORITY PREMIUMS -- Provisions for seniority premiums payable to employees
of the foreign subsidiary upon voluntary or involuntary separation are
calculated in accordance with the Mexican Federal Labor Law. All other payments
to which the workers are entitled, upon involuntary retirement, are charged to
F-56
<PAGE>
STEWART WARNER INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1997,
NINE-MONTH PERIODS ENDED JANUARY 31, 1997 AND 1998 (CONTINUED)
operations when they become payable. Management believes that the amount of such
other payments in any single year will not be significant.
INCOME TAXES -- Income taxes are recognized for (a) the amount of taxes
payable or refundable for the current year, and (b) deferred tax assets and
liabilities for the future tax consequences of events that have been recognized
in the Company's financial statements or tax returns. Deferred tax assets and
liabilities are measured based upon enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS -- Certain prior year balances have been reclassified for
comparative purposes.
3. FOREIGN SUBSIDIARY
In order to benefit from certain economic advantages, the Company maintains
a maquiladora plant in Juarez, Mexico, under Mexico's Border Industrialization
Program. The Company's wholly owned Mexican subsidiary, ISW, holds and operates
the maquiladora plant. ISW provides plant facilities and labor for the assembly
of the Company's products. Key financial information for ISW as of and for the
years ended April 30, 1996 and 1997 and for the nine-month periods ended January
31, 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, JANUARY 31,
1996 1997 1998
------------ ------------ JANUARY 31, ------------
1997
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Total Assets............................................ $ 258,285 $ 330,369 $ 401,660
Total Liabilities....................................... 131,923 152,308 157,806
Sales to Stewart Warner Instrument Corporation.......... 2,859,697 3,310,500 $ 2,374,787 2,851,199
Net Income.............................................. 83,539 51,699 67,345 65,929
</TABLE>
4. CREDIT ARRANGEMENTS
The Company has a financing and credit arrangement with a bank under a Loan
and Security Agreement (Agreement) which expires September 1, 1999. The
Agreement, which is subject to a borrowing base, provides for (a) the issuance
of letters of credit up to the lesser of: (1) $500,000, (2) the borrowing base
less the outstanding principal balance of the line of credit, or (3) $6,500,000
less the outstanding principle balance of the line of credit, and (b) cash
borrowings up to the lesser of: (1) $6,500,000 less availability for letters of
credit, or (2) the borrowing base less availability for letters of credit.
Interest accrues on outstanding borrowings at: (a) the London Interbank
Offered Rate (LIBOR) plus 2.6% (8.2% at January 31, 1998) or (b) the bank's
prime rate (8.5% at January 31, 1998), at the Company's option.
F-57
<PAGE>
STEWART WARNER INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1997,
NINE-MONTH PERIODS ENDED JANUARY 31, 1997 AND 1998 (CONTINUED)
Outstanding obligations under the Agreement are secured by liens on
substantially all of the Company's assets. Under the terms of the Agreement, the
Company is required to maintain specific ratios of debt, interest coverage,
fixed charge coverage, and working capital. Among other matters, the Agreement
contains certain restrictions with respect to incurrence of additional
indebtedness and capital expenditures and prohibits the payment of dividends on
capital stock. The Agreement contains other covenants customary in credit
arrangements of this kind. For the year ended April 30, 1997, the Company
received a specific waiver for exceeding its capital expenditure limit under the
Agreement. At January 31, 1998, the Company had no outstanding letters of credit
under the Agreement, cash borrowings outstanding of $3,933,514 and remaining
unused available commitments of $362,723.
5. WARRANT AGREEMENT
The Company granted warrants to purchase 11,111 shares of common stock to a
bank in connection with the Company's term loan. In accordance with the
provisions of the warrant agreement, the Company's repayment of the term loan
prior to April 21, 1995 reduced the number of shares of common stock issuable
upon exercise of the warrants to 5,556 shares. The warrants were exercisable at
a price of $.01 per share of common stock and had no set expiration date. During
fiscal 1996, the Company repurchased these warrants for $250,000. The purchase
price of the warrants was charged to additional paid-in capital and retained
earnings.
6. INCOME TAXES
The income tax provision consists of the following for the years ended April
30, 1996 and 1997 and for the nine-month periods ended January 31, 1997 and
1998.
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, JANUARY 31,
1996 1997 1998
----------- ----------- JANUARY 31, ------------
1997
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Federal:
Current.................................................. $ (26,075) $ 547,100 $ 272,039 $ 13,000
Deferred................................................. 39,539 33,175 16,496 201,394
State:
Current.................................................. 27,993 83,695 41,616 53,649
Deferred................................................. 2,386 23,314 11,593 12,160
Foreign.................................................... 51,829 73,471 37,901 55,632
----------- ----------- ------------ ------------
Total income taxes......................................... $ 95,672 $ 760,755 $ 379,645 $ 335,835
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
F-58
<PAGE>
STEWART WARNER INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1997,
NINE-MONTH PERIODS ENDED JANUARY 31, 1997 AND 1998 (CONTINUED)
A reconciliation between the Company's effective tax rate and the U.S.
federal income tax rate is as follows:
<TABLE>
<CAPTION>
NINE-MONTH
YEAR ENDED YEAR ENDED PERIOD ENDED
APRIL 30, APRIL 30, JANUARY 31,
1996 1997 1998
----------- ----------- NINE-MONTH ------------
PERIOD ENDED
JANUARY 31,
1997
------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Federal income tax at statutory rate....................... $ 106,878 $ 629,893 $ 360,811 $ 252,826
Non U.S. taxable foreign income............................ (46,025) (46,929) (35,784) (41,330)
State income taxes, net of federal benefit................. 20,050 70,626 35,118 43,434
Mexican income taxes....................................... 51,829 73,471 37,901 55,632
Other...................................................... (37,060) 33,694 (18,401) 25,273
----------- ----------- ------------ ------------
Total.................................................. $ 95,672 $ 760,755 $ 379,645 $ 335,835
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
Deferred income taxes and benefits are provided for differences between
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Temporary differences and the resulting deferred tax
assets and liabilities at April 30, 1996, April 30, 1997, and January 31, 1998
follow:
<TABLE>
<CAPTION>
APRIL 30, APRIL 30, JANUARY 31,
1996 1997 1998
----------- ----------- -------------
<S> <C> <C> <C>
NONCURRENT DEFERRED TAXES:
Fixed assets............................................................. $ 511,043 $ 410,210 $ 372,338
Alternative minimum tax credits.......................................... -- 125,000 --
Other.................................................................... 16,975 17,590 --
----------- ----------- -------------
Noncurrent deferred tax asset............................................ $ 528,018 $ 552,800 $ 372,338
----------- ----------- -------------
----------- ----------- -------------
CURRENT DEFERRED TAXES:
Accounts receivable...................................................... $ 29,409 $ 16,064 $ 15,600
Inventories.............................................................. (960,690) (980,505) (1,054,378)
Accrued liabilities...................................................... 525,052 476,941 511,429
Other.................................................................... -- -- 6,757
----------- ----------- -------------
Current deferred tax liability........................................... $ (406,229) $ (487,500) $ (520,592)
----------- ----------- -------------
----------- ----------- -------------
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company conducts all of its operations in leased facilities. The future
minimum lease payments (excluding renewal options) under leases having a
remaining non-cancelable lease term in excess of twelve months as of January 31,
1998 are as follows:
<TABLE>
<CAPTION>
PERIOD ENDING
JANUARY 31,
- ------------------------------------------------------------------------------------------------------
<S> <C>
1999................................................................................................ $ 501,953
2000................................................................................................ 505,389
2001................................................................................................ 520,132
2002................................................................................................ 495,248
2003................................................................................................ 426,000
</TABLE>
F-59
<PAGE>
STEWART WARNER INSTRUMENT CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED APRIL 30, 1996 AND 1997,
NINE-MONTH PERIODS ENDED JANUARY 31, 1997 AND 1998 (CONTINUED)
Rent expense was approximately $590,000, $588,000, $439,000 (unaudited) and
$471,000 for the years ended April 30, 1996 and 1997 and the nine-month periods
ended January 31, 1997 and 1998, respectively.
The Company, in the ordinary course of business, has been named as a
defendant in litigation and other proceedings. Management believes that the
aggregate amount of such liabilities will not have a material adverse impact on
the Company's financial position or results of operations.
8. EMPLOYEE BENEFITS
The Company maintains a 401(k) plan (the Plan) covering all eligible
employees. All full-time employees are eligible to participate on the first day
of each semi-annual period following the completion of one year of service. A
participant may elect to contribute from 1% to 15% of his or her earnings
subject to limits set forth in the Plan. The Company did not make any
discretionary contributions during the years ended April 30, 1996 and 1997 or
the nine-month period ended January 31, 1998.
9. RELATED PARTY
During the nine-month period ended January 31, 1998, the Company incurred
expenses to an affiliated company of $100,000 for consulting services.
10. CONCENTRATIONS OF CREDIT RISK
Concentrations of credit risk with respect to accounts receivable are
limited by virtue of the large number of customers comprising the Company's
customer base and their geographic dispersion. However, the Company's customers
are concentrated in agriculture, construction, heavy truck and related
industries and the ability of the customers to pay the Company's accounts
receivables depends, in part, upon the general condition of these industries.
Generally, the Company does not require collateral or other security for
customer receivables.
11. SUBSEQUENT EVENT (UNAUDITED)
Effective March 19, 1998, the outstanding shares of the Company were sold to
High Voltage Engineering Corporation.
* * * * * * *
F-60
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 PURCHASER. 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
<TABLE>
<CAPTION>
PAGE NO.
-----------
<S> <C>
Available Information............................... iv
Prospectus Summary.................................. i
Risk Factors........................................ 16
The Company......................................... 25
The Transactions.................................... 26
Use of Proceeds..................................... 28
Capitalization...................................... 29
Unaudited Pro Forma Condensed Consolidated Financial
Data.............................................. 30
Selected Historical Consolidated Financial Data..... 42
Management's Discussion and Analysis of Financial
Condition and Results of Operations............... 48
Business............................................ 60
Management.......................................... 80
Certain Relationships and Related Transactions...... 86
Principal Stockholders.............................. 88
Exchange Offer...................................... 89
Plan of Distribution................................ 97
Description of the Notes............................ 98
Description of Other Indebtedness................... 123
Description of Outstanding Capital Stock............ 125
Certain Federal Income Tax Considerations........... 129
Experts............................................. 131
Legal Matters....................................... 131
Special Note Regarding Forward-Looking Statements... 131
Index to Financial Statements....................... F-1
</TABLE>
[LOGO]
HIGH VOLTAGE
ENGINEERING
CORPORATION
OFFER TO EXCHANGE 10 1/2% SENIOR NOTES
DUE 2004 WHICH HAVE BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL OF ITS OUTSTANDING
10 1/2% SENIOR NOTES DUE 2004
ORIGINALLY ISSUED ON MARCH 19, 1998,
OF WHICH $20,000,000 IN PRINCIPAL AMOUNT
IS OUTSTANDING ON THE DATE HEREOF.
-----------------------------
PROSPECTUS
--------------------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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 hereto, 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.
The employment agreement of Russell L. Shade, Jr., the Company's Chief
Operating Officer and a Director, contains a provision whereby the Company has
agreed to indemnify Mr. Shade against all loss, cost, liability and expense
arising from his service to the Company, upon terms at least as favorable as
those provided by the Restated Articles of Organization and By-Laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following is a list of exhibits filed as a part of this registration
statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Stock Purchase Agreement, by and among Carolyn Corporation and the Sellers and the Seller Representative
named therein, dated as of February 4, 1998.
2.2 Asset Purchase Agreement between GEI Acquisition Inc. and High Voltage Engineering Corporation, dated as
of March 25, 1998.
3.1 Restated Articles of Organization of the Registrant.*
3.2 Amended and Restated By-laws of the Registrant.*
4.1 Indenture, dated as of August 8, 1997, by and between Registrant and State Street Bank and Trust
Company.*
4.2 First Supplemental Indenture, dated as of March 19, 1998 to Indenture, dated as of August 8, 1997, by
and between the Registrant and State Street Bank and Trust Company, as Trustee.
4.3 Registration Rights Agreement, dated as of March 19, 1998, by and among the Registrant and CIBC
Oppenheimer Corp.
4.4 Form of Exchange Note.
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).*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- --------------------------------------------------------------------------------------------------------
10.3 Lease Agreement, dated as of November 10, 1988, by and between Corporate Property Associates 8, L.P. and
the Registrant (Sterling, MA).*
<S> <C>
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 High Voltage Engineering Corporation Employment Agreement, by and between Registrant and Russell L.
Shade, Jr., dated as of February 24, 1998.
10.9 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.*
11 Statement of Computation of Earnings per Share.
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.
23.4 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (included in signature page to Registration Statement).
25 Statement of Eligibility of Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agency Agreement between the Exchange Agent and the Registrant.
</TABLE>
- ------------
* Previously filed as exhibit to Registration Statement No. 333-33969, on Form
S-4, filed by the Registrant with respect to $135,000,000 aggregate
principal amount of the Registrant's 10 1/2% Senior 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.
II-2
<PAGE>
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; and
(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 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 to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned Registrant hereby undertakes:
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.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this to
Registration Statement duly caused this Registration Statement to be signed on
its behalf by the undersiged, thereunto duly authorized, in the City of Boston,
Commonwealth of Massachusetts, on this 1st day of May, 1998.
HIGH VOLTAGE ENGINEERING CORPORATION
By: /s/ JOSEPH W. MCHUGH, JR.
-----------------------------------------
Joseph W. McHugh, Jr.
Vice President and Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Clifford Press,
Laurence S. Levy, Joseph W. McHugh, Jr. and Ronald R. Fortier, and each of them
severally, acting alone and without the other, his true and lawful
attorney-in-fact with the authority to execute in the name of each such person,
exhibits thereto and other documents therewith, any and all amendments
(including without limitation post-effective amendments) to this Registration
Statement necessary or advisable to enable the Registrant to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission in respect thereof, which amendments
may make such other changes in the Registration Statement as the aforesaid
attorney-in-fact executing the same deems appropriate.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ LAURENCE S. LEVY Chairman of the Board,
- ------------------------------ Chief Executive Officer, May 1, 1998
Laurence S. Levy Vice President
/s/ CLIFFORD PRESS
- ------------------------------ Deputy Chairman of the May 1, 1998
Clifford Press Board, President
/s/ EDWARD LEVY
- ------------------------------ Director May 1, 1998
Edward Levy
/s/ H. CABOT LODGE III
- ------------------------------ Director May 1, 1998
H. Cabot Lodge III
/s/ RUSSELL L. SHADE, JR.
- ------------------------------ Director May 1, 1998
Russell L. Shade, Jr.
Vice President and Chief
/s/ JOSEPH W. MCHUGH, JR. Financial Officer
- ------------------------------ (principal financial and May 1, 1998
Joseph W. McHugh, Jr. accounting officer)
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
<C> <S> <C>
2.1 Stock Purchase Agreement, by and among Carolyn Corporation and the Sellers and the Seller
Representative named therein, dated as of February 4, 1998.
2.2 Asset Purchase Agreement between GEI Acquisition Inc. and High Voltage Engineering Corporation,
dated as of March 25, 1998.
3.1 Restated Articles of Organization of the Registrant.*
3.2 Amended and Restated By-laws of the Registrant.*
4.1 Indenture, dated as of August 8, 1997, by and between Registrant and State Street Bank and Trust
Company.*
4.2 First Supplemental Indenture, dated as of March 19, 1998 to Indenture, dated as of August 8,
1997, by and between the Registrant and State Street Bank and Trust Company, as Trustee.
4.3 Registration Rights Agreement, dated as of March 19, 1998, by and among the Registrant and CIBC
Oppenheimer Corp.
4.4 Form of Exchange Note.
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 High Voltage Engineering Corporation Employment Agreement, by and between Registrant and Russell
L. Shade, Jr., dated as of February 24, 1998.
10.9 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.*
11 Statement of Computation of Earnings per Share.
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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ----------- -------------------------------------------------------------------------------------------------
<C> <S> <C>
23.3 Consent of KPMG Peat Marwick LLP.
23.4 Consent of Deloitte & Touche LLP.
24.1 Power of Attorney (included in signature page to Registration Statement).
25 Statement of Eligibility of Trustee.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agency Agreement between the Exchange Agent and the Registrant.
</TABLE>
- ------------
* Previously filed as exhibit to Registration Statement No. 333-33969, on Form
S-4, filed by the Registrant with respect to $135,000,000 aggregate
principal amount of the Registrant's 10 1/2% Senior Notes due 2004.
<PAGE>
Exhibit 2.1
----------------------
STOCK PURCHASE AGREEMENT
by and among
CAROLYN CORPORATION
(the Buyer),
KATHY BENNER,
as trustee of the Michael Benner's Children's Trust,
and not individually, and MICHAEL BENNER, individually
(the BBI Sellers),
the individuals and entities named therein as
STEWART WARNER SELLERS
and
MICHAEL BENNER as
SELLER REPRESENTATIVE
----------------------
dated as of February 4, 1998
<PAGE>
STOCK PURCHASE AGREEMENT
TABLE OF CONTENTS
Page
No.
----
1. PURCHASE AND SALE OF STOCK.......................... 2
1.1 Purchase and Sale.............................. 2
1.2 Delivery of Purchase Price and Escrowed Funds.. 2
2. CLOSING............................................. 3
2.1 Time and Place................................. 3
2.2 Transactions at Closing........................ 3
3. ADJUSTMENTS TO PURCHASE PRICE....................... 4
3.1 Delivery of Initial Closing Balance Sheet...... 4
3.2 Adjustments at Closing......................... 5
3.3 Final Closing Balance Sheet and Tax Returns.... 5
3.4 Determination of Closing Assets and Liabilities 6
3.5 Calculation and Payment of Adjustment.......... 7
4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS....... 8
4.1 Organization; Authority........................ 8
4.2 Subsidiaries; Capitalization of Subsidiaries... 8
4.3 Capitalization................................. 9
4.4 Non-Contravention.............................. 9
4.5 Governmental Consents; Transferability of
Licenses, Etc. ................................ 9
4.6 Financial Statements........................... 10
4.7 Absence of Certain Changes..................... 10
4.8 Litigation, Etc. .............................. 11
4.9 Conformity to Law.............................. 11
4.10 Title to Property, Real Property Leases, etc. . 11
4.11 Real Property; Safety, Zoning and
Environmental Matters.......................... 12
4.12 Insurance...................................... 14
4.13 Contracts...................................... 14
4.14 Employment of Officers, Employees.............. 16
4.15 Employee Benefit Plans......................... 16
4.16 Labor Relations................................ 18
4.17 Potential Conflicts of Interest................ 19
4.18 Trademarks, Patents, Etc. ..................... 19
<PAGE>
4.19 Suppliers and Customers........................ 19
4.20 Accounts Receivable............................ 20
4.21 No Undisclosed Liabilities..................... 20
4.22 Conduct of Business............................ 20
4.23 Taxes.......................................... 20
4.24 Indebtedness................................... 21
4.25 Bank Accounts, Signing Authority, Powers of
Attorney....................................... 21
4.26 Inventory...................................... 22
4.27 Minute Books................................... 22
4.28 Broker......................................... 22
4.29 Accounts Payable............................... 22
4.30 Disclosure..................................... 22
4.31 Foreign Corrupt Practices Act.................. 22
4A. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF
THE INDIVIDUAL SELLERS............................ 22
4A.1 Rights to Sell Outstanding Shares, Approvals;
Binding Effects............................. 22
4A.2 Title to Stock, Liens, etc. ................... 23
5. REPRESENTATIONS AND WARRANTIES OF THE
BBI SELLERS...................................... 23
5.1 Organization; Authority........................ 23
5.2 Rights to Sell Outstanding Shares, Approvals;
Binding Effect.............................. 23
5.3 Subsidiaries................................... 23
5.4 Capitalization................................. 24
5.5 Title to Stock, Liens, etc. ................... 24
5.6 Non-Contravention.............................. 24
5.7 Governmental Consents; Transferability of
Licenses, Etc. ................................ 24
5.8 Financial Statements........................... 24
5.9 Absence of Certain Changes..................... 25
5.10 Litigation, Etc. .............................. 25
5.11 Conformity to Law.............................. 25
5.12 Title to Property, Real Property Leases, etc. . 25
5.13 Real Property; Safety, Zoning and Environmental
Matters........................................ 25
5.14 Insurance...................................... 27
5.15 Contracts...................................... 27
5.16 Employment of Officers, Employees.............. 28
5.17 Employee Benefit Plans......................... 28
5.18 Labor Relations................................ 28
5.19 Potential Conflicts of Interest................ 28
ii
<PAGE>
5.20 Trademarks, Patents, Etc. ...................... 29
5.21 Suppliers and Customers......................... 29
5.22 Accounts Receivable............................. 29
5.23 No Undisclosed Liabilities...................... 29
5.24 Conduct of Business............................. 29
5.25 Taxes........................................... 29
5.26 Indebtedness.................................... 30
5.27 Bank Accounts, Signing Authority, Powers of
Attorney........................................ 30
5.28 Minute Books.................................... 30
5.29 Broker.......................................... 30
5.30 Disclosure...................................... 30
5.31 Foreign Corrupt Practices Act................... 30
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER.......... 30
6.1 Organization of Buyer; Authority................ 30
6.2 Corporate Approval; Binding Effect.............. 31
6.3 Non-Contravention............................... 31
6.4 Governmental Consents........................... 31
6.5 Brokers......................................... 31
6.6 Purchase Price.................................. 31
6.7 Disclosure...................................... 31
7. COVENANTS OF THE SELLERS PENDING CLOSING............. 32
7.1 Full Access..................................... 32
7.2 Carry on in Regular Course...................... 32
7.3 No General Increases............................ 32
7.4 No Dividends, Issuances, Repurchases, etc. ..... 32
7.5 Contracts and Commitments....................... 32
7.6 Purchase and Sale of Capital Assets............. 33
7.7 Insurance....................................... 33
7.8 Preservation of Organization.................... 33
7.9 No Default...................................... 33
7.10 Compliance with Laws............................ 33
7.11 Advice of Change................................ 33
7.12 No Shopping..................................... 33
7.13 Consents of Third Parties....................... 33
7.14 Satisfaction of Conditions Precedent............ 34
7.15 HSR Act......................................... 34
7.16 Cooperation..................................... 34
iii
<PAGE>
7A. COVENANTS OF THE BBI SELLERS PENDING CLOSING......... 34
7A.1 Full Access.................................... 34
7A.2 Carry on in Regular Course..................... 34
7A.3 No Increases................................... 35
7A.4 No Dividends, Issuances, Repurchases, etc. .... 35
7A.5 Contracts and Commitments...................... 35
7A.6 Purchase and Sale of Capital Assets............ 35
7A.7 Insurance...................................... 35
7A.8 Preservation of Organization................... 35
7A.9 No Default..................................... 35
7A.10 Compliance with Laws........................... 35
7A.11 Advice of Change............................... 35
7A.12 No Shopping.................................... 35
7A.13 Consents of Third Parties...................... 35
7A.14 Satisfaction of Conditions Precedent........... 36
7A.15 Cooperation.................................... 36
8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS.......... 36
8.1 Representations and Warranties True at Closing.. 36
8.2 Compliance with Agreement....................... 36
8.3 No Material Change.............................. 36
8.4 Sellers' Certificate............................ 37
8.5 Opinion of Counsel.............................. 37
8.6 Approvals....................................... 37
8.7 No Litigation................................... 37
8.8 Non-Competition Agreements...................... 37
8.9 Escrow Agreement................................ 37
8.10 Resignations of Directors and Officers.......... 38
8.11 Environmental Reports........................... 38
8.12 Indebtedness.................................... 38
8.13 Consent of Lenders.............................. 38
8.14 Consents of Third Parties....................... 38
8.15 Release......................................... 38
8.16 Michael Benner Guarantee........................ 38
8.17 HSR Act......................................... 38
8.18 Proceedings and Documents Satisfactory.......... 39
9. CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS..... 39
9.1 Representations and Warranties True at Closing.. 39
9.2 Compliance with Agreement....................... 39
9.3 Closing Certificate............................. 39
iv
<PAGE>
9.4 Approvals....................................... 39
9.5 No Litigation................................... 39
9.6 Escrow Agreement................................ 39
9.7 HSR Act......................................... 40
9.8 Proceedings and Documents Satisfactory.......... 40
10. CONFIDENTIAL INFORMATION............................. 40
11. DEFINITIONS.......................................... 40
12. INDEMNIFICATION...................................... 42
12.1 Indemnity of Sellers............................ 42
12.2 Indemnity by the BBI Sellers.................... 43
12.3 Indemnity by the Buyer.......................... 44
12.4 Claims.......................................... 44
12.5 Method and Manner of Paying Claims.............. 46
12.6 Limitations on Indemnification.................. 47
12.7 Disputes........................................ 48
13. TERMINATION.......................................... 49
14. GENERAL.............................................. 49
14.1 Survival of Representations and Warranties..... 49
14.2 Expenses....................................... 49
14.3 Notices........................................ 50
14.4 Entire Agreement............................... 51
14.5 Governing Law.................................. 51
14.6 Sections and Section Headings.................. 51
14.7 Assigns........................................ 51
14.8 Severability................................... 52
14.9 Further Assurances............................. 52
14.10 No Implied Rights or Remedies.................. 52
14.11 Counterparts................................... 52
14.12 Satisfaction of Conditions Precedent........... 52
14.13 Public Statements or Releases.................. 52
14.14 Seller Representative.......................... 52
<PAGE>
Schedules:
<TABLE>
<S> <C>
Schedule 1 Stock Ownership and Allocation of Cash Purchase Price
Schedule 2 Allocation of Adjustment Amount Payment
Schedule 2.2(d) Non-Competition
Schedule 3 Percentage of Indemnity Cap
Schedule 4.3 Capitalization
Schedule 4.5 Governmental consents; Permits
Schedule 4.6 Financial Statements
Schedule 4.7 Absence of Certain Changes
Schedule 4.8 Litigation
Schedule 4.10(a) Title of Property
Schedule 4.10(b) Capital Assets
Schedule 4.10(c) Real Property Leases
Schedule 4.11 Safety, Zoning and Environmental Matters
Schedule 4.12 Insurance
Schedule 4.13 Contracts
Schedule 4.14 Employment of Officers, Employees
Schedule 4.15(a) Employee Benefit Plans
Schedule 4.15(d) Liabilities Under Employee Benefit Plans
Schedule 4.16 Labor Relations
Schedule 4.18 Intellectual Property
Schedule 4.19 Suppliers and Customers
Schedule 4.21 Undisclosed Liabilities
Schedule 4.23 Taxes
Schedule 4.24 Indebtedness
Schedule 4.25 Bank Accounts, Signing Authority, Power of Attorney
Schedule 5.4 BBI Capitalization
Schedule 5.8 BBI Financial Statements
Schedule 5.9 BBI Absence of Certain Changes
Schedule 5.12 BBI Real Property
Schedule 5.13 BBI Safety, Zoning and Environmental Matters
Schedule 5.14 BBI Insurance
Schedule 5.15 BBI Contracts
Schedule 5.23 BBI Undisclosed Liabilities
Schedule 5.25 BBI Taxes
Schedule 5.27 BBI Bank Accounts, Signing Authority, Power of Attorney
Schedule 6.4 Governmental Consents
Schedule 7A.4 BBI Dividends, Issuances, Repurchases
Exhibits:
Exhibit A-1 Form of Escrow Agreement
Exhibit A-2 Form of Escrow Agreement (Thomas Walsh)
Exhibit B Form on Non-Competition Agreement
Exhibit C Form of Non-Competition Agreement and Release
Exhibit D Form of Guaranty
</TABLE>
v
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of the fourth
day of February, 1998, is by and among (i) Carolyn Corporation, a
Massachusetts corporation (the "Buyer") and wholly-owned subsidiary of High
Voltage Engineering Corporation, a Massachusetts corporation ("HVE"), (ii)
Kathy Benner, as trustee of the Michael Benner's Children's Trust, dated
August 1, 1986 (the "Michael Benner Trust") and not individually, and Michael
Benner individually (collectively, the "BBI Sellers") and (iii) Michael
Benner, XP54 - I LTD., a Texas limited partnership, Thomas Walsh, Joseph
Plomin, Plomin-I, Ltd., a Texas limited partnership, Larry Benner and Genelle
Benner (the "Stewart Warner Sellers" and, collectively with the BBI Sellers,
the "Sellers"), and (iv) Michael Benner, in his capacity as Seller
Representative (the "Seller Representative").
WHEREAS, the BBI Sellers are the owners of all of the issued and
outstanding shares of Common Stock, $1.00 par value per share, of Benner
Berg, Inc. (the "BBI Stock"), an Illinois corporation ("BBI"), which owns
48,000 shares, representing 48% of the issued and outstanding shares, of the
Common Stock, no par value (the "Stewart Warner Stock") of Stewart Warner
Instrument Corporation, an Illinois corporation (the "Company"), which owns
all of the issued and outstanding shares of Stewart Warner Instruments
(Barbados) Inc., a Barbados corporation (the "Barbados Subsidiary") and 999
of the 1,000 issued and outstanding shares of the capital stock of TTS
Mexican Holding Company, Inc., an Illinois corporation (the "Illinois
Subsidiary"), which owns 999 of the 1,000 issued and outstanding shares of
the capital stock of Instrumentos Stewart Warner de Mexico, S.A. de C.V., a
Mexican corporation (the "Mexican Subsidiary" and, together with the Barbados
Subsidiary and the Illinois Subsidiary, the "Subsidiaries");
WHEREAS, the Stewart Warner Sellers are the owners of 52,000 shares
representing the remaining 52% of the issued and outstanding shares of the
Stewart Warner Stock;
WHEREAS, Michael Benner is the owner of 1 share of capital stock of the
Illinois Subsidiary and 1 share of capital stock of the Mexican Subsidiary
(the "Michael Benner Stock");
WHEREAS, the BBI Sellers desire to sell the BBI Stock to the Buyer and
the Buyer desires to purchase the BBI Stock from the BBI Sellers, upon the
terms and subject to the conditions contained in this Agreement;
WHEREAS, the Stewart Warner Sellers desire to sell the shares of Stewart
Warner Stock owned by them, representing 52% of the outstanding shares of
capital stock of Stewart Warner, to the Buyer and the Buyer desires to
purchase such shares of Stewart Warner Stock, upon the terms and subject to
the conditions contained in this Agreement; and
<PAGE>
WHEREAS, Michael Benner desires to sell the Michael Benner Stock to the
Buyer or its designee and the Buyer desires to purchase the Michael Benner
Stock from Michael Benner, on behalf of itself or its designee, upon the
terms and subject to the conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and agreements
set forth herein, the parties hereto agree as follows:
1. PURCHASE AND SALE OF STOCK.
1.1. Purchase and Sale. Subject to the terms and conditions set forth
in this Agreement, at the Closing referred to in Section 2 of this Agreement:
(a) each of the Stewart Warner Sellers agrees to sell to the Buyer, and the
Buyer agrees to purchase from such Seller, all of the outstanding shares of
Stewart Warner Stock owned by such Seller as set forth opposite such Seller's
name on Schedule 1 hereto in exchange for the payment of that portion of the
Purchase Price as described below; (b) Michael Benner agrees to sell to the
Buyer or its designee, and the Buyer agrees to purchase from Michael Benner,
on behalf of itself or its designee, all of the Michael Benner Stock in
exchange for the payment of $100; and (c) each of the BBI Sellers agrees to
sell to the Buyer, and the Buyer agrees to purchase from such Seller, all of
the outstanding shares of BBI Stock owned by such BBI Seller as set forth on
Schedule 1 in exchange for the payment of that portion of the Purchase Price
as described below.
1.2. Delivery of Purchase Price and Escrowed Funds. At the Closing,
the Buyer shall pay to the Sellers, as the aggregate purchase price for the
BBI Stock, the Stewart Warner Stock and the Michael Benner Stock (together,
the "Stock"), the amount of $25,000,000, as adjusted pursuant to Sections 3.2
and 3.5 (the "Purchase Price"), minus the amount of the Escrowed Funds (as
defined below) and any amounts paid to third parties in accordance with
Section 2.2(b) below. At the Closing, the Buyer shall deliver $2,000,000 of
the Purchase Price (the "Escrowed Funds") into two escrow accounts with a
bank or trust company mutually approved by the Buyer and the Sellers (the
"Escrow Agent"), pursuant to escrow agreements in the form of Exhibits A-1
and A-2 hereto, with such changes as may be reasonably required by the Escrow
Agent (the "Escrow Agreements"). $1,570,000 of the Escrowed Funds will be
placed into escrow to secure the obligations of the Sellers other than Thomas
Walsh under this Agreement, and $430,000 of the Escrowed Funds will be placed
into escrow to secure the obligations of Thomas Walsh as a Seller under this
Agreement (the "Walsh Escrow"). That portion of the Cash Purchase Price (as
defined below) payable for the Michael Benner Shares shall be $100, and the
portion of the remainder of the Cash Purchase Price payable to each Seller
for such Seller's Stewart Warner Stock or BBI Stock shall be based on the
percentage ownership, whether direct or indirect, of the Stewart Warner Stock
attributable to such Seller, as set forth on Schedule 1 hereto.
2
<PAGE>
2. CLOSING.
2.1. Time and Place. The closing of the sale and purchase of the Stock
(the "Closing") shall be held at the offices of Fagel & Haber, 140 South
Dearborn Street, 14th Floor, Chicago, Illinois, or by mail or facsimile, at
10:00 a.m. on a mutually acceptable date not later than five (5) business
days after the receipt by the Buyer and Sellers of notice of the expiration
of any Hart-Scott-Rodino Act waiting period or, if early termination of such
waiting period is granted, not later than ten (10) business days after the
receipt by the Buyer and Sellers of such notice, or at such other time or at
such other place as the Buyer and the Sellers may agree, subject to the
satisfaction of all closing conditions. The date on which the Closing is
actually held hereunder is sometimes referred to herein as the "Closing Date."
2.2. Transactions at Closing. At the Closing, provided that all of the
conditions precedent in Sections 8 and 9 have been fulfilled or waived by the
Buyer or the Sellers, as the case may be, and in addition to any other
instruments or documents referred to herein:
(a) The Stewart Warner Sellers shall deliver to the Buyer or its
designee, free and clear of any lien, claim or encumbrance, certificates
representing all of the issued and outstanding shares of the Stewart Warner
Stock held by such persons, duly endorsed in blank or with duly executed
stock powers attached. Michael Benner shall deliver to the Buyer or its
designee, free and clear of any lien, claim or encumbrance, certificates
representing the Michael Benner Stock, duly endorsed in blank or with duly
executed stock powers attached. The BBI Sellers shall deliver to the Buyer
or its designee, free and clear of any lien, claim or encumbrance, all of the
issued and outstanding shares of the BBI Stock, duly endorsed in blank or
with duly executed stock powers attached.
(b) The Buyer shall, on behalf of the Sellers, deliver the Escrowed
Funds to the Escrow Agent referred to in Section 1.2 hereof, and disburse the
following amounts at the direction of the Sellers in payment of the remainder of
that portion of the Purchase Price that is to be paid at the Closing:
(i) The Buyer shall (i) repay the amount of the Company
Indebtedness outstanding as of, or accruable up to, the Closing Date,
including all principal and any accrued and unpaid interest thereon and any
repayment penalties or premium associated with such repayment, provided
that as a condition precedent to such payment the Buyer has received
pay-off letters or other evidence of the amounts necessary to discharge all
obligations of the Company under the Loan Agreement, in form reasonably
satisfactory to the Buyer, no later than three business days prior to the
Closing Date, and (ii) pay to Deloitte & Touche LLP, the Sellers'
accountants, Fagel & Haber, the Sellers' counsel (other than Thomas Walsh),
Martin, Brown & Sullivan LTD., counsel to Thomas Walsh, Baker & McKenzie,
Abogados, the Company's counsel, Houlihan Lokey Howard & Zukin Capital (the
"Broker"), and any other third parties to whom the Company or the Sellers
have any obligation with respect to the transactions contemplated hereby,
3
<PAGE>
their respective professional fees accrued or incurred up to and including
the Closing Date, provided that as a condition precedent to such payment
each of such persons has delivered a final statement of fees to the Buyer
no later than three business days prior to the Closing Date, which
statements shall have been reviewed and approved by each of the Sellers
with notice of such approval having been delivered to the Buyer
concurrently with such statements, and shall each contain an acknowledgment
that the fees of such persons incurred with respect to the Company and BBI
and the transactions contemplated hereby (other than as set forth in
Section 3.3 below) are the sole responsibility of the Sellers, and that the
Buyer and HVE shall have no liability therefor, and any amounts paid
pursuant to this paragraph (b) shall be subtracted from the Purchase Price;
(ii) The Buyer shall deliver $100 to Michael Benner by certified
or bank check as the purchase price for the Michael Benner Stock; and
(iii) The Buyer shall deliver that portion of the Purchase
Price for the Stock (the "Cash Purchase Price") that remains after the
Buyer pays the Escrowed Funds to the Escrow Agent and makes the payments
specified in paragraphs (i) and (ii) above and the Initial Adjustments (as
defined in Section 3.2) have been applied, to the Sellers (or such persons
as they may have designated in writing to the Buyer prior to the Closing)
by certified or bank check or by wire transfer of immediately available
funds, with the portion of such Cash Purchase Price payable to each Seller
determined based on the percentage ownership, whether direct or indirect,
of the Stewart Warner Stock attributable to such Seller indicated on
Schedule 1.
(c) If requested by the Buyer not less than three (3) days prior to
the Closing, the Sellers shall deliver to the Buyer pay-off letters and lien
discharges (or agreements therefor) from any other person to whom the Company or
any Subsidiary owes any Indebtedness (as defined in Section 11).
(d) The Buyer and the Sellers listed on Schedule 2.2(d) hereto shall
execute and deliver a Non-Competition Agreement (as defined in Section 8.8).
3. ADJUSTMENTS TO PURCHASE PRICE.
3.1. Delivery of Initial Closing Balance Sheet. Each of the Sellers and
the Buyer agree that the Purchase Price has been established with respect to the
Company's audited balance sheet dated as of April 30, 1997 (the "Audited Balance
Sheet"), a copy of which is attached as Schedule 3.1A hereto. No less than
three business days prior to the Closing, the Sellers shall have prepared and
delivered to the Buyer (a) an unaudited consolidated balance sheet of the
Company and the Subsidiaries as of the close of business on January 31, 1998
(the "Calculation Date"), prepared in accordance with generally accepted
accounting principles applied on a basis consistent with the Audited Balance
Sheet (as defined in Section 4.8) except for year-end adjustments and the
absence of
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footnotes (the "Initial Closing Balance Sheet"), and (b) a certificate of each
of the Chairman, President and Chief Financial Officer of the Company certifying
(A) that the Initial Closing Balance Sheet was prepared on the basis described
in clause (a) above, (B) the amount of the Defined Assets (as defined in
Section 11) of the Company and the Subsidiaries as of the Calculation Date, (C)
the amount of the Defined Liabilities (as defined in Section 11) of the Company
and the Subsidiaries as of the Calculation Date, (D) the amount of the Excluded
Liabilities (as defined in Section 11) of the Company and the Subsidiaries as of
the Calculation Date, (E) the amount of the Net Assets (as defined in Section
11) of the Company and the Subsidiaries as of the Calculation Date, (F) the
amount of accrued federal, state and foreign tax liability estimated by Deloitte
& Touche LLP through and including the Calculation Date, and (G) the amount of
the insurance receivable asset estimated by Deloitte & Touche LLP as of the
Calculation Date.
3.2. Adjustments at Closing. The following adjustments shall be made to
the Purchase Price at the Closing (the "Initial Adjustments"):
(a) if the amount of the Net Assets determined from the Initial Closing
Balance Sheet is less than $7,644,973, then the Purchase Price shall be reduced
by the amount by which $7,644,973 exceeds such Net Assets, provided, that if the
amount of the Net Assets determined from the initial Closing Balance Sheet is
greater than $7,644,973, there shall be no adjustment pursuant to this paragraph
(a); and
(b) the Purchase Price shall also be reduced by the amount of the Excluded
Liabilities.
3.3. Final Closing Balance Sheet and Tax Returns.
(a) Immediately after the Closing, the Sellers and the Buyer shall engage
Deloitte & Touche LLP to prepare and deliver to the Buyer and the Seller
Representative, no later than 120 days after the Closing Date, an audited
consolidated balance sheet of the Company and the Subsidiaries as of the close
of business on the Closing Date immediately prior to giving effect to the
Closing, prepared in accordance with generally accepted accounting principles
applied on a basis consistent with the Audited Balance Sheet (the "Audited
Closing Balance Sheet"), including an opinion stating that such Audited Closing
Balance Sheet is in conformity with generally accepted accounting principles.
The fees and expenses of Deloitte & Touche LLP incurred in connection with the
preparation of the Final Balance Sheet shall be split equally by the Buyer and
the Sellers, with the Sellers' portion to be paid out of the Escrowed Funds.
(b) Within 120 days after the Closing Date, the Buyer shall, and shall
cause the Company and each of the Subsidiaries to use their respective best
efforts to, file a tax return (a "Tax Return") for taxable periods (or a portion
thereof) ending on or prior to the Closing Date in respect of federal and state
and Mexican and Barbados income tax for the most recent fiscal year (or portion
thereof) and request a refund (a "Refund") of any
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amounts previously paid by the Company and each of the Subsidiaries for such
taxable periods (or a portions thereof) in excess of their respective tax
liabilities for such periods, provided, however, that no Tax Returns need be
filed for any interim periods to the extent that a tax receivable asset with
respect to such jurisdiction for such interim period is not reflected on the
Audited Closing Balance Sheet.
(c) In the event that the Company or any of the Subsidiaries are entitled
to Refunds with respect to any of the Tax Returns, the Company or such
Subsidiary shall deposit into escrow with the Escrow Agent (with 78.5% of such
amount to be added to the Escrowed Funds held with respect to the obligations of
the Sellers other than Thomas Walsh under this Agreement, and 21.5% of such
amount to be added to the Walsh Escrow) the amount of any such Refunds actually
received.
3.4. Determination of Closing Assets and Liabilities. Within fifteen (15)
days after receipt of the Audited Closing Balance Sheet, the Buyer shall notify
the Seller Representative and Thomas Walsh in writing of the Buyer's agreement
or disagreement with the Audited Closing Balance Sheet. If the Buyer does not
give the Seller Representative and Thomas Walsh written notice of its election
to dispute the Audited Closing Balance Sheet within such time period, such
balance sheet shall constitute the "Final Balance Sheet" for purposes of this
Agreement. If the Buyer disputes any aspect of the Audited Closing Balance
Sheet in writing in a timely fashion, then the Buyer shall have the right
(either with or without its independent accountants), at the Buyer's expense, to
review and test the Audited Closing Balance Sheet. The Buyer (either with or
without its independent accountants) shall complete its review and test within
fifteen (15) days after the date the Buyer delivers notice of its intention to
dispute the Audited Closing Balance Sheet to the Seller Representative and
Thomas Walsh. If the Buyer, after such review and test, still disagrees with
the Audited Closing Balance Sheet, and the Seller Representative and Thomas
Walsh do not accept the Buyer's proposed alternative calculations of the amounts
set forth on the Audited Closing Balance Sheet and the parties are otherwise
unable to resolve their differences within such above-referenced time periods,
then the Seller Representative, Thomas Walsh and the Buyer shall engage Ernst &
Young LLP (the "Independent Accounting Firm") to resolve any disputed items (the
"Remaining Disputed Items"). The Independent Accounting Firm shall conduct its
own review and test of the Audited Closing Balance Sheet and the Remaining
Disputed Items and thereafter determine the final amounts of each of the
Remaining Disputed Items, each as of the Closing Date, and the Audited Closing
Balance Sheet shall be appropriately adjusted, if necessary, to produce the
Final Closing Balance Sheet. In the event that any of the Remaining Disputed
Items include the amount of any of the Excluded Liabilities or the valuation of
inventory or the associated levels of excess obsolete inventory, the Independent
Accounting Firm shall base its review and determination on a consistent
application of the Company's accounting policies in accordance with generally
accepted accounting principles as reflected in the preparation of the Audited
Balance Sheet, in lieu of any accounting policies that may be employed by the
Buyer. The Buyer and each of the Sellers agree that they shall be bound by the
determination of the Independent Accounting Firm and that the Audited Closing
Balance Sheet, after any such adjustments,
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shall constitute the Final Balance Sheet for purposes of this Agreement. The
fees and expenses of the Independent Accounting Firm shall be split equally by
the Sellers and the Buyer; provided that the portion of any such fees and
expenses attributable to the Sellers shall be paid from, and reduce the amount
of, the Escrowed Funds as provided in the Escrow Agreements.
3.5. Calculation and Payment of Adjustment.
(a) Upon the determination pursuant to Section 3.4 of the Final Closing
Balance Sheet, either by the agreement of the parties or by the Independent
Accounting Firm, the Purchase Price shall be recalculated pursuant to the
formulae for adjustments contained in Section 3.2 using the amounts of the
Defined Assets, Defined Liabilities and Excluded Liabilities set forth on the
Final Closing Balance Sheet in lieu of the Defined Assets, the Defined
Liabilities and the Excluded Liabilities, as appropriate, set forth on the
Initial Closing Balance Sheet. If the Purchase Price as adjusted pursuant to
this Section 3.5 (the "Final Adjustment") is greater than the Purchase Price as
adjusted pursuant to the Initial Adjustments, the Buyer shall pay the difference
to the Sellers pro rata based on the respective percentages of ownership,
whether direct or indirect, of the Stewart Warner Stock attributable to such
Sellers as set forth on Schedule 1. If the Purchase Price as adjusted pursuant
to the Final Adjustment is lower than the Purchase Price as adjusted pursuant to
the Initial Adjustments, the Sellers shall, severally and not jointly, pay the
difference (the "Adjustment Amount") to the Buyer pro rata based on the
respective percentages of ownership, whether direct or indirect, attributable to
such Sellers of Stewart Warner Stock as set forth on Schedule 2 hereto. Any
such payment to the Buyer shall be made as follows:
(i) if the Adjustment Amount is less than $200,000, then the
Adjustment Amount shall be paid to the Buyer from the Escrowed Funds and
the amount by which $200,000 exceeds the Adjustment Amount shall be paid to
the Sellers out of the Escrowed Funds pro rata based on the respective
percentages of ownership, whether direct or indirect, of the Stewart Warner
Stock attributable to such Sellers as set forth on Schedule 1; and
(ii) if the Adjustment Amount is greater than $200,000, then $200,000
shall be paid to the Buyer out of the Escrowed Funds and the amount by
which the Adjustment Amount exceeds $200,000 shall be paid by the Sellers
pro rata based on the respective percentages of ownership, whether direct
or indirect, of the Stewart Warner Stock attributable to such Sellers as
set forth on Schedule 2 to the Buyer; in cash or same day funds within ten
(10) days after the determination of the Final Adjustment pursuant to this
Section 3.5, provided, that any such payment by one or more of the Sellers
may, at the sole option of the Buyer, at any time, be paid out of the
Escrowed Funds in accordance with the terms and provisions of the Escrow
Agreements.
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(b) Payment by the Buyer of the amounts set forth in Section 2.2(b)
through (f) and any Adjustment Amount to which the Sellers may become due
pursuant to this Section 3.5 shall satisfy the obligations of the Buyer to
deliver the Purchase Price for the Stock.
4. REPRESENTATIONS AND WARRANTIES OF THE SELLERS. Each of the Sellers,
jointly and severally, represents and warrants to the Buyer as follows:
4.1. Organization; Authority. Each of the Company and the Illinois
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the State of Illinois. The Mexican Subsidiary is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Chihuhua, Mexico. The Barbados Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of Barbados.
Each of the Company and the Subsidiaries is duly qualified and in good standing
as a foreign corporation in all jurisdictions, both within and outside of the
United States, in which the character of the properties owned or leased or the
nature of the activities conducted by it makes such qualification necessary.
The Sellers have delivered to the Buyer complete and correct copies of each of
the Company's and the Illinois Subsidiary's Articles of Incorporation and
By-Laws and all amendments thereto, the Mexican Subsidiary's Documents of
Incorporation and By-Laws and all amendments thereto, and the Barbados
Subsidiary's corporate organization documents and all amendments thereto. Each
of the Company and the Subsidiaries has all requisite power and authority to own
or lease and operate its properties and to carry on its business as such
business is now conducted, both within and outside of the United States. The
Mexican Subsidiary is a corporation operating in Mexico under the Mexican Decree
for the Operation and Promotion of the Export Maquiladora Industry with full
right, power and authority to exist and operate its business as presently
conducted pursuant to and in accordance with Mexican law, and the consummation
of the transactions contemplated hereby shall not interfere with or adversely
affect such right, power and authority. To the knowledge of the Sellers, the
Barbados Subsidiary has full right, power and authority to exist and operate its
business as presently conducted pursuant to and in accordance with the law of
Barbados, and the consummation of the transactions contemplated hereby shall not
interfere with or adversely affect such right, power and authority.
4.2. Subsidiaries; Capitalization of Subsidiaries. The entire authorized
capital stock of the Illinois Subsidiary consists of 100,000 shares of common
stock, no par value per share (the "Illinois Subsidiary Stock"), of which 1,000
shares are issued and outstanding on the date hereof and are owned of record and
beneficially as follows: (a) 999 shares by the Company; and (b) 1 share by
Michael Benner. The entire authorized capital stock of the Mexican Subsidiary
consists of 1,000 shares of common stock (the "Mexican Subsidiary Stock"), par
value 50 pesos Mexican currency per share, all of which are issued and
outstanding on the date hereof and are owned of record in accordance with the
shareholders' registry book of the Mexican Subsidiary and beneficially as
follows: (a) 999 shares by the Illinois Subsidiary; and (b) 1 share by Michael
Benner. The entire authorized capital stock of the Barbados Subsidiary consists
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of an unlimited number of shares of common stock (the "Barbados Subsidiary
Stock" and, collectively with the Illinois Subsidiary Stock and the Mexican
Subsidiary Stock, the "Subsidiary Stock"), of which 1,000 shares are issued and
outstanding on the date hereof and are owned of record and beneficially by the
Company. Except for its ownership of the Subsidiaries, the Company does not
have any direct or indirect subsidiaries (as defined in Section 11) and does not
own or hold of record and/or beneficially any shares of any class of capital
stock of any corporations. Except for the ownership by the Illinois Subsidiary
of shares of the Mexican Subsidiary as provided herein, none of the Subsidiaries
has any subsidiaries (as defined in Section 11) or owns or hold of record and/or
beneficially any shares of any class of capital stock of any corporations.
Neither the Company nor any of the Subsidiaries owns any legal and/or beneficial
interests in any partnerships, business trusts, limited liability companies,
joint ventures, any other unincorporated trade or business enterprises or in any
other person or entity.
4.3. Capitalization. The authorized capital of the Company consists of
1,000,000 shares of common stock, no par value, 100,000 shares of which are
issued and outstanding on the date hereof. All of the shares of Stewart Warner
Stock are owned of record and beneficially by BBI and the Sellers as set forth
on Schedule 1 hereto. All of the Stewart Warner Stock will be sold by the
Stewart Warner Sellers to the Buyer and all of the Michael Benner Stock will be
sold by Michael Benner to the Buyer or its designee pursuant to the transactions
contemplated by this Agreement. All of the Stewart Warner Stock and the
Subsidiary Stock is validly issued and outstanding, fully paid and
non-assessable. Except as set forth on Schedule 4.3 hereto, there are no
commitments for the purchase or sale of, and no options, warrants or other
rights to subscribe for or purchase, any securities of the Company or the
Subsidiaries.
4.4. Non-Contravention. The execution and delivery of this Agreement, the
Escrow Agreement and the Non-Competition Agreement, if any, to which each such
Seller is a party and the consummation by the Sellers of the transactions
contemplated hereby and thereby will not (a) violate or conflict with any
provision of the Articles of Incorporation or By-Laws of each of the Company and
the Illinois Subsidiary or of the Documents of Incorporation and By-Laws of the
Mexican Subsidiary or, to the Sellers' knowledge, the Barbados Subsidiary, each
as amended to date; or (b) constitute a violation of, or be in conflict with, or
constitute or create a default under, or result in the creation or imposition of
any encumbrance upon any property of the Company or the Subsidiaries pursuant to
(i) any agreement or instrument to which either the Company or the Subsidiaries
is a party or by which any of the properties of the Company or the Subsidiaries
are bound, or (ii) any statute, judgment, decree, order, regulation or rule of
any court or governmental or regulatory authority within or outside of the
United States.
4.5. Governmental Consents; Transferability of Licenses, Etc. Except as
set forth on Schedule 4.5, no consent, approval or authorization of, or
registration, qualification or filing with, any governmental agency or authority
is required for the execution and delivery by the Sellers of this Agreement, the
Escrow Agreement or the Non-Competition Agreement, if any, to which such Seller
is a party or for the consummation by the Sellers
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of the transactions contemplated hereby or thereby. The Company or the
Subsidiaries has and maintains, and the permits listed on Schedule 4.5 hereto
include, all licenses, permits and other authorizations from all governmental
authorities (collectively, the "Permits") as are necessary or desirable for the
conduct of the Company's and the Subsidiaries' businesses. True and complete
copies of such Permits have previously been delivered to the Buyer.
4.6. Financial Statements. The Sellers have delivered the following
financial statements (the "Financial Statements") to the Buyer, and there are
attached as Schedule 4.6 hereto: (a) the audited consolidated balance sheets of
the Company as of April 30, 1995, April 30, 1996 and April 30, 1997 (such
balance sheet as of April 30, 1997 being referred to herein as the "Audited
Balance Sheet"), and the related audited consolidated statements of income,
retained earnings and cash flows of the Company for each of the fiscal years
then ended and (b) the unaudited consolidated balance sheet of the Company as of
December 31, 1997 and the related unaudited consolidated statements of income,
retained earnings and cash flows of the Company for the month then ended
(collectively, the "Interim Financials"). Each of the Financial Statements are
true and correct and have been prepared in accordance with generally accepted
accounting principles (subject, in the case of the Interim Financials, to the
absence of footnotes and to year-end audit adjustments); each of such balance
sheets fairly and accurately presents the financial condition of the Company on
a consolidated basis as of its respective date; and such statements of income,
retained earnings and cash flows fairly and accurately present the results of
operations for the periods covered thereby.
4.7. Absence of Certain Changes. Except as set forth on Schedule 4.7,
since April 30, 1997, each of the Company and the Subsidiaries has carried on
their respective businesses only in the ordinary course, and there has not been
(a) any change in the assets, liabilities, sales, income or business of the
Company or any of the Subsidiaries or in their relationships with suppliers,
customers or lessors, other than such changes which were both in the ordinary
course of business and have not been, either in any case or in the aggregate,
materially adverse; (b) any acquisition or disposition by the Company or any of
the Subsidiaries of any asset or property other than in the ordinary course of
business; (c) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting, either in any case or in the
aggregate, the property or business of the Company or any of the Subsidiaries;
(d) any declaration, setting aside or payment of any dividend or any other
distributions in respect of the Stock or the Subsidiary Stock; (e) any issuance
of any shares of the capital stock of the Company or any of the Subsidiaries or
any direct or indirect redemption, purchase or other acquisition of any of the
Stock or the Subsidiary Stock; (f) any increase in the compensation, pension or
other benefits payable or to become payable by the Company or any of the
Subsidiaries to any officers or employees, other than as necessitated as a
result of any change in the Mexican minimum wage standards, or any bonus
payments or arrangements made to or with any of them (other than pursuant to the
terms of any existing written agreement or plan of which the Buyer has been
supplied complete and correct copies of); or any change in the personnel other
than changes which were both in the ordinary course of business
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and have not been, either in any case or in the aggregate, materially adverse;
(g) any forgiveness or cancellation of any debt or claim by the Company or any
of the Subsidiaries or any waiver of any right of material value other than
compromises of accounts receivable in the ordinary course of business; (h) any
entry by the Company or any of the Subsidiaries into any transaction other than
in the ordinary course of business; (i) any incurrence by the Company either of
or the Subsidiaries of any obligations, commitments or liabilities, whether
absolute, accrued, contingent or otherwise (including, without limitation,
liabilities as guarantor or otherwise with respect to obligations of others),
other than obligations and liabilities incurred in the ordinary course of
business; (j) any mortgage, pledge, lien, lease, security interest or other
charge or encumbrance on any of the assets, tangible or intangible, of the
Company or any of the Subsidiaries; or (k) any discharge or satisfaction by the
Company or any of the Subsidiaries of any lien or encumbrance or payment by the
Company or any of the Subsidiaries of any obligation or liability (fixed or
contingent) other than (A) current liabilities included in the Audited Balance
Sheet and (B) current liabilities incurred since the date of the Audited Balance
Sheet in the ordinary course of business.
4.8. Litigation, Etc. Except as set forth on Schedule 4.8 hereto, no
action, suit, proceeding or investigation is pending or, to the knowledge of the
Sellers, threatened against the Company or any of the Subsidiaries (nor is there
any basis therefor known to any of the Sellers).
4.9. Conformity to Law. To the Sellers' knowledge, each of the Company
and the Subsidiaries has complied with, and is in compliance with (a) all laws,
statutes, governmental regulations and all judicial or administrative tribunal
orders, judgments, writs, injunctions, decrees or similar commands applicable to
the Company or applicable Subsidiary, as the case may be, or any of their
properties (including, without limitation, any labor, environmental,
occupational health, zoning or other law, regulation or ordinance), both within
and outside of the United States, and (b) all unwaived terms and provisions of
all contracts, agreements and indentures to which the Company or any of the
Subsidiaries is a party, or by which the Company or any of the Subsidiaries or
any of their respective properties is subject. Neither the Company nor any of
the Subsidiaries has committed, been charged with, or, to the knowledge of the
Sellers, been under investigation with respect to, nor, to the knowledge of the
Sellers, does there exist, any violation of any provision of any federal, state,
local or foreign law or administrative regulation in respect of the Company or
the Subsidiaries or any of their properties.
4.10. Title to Property, Real Property Leases, etc. Except as set forth
on Schedule 4.10(a) hereto, each of the Company and the Subsidiaries has good
and marketable title to all of their respective properties and assets,
including, without limitation, all those reflected in the Audited Balance Sheet
(except for properties or assets sold or otherwise disposed of in the ordinary
course of business since the date of the Audited Balance Sheet), all free and
clear of all liens, pledges, charges, security interests, encumbrances or title
retention agreements of any kind or nature. All such properties and assets are
adequate and sufficient to carry on their respective businesses as presently
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conducted. Schedule 4.10(b) hereto sets forth a complete and correct list of
all capital assets of the Company and the Subsidiaries having a book or fair
market value in excess of $1,000. There are no material defects in any such
capital assets, as to title, not described on Schedule 4.10(b). Neither the
Company nor any of the Subsidiaries has ever owned any real property.
Schedule 4.10(c) hereto sets forth a complete and correct description of all
leases of real property (the "Real Property") to which the Company or the
Subsidiaries is a party. Complete and correct copies of all such leases have
been delivered to the Buyer. Each such lease is valid and in full force and
effect and, to the knowledge of the Sellers, no event or condition exists which
constitutes, or after notice or lapse of time or both would constitute, a
default thereunder. None of the leasehold interests of the Company or the
Subsidiaries are subject to any lien or other encumbrance, and each of the
Company and the Subsidiaries, as applicable, is in quiet possession of the
properties covered by such leases. None of the Sellers, the Company or the
Subsidiaries have received any notice that either the whole or any portion of
the Real Property is to be condemned, requisitioned or otherwise taken by any
public authority.
4.11. Real Property; Safety, Zoning and Environmental Matters.
(a) None of the plants, offices or properties in or on which the Company
or the Subsidiaries carries on its business nor the activities carried on
therein are in violation of any United States or foreign zoning, health or
safety law or regulation, including, without limitation, the Occupational Safety
and Health Act of 1970, as amended, and similar Mexican or Barbados law, if any.
(b) Except as set forth on Schedule 4.11:
(i) none of the Company, the Subsidiaries and, to the Sellers'
knowledge, any operator of any real property presently or formerly owned,
leased or operated by the Company or the Subsidiaries is in violation or
alleged violation of any judgment, decree, order, law, license, rule or
regulation pertaining to environmental matters, including without
limitation those arising under the Resource Conservation and Recovery Act
("RCRA"), the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 as amended ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986 ("SARA"), the Federal Water Pollution Control
Act, the Solid Waste Disposal Act, as amended, the Federal Clean Water Act,
the Federal Clean Air Act, the Toxic Substances Control Act, any state or
local statute, regulation, ordinance, order or decree relating to health,
safety or the environment or, to the knowledge of the Sellers, any similar
laws or regulations of Mexico or Barbados (hereinafter "Environmental
Laws");
(ii) none of the Sellers, the Company or any of the Subsidiaries has
received notice from any third party, including without limitation any
federal, state, local, Mexican or Barbados governmental authority, (A) that
the Company or any of the Subsidiaries or any predecessor in interest to
the Company or any of the
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Subsidiaries has been identified by the United States Environmental
Protection Agency ("EPA") or similar Mexican authority or agency as a
potentially responsible party under CERCLA with respect to a site listed on
the National Priorities List, 40 C.F.R. Part 300 Appendix B (1986) or any
similar Mexican laws or regulations; (B) that any hazardous waste, as
defined by 42 U.S.C. Section 6903(5), any hazardous substance as defined by
42 U.S.C. Section 9601(14), any pollutant or contaminant as defined by 42
U.S.C. Section 9601(33) or any toxic substance, oil or hazardous material
or other chemical or substance regulated by any Environmental Laws or
similar Mexican laws or Barbados laws or regulations ("Hazardous
Substances") which the Company, any of the Subsidiaries or any predecessor
in interest to the Company or any of the Subsidiaries has generated,
transported or disposed of or that any such materials disposed of by the
Company, any Subsidiary or any predecessor in interest has been found at
any site at which a federal, state, local, Mexican or Barbados agency or
other third party has conducted or has ordered that the Company or any
predecessor in interest conduct a remedial investigation, removal or other
response action pursuant to any Environmental Law or similar Mexican law or
Barbados law or regulation; or (C) that the Company, any of the
Subsidiaries or any predecessor in interest to the Company or any of the
Subsidiaries is or shall be a named party to any claim, action, cause of
action, complaint, (contingent or otherwise) legal or administrative
proceeding arising out of any third party's incurrence of costs, expenses,
losses or damages of any kind whatsoever in connection with the release of
Hazardous Substances or other similar substances;
(iii) (A) no portion of any real property presently or formerly
owned, leased or operated by the Company or any of the Subsidiaries has
been used by the Company or any of the Subsidiaries, or to the knowledge of
the Sellers, any other person, for the handling, manufacturing, processing,
storage or disposal of Hazardous Substances except in accordance with
applicable Environmental Laws; and, to the knowledge of the Sellers, no
underground tank or other underground storage receptacle for Hazardous
Substances is located on such properties; (B) in the course of any
activities conducted by the Company or any of the Subsidiaries or, to the
knowledge of the Sellers, operators of any real property presently or
formerly leased or operated by the Company or any of the Subsidiaries, no
Hazardous Substances have been generated or are being used on such
properties except in accordance with applicable Environmental Laws; (C) to
the knowledge of the Sellers, all real properties presently or formerly
leased or operated by the Company or any of the Subsidiaries are free from
groundwater, surface water, soil, sediment and air contamination, and such
properties do not contain asbestos in any form, urea formaldehyde foam
insulation, transformers or other equipment containing polychlorinated
biphenyls or any other chemical, material or substance, exposure to which
is prohibited, limited or regulated by any Environmental Law, or which
poses a hazard to the health and safety of the occupants of such properties
or those adjacent thereto; (D) to the knowledge of the Sellers, there have
been no releases (i.e., any past or present releasing, spilling, leaking,
pumping, pouring,
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emitting, emptying, discharging, injecting, escaping, disposing or dumping)
or threatened releases of Hazardous Substances on, upon, into or from any
real property presently or formerly leased or operated by the Company or
any of the Subsidiaries except in accordance with applicable Environmental
Laws; (E) to the knowledge of the Sellers, there have been no releases on,
upon, from or into any real property in the vicinity of any real property
presently or formerly leased or operated by the Company or the Subsidiaries
which, through soil or groundwater contamination, may have come to be
located on such real property; and (F) in addition, any Hazardous
Substances that have been generated on any real property presently or
formerly leased or operated by the Company or the Subsidiaries have been
transported offsite only by carriers having identification numbers issued
by the EPA or as authorized under applicable Mexican laws or, to the
knowledge of the Sellers, applicable Barbados laws and regulations and, to
the Sellers' knowledge, have been treated or disposed of only by treatment
or disposal facilities maintaining valid permits as required under
applicable Environmental Laws, which transporters and facilities, to the
best of the Sellers' knowledge, have been and are operating in compliance
with such permits and applicable Environmental Laws; and
(iv) no real property presently or formerly leased or operated by
the Company or the Subsidiaries is or shall be subject to any applicable
environmental cleanup responsibility law or environmental restrictive
transfer law or regulation, by virtue of the transactions set forth herein
and contemplated hereby.
(d) Attached as part of Schedule 4.11 is a list of all documents,
reports, site assessments, data, communications or other materials, in the
possession of the Company, any of the Subsidiaries or any of the Sellers or to
which, to the knowledge of the Sellers, any of them has access, which contain
any material information with respect to potential environmental liabilities
associated with any real property presently or formerly leased or operated by
the Company or any of the Subsidiaries and relating to compliance with
Environmental Laws or the environmental condition of such properties and
adjacent properties. The Sellers have furnished to the Buyer complete and
accurate copies of all of the documents, reports, site assessments, data,
communications and other materials listed on Schedule 4.11 hereto.
4.12. Insurance. Schedule 4.12 hereto lists all policies of fire,
liability, workmen's compensation, life, property and casualty and other
insurance owned or held by the Company or the Subsidiaries. All such policies
(a) are in full force and effect, (b) are sufficient for compliance by the
Company and the Subsidiaries with all written agreements to which the Company or
the Subsidiaries is a party and, to the Sellers' knowledge, all applicable
requirements of law and (c) provide that they will remain in full force and
effect through the respective dates set forth in such Schedule and (d) will not
in any way be affected by, or terminate or lapse by reason of, the transactions
contemplated by this Agreement. Neither the Company nor any of the Subsidiaries
is in default with
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respect to its obligations under any of such insurance policies and has not
received any notification of cancellation of any such insurance policies.
4.13. Contracts. Schedule 4.13 sets forth a complete and accurate list of
all contracts to which the Company or any of the Subsidiaries is a party or by
or to which it or any of the Company's or any of the Subsidiaries' assets or
properties is bound or subject, except (a) contracts entered into in the
ordinary course of business after the date hereof and prior to the Closing,
which will be identified to the Buyer in writing prior to the Closing, (b)
contracts terminable (without any surviving obligation) by the Company upon 30
days' notice or less without the payment of any termination fee or penalty, (c)
contracts that will not result in (i) the payment by the Company of more than
$50,000, or (ii) the receipt by the Company of payment of more than $50,000,
over their respective terms (other than any contracts requiring that the Company
or any of the Subsidiaries indemnify any person), and (d) contracts listed in
other Schedules hereto. As used in this Section 4.13, the word "contract" means
and includes every agreement or understanding of any kind, written or oral,
which is legally enforceable by or against the Company or any of the
Subsidiaries, and specifically includes (a) contracts and other agreements with
any current or former officer, director, employee, consultant or shareholder or
any partnership, corporation, joint venture or any other entity in which any
such person has an interest; (b) agreements with any labor union or association
representing any employee; (c) contracts and other agreements for the provision
of services by the Company or any of the Subsidiaries; (d) bonds or other
security agreements provided by any party in connection with the business of the
Company or any of the Subsidiaries; (e) contracts and other agreements for the
sale of any of the Company's or any of the Subsidiaries' assets or properties
other than in the ordinary course of business or for the grant to any person of
any preferential rights to purchase any of the Company's or any of the
Subsidiaries' assets or properties; (f) joint venture agreements relating to the
assets, properties or business of the Company or any of the Subsidiaries or by
or to which it or the Subsidiaries or any of its or the Subsidiaries' assets or
properties are bound or subject; (g) contracts or other agreements under which
the Company or any of the Subsidiaries agrees to indemnify any party, to share
tax liability of any party, or to refrain from competing with any party; (h) any
contracts or other agreements with regard to Indebtedness; or (i) any other
contract or other agreement whether or not made in the ordinary course of
business. The Sellers have delivered to the Buyer true, correct and complete
copies of all such contracts, together with all modifications and supplements
thereto. Each of the contracts listed on Schedule 4.13 hereto or any of the
other Schedules hereto is in full force and effect, neither the Company nor any
of the Subsidiaries is in breach of any of the provisions of any such contract,
nor, to the knowledge of any of the Sellers, is any other party to any such
contract in default thereunder, nor does any event or condition exist which with
notice or the passage of time or both would constitute a default thereunder. To
the knowledge of the Sellers, each of the Company and each Subsidiary has in all
material respects performed all obligations required to be performed by it to
date under each such contract. No approval or consent of any person is needed
in order that the contracts listed on Schedule 4.13 and other Schedules hereto
continue in full force and effect following
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the consummation of the transactions contemplated by this Agreement, and no such
contract includes any provision the effect of which may be to enlarge or
accelerate any obligations of the Company or any of the Subsidiaries thereunder
or give additional rights to any other party thereto or will in any other way be
affected by, or terminate or lapse by reason of, the transactions contemplated
by this Agreement.
4.14. Employment of Officers, Employees. Schedule 4.14 sets forth the
name and current annual salary and other compensation payable by each of the
Company and the applicable Subsidiary to each exempt non-hourly employee whose
current total annual compensation or estimated compensation from the Company
and/or the applicable Subsidiaries (including but not limited to wages, salary,
commissions, normal bonus, profit sharing, deferred compensation and other extra
compensation) is $10,000 or more.
4.15. Employee Benefit Plans. (a) Except for the arrangements set forth
on Schedule 4.15(a), neither the Company nor the Subsidiaries now maintains or
contributes to, and has not in the current or preceding six (6) calendar years
maintained or contributed to, any pension, profit-sharing, deferred
compensation, bonus, stock option, share appreciation right, severance, group or
individual health, dental, medical, life insurance, survivor benefit, or similar
plan, policy or arrangement, whether formal or informal, for the benefit of any
director, officer, consultant or employee, whether active or terminated, of the
Company or the Subsidiaries. Each of the arrangements set forth on Schedule
4.15(a) is hereinafter referred to as an "Employee Benefit Plan", except that
any such arrangement which is a multi-employer plan shall be treated as an
Employee Benefit Plan only for purposes of Sections 4.15(d)(iv), (vi) and (viii)
and 4.15(g) below.
(b) Except as set forth on Schedule 4.15(d) hereto, the Sellers have
heretofore delivered to Buyer true, correct and complete copies of each Employee
Benefit Plan of the Company and the Subsidiaries, and with respect to each such
Plan (i) any associated trust, custodial, insurance or service agreements, (ii)
any annual report, actuarial report, or disclosure materials (including
specifically any summary plan descriptions) submitted to any governmental agency
or distributed to participants or beneficiaries thereunder in the current or any
of the six (6) preceding calendar years and (iii) the most recently received IRS
determination letters and any governmental advisory opinions or rulings.
(c) Except as set forth on Schedule 4.15(d) hereto, each Employee Benefit
Plan is and has heretofore been maintained and operated in compliance with the
terms of such Plan and with the requirements prescribed (whether as a matter of
substantive law or as necessary to secure favorable tax treatment) by any and
all statutes, governmental or court orders, or governmental rules or regulations
in effect from time to time, including but not limited to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), the Internal
Revenue Code of 1986, as amended ("Code") and applicable to such Plan and any
similar Mexican or Barbados laws or regulations. Except as set forth on
Schedule 4.15(d) hereto, each Employee Benefit Plan which is intended to qualify
under Section 401(a) of the Code has been determined to be so qualified by the
IRS and nothing has
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occurred since the date of the last such determination which has resulted or is
likely to result in the revocation of such determination.
(d) Except as set forth on Schedule 4.15(d),
(i) there is no pending or, to the Sellers' knowledge, threatened
legal action, proceeding or investigation, other than routine claims for
benefits, concerning any Employee Benefit Plan or any fiduciary or service
provider thereof and, to the best knowledge of the Sellers and the Company,
there is no basis for any such legal action or proceeding;
(ii) no liability (contingent or otherwise) to the Pension Benefit
Guaranty Corporation ("PBGC") or any multi-employer plan has been incurred
by the Company or the Subsidiaries or any affiliate thereof (other than
insurance premiums satisfied in due course);
(iii) no reportable event, or event or condition which presents a
material risk of termination by the PBGC, has occurred with respect to any
Employee Benefit Plan, or any retirement plan of an affiliate of the
Company, which is subject to Title IV of ERISA;
(iv) no Employee Benefit Plan nor any party in interest with respect
thereof, has engaged in a prohibited transaction which could subject the
Company or the Subsidiaries directly or indirectly to liability under
Section 409 or 502(i) of ERISA or Section 4975 of the Code;
(v) no communication, report or disclosure has been made which, at
the time made, did not accurately reflect the terms and operations of any
Employee Benefit Plan;
(vi) no Employee Benefit Plan provides welfare benefits subsequent to
termination of employment to employees or their beneficiaries (except to
the extent required by applicable state insurance laws and Title I, Part 6
of ERISA);
(vii) no benefits due under any Employee Benefit Plan have been
forfeited subject to the possibility of reinstatement (which possibility
would still exist at or after Closing); and
(viii) neither the Company nor the Subsidiaries has undertaken to
maintain any Employee Benefit Plan for any period of time and each such
Plan is terminable at the sole discretion of the sponsor thereof, subject
only to such constraints as may be imposed by applicable law.
(e) With respect to each Employee Benefit Plan for which a separate fund
of assets is or is required to be maintained, full payment has been made of all
amounts that
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the Company or the Subsidiaries is required, under the terms of each such Plan,
to have paid as contributions to that Plan as of the end of the most recently
ended plan year of that Plan, and no accumulated funding deficiency (as defined
in Section 302 of ERISA and Section 412 of the Code), whether or not waived,
exists with respect to any such Plan. The current value of the assets of each
such Employee Benefit Plan, as of the end of the most recently ended plan year
of that Plan, exceeded the current value of all accrued benefits under that
Plan.
(f) The execution of this Agreement and the consummation of the
transactions contemplated hereby, in and of themselves, will not result in any
payment (whether of severance pay or otherwise) becoming due from any Employee
Benefit Plan to any current or former director, officer, consultant or employee
of the Company or the Subsidiaries or result in the vesting, acceleration of
payment or increases in the amount of any benefit payable to or in respect of
any such current or former director, officer, consultant or employee.
(g) No Employee Benefit Plan is a multi-employer plan.
(h) For purposes of this Section 4.15, "multi-employer plan", "party in
interest", "current value", "accrued benefit", "reportable event" and "benefit
liability" have the same meaning assigned such terms under Sections 3, 4043(b)
or 4001(a) of ERISA, and "affiliate" means any entity which under Section 414 of
the Code is treated as a single employer with the Company or the Subsidiaries.
4.16. Labor Relations. To the knowledge of the Sellers, each of the
Company and each Subsidiary is in compliance with all applicable U.S., state and
foreign laws respecting employment and employment practices, terms and
conditions of employment, wages and hours and nondiscrimination in employment.
The Company and the Subsidiaries have not engaged in any unfair labor practice.
There is no charge pending or, to the Sellers' knowledge, threatened against the
Company or any of the Subsidiaries alleging unlawful discrimination in
employment practices before any court or agency and there is no charge of or
proceeding with regard to any unfair labor practice against the Company or any
of the Subsidiaries pending before the National Labor Relations Board or a
similar Mexican or Barbados authority or body. There is no labor strike,
dispute, slow-down or work stoppage actually pending or, to the Sellers'
knowledge, threatened against or involving the Company or any of the
Subsidiaries. To the Sellers' knowledge, no one has petitioned within the last
five (5) years, and no one is now petitioning, for union representation of any
of the Company's or any of the Subsidiaries' employees. No grievance or
arbitration proceeding arising out of or under any collective bargaining
agreement is pending against the Company or any of the Subsidiaries and no claim
therefor has been asserted. None of the employees of the Company or any of the
Subsidiaries is covered by any collective bargaining agreement, and no
collective bargaining agreement is currently being negotiated by the Company or
any of the Subsidiaries. Except as fully described on Schedule 4.16 hereto,
neither the Company nor
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any of the Subsidiaries has experienced any work stoppage during the last three
(3) years due to any disputes with any employee of the Company or any of the
Subsidiaries.
4.17. Potential Conflicts of Interest. No officer, director or
stockholder of the Company or any of the Subsidiaries (a) owns, directly or
indirectly, any interest in (excepting not more than 1% stock holdings for
investment purposes in securities of publicly held and traded companies) or is
an officer, director, employee or consultant of any Person which is a
competitor, lessor, lessee, customer or supplier of the Company or any of the
Subsidiaries; (b) owns, directly or indirectly, in whole or in part, any
tangible or intangible property which the Company or any of the Subsidiaries are
using or the use of which is necessary for the business of the Company or any of
the Subsidiaries; or (c) has any cause of action or other claim whatsoever
against, or owes any amount to, the Company or any of the Subsidiaries, except
for claims in the ordinary course of business, such as for accrued vacation pay,
accrued benefits under Employee Benefit Plans and similar matters and
agreements.
4.18. Trademarks, Patents, Etc. Schedule 4.18 hereto sets forth a
complete and accurate list of (a) all patents, trademarks, trade names and
copyrights registered in the name of the Company or any of the Subsidiaries or
used or proposed to be used by the Company or any of the Subsidiaries, all
applications therefor, and all licenses (as licensee or licensor) and other
agreements relating thereto, and (b) all written agreements relating to other
technology, know-how and processes which the Company or any of the Subsidiaries
is licensed or authorized by others to use or which the Company or any of the
Subsidiaries has licensed or authorized for use by others. Except as set forth
on Schedule 4.18, the Company and the Subsidiaries own or have the sole and
exclusive right to use all patents, trademarks, trade names and copyrights, and
has the right without restrictions to use all technology, know-how and
processes, used or necessary for the ordinary course of business of their
respective businesses as presently conducted or proposed to be conducted, and
the consummation of the transactions contemplated hereby will not alter or
impair any such right. No claims have been asserted, and no claims are pending,
by any person regarding the use of any such patents, trademarks, trade names,
copyrights, technology, know-how or processes, or challenging or questioning the
validity or effectiveness of any license or agreement, and there is no basis for
such claim. To the knowledge of the Sellers, the use by the Company or any of
the Subsidiaries of such patents, trademarks, trade names, copyrights,
technology, know-how or processes in the ordinary course of business does not
infringe on the rights of any person.
4.19. Suppliers and Customers. Schedule 4.19 hereto sets forth the ten
(10) largest suppliers and ten (10) largest customers of each of the Company and
each Subsidiary as of the date hereof. The relationships of the Company and
each Subsidiary with such suppliers and customers are good commercial working
relationships and, except as set forth on Schedule 4.19, the Sellers are not
aware, and have no reason to believe, that any supplier or customer of material
importance to the Company or any of the Subsidiaries has canceled or otherwise
terminated, or threatened to cancel or otherwise to terminate, its relationship
with the Company or any of the Subsidiaries or has during the
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last twelve (12) months decreased materially, or threatened to decrease or limit
materially, its services, supplies or materials for use by the Company or any of
the Subsidiaries or its usage or purchase of the services or products of the
Company or any of the Subsidiaries except for normal cyclical changes related to
customers' businesses. None of the Sellers has any knowledge that any such
supplier or customer intends to cancel or otherwise substantially modify its
relationship with the Company or any of the Subsidiaries or to decrease
materially or limit such customer's services, supplies or materials to the
Company or any of the Subsidiaries, or such customer's usage or purchase of the
Company's or the Subsidiaries' services or products, and to the knowledge of the
Sellers, the consummation of the transactions contemplated hereby will not
adversely affect the relationship of the Buyer or the Company with any such
supplier or customer.
4.20. Accounts Receivable. All accounts and notes receivable reflected on
the Audited Balance Sheet, and all accounts and notes receivable arising
subsequent to the date of such Audited Balance Sheet, have arisen in the
ordinary course of business, represent valid obligations owing to the Company or
the applicable Subsidiary and have been collected or, subject to the reserves
set forth on the Final Closing Balance Sheet, are collectible in the aggregate
recorded amounts thereof in accordance with their terms. In addition, all
accounts and notes receivable arising subsequent to the date of the Audited
Balance Sheet, if collected, have been collected in the ordinary course of
business and without any unusual discounts.
4.21. No Undisclosed Liabilities. Except to the extent (a) reflected or
reserved against in the Audited Balance Sheet, (b) incurred in the ordinary
course of business after the date of the Audited Balance Sheet and either
discharged prior to Closing or adequately reserved against on the Final Closing
Balance Sheet or (c) described on Schedule 4.21 hereto, neither the Company nor
any of the Subsidiaries has liabilities or obligations of any nature, whether
accrued, absolute, contingent or otherwise (including without limitation as
guarantor or otherwise with respect to obligations of others), other than
performance obligations with respect to the Company's contracts that would not
be required to be reflected or reserved against on a balance sheet prepared in
accordance with generally accepted accounting principles or in the footnotes
thereto.
4.22. Conduct of Business. Since December 23, 1997, the Company and the
Subsidiaries has conducted its business in compliance with the provisions of
Section 7 hereof, as if each of those provisions applied to the conduct of such
businesses at all times since such date.
4.23. Taxes. Each of the Company and each Subsidiary has timely and duly
filed with the appropriate government agencies, whether within or outside of the
United States, all of the income, sales, use, employment and other tax returns
and reports required to be filed by it, each such tax return and report has been
prepared in compliance with all applicable laws and regulations and all such tax
returns were true and correct at the time made in all material respects. No
waiver of any statute of limitations relating to taxes has been executed or
given by the Company. All taxes, assessments, fees and other
20
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governmental charges upon the Company or any of the Subsidiaries or upon any of
their respective properties, assets, revenues, income and franchises which are
owed by the Company or any of the Subsidiaries with respect to the period ending
on or before the Closing Date have been paid, other than those currently payable
without penalty or interest reflected on the Final Closing Balance Sheet.
Except as set forth on Schedule 4.23, neither the Company nor any of the
Subsidiaries is currently under audit by the IRS (as defined in Section 11) or
any similar Mexican or Barbados authority or body, and no tax return of the
Company or the Subsidiaries is currently under audit by any other taxing
authority. Neither the IRS nor any other taxing authority is now asserting or,
to the Sellers' knowledge, threatening to assert nor have such authorities ever
asserted or threatened to assert against the Company or any of the Subsidiaries
any deficiency or claim for additional taxes or interest thereon or penalties in
connection therewith or any adjustment that would have an adverse effect on the
Company or any of the Subsidiaries. Neither the Company nor any of the
Subsidiaries has consented to extend the time in which any Tax may be assessed
or collected by any taxing authority. Except as set forth on Schedule 4.23
hereto, neither the Company nor any of the Subsidiaries has requested or been
granted an extension of the time for filing any tax return to a date on or after
the Closing Date. Neither the Company nor any of the Subsidiaries has ever been
a member of any Affiliated Group, or filed or been included in a combined,
consolidated, or unitary tax return. Neither the Company nor any of the
Subsidiaries is a party to or bound by any tax sharing or allocation agreement
and has any current or potential contractual obligation to indemnify any other
person with respect to the payment of any taxes. Each of the Company and each
Subsidiary has withheld and paid all Taxes required to have been withheld and
paid by it in connection with amounts paid or owing to any employee, creditor,
independent contractor, or other person.
4.24. Indebtedness. Except for the obligations of Company under the Loan
Agreement or that Indebtedness described on Schedule 4.24 hereto, neither the
Company nor any of the Subsidiaries has any Indebtedness outstanding at the date
hereof. Neither the Company nor any of the Subsidiaries is in default with
respect to any outstanding Indebtedness or any instrument relating thereto and
no such Indebtedness or any instrument or agreement relating thereto purports to
limit the issuance of any securities by the Company or any of the Subsidiaries
or the operation of the business of the Company or any of the Subsidiaries.
Complete and correct copies of all instruments (including all amendments,
supplements, waivers and consents) relating to any Indebtedness of the Company
or the Subsidiaries have been furnished to the Buyer.
4.25. Bank Accounts, Signing Authority, Powers of Attorney. Except as set
forth on Schedule 4.25 hereto, neither the Company nor any of the Subsidiaries
has any account or safe deposit box in any bank and no Person has any power,
whether singly or jointly, to sign any checks on behalf of the Company or any of
the Subsidiaries to withdraw any money or other property from any bank,
brokerage or other account of the Company or any of the Subsidiaries or to act
under any power of attorney granted by the Company or any of the Subsidiaries at
any time for any purpose. Schedule 4.25 also sets forth the
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names of all persons authorized to borrow money or sign notes on behalf of the
Company and any of the Subsidiaries.
4.26. Inventory. The inventory and supplies of the Company and the
Subsidiaries are adequate for their respective present needs, and, except as
reflected on the Final Closing Balance Sheet, are in usable and saleable
condition in the ordinary course of business as currently conducted.
4.27. Minute Books. The minute books and corporate records of the Company
and the Subsidiaries made available to the Buyer for inspection accurately
record therein all actions taken by the Company's and the applicable
Subsidiary's Board of Directors and shareholders.
4.28. Broker. Except for the Broker, none of the Sellers has retained,
utilized or been represented by any broker, agent, finder or intermediary in
connection with the negotiation or consummation of the transactions contemplated
by this Agreement.
4.29. Accounts Payable. All accounts payable reflected on the Audited
Balance Sheet, and all accounts payable arising subsequent to the date of such
Audited Balance Sheet, have arisen in the ordinary course of business, represent
valid obligations of the Company or the Subsidiaries and have been paid, will be
paid and/or are obligated to be paid on payment terms that are consistent on
average with the Company's payment terms for the period included in the
Company's fiscal year ended April 30, 1997.
4.30. Disclosure. No representation or warranty by any of the Sellers in
this Agreement or in any schedule or certificate delivered or to be delivered to
the Buyer pursuant hereto or in connection with the consummation of the
transactions contemplated hereby contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading. The Sellers have not withheld any information from the Buyer
relating to any fact which materially adversely affects, or will materially
adversely affect, the business or condition (financial or other) of the Company
or the ability of the Sellers to perform this Agreement or any of the
transactions contemplated hereby.
4.31. Foreign Corrupt Practices Act. Each of the Company and the
Subsidiaries have not taken any action which would cause it to be in violation
of the Foreign Corrupt Practices Act of 1977, as amended, or any rules and
regulations thereunder. To the Sellers' knowledge, there is not now, and there
has never been, any employment by the Company or the Subsidiaries of, or
beneficial ownership in the Company or the Subsidiaries by, any governmental or
political official in any country in the world.
4A. ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE INDIVIDUAL SELLERS.
Each of the Sellers severally and not jointly represents and warrants to the
Buyer as follows:
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4A.1. Rights to Sell Outstanding Shares, Approvals; Binding Effect. Such
Seller has all requisite power and full legal right to enter into this
Agreement, the Escrow Agreement and the Non-Competition Agreement and Guaranty,
if any, to which it is a party, to perform all of such Seller's agreements and
obligations hereunder and thereunder, each in accordance with its respective
terms and to sell to the Buyer all of the outstanding shares of Stock owned by
such Seller. Each of this Agreement, the Escrow Agreement and the
Non-Competition Agreement and Guaranty, if any, to which such Seller is a party
has been duly executed and delivered by such Seller and constitutes the legal,
valid and binding obligation of such Seller enforceable against such Seller in
accordance with its terms.
4A.2. Title to Stock, Liens, etc. Such Seller has, and as of the
consummation of the Closing the Buyer will have, sole record and beneficial
ownership of all of the Stock and Michael Benner Stock, if any, described as
being owned by such Seller on Schedule 1, free and clear of any mortgage, lien,
pledge, charge, security interest, encumbrance, title retention agreement,
option, equity or other adverse claim thereto.
5. REPRESENTATIONS AND WARRANTIES OF THE BBI SELLERS. The BBI Sellers
represent and warrant to the Buyer as follows:
5.1. Organization; Authority. BBI is a corporation duly organized,
validly existing and in good standing under the laws of the State of Illinois.
BBI is duly qualified and in good standing as a foreign corporation in all
jurisdictions, both within and outside of the United States, in which the
character of the properties owned or leased or the nature of the activities
conducted by it makes such qualification necessary. The BBI Sellers have
delivered to the Buyer complete and correct copies of each of BBI's Articles of
Incorporation and By-Laws and all amendments thereto. BBI had and has all
requisite power and authority to own or lease and operate its properties and to
carry on its business as such business is now conducted, both within and outside
of the United States. Since prior to December 31, 1996, BBI has conducted no
operations other than the holding of Stewart Warner Stock.
5.2. Rights to Sell Outstanding Shares, Approvals; Binding Effect. Each
BBI Seller has all requisite power and full legal right to enter into this
Agreement and the Escrow Agreement, to perform all of such BBI Seller's
agreements and obligations hereunder and thereunder, each in accordance with its
respective terms and to sell to the Buyer all of the outstanding shares of BBI
Stock owned by such BBI Seller. Each of this Agreement and the Escrow Agreement
has been duly executed and delivered by such BBI Seller and constitutes the
legal, valid and binding obligation of such BBI Seller enforceable against such
BBI Seller in accordance with its terms.
5.3. Subsidiaries. BBI has no subsidiaries. BBI does not own any legal
and/or beneficial interests in any corporations, partnerships, business trusts,
limited liability
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companies, joint ventures, any other unincorporated trade or business
enterprises or in any other person or entity, except for 48,000 shares of
Stewart Warner Stock.
5.4. Capitalization. The authorized capital of BBI consists of 10,000
shares of common stock, no par value per share; 1,000 shares of which are issued
and outstanding on the date hereof. All of the shares of BBI Stock are owned of
record and beneficially by the BBI Sellers as set forth on Schedule 1 hereto.
All of the BBI Stock will be sold by the BBI Sellers to the Buyer pursuant to
the transactions contemplated by this Agreement. All of the BBI Stock is
validly issued and outstanding, fully paid and non-assessable. Except as set
forth on Schedule 5.4 hereto, there are no commitments for the purchase or sale
of, and no options, warrants or other rights to subscribe for or purchase, any
securities of BBI.
5.5. Title to Stock, Liens, etc. Except for the pledge by BBI of the
Stewart Warner Stock which it owns to LaSalle National Bank in connection with
the Loan Agreement, which pledge shall be discharged concurrent with the
consummation of the Closing, the BBI Sellers have, and as of the consummation of
the Closing the Buyer will have, sole record and beneficial ownership of all of
the BBI Stock free and clear of any mortgage, lien, pledge, charge, security
interest, encumbrance, title retention agreement, option, equity or other
adverse claim thereto.
5.6. Non-Contravention. The execution and delivery of this Agreement and
the Escrow Agreement and the consummation by the BBI Sellers of the transactions
contemplated hereby and thereby will not (a) violate or conflict with any
provision of the Articles of Incorporation or By-Laws of BBI; or (b) constitute
a violation of, or be in conflict with, or constitute or create a default under,
or result in the creation or imposition of any encumbrance upon any property of
BBI pursuant to (i) any agreement or instrument to which BBI is a party or by
which any of the properties of BBI are bound, or (ii) any statute, judgment,
decree, order, regulation or rule of any court or governmental or regulatory
authority within or outside of the United States.
5.7. Governmental Consents; Transferability of Licenses, Etc. Except as
set forth on Schedule 5.7 hereto, no Permits are required for the execution and
delivery by the BBI Sellers of this Agreement or the Escrow Agreement or for the
consummation by the BBI Sellers of the transactions contemplated hereby or
thereby. BBI has and maintains, and the Permits listed on Schedule 5.7 include,
all licenses, permits and other authorizations from all governmental authorities
as are necessary or desirable for the conduct of BBI's businesses. True and
complete copies of such Permits have previously been delivered to the Buyer.
5.8. Financial Statements. The BBI Sellers have delivered the following
financial statements (the "BBI Financial Statements") to the Buyer, and there
are attached as Schedule 5.8 hereto: the unaudited balance sheets of BBI as of
June 30, 1995, June 30, 1996 and June 30, 1997 and the related unaudited
statements of income, retained earnings and cash flows of BBI for each of the
fiscal years then ended. Each of the BBI Financial Statements is true
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and correct and has been compiled and prepared on a basis consistent with prior
periods; each of such balance sheets fairly and accurately presents the
financial condition of BBI as of its respective date; and such statements of
income, retained earnings and cash flows fairly and accurately present the
results of operations for the periods covered thereby.
5.9. Absence of Certain Changes. Except as set forth on Schedule 5.9,
since June 30, 1997, BBI has carried on no business other than its holding of
Stewart Warner Stock, and there has not been any change in the assets,
liabilities, sales, income or business of BBI.
5.10. Litigation, Etc. No action, suit, proceeding or investigation is
pending or threatened against BBI (nor is there any basis therefor known to any
of the BBI Sellers).
5.11. Conformity to Law. BBI has complied with, and is in compliance with
(a) all laws, statutes, governmental regulations and all judicial or
administrative tribunal orders, judgments, writs, injunctions, decrees or
similar commands applicable to it, or any of its properties (including, without
limitation, any labor, environmental, occupational health, zoning or other law,
regulation or ordinance), both within and outside of the United States, and (b)
all unwaived terms and provisions of all contracts, agreements and indentures to
which it is a party, or by which it or any of its properties is subject. BBI
has not committed, been charged with, or been under investigation with respect
to, nor does there exist, any violation of any provision of any federal, state,
local or foreign law or administrative regulation in respect of BBI or any of
its properties.
5.12. Title to Property, Real Property Leases, etc. BBI has no property
or assets whatsoever except for 48,000 shares of Stewart Warner Stock to which
it has good and marketable title, free and clear of all liens, pledges, charges,
security interests, encumbrances or title retention agreements of any kind or
nature except for the pledge described in Section 5.5. Except as set forth on
Schedule 5.12, BBI has not ever owned any real property and does not lease any
real property.
5.13. Real Property; Safety, Zoning and Environmental Matters.
(a) None of the plants, offices or properties in or on which BBI
carries on its business nor the activities carried on therein are in violation
of any United States or foreign zoning, health or safety law or regulation,
including, without limitation, the Occupational Safety and Health Act of 1970,
as amended.
(b) Except as set forth on Schedule 5.13:
(i) Neither BBI nor, to the knowledge of the BBI Sellers, any
other operator of any real property presently or formerly owned, leased or
operated by BBI is in violation or alleged violation of any judgment,
decree, order, law,
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license, rule or regulation pertaining to environmental matters, including
without limitation those arising under any Environmental Laws;
(ii) none of the BBI Sellers has received notice from any third
party, including without limitation any federal, state or local
governmental authority, (A) that BBI or any predecessor in interest to BBI
has been identified by the EPA as a potentially responsible party under
CERCLA with respect to a site listed on the National Priorities List, 40
C.F.R. Part 300 Appendix B (1986); (B) that any hazardous waste, as defined
by 42 U.S.C. Section 6903(5), any hazardous substance as defined by 42
U.S.C. Section 9601(14), any pollutant or contaminant as defined by 42
U.S.C. Section 9601(33) or Hazardous Substances which BBI or any
predecessor in interest to BBI has generated, transported or disposed of or
that any such materials disposed of by BBI or any predecessor in interest
has been found at any site at which a federal, state or local agency or
other third party has conducted or has ordered that BBI or any predecessor
in interest conduct a remedial investigation, removal or other response
action pursuant to any Environmental Law; or (C) that BBI or any
predecessor in interest to BBI is or shall be a named party to any claim,
action, cause of action, complaint, (contingent or otherwise) legal or
administrative proceeding arising out of any third party's incurrence of
costs, expenses, losses or damages of any kind whatsoever in connection
with the release of Hazardous Substances or other similar substances;
(iii) (A) no portion of any real property presently or
formerly owned, leased or operated by BBI has been used by BBI, or to the
knowledge of the BBI Sellers, any other person, for the handling,
manufacturing, processing, storage or disposal of Hazardous Substances
except in accordance with applicable Environmental Laws; and, to the
knowledge of the BBI Sellers, no underground tank or other underground
storage receptacle for Hazardous Substances is located on such properties;
(B) in the course of any activities conducted by BBI or other operators of
any real property presently or formerly owned, leased or operated by BBI,
no Hazardous Substances have been generated or used on such properties
except in accordance with applicable Environmental Laws; (C) to the
knowledge of the BBI Sellers, all real properties presently or formerly
owned, leased or operated by BBI are free from groundwater, surface water,
soil, sediment and air contamination, and such properties do not contain
asbestos in any form, urea formaldehyde foam insulation, transformers or
other equipment containing polychlorinated biphenyls or any other chemical,
material or substance, exposure to which is prohibited, limited or
regulated by any Environmental Law, or which poses a hazard to the health
and safety of the occupants of such properties or those adjacent thereto;
(D) to the knowledge of the BBI Sellers, there have been no releases (i.e.,
any past or present releasing, spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, disposing or dumping)
or threatened releases of Hazardous Substances on, upon, into or from any
real property presently or formerly owned, leased or operated by BBI except
in accordance with applicable Environmental Laws; (E) to the knowledge of
the BBI
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Sellers, there have been no releases on, upon, from or into any real
property in the vicinity of any real property presently or formerly owned,
leased or operated by BBI which, through soil or groundwater contamination,
may have come to be located on such real property; and (F) in addition, any
Hazardous Substances that have been generated on any real property
presently or formerly owned, leased or operated by BBI have been
transported offsite, to the knowledge of the BBI Sellers, only by carriers
having identification numbers issued by the EPA and, to the BBI Sellers'
knowledge, and have been treated or disposed of only by treatment or
disposal facilities maintaining valid permits as required under applicable
Environmental Laws, which transporters and facilities, to the knowledge of
the Sellers, have been and are operating in compliance with such permits
and applicable Environmental Laws; and
(iv) no real property presently or formerly owned, leased or
operated by BBI is or shall be subject to any applicable environmental
cleanup responsibility law or environmental restrictive transfer law or
regulation, by virtue of the transactions set forth herein and contemplated
hereby.
(d) Except for the reports attached as part of Schedule 5.13 there
are no documents, reports, site assessments, data, communications or other
materials, in the possession of BBI or any of the BBI Sellers or to which any of
them has access or knowledge, which contain any material information with
respect to potential environmental liabilities associated with any real property
presently or formerly owned, leased or operated by BBI and relating to
compliance with Environmental Laws or the environmental condition of such
properties and adjacent properties. The BBI Sellers have furnished to the Buyer
complete and accurate copies of all of the documents, reports, site assessments,
data, communications and other materials listed on Schedule 5.13 hereto.
5.14. Insurance. Schedule 5.14 hereto lists all policies of fire,
liability, workmen's compensation, life, property and casualty and other
insurance, if any, owned or held by BBI. All such policies (a) are in full
force and effect, (b) are sufficient for compliance by BBI with all written
agreements to which BBI is a party and, to the BBI Sellers' knowledge, all
applicable requirements of law and (c) provide that they will remain in full
force and effect through the respective dates set forth in such Schedule and (d)
will not in any way be affected by, or terminate or lapse by reason of, the
transactions contemplated by this Agreement. BBI is not in default with respect
to its obligations under any of such insurance policies and has not received any
notification of cancellation of any such insurance policies.
5.15. Contracts. Schedule 5.15 sets forth a complete and accurate list of
all contracts to which BBI is a party or by or to which it or any of its assets
or properties is bound or subject. As used in this Section 4.15, the word
"contract" means and includes every agreement or understanding of any kind,
written or oral, which is legally enforceable by or against BBI, and
specifically includes (a) contracts and other agreements with any current or
former officer, director, employee, consultant or shareholder or any
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partnership, corporation, joint venture or any other entity in which any such
person has an interest; (b) agreements with any labor union or association
representing any employee; (c) contracts and other agreements for the provision
of services by BBI; (d) bonds or other security agreements provided by any party
in connection with the business of BBI; (e) contracts and other agreements for
the sale of any of BBI's assets or properties other than in the ordinary course
of business or for the grant to any person of any preferential rights to
purchase any of BBI's assets or properties; (f) joint venture agreements
relating to the assets, properties or business of BBI or by or to which it or
any of its assets or properties are bound or subject; (g) contracts or other
agreements under which BBI agrees to indemnify any party, to share tax liability
of any party, or to refrain from competing with any party; (h) any contracts or
other agreements with regard to Indebtedness; or (i) any other contract or other
agreement whether or not made in the ordinary course of business. The BBI
Sellers have delivered to the Buyer true, correct and complete copies of all
such contracts, together with all modifications and supplements thereto. Each
of the contracts listed on Schedule 5.15 hereto is in full force and effect, BBI
is not in breach of any of the provisions of any such contract, nor is any other
party to any such contract in default thereunder, nor does any event or
condition exist which with notice or the passage of time or both would
constitute a default thereunder. BBI has in all material respects performed all
obligations required to be performed by it to date under each such contract. No
approval or consent of any person is needed in order that the contracts listed
on Schedule 5.15 continue in full force and effect following the consummation of
the transactions contemplated by this Agreement, and no such contract includes
any provision the effect of which may be to enlarge or accelerate any
obligations of BBI thereunder or give additional rights to any other party
thereto or will in any other way be affected by, or terminate or lapse by reason
of, the transactions contemplated by this Agreement.
5.16. Employment of Officers, Employees. BBI currently has no employees,
and has never had any employees.
5.17. Employee Benefit Plans. BBI does not now maintain or contribute to,
and has not in the current or preceding six (6) calendar years maintained or
contributed to, any pension, profit-sharing, deferred compensation, bonus, stock
option, share appreciation right, severance, group or individual health, dental,
medical, life insurance, survivor benefit, or similar plan, policy or
arrangement, whether formal or informal, for the benefit of any director,
officer, consultant or employee, whether active or terminated, of BBI, the
Company or the Subsidiaries.
5.18. Labor Relations. BBI currently has no labor unions, and has never
had any labor unions.
5.19. Potential Conflicts of Interest. No officer, director or
stockholder of BBI: (a) owns, directly or indirectly, any interest in (excepting
not more than 1% stock holdings for investment purposes in securities of
publicly held and traded companies) or is an officer, director, employee or
consultant of any Person which is a competitor, lessor,
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lessee, customer or supplier of BBI or the Company; (b) owns, directly or
indirectly, in whole or in part, any tangible or intangible property which BBI
or the Company is using or the use of which is necessary for the business of
BBI; or (c) has any cause of action or other claim whatsoever against, or owes
any amount to, BBI or the Company, except for claims in the ordinary course of
business.
5.20. Trademarks, Patents, Etc. BBI does not currently own or license any
intellectual property.
5.21. Suppliers and Customers. BBI does not currently have any suppliers
or customers.
5.22. Accounts Receivable. BBI has no accounts or notes receivable, and
has never had any accounts or notes receivable.
5.23. No Undisclosed Liabilities. Except as set forth on Schedule 5.23
hereto, and other than the pledge described in Section 5.5 BBI has no
liabilities or obligations of any nature, whether accrued, absolute, contingent
or otherwise (including without limitation as guarantor or otherwise with
respect to obligations of others) and will have no liabilities or obligations of
any nature on the Closing Date.
5.24. Conduct of Business. Since December 23, 1997, BBI has conducted its
business in compliance with the provisions of Section 7 hereof, as if each of
those provisions applied to the conduct of such business at all times since such
date.
5.25. Taxes. Except as set forth on Schedule 5.25, BBI has timely and
duly filed with the appropriate government agencies, whether within or outside
of the United States, all of the income, sales, use, employment and other tax
returns and reports required to be filed by it, each such tax return and report
has been prepared in compliance with all applicable laws and regulations and all
such tax returns were true and correct at the time made in all material
respects. No waiver of any statute of limitations relating to taxes has been
executed or given by BBI. All taxes, assessments, fees and other governmental
charges upon BBI or upon its properties, assets, revenues, income and franchises
which are owed by BBI with respect to the period ending on or before the Closing
Date have been paid. No federal or foreign tax return of BBI is currently under
audit by the IRS (as defined in Section 11), and no other tax return of BBI is
currently under audit by any other taxing authority. Neither the IRS nor any
other taxing authority is now asserting or, to the knowledge of the BBI Sellers,
threatening to assert nor have such authorities ever asserted or threatened to
assert against BBI any deficiency or claim for additional taxes or interest
thereon or penalties in connection therewith or any adjustment that would have
an adverse effect on BBI. Except as set forth on Schedule 5.25, BBI has not
consented to extend the time in which any Tax may be assessed or collected by
any taxing authority. BBI has not requested or been granted an extension of the
time for filing any tax return to a date on or after the Closing Date. BBI has
never been a member of any Affiliated Group, or filed or been included in a
combined, consolidated, or unitary tax return. BBI
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is not a party to or bound by any tax sharing or allocation agreement and has no
current or potential contractual obligation to indemnify any other person with
respect to the payment of any taxes. BBI has withheld and paid all Taxes
required to have been withheld and paid by it in connection with amounts paid or
owing to any employee, creditor, independent contractor, or other person.
5.26. Indebtedness. BBI has no Indebtedness outstanding at the date
hereof and will have no Indebtedness outstanding on the Closing Date.
5.27. Bank Accounts, Signing Authority, Powers of Attorney. Except as set
forth on Schedule 5.27, BBI has no account or safe deposit box in any bank and
no Person has any power, whether singly or jointly, to sign any checks on behalf
of BBI to withdraw any money or other property from any bank, brokerage or other
account of BBI or to act under any power of attorney granted by BBI at any time
for any purpose. Schedule 5.27 also sets forth the names of all persons
authorized to borrow money or sign notes on behalf of BBI.
5.28. Minute Books. The minute books and corporate records of BBI made
available to the Buyer for inspection accurately record therein all actions
taken by BBI Board of Directors and shareholders.
5.29. Broker. Except for the Broker, none of the BBI Sellers has
retained, utilized or been represented by any broker, agent, finder or
intermediary in connection with the negotiation or consummation of the
transactions contemplated by this Agreement.
5.30. Disclosure. No representation or warranty by any of the BBI Sellers
in this Agreement or in any schedule or certificate delivered or to be delivered
to the Buyer pursuant hereto or in connection with the consummation of the
transactions contemplated hereby contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact required to be
stated therein or necessary to make the statements contained therein not
misleading. The BBI Sellers have not withheld any information from the Buyer
relating to any fact which materially adversely affects or will materially
adversely affect, the business or condition (financial or other) of BBI or the
ability of the BBI Sellers to perform this Agreement or any of the transactions
contemplated hereby.
5.31. Foreign Corrupt Practices Act. BBI has not taken any action which
would cause it to be in violation of the Foreign Corrupt Practices Act of 1977,
as amended, or any rules and regulations thereunder. There is not now, and
there has never been, any employment by BBI of, or beneficial ownership in BBI
by, any governmental or political official in any country in the world.
6. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer represents and
warrants to each of the Sellers as follows:
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6.1. Organization of Buyer; Authority. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts. The Buyer has all requisite power and authority
to execute and deliver this Agreement, the Escrow Agreement and each of the
Non-Competition Agreements and to carry out all of the actions required of it
pursuant to the terms hereof and thereof.
6.2. Corporate Approval; Binding Effect. The Buyer has obtained all
necessary authorizations and approvals from its Board of Directors and
stockholders required for the execution and delivery of this Agreement, the
Escrow Agreement and the Non-Competition Agreements and the consummation of the
transactions contemplated hereby and thereby. Each of this Agreement, the
Escrow Agreement and the Non-Competition Agreements has been duly executed and
delivered by the Buyer and constitutes the legal, valid and binding obligation
of the Buyer, enforceable against the Buyer in accordance with its terms, except
as enforceability thereof may be limited by any applicable bankruptcy,
reorganization, insolvency or other laws affecting creditors' rights generally
or by general principles of equity.
6.3. Non-Contravention. The execution and delivery by the Buyer of this
Agreement, the Escrow Agreement and the Non-Competition Agreements and the
consummation by the Buyer of the transactions contemplated hereby and thereby
will not (a) violate or conflict with any provisions of the Articles of
Organization or By-Laws of the Buyer, each as amended to date; or (b) constitute
a violation of, or be in conflict with, constitute or create a default under, or
result in the creation or imposition of any lien upon any property of the Buyer
pursuant to (i) any agreement or instrument to which the Buyer is a party or by
which the Buyer or any of its properties is bound or to which the Buyer or any
of its properties is subject, or (ii) any statute, judgment, decree, order,
regulation or rule of any court or governmental authority to which the Buyer is
subject.
6.4. Governmental Consents. Except as set forth in Schedule 6.4 hereto,
no consent, approval or authorization of, or registration, qualification or
filing with, any governmental agency or authority is required for the execution
and delivery by the Buyer of this Agreement, the Escrow Agreement or the
Non-Competition Agreements or for the consummation by the Buyer of the
transactions contemplated hereby or thereby.
6.5. Brokers. The Buyer has not retained, utilized or been represented by
any broker, agent, finder or other intermediary in connection with the
negotiation or consummation of the transactions contemplated by this Agreement.
6.6. Purchase Price. On the Closing Date, the Buyer shall have
sufficient cash on hand, or available pursuant to existing lending arrangements,
to make any payments that may be required to be made on such date pursuant to
Section 2.2.
6.7. Disclosure. No representation or warranty by Buyer in this Agreement
or in any schedule or certificate delivered or to be delivered to the Sellers
hereto or in connection with the consummation of the transactions contemplated
hereby contains or
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will contain any untrue statement of a material fact or omits or will omit to
state a material fact required to be stated herein or necessary to make the
statements contained therein not misleading.
7. COVENANTS OF THE SELLERS PENDING CLOSING. Each of the Sellers, jointly
and severally, covenants and agrees that, from and after the date of this
Agreement and until the Closing, except as otherwise specifically consented to
or approved by the Buyer in writing:
7.1. Full Access. The Sellers shall cause the Company and the
Subsidiaries to afford to the Buyer and its authorized representatives full
access during normal business hours to all properties, books, records, contracts
and documents of the Company and the Subsidiaries and a full opportunity to make
such reasonable investigations as they shall desire to make of the Company, and
the Sellers shall furnish or cause to be furnished to the Buyer and its
authorized representatives all such information with respect to the affairs and
businesses of the Company and the Subsidiaries as the Buyer may reasonably
request.
7.2. Carry on in Regular Course. The Sellers shall cause the Company and
the Subsidiaries to maintain their owned and leased properties in good operating
condition and repair, and to make all necessary renewals, additions and
replacements thereto, and to carry on their business diligently and
substantially in the same manner as heretofore and not make or institute any
changes of management or accounting practices other than those in the ordinary
course of business.
7.3. No General Increases. Except as may be necessary to maintain
compensation in excess of Mexican minimum wage standards, the Sellers shall not
permit the Company or any of the Subsidiaries to grant any general or uniform
increase in the rates of pay of employees of the Company or any of the
Subsidiaries, nor grant any general or uniform increase in the benefits under
any bonus or pension plan or other contract or commitment to, for or with any
such employees; neither the Company nor any of the Subsidiaries shall increase
the compensation payable or to become payable to officers, key salaried
employees or agents, or increase any bonus, insurance, pension or other benefit
plan, payment or arrangement made to, for or with any such officers, key
salaried employees or agents; and none of the Company nor any of the
Subsidiaries shall make any material changes in its personnel.
7.4. No Dividends, Issuances, Repurchases, etc. The Sellers shall not
permit the Company or the Subsidiaries to declare or pay any dividends (whether
in cash, shares of stock or otherwise) on, or make any other distribution in
respect of, any shares of their capital stock, or issue, purchase, redeem or
acquire for value any shares of their capital stock.
7.5. Contracts and Commitments. The Sellers shall not permit the Company
or the Subsidiaries to enter into any contract or commitment which will result
in the payment (either to or from such entity) of more than $50,000 over its
term or engage in any
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transaction not in the usual and ordinary course of business and consistent with
the business practices of the Company and the Subsidiaries.
7.6. Purchase and Sale of Capital Assets. Except for any capital
expenditures approved by the Company prior to the date hereof and described in
management reports, copies of which have been provided to the Buyer, the Sellers
shall not permit the Company or the Subsidiaries to purchase or sell or
otherwise dispose of any capital asset with a market value in excess of $5,000,
or of capital assets of market value aggregating in excess of $50,000 without
the prior written consent of the Buyer, and in no event shall purchase, sell or
otherwise dispose of any capital asset other than in the ordinary course of
business.
7.7. Insurance. The Sellers shall cause the Company and the Subsidiaries
to maintain the insurance coverage described on Schedule 4.14 through and
including the Closing Date.
7.8. Preservation of Organization. The Sellers shall cause each of the
Company and the Subsidiaries to use its best efforts to preserve its business
organization intact, to keep available to the Buyer the present key officers and
employees of the Company and the Subsidiaries and to preserve for the Buyer the
present relationships of the Company's and the Subsidiaries' suppliers and
customers and others having business relations with the Company and or the
Subsidiaries.
7.9. No Default. The Sellers shall not permit the Company or the
Subsidiaries to do any act or omit to do any act, or permit any act or omission
to act, which will cause a material breach of any contract, commitment or
obligation of the Company or the Subsidiaries.
7.10. Compliance with Laws. The Sellers shall cause each of the Company
and the Subsidiaries to comply with all laws, regulations and orders, both
within and outside the United States, applicable with respect to its business.
7.11. Advice of Change. The Sellers will promptly advise the Buyer in
writing of any material adverse change in the business, condition, operations,
prospects or assets of the Company or the Subsidiaries.
7.12. No Shopping. The Sellers shall not, and shall not permit the
Company or the Subsidiaries, or any agent thereof, to, directly or indirectly,
initiate discussions, negotiate for, solicit, entertain or respond to overtures
of offers from, provide any information to or enter into any agreement with
respect or in relation to the sale of the Stock or any substantial portion of
the assets of the Company or the Subsidiaries or any merger or other business
combination of the Company and the Subsidiaries. The Sellers and the Company
will promptly advise the Buyer in writing of any indication of interest in a
potential acquisition received from any third party.
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7.13. Consents of Third Parties. The Sellers will employ their best
efforts to secure, before the Closing Date, the consent, in form and substance
satisfactory to the Buyer and the Buyer's counsel, to the consummation of the
transactions contemplated by this Agreement by each party to any contract,
commitment or obligation of the Company or the Subsidiaries, under which such
transactions would constitute a default, would accelerate obligations of the
Company or the Subsidiaries or would permit cancellation of any such contract.
7.14. Satisfaction of Conditions Precedent. The Sellers will use their
best efforts to cause the satisfaction of the conditions precedent contained
herein.
7.15. HSR Act. As promptly as practicable, and in no event later than the
eighth business day following the execution and delivery of this Agreement by
the parties, the Sellers and the Buyer shall each prepare and file any required
notification and report form under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), in connection with the transactions
contemplated hereby, provided that all necessary information has been exchanged
by the parties hereto. The Sellers and the Buyer shall request early
termination of the waiting period thereunder; and the Sellers and the Buyer
shall respond with reasonable diligence and dispatch to any request for
additional information made in response to such filings.
7.16. Cooperation. The Company, each Subsidiary and the Sellers shall
use their respective best efforts to facilitate the conduct of the environmental
reviews referred to in Section 8.11, including with respect to facilitating the
acquisition of any consents required from any lessor of any of the Real Property
to perform sampling of the soil at any locations deemed necessary by the Buyer
or any of the persons engaged to deliver the reports referred to in
Section 8.11.
7A. COVENANTS OF THE BBI SELLERS PENDING CLOSING. Each of the BBI
Sellers, jointly and severally, covenants and agrees that, from and after the
date of this Agreement and until the Closing, except as otherwise specifically
consented to or approved by the Buyer in writing:
7A.1. Full Access. The BBI Sellers shall cause BBI to afford to the Buyer
and its authorized representatives full access during normal business hours to
all properties, books, records, contracts and documents of BBI and a full
opportunity to make such reasonable investigations as they shall desire to make
of BBI, and the BBI Sellers shall furnish or cause to be furnished to the Buyer
and its authorized representatives all such information with respect to the
affairs and businesses of BBI as the Buyer may reasonably request.
7A.2. Carry on in Regular Course. The BBI Sellers shall cause BBI to
maintain any owned and leased properties in good operating condition and repair,
and to make all necessary renewals, additions and replacements thereto, and to
carry on its business
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diligently and substantially in the same manner as heretofore and not make or
institute any changes of management or accounting practices other than those in
the ordinary course of business.
7A.3. No Increases. The BBI Sellers shall not permit BBI to hire any
employees.
7A.4. No Dividends, Issuances, Repurchases, etc. Except as set forth on
Schedule 7A.4 hereto, the BBI Sellers shall not permit BBI to declare or pay any
dividends (whether in cash, shares of stock or otherwise) on, or make any other
distribution in respect of, any shares of their capital stock, or issue,
purchase, redeem or acquire for value any shares of their capital stock.
7A.5. Contracts and Commitments. The BBI Sellers shall not permit BBI to
enter into any contract or commitment.
7A.6. Purchase and Sale of Capital Assets. The BBI Sellers shall not
permit BBI to purchase or sell or otherwise dispose of any capital asset without
the prior written consent of the Buyer.
7A.7. Insurance. The BBI Sellers shall cause BBI to maintain the
insurance coverage described on Schedule 5.14, if any, through and including the
Closing Date.
7A.8. Preservation of Organization. The BBI Sellers shall cause BBI to
use its best efforts to preserve its business organization intact.
7A.9. No Default. The BBI Sellers shall not permit BBI to do any act or
omit to do any act, or permit any act or omission to act, which will cause a
material breach of any contract, commitment or obligation of BBI.
7A.10. Compliance with Laws. The BBI Sellers shall cause BBI to comply
with all laws, regulations and orders, both within and outside the United
States, applicable with respect to its business.
7A.11. Advice of Change. The BBI Sellers will promptly advise the Buyer
in writing of any material adverse change in the business, condition,
operations, prospects or assets of BBI.
7A.12. No Shopping. The BBI Sellers shall not, and shall not permit BBI,
or any agent thereof, to, directly or indirectly, initiate discussions,
negotiate for, solicit, entertain or respond to overtures of offers from,
provide any information to or enter into any agreement with respect or in
relation to the sale of the BBI Stock or any substantial portion of the assets
of BBI or any merger or other business combination of BBI. The BBI Sellers will
promptly advise the Buyer in writing of any indication of interest in a
potential acquisition received from any third party.
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7A.13. Consents of Third Parties. The BBI Sellers will employ their best
efforts to secure, before the Closing Date, the consent, in form and substance
satisfactory to the Buyer and the Buyer's counsel, to the consummation of the
transactions contemplated by this Agreement by each party to any contract,
commitment or obligation of BBI under which such transactions would constitute a
default, would accelerate obligations of BBI or would permit cancellation of any
such contract.
7A.14. Satisfaction of Conditions Precedent. The BBI Sellers will use
their best efforts to cause the satisfaction of the conditions precedent
contained herein.
7A.15. Cooperation. BBI and the BBI Sellers shall use their respective
best efforts to facilitate the conduct of the environmental reviews referred to
in Section 8.11, including with respect to facilitating the acquisition of any
consents required from any lessor of any of the Real Property to perform
sampling of the soil at any locations deemed necessary by the Buyer or any of
the persons engaged to deliver the reports referred to in Section 8.11.
8. CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The obligation of the
Buyer to consummate the Closing shall be subject to the satisfaction at or prior
to the Closing of each of the following conditions (to the extent noncompliance
is not waived in writing by the Buyer):
8.1. Representations and Warranties True at Closing. The representations
and warranties made by the Sellers in or pursuant to this Agreement shall be
true and correct at and as of the Closing Date with the same effect as though
such representations and warranties had been made or given at and as of the
Closing Date.
8.2. Compliance with Agreement. The Sellers shall have performed and
complied with all of their obligations under this Agreement to be performed or
complied with by them on or prior to the Closing Date.
8.3. No Material Change. There shall not have been or, to the Sellers'
knowledge, threatened to be, any material damage to or loss or destruction of
any properties or assets owned or leased by BBI, the Company or any of the
Subsidiaries (whether or not covered by insurance) or any material adverse
change in the condition (financial or otherwise), operations, business or assets
of BBI, the Company or any of the Subsidiaries or imposition of any laws, rules
or regulations which would materially adversely affect the condition (financial
or otherwise), operations, business or assets of the Company and the
Subsidiaries, taken as a whole, since April 30, 1997. For the purposes of this
Section 8.3, "materiality" shall be defined, with respect to the Company and the
Subsidiaries, taken as a whole, as being reasonably likely to have an impact on,
or in an amount equal to, or exceeding at least 10% of the assets of the Company
and the Subsidiaries, taken as a whole, or at least 5% of the net income of the
Company and the
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Subsidiaries, taken as a whole, in each case as of and for the Company's fiscal
year ended April 30, 1997.
8.4. Sellers' Certificate. Each of the Sellers shall have delivered to
the Buyer in writing, at and as of the Closing, a certificate duly executed by
such Seller, in form and substance satisfactory to the Buyer and the Buyer's
counsel, certifying that the conditions in each of Section 8.1 (as it relates to
the representations and warranties made by such Seller in or pursuant to this
Agreement) and 8.2 (as it related to the obligations of such Seller under this
Agreement) have been satisfied.
8.5. Opinion of Counsel. Baker & McKenzie, Abogados, special counsel to
the Sellers and the Company shall have delivered to the Buyer a written opinion
in form reasonably satisfactory to the Buyer, addressed to the Buyer and dated
the Closing Date, stating that:
(i) The Mexican Subsidiary has and maintains all Permits as are
necessary or desirable for the conduct of its business, and the
consummation of the transactions contemplated hereby shall not adversely
affect or otherwise modify any such Permits; and
(ii) No consent, approval or authorization of, or registration,
qualification or filing with, any Mexican governmental agency or authority
is required for the execution and delivery by the Sellers of this Agreement
or for the consummation by the Sellers of the transactions contemplated
hereby.
8.6. Approvals. All corporate and other approvals and consents required
to be obtained by the Sellers, BBI, the Company or any Subsidiary in connection
with the transactions contemplated by this Agreement and the form and substance
of all certificates and other documents delivered hereunder shall have been
obtained and shall be reasonably satisfactory in form and substance to the Buyer
and its counsel.
8.7. No Litigation. No restraining order or injunction shall prevent the
transactions contemplated by this Agreement and no action, suit or proceeding
shall be pending or threatened before any court or administrative body (a) in
which it will be or is sought to restrain or prohibit or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby, or (b) in connection with any claim for damages in excess
of $50,000 against the Company.
8.8. Non-Competition Agreements. Each of the Sellers listed on
Schedule 2.2(d) shall have executed and delivered to the Buyer a non-competition
and non-solicitation agreement in the form of Exhibit B hereto (the
"Non-Competition Agreements"), and each of such Non-Competition Agreements shall
be in full force and effect.
8.9. Escrow Agreement. The Sellers (other than Thomas Walsh) and the
Escrow Agent shall have executed and delivered to the Buyer an Escrow Agreement
in the form of
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Exhibit A-1, and such Escrow Agreement shall be in full force and effect.
Thomas Walsh and the Escrow Agent shall have executed and delivered to the Buyer
an Escrow Agreement in the form of Exhibit A-2, and such Escrow Agreement shall
be in full force and effect.
8.10. Resignations of Directors and Officers. All of the directors and
officers of the Company, each of the Subsidiaries and BBI who shall have been
requested to do so by the Buyer shall have resigned their positions with the
Company each of the Subsidiaries and BBI, on or prior to the Closing Date and
prior thereto shall have executed such appropriate documents with respect to the
transfer or establishment of bank accounts, signing authority, etc., as the
Buyer shall have reasonably requested.
8.11. Environmental Reports. The Buyer shall have not received prior to
the earlier of (i) the Closing Date or (ii) March 20, 1998, any report or
reports (including soil sampling), of an environmental engineering firm or firms
selected by the Buyer in the exercise of its sole discretion, that describe (i)
any non-compliance of any or all of the Real Property (and any adjoining
property or other property formerly owned or leased by the Company or BBI) with
any applicable Environmental Laws, and (ii) any liability of the Company or BBI
under any Environmental Laws, including without limitation the absence of any
spills or releases of any oil or Hazardous Substance on such property.
8.12. Indebtedness. The Sellers shall have caused LaSalle National Bank
to deliver a pay-off letter and forms of lien discharges, each in form
reasonably satisfactory to the Buyer, with respect to the obligations of the
Company under the Loan Agreement.
8.13. Consent of Lenders. Each of the Buyer and HVE shall have obtained
all consents and approvals from its lenders and noteholders as are or may be
necessary to the consummation of the transactions contemplated by this
Agreement.
8.14. Consents of Third Parties. The Sellers will have obtained the
consent, in form and substance satisfactory to the Buyer and the Buyer's
counsel, to the consummation of the transactions contemplated by this Agreement
by each party to any contract, commitment or other obligation of BBI, the
Company or the Subsidiaries under which such transactions would constitute a
default, would accelerate obligations of BBI, the Company or the Subsidiaries or
the Buyer or would permit cancellation of any such contract.
8.15. Release. The Buyer shall have received an executed Non-Competition
Agreement and Release from Michael McGrath in the form attached as Exhibit C
hereto (the "McGrath Non-Competition Agreement and Release").
8.16. Michael Benner Guarantee. Michael Benner and XP54-1 Limited shall
execute and deliver a Guarantee of certain of the other Sellers' indemnification
obligations in the form attached as Exhibit D hereto (the "Michael Benner
Guaranty").
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8.17. HSR Act. Any applicable waiting periods under the HSR Act shall
have expired or early termination of such periods shall have been granted by all
requisite governmental authorities.
8.18. Company Indebtedness. The Company Indebtedness shall have been
repaid prior to the Closing or at the Closing pursuant to the provisions of
Section 2.2(b).
8.19. Proceedings and Documents Satisfactory. All proceedings in
connection with the transactions contemplated by this Agreement and all
certificates and documents delivered to the Buyer in connection with the
transactions contemplated by this Agreement shall be satisfactory in all
reasonable respects to the Buyer and the Buyer's counsel, and the Buyer shall
have received the originals or certified or other copies of all such records and
documents as the Buyer may reasonably request.
9. CONDITIONS PRECEDENT TO THE SELLERS' OBLIGATIONS. The obligation of
the Sellers to consummate the Closing (including the obligation of Michael
Benner to sell the Michael Benner stock to the Buyer) shall be subject to the
satisfaction, at or prior to the Closing, of each of the following conditions
(to the extent noncompliance is not waived in writing by the Sellers):
9.1. Representations and Warranties True at Closing. The representations
and warranties made by the Buyer in this Agreement shall be true and correct at
and as of the Closing Date with the same effect as though such representations
and warranties had been made or given at and as of the Closing Date.
9.2. Compliance with Agreement. The Buyer shall have performed and
complied with all of its obligations under this Agreement that are to be
performed or complied with by it at or prior to the Closing.
9.3. Closing Certificate. The Buyer shall have delivered to the Company
in writing, at and as of the Closing, a certificate duly executed by each of the
President and Treasurer of the Buyer, in form and substance satisfactory to the
Company and the Company's counsel, to the effect that the conditions in each of
Sections 9.1 and 9.2 have been satisfied.
9.4. Approvals. All corporate and other approvals required to be obtained
by the Buyer or HVE in connection with the transactions contemplated by this
Agreement and the form and substance of all certificates and other documents
delivered hereunder shall have been obtained and shall be reasonably
satisfactory to the Sellers and their counsel.
9.5. No Litigation. No restraining order or injunction shall prevent the
transactions contemplated by this Agreement and no action, suit or proceeding
shall be pending or threatened before any court or administrative body in which
it will be or is sought to restrain or prohibit or obtain damages or other
relief in connection with this Agreement or the consummation of the transactions
contemplated hereby.
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9.6. Escrow Agreement. The Buyer and the Escrow Agent shall have executed
and delivered the Escrow Agreement, and the Escrow Agreement shall be in full
force and effect.
9.7. HSR Act. Any applicable waiting periods under the HSR Act shall have
expired or early termination of such periods shall have been granted by all
requisite governmental authorities.
9.8. Proceedings and Documents Satisfactory. All proceedings in
connection with the transactions contemplated by this Agreement and all
certificates and documents delivered to the Sellers in connection with the
transactions contemplated by this Agreement shall be satisfactory in all
reasonable respects to the Sellers and their counsel, and the Sellers shall have
received the originals or certified or other copies of all such records and
documents as the Sellers may reasonably request.
10. CONFIDENTIAL INFORMATION. Any and all information disclosed by the
Buyer to any of the Sellers or BBI, the Company or the Subsidiaries or by any of
the Sellers or the Company to the Buyer as a result of the negotiations leading
to the execution of this Agreement, or in furtherance thereof, whether before or
after the date hereof, which information was not already known to the Sellers,
BBI, the Company or the Subsidiaries or to the Buyer, as the case may be, shall
remain confidential to each of the Sellers, BBI, the Company, the Subsidiaries
and the Buyer, as the case may be, and their respective employees and agents
until the Closing Date. If the Closing does not take place for any reason, each
of the Sellers and the Buyer agrees not to further divulge or disclose or use
for its benefit or purposes any such information at any time in the future
unless it has otherwise become public. The information intended to be protected
hereby shall include, but not be limited to, financial information, customers,
sales representatives, methods of doing business, processes, know-how, trade
secrets, product and proposed product designs and specifications, plans,
forecasts, proposals, contracts and anything else having an economic or
pecuniary benefit to the Buyer, BBI, the Company, the Subsidiaries or any of the
Sellers, respectively.
11. DEFINITIONS. As used herein the following terms not otherwise defined
have the following respective meanings:
"Company Indebtedness" All payment obligations of the Company under the
Loan Agreement and any related documents, including all principal and unpaid
interest thereon.
"Defined Assets": As of any date, the total assets of the Company and the
Subsidiaries on a consolidated basis, including cash and cash equivalents, trade
accounts receivable (net of allowances for doubtful accounts), inventories,
prepayments, property, plant and equipment net of any accumulated depreciation
(including machinery and equipment, molds, tools and dies, office equipment,
leasehold improvements and construction in process), and any and all other
assets as may appear on or are accounted
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for as assets on the Audited Balance Sheet (as defined in Section 4.8),
excluding any Tax receivables or other tax assets (including deferred tax
assets). For purposes of this Agreement, the amount of any of the Defined
Assets shall be determined in a manner consistent with the determination of the
amount of such assets for purposes of the preparation of the Audited Balance
Sheet.
"Defined Liabilities": As of any date, any and all liabilities of the
Company and the Subsidiaries on a consolidated basis, except for Excluded
Liabilities, Company Indebtedness and deferred tax liabilities. For purposes of
this Agreement, the amount of any of the Defined Liabilities as of any date
shall be determined in a manner consistent with the determination of the amount
of such liabilities for purposes of the preparation of the Audited Balance
Sheet.
"Excluded Liabilities": As of any date, any federal taxes payable,
state taxes payable, Mexican federal income taxes payable, property taxes
payable, and any other accrued liabilities with respect to federal, state and
foreign taxes for any period through the Closing Date, excluding any deferred
tax liabilities. For purposes of this Agreement, the amount of any of the
Excluded Liabilities as of any date shall be determined in a manner
consistent with the determination of the amount of such liabilities for
purposes of the preparation of the Audited Balance Sheet.
"Indebtedness": As applied to any Person (as defined in this Section 11),
(a) all indebtedness of such Person for borrowed money, whether current or
funded, or secured or unsecured, (b) all indebtedness of such Person for the
deferred purchase price of property or services represented by a note or other
security, (c) all indebtedness of such Person created or arising under any
conditional sale or other title retention agreement with respect to property
acquired by such Person (even though the rights and remedies of the seller or
lender under such agreement in the event of default are limited to repossession
or sale of such property), (d) all indebtedness of such Person secured by a
purchase money mortgage or other lien to secure all or part of the purchase
price of property subject to such mortgage or lien, (e) all obligations under
leases which shall have been or must be, in accordance with generally accepted
accounting principles, recorded as capital leases in respect of which such
Person is liable as lessee, (f) any liability of such Person in respect of
banker's acceptances or letters of credit, and (g) all indebtedness referred to
in clause (a), (b), (c), (d), (e) or (f) above which is directly or indirectly
guaranteed by such Person or which such Person has agreed (contingently or
otherwise) to purchase or otherwise acquire or in respect of which it has
otherwise assured a creditor against loss.
"IRS": The United States Internal Revenue Service.
"Loan Agreement" the Loan Agreement, dated as of January 22, 1996, between
the Company and LaSalle National Bank.
"Net Assets": As of any date, the amount of the Defined Assets minus the
amount of the Defined Liabilities.
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"Person" or "person": A corporation, an association, a partnership, a
limited liability company, an organization, a business, an individual, a
government or political subdivision thereof or a governmental agency.
"state": Any state or commonwealth of the United States of America; the
District of Columbia; the Commonwealth of Puerto Rico; and any other dependency,
possession or territory of the United States of America.
"subsidiaries": With respect to any Person, any corporation a majority (by
number of votes) of the outstanding shares of any class or classes of which
shall at the time be owned by such Person or by a subsidiary of such Person, if
the holders of the shares of such class or classes (a) are ordinarily, in the
absence of contingencies, entitled to vote for the election of a majority of the
directors (or persons performing similar functions) of the issuer thereof, even
though the right so to vote has been suspended by the happening of such a
contingency, or (b) are at the time entitled, as such holders, to vote for the
election of a majority of the directors (or persons performing similar
functions) of the issuer thereof, whether or not the right so to vote exists by
reason of the happening of a contingency.
"Tax" or "Taxes" means any U.S, Mexican, Barbados, state, local, or foreign
income, gross receipts, franchise, estimated, alternative minimum, add-on
minimum, sales, use, transfer, registration, value added, excise, severance,
stamp, occupation, premium, windfall profit, customs, duties, real property,
personal property, capital stock, intangibles, social security, unemployment,
disability, payroll, license, employee, or other tax or levy, of any kind
whatsoever, including any interest, penalties, or additions to tax in respect of
the foregoing.
12. INDEMNIFICATION.
12.1. Indemnity by the Sellers. Subject to the overall limitations,
minimum amounts and time limitations set forth in Section 12.6, each of the
Sellers, severally and not jointly, agree to indemnify and hold the Buyer, the
Company and the Subsidiaries (and their respective directors, officers,
employees and affiliates) harmless from and with respect to any and all claims,
liabilities, losses, damages, costs and expenses, including without limitation
the fees and disbursements of counsel (collectively, the "Losses"), after
subtracting any insurance proceeds actually received by the Buyer with respect
to a particular Loss, related to or arising, directly or indirectly, out of:
(i) any failure or any breach by any Seller of any representation or
warranty, covenant, obligation or undertaking made by such Seller (other
than pursuant to Sections 5.1 through 5.31 of this Agreement) in this
Agreement, any Schedule or Exhibit hereto, or any other statement,
certificate or other instrument delivered pursuant hereto;
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(ii) any actual or alleged tax liability of the Company or any of the
Subsidiaries in respect of any period through the Closing Date, including
any fees of professionals incurred in preparing returns for such periods,
or in assisting in responding to any audits of tax returns filed with
respect to any such period, to the extent such liability is not adequately
reflected or reserved against on the Final Closing Balance Sheet;
(iii) any actual or alleged liability for death or injury to
person or property, to the extent not covered by insurance, as a result of
any actual or alleged defect in any product sold or manufactured by the
Company or any of the Subsidiaries on or prior to the Closing Date but only
to the extent that the liability with respect thereto exceeds the reserve
therefor on the Final Closing Balance Sheet; provided, however, that the
Buyer shall first assert any claims it may have with respect to such
product for a reasonable period of time and to a reasonable extent against
any manufacturer of products sold by the Company (if not manufactured by
the Company) and that the Sellers shall be subrogated to the rights of the
Buyer with respect to any such claim;
(iv) any contractual product warranty claims arising out of defects in
any product shipped by the Company on or prior to the Closing Date but only
to the extent that the liability with respect thereto exceeds the reserve
therefor on the Final Closing Balance Sheet;
(v) any actual or alleged liability for violation of any
Environmental Law by the Company, any of the Subsidiaries or any of the
Sellers prior to the Closing Date, including any expenses or Losses
incurred in remediation of such violations or penalties assessed with
respect to such violations, but only to the extent that the liability with
respect thereto exceeds the reserve therefor on the Final Closing Balance
Sheet; or
(vi) any liability of the Company, any of the Subsidiaries or any of
the Sellers with respect to the professional and other fees and expenses
incurred by the Company, any of the Subsidiaries or any of the Sellers
(other than the BBI Sellers) (including but not limited to the fees and
expenses of Fagel & Haber, Martin, Brown & Sullivan, LTD., Deloitte &
Touche LLP, Baker & McKenzie, Abogados, and the Broker) incurred in
connection with the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, or any other expenses
required to be borne by the Sellers pursuant to Sections 3.3, 3.4 and 14.2.
12.2. Indemnity by the BBI Sellers. In addition to the indemnification
obligations assumed by the BBI Sellers pursuant to Section 12.1, each of the BBI
Sellers, jointly and severally, agrees to indemnify and hold the Buyer, BBI, the
Company and the Subsidiaries (and their respective directors, officers,
employees and affiliates) harmless, without
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limitation, from and with respect to any Losses related to or arising, directly
or indirectly, out of:
(i) any breach by the BBI Sellers of any of the representations and
warranties made by the BBI Sellers in Sections 5.1 through 5.31 of this
Agreement;
(ii) any actual or alleged tax liability of BBI in respect of any
period through the Closing Date, including any fees of professionals
incurred in preparing returns for such periods, or in assisting in
responding to any audits of tax returns filed with respect to any such
period;
(iii) any actual or alleged violation of any Environmental Law
prior to the Closing Date by BBI, any of the BBI Sellers, or any other
owner or operator of property owned, leased or operated by BBI on or prior
to the Closing Date, including any expenses or Losses incurred in
remediation of such violations or penalties assessed with respect to such
violations; or
(iv) any other liability of BBI arising on or prior to, or existing
on, the Closing Date, or arising in connection with or as a result of any
events occurring prior to, or facts in existence prior to or on, the
Closing Date.
12.3. Indemnity by the Buyer. The Buyer agrees to indemnify and hold the
Sellers (and their respective directors, officers, employees, affiliates, heirs
and personal representative) harmless from and with respect to any and all
Losses related to or arising, directly or indirectly, out of:
(i) any failure or any breach by the Buyer of any representation or
warranty, covenant, obligation or undertaking made by the Buyer in this
Agreement, any Schedule or Exhibit hereto, or any other statement,
certificate or other instrument delivered pursuant hereto;
(ii) any actual or alleged tax liability of the Company, BBI or any of
the Subsidiaries in respect of any period after the Closing Date;
(iii) any actual or alleged liability for death or injury to
person or property, to the extent not covered by insurance, as a result of
any actual or alleged defect in any product sold or manufactured by the
Company or any of the Subsidiaries after the Closing Date;
(iv) any contractual product warranty claims arising out of defects in
any product shipped by the Company or any of its Subsidiaries after the
Closing Date; and
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(v) any liabilities arising out of the operations of the business of
the Company after the Closing (except to the extent such liabilities arise
out of liabilities described in Section 12.1 (i) through (vii) or 12.2(i)
through (iv)).
12.4. Claims.
(a) Notice. Any party seeking indemnification hereunder (the "Indemnified
Party") shall promptly notify all other parties hereto from which it has an
indemnification obligation (the "Indemnifying Parties") of any action, suit,
proceeding, demand or breach (a "Claim") with respect to which the Indemnified
Party claims indemnification hereunder, provided that failure of the Indemnified
Party to give such notice shall not relieve any Indemnifying Party of its
obligations under this Section 12 except to the extent, if at all, that such
Indemnifying Party shall have been prejudiced thereby.
(b) Third Party Claims. If such Claim relates to any action, suit,
proceeding or demand instituted against an Indemnified Party by a third party (a
"Third Party Claim"), the Indemnifying Parties shall be entitled to participate
in the defense of such Third Party Claim after receipt of notice of such claim
from such Indemnified Party. Within thirty (30) days after receipt of notice of
a particular matter from the Indemnified Parties, the Indemnifying Parties may
assume the defense of such Third Party Claim, and engage counsel of its
choosing, in which case the Indemnifying Parties shall have the authority to
negotiate, compromise and settle such Third Party Claim, if and only if the
following conditions are satisfied:
(i) the Indemnifying Parties shall have confirmed in writing
that it is obligated hereunder to indemnify the Indemnified Party with
respect to such Third Party Claim; and
(ii) the Indemnified Party shall not have given the Indemnifying
Parties written notice that it has determined, in the exercise of its
reasonable discretion, that matters of corporate or management policy or a
conflict of interest (including but not limited to the fact that such Third
Party Claim is in an amount in excess of that portion of the Indemnity Cap
that may be available to satisfy such Third Party Claim) make separate
representation by the Indemnified Party's own counsel advisable, provided,
that if the Indemnified Party elects to assume the defense of a Third Party
Claim pursuant to this paragraph (b)(ii) for reasons other than that such
Third Party Claim is in an amount in excess of that portion of the
Indemnity Cap that may be available to satisfy such Third Party Claim, the
Indemnified Party shall pay the fees and expenses of its own counsel
incurred in connection with such defense and such fees and expenses shall
not constitute Losses of such Indemnified Party with respect to such Third
Party Claim.
(c) Each Indemnifying Party agrees, unless it timely assumes the defense
of any Claim hereunder, to pay the Indemnified Party's costs of defending any
Third Party Claim,
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including, without limitation, attorneys' and paralegal fees, accountants' fees,
witness fees and court costs, promptly after written demand therefore is given
by the Indemnified party to the Indemnifying Party.
(d) The Indemnified Party shall retain the right to employ its own counsel
and to participate in the defense of any Third Party Claim, the defense of which
has been assumed by the Indemnifying Party pursuant hereto, but the Indemnified
Party shall bear and shall be solely responsible for its own costs and expenses
in connection with such participation.
(e) If any Indemnifying Party undertakes the defense of any Third Party
Claim, then so long as such Indemnifying Party, in good faith, is continuously
contesting or defending the Third Party Claim: (A) the Indemnified Party shall
not admit any liability with respect thereto, or settle, compromise, pay or
discharge the Third Party Claim without the prior written consent of all
Indemnifying Parties or their representative; (B) the Indemnified Party shall
provide the Indemnifying Parties with reasonable cooperation in the contest or
defense of the Third Party Claim; (C) the Indemnified Party shall accept any
settlement of the Third Party Claim, provided such settlement requires only the
payment of money by the Indemnifying Parties (without such payment exceeding the
amount of the Indemnity Cap available therefor) and does not require the
assumption of any restrictions, entrance into any agreement, the making of any
admissions, or the taking of any other actions by the Indemnified Parties, and
adequate arrangements for the payment of such Third Party Claim, to the
Indemnified Party's reasonable satisfaction, are made by Indemnifying Party; and
(D) Indemnifying Parties will provide the Indemnified Party with all information
regarding the contest or defense of the Claim and allow counsel for the
Indemnified Party to monitor, at the Indemnified Party's sole expense, all
proceedings in connection with the Claim.
(f) Neither any Indemnifying Party nor any Indemnified Party may admit any
liability with respect to any Third Party Claim or settle, compromise, pay or
discharge the same without the prior written consent of all other parties if
such settlement, compromise, payment or discharge could in any way expose such
other party to the payment of funds which are not subject to a claim of
reimbursement or indemnification from the settling, compromising or paying
party.
12.5. Method and Manner of Paying Claims. (a) In the event of any
Claims under this Section 12, the claimant shall advise the party or parties who
are required to provide indemnification therefor in writing of the amount and
circumstances surrounding such claim. With respect to liquidated claims, if
within thirty days the other party has not contested such claim in writing, the
other party will pay the full amount thereof within ten days after the
expiration of such period. Any amount owed by an Indemnifying Party hereunder
with respect to any Claim may be set-off by the Indemnified Party against any
amounts owed by the Indemnified Party to any Indemnifying Party.
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(b) In the event of any claims pursuant to Section 12.1, the Buyer
shall be required to proceed first against the Escrowed Funds, if any, in
accordance with the terms of both Escrow Agreement until such funds have all
been released. In the event of any claims pursuant to Section 12.2, the Buyer
shall be permitted, in the exercise of its sole discretion, to proceed first
against the Escrowed Funds, provided, that in no event shall the Buyer be
required to proceed against the Escrowed Funds.
12.6. Limitations on Indemnification.
(a) No Indemnifying Party shall be required to indemnify an Indemnified
Party under Section 12.1 or 12.3 except to the extent that the aggregate amount
of Losses for which the Indemnified Party is otherwise entitled to
indemnification pursuant to such section exceeds $100,000, whereupon the
Indemnified Party shall be entitled to be paid each dollar of Losses in excess
of $100,000, subject to the limitations on maximum amount of recovery set forth
in Section 12.6(b); provided, that Losses related to or arising directly or
indirectly out of any inaccuracies in any representation or warranty made by any
of the Sellers in Sections 4, 4.5, 4.12, 4.17, 4.25, 4.30, 4A.1 or 4A.2 or
payable with respect to claims for indemnification made with respect to Sections
12.1(ii) through (vi) hereof (collectively, "Unlimited Claims") shall be
indemnified in their entirety by the Sellers and shall not be subject to the
limitations set forth in this Section 12.6(a).
(b) The aggregate Losses payable by an Indemnifying Party pursuant to
Section 12.1 and Section 12.3 with respect to all claims (including Unlimited
Claims) shall not exceed $5,000,000, including the Escrowed Funds (the
"Indemnity Cap"). No Seller, if such Seller is an Indemnifying Party pursuant
to Section 12.1, shall be liable for any Losses pursuant to Section 12.1 that
exceed the percentage of the Indemnity Cap set forth next to such Seller's name
on Schedule 3 hereto provided, however, that, subject to their respective
obligations under the Michael Benner Guaranty, the maximum collective liability
of XP54-I Limited, Michael Benner and Kathy Benner, as Trustee for the Michael
Benner's Children's Trust, dated August 1, 1986, under Sections 12.1 and 12.2
shall not exceed the percentage of the Indemnity Cap set forth for any of such
parties on Schedule 3, and the maximum collective liability of Joseph Plomin and
Plomin-I Limited under Section 12.1 shall not exceed the percentage of the
Indemnity Cap set forth for either of such parties on Schedule 3.
(c) No Indemnifying Party shall be liable for any Losses pursuant to
Section 12.1 or Section 12.2 unless a written claim for indemnification in
accordance with Section 12.5 is given by the Indemnified Party to the
Indemnifying Party with respect thereto within one (1) year after the Closing,
except that this time limitation shall not apply to any Losses related to or
arising directly or indirectly out of any Unlimited Claims, as to which in each
case the applicable statute of limitations shall apply.
(d) Buyer agrees that the amount of any Loss for which it claims indemnity
under Sections 12.1 and 12.2 shall be reduced by the present value (discounted
at the Buyer's cost-
47
<PAGE>
of-capital) at the time of calculation of any income tax savings actually
realizable by the Buyer on account of such Loss, but after giving effect to any
potential income tax liability with respect to the indemnity payments to be made
by the Sellers, all as reasonably determined by the Buyer, provided, that to the
extent the amount of any claims has been reduced on account of this paragraph
(d) because of an anticipated income tax saving not finally realized by the
Buyer, whether on account of disallowance of a deduction after an Internal
Revenue Service audit or for any other reason, Buyer shall be entitled to claim
the amount of such reduction from the Sellers pursuant to this Section 12.6(d),
subject to the Indemnity Cap, whether or not any period within which claims
under Section 12.1 or 12.2 must be made has expired.
(e) None of the limitations set forth in this Section 12.6 shall apply to
the indemnification obligations of the BBI Sellers pursuant to Section 12.2.
12.7. Disputes.
(a) In the event that any Indemnifying Party contests any Claims made
pursuant to Sections 12.1, 12.2 or 12.3 of this Agreement within ten (10) days
of receipt of notice of such Claim, each of the Indemnifying Party and the
Indemnified Party shall endeavor to meet to resolve such dispute by negotiation
for a period of thirty (30) days from the date of delivery of notice of such
dispute. In the event that any Indemnifying Party does not deliver notice of
dispute of such Claim within such ten (10) day period, such Claim shall be
deemed to be finally determined.
(b) In the event that the Indemnifying Party and the Indemnified Party are
unable to resolve any such dispute within the thirty day period set forth in
paragraph (a), such dispute shall be settled by arbitration in Boston,
Massachusetts before a panel of three arbitrators (with one designated by each
of the Indemnified Party, on the one hand, and the Indemnifying Parties on the
other hand, and the third arbitrator designated by the first two) pursuant to
the rules of the American Arbitration Association. Arbitration may be commenced
with respect to any Claim at any time after the end of the thirty day period set
forth in paragraph (a) by an Indemnifying Party giving written notice to each
Indemnified Party that such dispute has been referred to arbitration under this
Section 12.7 The arbitrators shall be selected as prescribed above, but if they
do not so agree within 30 days after the date of the notice referred to above,
the selection shall be made pursuant to the rules from the panels of arbitrators
maintained by such Association. Any award or other decision rendered by the
arbitrators with respect to the Claim that is the subject of the dispute shall
be conclusive and binding upon the parties hereto, and the amount of such Claim
shall be deemed to have been finally determined; provided, however, that any
such award or other determination shall be accompanied by a written opinion of
the arbitrators giving the reasons for the award or determination. This
provision for arbitration with respect to Claims shall be specifically
enforceable by the parties and the decision of the arbitrators in accordance
herewith shall be final and binding and there shall be no right of appeal
therefrom. Each party shall pay its own expenses of arbitration and the
expenses of the arbitrators shall be equally shared;
48
<PAGE>
provided, however, that if in the opinion of the arbitrators any claim for
indemnification or any defense or objection thereto was unreasonable, the
arbitrators may assess, as part of the award or determination, all or any part
of the arbitration expenses of the other party (including reasonable attorneys'
fees) and of the arbitrators against the party raising such unreasonable claim,
defense or objection.
(c) To the extent that arbitration with respect to a Claim hereunder may
not be legally permitted hereunder and the parties to any such dispute may not
at the time of such dispute or claim mutually agree to submit such dispute to
arbitration, any party may commence a civil action in a court of appropriate
jurisdiction to solve disputes or claims hereunder. Nothing contained in this
Section 12.7 shall prevent the parties from settling any dispute or claim by
mutual agreement at any time.
(d) Neither party shall be precluded hereby from seeking, from the courts
of any jurisdiction, provisional or equitable remedies of a type not available
in arbitration, including without limitation, temporary restraining orders and
preliminary or permanent injunctions, nor shall the pursuit of such provisional
or equitable relief constitute a waiver or modification of such party's right
and obligation to arbitrate any related or unrelated dispute with respect to a
Claim hereunder which is otherwise subject to arbitration under this Agreement,
unless such waiver is expressed in writing and signed by such party. In the
event any person not a party to this Agreement shall commence any interpleader
or similar action which either directly or indirectly raises issues which are
subject to arbitration hereunder, the parties hereto shall seek a stay of such
proceedings pending arbitration in accordance with this Section 12.7.
(e) In the event of any Third Party Claim where the Indemnifying Party
does not assume the defense of such Third Party Claim, nothing in this
Section 12.7 shall prevent the Indemnified Party from impleading any
Indemnifying Party or otherwise joining any Indemnifying Party to any litigation
relating to such Third Party Claim.
13. TERMINATION. This Agreement may be terminated upon the mutual written
consent of each of the parties hereto.
14. GENERAL.
14.1. Survival of Representations and Warranties. The representations
and warranties of the parties hereto contained in this Agreement or otherwise
made in writing in connection with the transactions contemplated hereby (in each
case except as affected by the transactions contemplated by this Agreement)
shall be deemed material and, notwithstanding any investigation by the Buyer,
shall be deemed to have been relied on by the Buyer and shall survive the
Closing, and the consummation of the transactions contemplated hereby. Each
representation and warranty made by any of the Sellers or the Buyer in this
Agreement shall expire on the last day, if any, that Claims for breaches of such
representation or warranty may be made pursuant to Section 12.6 hereof, except
that any such representation or warranty that has been made the subject of a
Claim prior to
49
<PAGE>
such expiration date shall survive with respect to such Claim until the final
resolution of such Claim pursuant to Section 12.
14.2. Expenses. The Sellers shall pay all transfer and sales taxes
payable in connection with the sale of the Stock. Except as specifically
provided herein, all expenses of the preparation, execution and consummation of
this Agreement and of the transactions contemplated hereby, including without
limitation attorneys', accountants' and outside advisers' fees and
disbursements, shall be borne by the party incurring such expenses, provided,
that (i) the Sellers shall be fully responsible for the brokerage fees and
expenses of the Broker, (ii) that the BBI Sellers shall be responsible for any
fees and expenses incurred by the Buyer (including any filing fees and the
reasonable fees and expenses of counsel) in connection with any filing the Buyer
deems it necessary to make under the HSR Act in connection with the acquisition
of the BBI Stock, and (iii) that Thomas Walsh shall be responsible for the fees
and expenses of the Escrow Agent with respect to the Walsh Escrow.
14.3. Notices. All notices, demands and other communications hereunder
shall be in writing or by written telecommunication, and shall be deemed to have
been duly given if delivered personally or if mailed by certified mail, return
receipt requested, postage prepaid, or if sent by overnight courier, or sent by
written telecommunication, as follows:
If to any or all of the Sellers other than Thomas Walsh, to:
Michael Benner
4109 Royal Troon
St. Charles, Illinois 60174
with a copy sent contemporaneously to:
Joel A. Haber, Esq.
Fagel & Haber
140 South Dearborn, Suite 1400
Chicago, Illinois 60603
If to Thomas Walsh, to:
Thomas Walsh
Stewart Warner Instrument Corporation
1320A Goodyear Drive
El Paso, Texas 79936
50
<PAGE>
with a copy sent contemporaneously to:
William K. Kane, Esq.
Martin, Brown & Sullivan, LTD.
321 South Plymouth Court
Tenth Floor
Chicago, Illinois 60604
If to the Buyer, to:
Carolyn Corporation
c/o High Voltage Engineering Corporation
401 Edgewater Place, Suite 680
Wakefield, MA 01880-6210
Attention: Mr. Joseph W. McHugh, Jr.
with a copy sent contemporaneously to:
Michael P. O'Brien, Esq.
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Any such notice shall be effective (a) if delivered personally, when
received, (b) if sent by overnight courier, when receipted for, (c) if mailed,
five (5) days after being mailed as described above, and (d) if sent by written
telecommunication, when dispatched.
14.4. Entire Agreement. This Agreement contains the entire understanding
of the parties, supersedes all prior agreements and understandings relating to
the subject matter hereof and shall not be amended except by a written
instrument hereafter signed by all of the parties hereto.
14.5. Governing Law. The validity and construction of this Agreement
shall be governed and construed and enforced in accordance with the internal
laws (and not the choice-of-law rules) of the State of Delaware.
14.6. Sections and Section Headings. The headings of sections and
subsections are for reference only and shall not limit or control the meaning
thereof.
14.7. Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective heirs, successors and
permitted assigns. Neither this Agreement nor the obligations of any party
hereunder shall be assignable or transferable by such party without the prior
written consent of the other party hereto; provided, however, that nothing
contained in this Section 14.7 shall prevent the Buyer, without the consent of
the Sellers, (a) from transferring or assigning this Agreement or its
51
<PAGE>
rights or obligations hereunder to another entity controlling, under the control
of, or under common control with the Buyer or (b) from assigning all or part of
its rights or obligations hereunder by way of collateral assignment to any bank
or financing institution providing financing for the acquisition contemplated
hereby, but no such transfer or assignment made pursuant to clauses (a) or (b)
shall relieve the Buyer of its obligation under this Agreement.
14.8. Severability. In the event that any covenant, condition, or other
provision herein contained is held to be invalid, void, or illegal by any court
of competent jurisdiction, the same shall be deemed to be severable from the
remainder of this Agreement and shall in no way affect, impair, or invalidate
any other covenant, condition, or other provision contained herein.
14.9. Further Assurances. The parties agree to take such reasonable steps
and execute such other and further documents as may be necessary or appropriate
to cause the terms and conditions contained herein to be carried into effect.
14.10. No Implied Rights or Remedies. Except as otherwise expressly
provided herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or to give any person, firm or corporation, other than
the Sellers and the Buyer and their respective shareholders, if any, any rights
or remedies under or by reason of this Agreement.
14.11. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.12. Satisfaction of Conditions Precedent. Each of the Sellers and the
Buyer will use its best efforts to cause the satisfaction of the conditions
precedent contained in this Agreement; provided, however, that nothing contained
in this Section 14.12 shall obligate either party hereto to waive any right or
condition under this Agreement.
14.13. Public Statements or Releases. Each of the parties hereto agrees
that prior to the consummation of the Closing no party to this Agreement will
make, issue or release any public announcement, statement or acknowledgment of
the existence of, or reveal the status of, this Agreement or the transactions
provided for herein, without first obtaining the consent of the other party
hereto. Nothing contained in this Section 14.13 shall prevent either party from
making such disclosures as such party may consider necessary to satisfy such
party's legal or contractual obligations.
14.14. Seller Representative. By the execution and delivery of this
Agreement, each of the Sellers other than Thomas Walsh hereby irrevocably
constitute and appoint Michael Benner as the true and lawful agent and
attorney-in-fact (the "Seller Representative") of such Sellers with full power
of substitution to act in the name, place and stead of such Sellers with respect
to the transfer of the Stock owned by such Sellers to
52
<PAGE>
the Buyer in accordance with the terms and provisions of this Agreement, and to
act on behalf of such Sellers in any litigation or arbitration involving this
Agreement, do or refrain from doing all such further acts and things, and
execute all such documents as the Seller Representative shall deem necessary or
appropriate in connection with the transactions contemplated by this Agreement,
including, without limitation, the power:
(i) to act for such Sellers with regard to matters pertaining to
indemnification referred to in this Agreement, including the power to
compromise any Claim on behalf of such Sellers and to transact matters of
litigation;
(ii) to execute and deliver the Escrow Agreement and all other
ancillary agreements, certificates and documents that the Seller
Representative deems necessary or appropriate in connection with the
consummation of the transactions contemplated by this Agreement;
(iii)to receive funds and give receipts for funds in accordance
with the terms of the Escrow Agreement;
(iv) to do or refrain from doing any further act or deed on behalf of
such Sellers that the Seller Representative deems necessary or appropriate
in his sole discretion relating to the subject matter of this Agreement as
fully and completely as such Sellers could do if personally present; and
(v) to receive service of process in connection with any Claims under
this Agreement.
If Michael Benner dies or otherwise becomes incapacitated and unable to
serve as Seller Representative, Joseph Plomin shall serve as the new Seller
Representative. The appointment of the Seller Representative shall be deemed
coupled with an interest and shall be irrevocable, and the Buyer and any other
Person may conclusively and absolutely rely, without inquiry, upon any action of
the Seller Representative in all matters referred to herein. All payments and
notices made or delivered by the Buyer to the Seller Representative for the
benefit of the Sellers other than Thomas Walsh shall discharge in full all
liabilities and obligations of the Buyer to such Sellers with respect thereto.
The Sellers (other than Thomas Walsh) hereby confirm all that the Seller
Representative shall do or cause to be done by virtue of his appointment as the
Seller Representative of such Sellers. The Seller Representative shall act for
such Sellers on all of the matters set forth in this Agreement in the manner the
Seller Representative believes to be in the best interest of such Sellers as a
group and consistent with the obligations under this Agreement, but the Seller
Representative shall not be responsible to any Seller for any loss or damages
that such Seller may suffer by the performance of his duties under this
Agreement, other than loss or damage arising from willful violation of the law
or gross negligence in the performance of his or her duties under this
Agreement.
53
<PAGE>
IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed and delivered as a sealed
instrument as of the date and year first above written.
BUYER:
CAROLYN CORPORATION
By: /s/ Joseph W. McHugh, Jr.
--------------------------
Name: Joseph W. McHugh, Jr.
Title:
SELLERS:
MICHAEL BENNER'S CHILDREN'S TRUST
By: /s/ Kathy Benner
--------------------------
Kathy Benner, Trustee
/s/ Michael Benner
--------------------------
Michael Benner
PLOMIN-I Ltd., a Texas limited
partnership
By: /s/ Joseph Plomin
--------------------------
Name: Joe Plomin
Title:
XP54 - I LTD., a Texas limited
partnership
By: /s/ Michael Benner
--------------------------
Name: Mike Benner
Title: General Partner
54
<PAGE>
/s/ Genelle Benner
--------------------------
Genelle Benner
/s/ Larry Benner
--------------------------
Larry Benner
/s/ Joseph Plomin
--------------------------
Joseph Plomin
/s/ Thomas Walsh
--------------------------
Thomas Walsh
SELLER REPRESENTATIVE:
/s/ Michael Benner
--------------------------
Michael Benner
55
<PAGE>
Exhibit 2.2
ASSET PURCHASE AGREEMENT
between
GEI ACQUISITION INC.
and
HIGH VOLTAGE ENGINEERING CORPORATION
Dated as of March 25, 1998
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I SALE AND PURCHASE OF THE ASSETS
1.1. Assets.................................................. 1
1.2. Excluded Asset.......................................... 3
ARTICLE II THE CLOSING
2.1. Place and Date.......................................... 4
2.2. Purchase Price.......................................... 4
2.3. Allocation of Purchase Price............................ 5
2.4. Assumption of Liabilities............................... 5
2.5. Excluded Liabilities.................................... 5
2.6. Consent of Third Parties................................ 6
2.7. The Purchase Price Adjustment........................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SELLER
3.1. Authorization, etc...................................... 8
3.2. No Conflicts, etc....................................... 8
3.3. Corporate Status........................................ 9
3.4. Financial Statements.................................... 9
3.5. Undisclosed Liabilities, etc............................ 9
3.6. Absence of Changes...................................... 10
3.7. Tax Matters............................................. 12
3.8. Assets; Operations of the Division...................... 13
3.9. Real Property; Personal Property........................ 13
3.10. Contracts............................................... 14
3.11. Intellectual Property................................... 16
3.12. Insurance............................................... 18
3.13. Litigation.............................................. 18
3.14. Compliance with Laws and Instruments; Consents;
Governmental Contracts.................................. 19
3.15. Environmental Matters................................... 20
3.16. Affiliate Transactions.................................. 21
3.17. Employees, Labor Matters, etc........................... 21
3.18. Employee Benefit Plans and Related Matters; ERISA;
Workers' Compensation................................... 22
3.19. Accounts Receivable..................................... 23
<PAGE>
3.20. No Guaranties........................................... 23
3.21. Inventories............................................. 23
3.22. Customers; Sales Representatives........................ 23
3.23. Suppliers; Raw Materials................................ 24
3.24. Products................................................ 24
3.25. Absence of Certain Business Practices................... 25
3.26. Territorial Restrictions................................ 25
3.27. Brokers, Finders, etc................................... 25
3.28. No Other Warranties.................................... 26
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER
4.1. Representations and Warranties of the Buyer............. 26
4.2. Corporate Status; Authorization, etc.................... 26
4.3. No Conflicts, etc....................................... 26
4.4. Litigation.............................................. 27
4.5. Brokers, Finders, etc................................... 27
ARTICLE V COVENANTS OF SELLER
5.1. Conduct of Business..................................... 27
5.2. No Solicitation......................................... 28
5.3. Access and Information.................................. 28
5.4. Financial Statements.................................... 29
5.5. Public Announcements.................................... 29
5.6. Further Actions......................................... 29
5.7. Further Assurances...................................... 30
5.8. Liability for Transfer Taxes............................ 30
5.9. Certificates of Tax Authorities......................... 31
5.10. Use of Business Names and Marks......................... 31
5.11. Environmental Assessment................................ 31
5.12. Novation Agreements..................................... 31
5.13. Bank Accounts........................................... 31
5.14. Insurance............................................... 31
5.15. Phsy-Chem Agreement..................................... 32
5.16 No Excluded Technology.................................. 32
ARTICLE VI COVENANTS OF BUYER
6.1. Public Announcements.................................... 32
6.2. Further Actions......................................... 33
6.3. Further Assurances...................................... 33
6.4. Use of Business Names and Marks by the Buyer............ 33
ii
<PAGE>
ARTICLE VII CONDITIONS PRECEDENT TO OBLIGATIONS OF EACH PARTY
7.1. HSR Act Notification.................................... 34
7.2. No Injunction, etc...................................... 34
ARTICLE VIII CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER
8.1. Representations, Performance............................ 35
8.2. Consents................................................ 35
8.3. No Material Adverse Effect.............................. 35
8.4. Ancillary Agreements.................................... 35
8.5. Subsequent Monthly Financial Statements................. 35
8.6. Opinion of Counsel...................................... 36
8.7. Corporate Proceedings................................... 36
8.8. Transfer Documents...................................... 36
8.9. Environmental Assessment................................ 36
8.10. Consents and Estoppels.................................. 36
8.11. FIRPTA Certificate...................................... 37
8.12. Releases and Reassignments.............................. 37
8.13. Corporate Proceedings of Buyer.......................... 37
8.14. Non-Transferred Contracts............................... 37
8.15. Suppliers............................................... 37
8.16. GSA Contract............................................ 37
ARTICLE IX CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
9.1. Representations, Performance, etc....................... 38
9.2. Assumption Agreement.................................... 38
9.3. Opinion of Counsel...................................... 38
9.4. HSR Approval............................................ 38
9.5. Ancillary Agreements.................................... 38
9.6. Environmental Assessment................................ 38
ARTICLE X EMPLOYEES AND EMPLOYEE BENEFIT PLANS
10.1. Employment of the Seller's Employees................... 39
10.2. Welfare and Fringe Benefit Plans....................... 40
10.3. Workers' Compensation.................................. 40
10.4. Employment Taxes....................................... 40
ARTICLE XI TERMINATION
11.1. Termination............................................ 41
11.2. Effect of Termination.................................. 42
iii
<PAGE>
ARTICLE XII DEFINITIONS, MISCELLANEOUS
12.1. Definition of Certain Terms............................ 42
12.2. Indemnification........................................ 47
12.3. Survival of Representations and Warranties, etc........ 51
12.4. Expenses............................................... 51
12.5. Severability........................................... 52
12.6. Notices................................................ 52
12.7. Headings............................................... 53
12.8. Entire Agreement....................................... 53
12.9. Counterparts........................................... 53
12.10. Governing Law, etc.................................... 53
12.11. Binding Effect........................................ 53
12.12. Assignment............................................ 54
12.13. No Third Party Beneficiaries.......................... 54
12.14. Amendment; Waivers, etc............................... 54
iv
<PAGE>
SCHEDULES
Schedule 1.2(c) Excluded Assets
Schedule 2.7(a) Agreed Accounting Principles
Schedule 3.3(b) Qualifications and Assumed Name Filings
Schedule 3.4(a) Division Financial Statements
Schedule 3.5 Undisclosed Liabilities
Schedule 3.6 Absence of Changes
Schedule 3.7(a) Taxes
Schedule 3.7(b) Taxes
Schedule 3.7(c) Taxes
Schedule 3.7(d) Taxes
Schedule 3.7(e) Taxes
Schedule 3.8(a) Johnson Controls Inventory
Schedule 3.9(b) Leases
Schedule 3.9(g) Personal Property
Schedule 3.10(a) Contracts
Schedule 3.10(b) Enforceability and Consents of Contracts
Schedule 3.10(c) Government Contracts
Schedule 3.11(a) Owned Intellectual Property
Schedule 3.11(b) Division Intellectual Property Not Owned
Schedule 3.11(c) Licensing and Similar Arrangements
Schedule 3.11(d) Infringement on Division Intellectual Property
Schedule 3.11(e) Intellectual Property Litigation
Schedule 3.11(f) Due Registration of Intellectual Property
Schedule 3.11(g) Use of Name and Mark
Schedule 3.11(h) Calendar Function
Schedule 3.12 Insurance
Schedule 3.13 Litigation
Schedule 3.14(a) Compliance
Schedule 3.14(b)(i) Consents
Schedule 3.14(b)(ii) Governmental Permits
Schedule 3.15(b) Environmental Permits
Schedule 3.16 Affiliate Transactions
Schedule 3.17 Employment and Labor Matters
Schedule 3.18(a) Employee Benefit Plans
Schedule 3.18(d) Division Employment Agreements
Schedule 3.21 Inventories
Schedule 3.22(a) Customers
Schedule 3.22(b) Sales Representatives
Schedule 3.23 Suppliers and Raw Materials
Schedule 3.24(a) Warranties
Schedule 3.24(b) Product Liability
Schedule 3.26 Territorial Restrictions
v
<PAGE>
Schedule 4.3 Consents
Schedule 5.6(d) Non-Transferred Contracts
Schedule 8.5 Monthly Financial Statements
Schedule 10.1(a) Bonus Payments
vi
<PAGE>
EXHIBITS
EXHIBIT A Form of Assumption Agreement
EXHIBIT B Form of Seller Non-Competition Agreement
vii
<PAGE>
ASSET PURCHASE AGREEMENT
ASSET PURCHASE AGREEMENT, dated as of March 25, 1998, between GEI
Acquisition Inc., a Delaware corporation (the "Buyer"),and High Voltage
Engineering Corporation, a Massachusetts corporation (the "Seller").
W I T N E S S E T H:
WHEREAS, the Seller is in the business of, among other things,
designing, developing, assembling, manufacturing and selling relative humidity
measurement instruments and sensors, as well as humidity calibration instruments
in the United States through General Eastern Instruments, an unincorporated
division of the Seller (the "Division"); and
WHEREAS, the Buyer wishes to purchase or acquire from the Seller, and
the Seller wishes to sell, assign and transfer to the Buyer, all of the assets
and properties primarily relating to or used or held for use in connection with,
or necessary for the conduct of the business and operations of the Division as
currently conducted by the Seller , and the Buyer has agreed to assume the
Assumed Liabilities, all for the purchase price and upon the terms and subject
to the conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties made herein, and of the mutual benefits to be
derived hereby, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF THE ASSETS
1.1 Assets. Subject to and upon the terms and conditions set forth in
this Agreement, at the Closing (as defined in Section 2.1), the Seller will
sell, transfer, convey, assign and deliver to the Buyer, and the Buyer will
purchase or acquire from the Seller, all right, title and interest of the Seller
in and to the properties, assets and rights of every nature, kind and
description, tangible and intangible (including goodwill), whether real,
personal or mixed, whether accrued, contingent or otherwise and whether now
existing or hereinafter acquired (other than the Excluded Assets (as defined in
Section 1.2)) primarily relating to or used or held for use in connection with,
or necessary for the conduct of the business and operations of the Division as
currently conducted by the Seller as the same may exist on the Closing Date
(collectively, the "Assets"), including, without limitation, all those items in
the following categories that conform to the definition of the term "Assets":
(a) all machinery, equipment, computer hardware and peripherals,
furniture, furnishings, automobiles, trucks, vehicles, tools, dies, molds and
parts and similar property (including, but not limited to, any of the foregoing
purchased subject to any conditional
<PAGE>
sales or title retention agreement in favor of any other Person (as
such term and any other term used herein without definition is defined in
Section 12.1));
(b) all inventories of raw materials, work in process, finished
products, goods, spare parts, replacement and component parts, and office and
other supplies (collectively, the "Inventories"), including Inventories held at
any location controlled by the Seller and Inventories previously purchased and
in transit to the Seller at such locations;
(c) all rights in and to products sold or leased (including, but not
limited to, products hereafter returned or repossessed and unpaid sellers'
rights of rescission, replevin, reclamation and rights to stoppage in transit);
(d) all rights (including, but not limited to, any and all Intellectual
Property ights) in and to the products sold or leased and in and to any products
or other Intellectual Property rights under research or development prior to or
on the Closing Date;
(e) all of the rights of the Seller under all Contracts, including,
without limitation, any right to receive payment for products sold or services
rendered, and to receive goods and services, pursuant to such Contracts and to
assert claims and take other rightful actions in respect of breaches, defaults
and other violations of such Contracts;
(f) all of the rights of the Seller under all Leases (including, but
not limited to, credits and reimbursements for leasehold improvements pursuant
to the Lease set forth on Schedule 3.9(b);
(e) all credits, prepaid expenses, deferred charges, advance payments,
security deposits and prepaid items;
(f) all notes and accounts receivable held by the Seller and all notes,
bonds and other evidences of indebtedness of and rights to receive payments from
any Person held by the Seller;
(g) all Intellectual Property and all rights thereunder or in respect
thereof primarily relating to or used or held for use in connection with,
necessary for the conduct of the business or operations of the Division as
currently conducted by the Seller, including, but not limited to, rights to sue
for and remedies against past, present and future infringements thereof, and
rights of priority and protection of interests therein under the laws of any
jurisdiction worldwide and all tangible embodiments thereof (together with all
Intellectual Property rights included in the other clauses of this Section 1.1,
the "Division Intellectual Property");
(h) all books, records, manuals and other materials (in any form or
medium), including, without limitation, all records and materials maintained at
the headquarters of the Seller or the offices of any of its Affiliates,
advertising matter, catalogues, price lists,
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correspondence, mailing lists, lists of customers, distribution lists,
photographs, production data, sales and promotional materials and records,
purchasing materials and records, personnel records, manufacturing and quality
control records and procedures, blueprints, research and development files,
records, data and laboratory books, Intellectual Property disclosures, media
materials and plates, accounting records, sales order files and litigation
files;
(i) to the extent their transfer is permitted by law, all governmental
approvals or consents, including all applications therefor;
(h) all licenses, permits, approvals and qualifications
relating to any real property issued to the Seller by any
governmental authority or agency;
(j) all rights to causes of action, lawsuits, judgments, claims and
demands of any nature available to or being pursued by the Seller with respect
to the business or operations of the Division or the ownership, use, function or
value of any Asset, whether arising by way of counterclaim or otherwise;
(k) all guarantees, warranties, indemnities and similar rights in favor
of the Seller with respect to any Asset; and
(l) all rights in favor of the Seller with respect to any employment,
consulting, confidentiality, non-competition and retention agreements (the
"Division Employment Agreements").
Subject to the terms and conditions hereof, at the Closing, the Assets
shall be transferred or otherwise conveyed to the Buyer free and clear of all
liabilities, obligations, liens and encumbrances excepting only Assumed
Liabilities and Permitted Liens.
1.2 Excluded Assets. The Seller will retain and not transfer, and the
Buyer will not purchase or acquire, the following assets, notwithstanding use by
the Division (collectively, the "Excluded Assets"):
all insurance policies and the rights to claims
thereunder of the Seller;
all books and records pertaining to both the Seller and the Division
(provided, that the Seller will furnish copies of portions of such books and
records relating to the Division) and all books and records the Seller is
required by law to retain;
any Contracts of the Seller relating to the business or
operations of the Division not expressly assumed by the Buyer
as set forth on Schedule 1.2(c);
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the name and mark "High Voltage Engineering Corporation", (ii) the
name and mark "High Voltage Engineering", in whole or in part and (iii) any name
or mark derived from or including any of the foregoing;
all cash and cash equivalents; and
all personnel files of any employee of the Seller
employed in the business or operations of the Division who is
not a Transferred Employee.
ARTICLE II
THE CLOSING
2.1 Place and Date. The closing of the sale and purchase of the Assets
(the "Closing") shall take place at 10:00 A.M. local time on April 6, 1998 at
the offices of Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts
02110-1726. In the event that the conditions set forth in Sections 7.1, 8.2 and
8.10 have not been satisfied as of such date, the Closing shall take place
within two business days after the date on which such conditions have been
satisfied or waived by the relevant party, or such other time and place upon
which the parties may agree. The day on which the Closing actually occurs is
herein sometimes referred to as the "Closing Date".
2.2 Purchase Price. On the terms and subject to the conditions set
forth in this Agreement, the Buyer agrees (a) to pay or cause to be paid to the
Seller an aggregate amount equal to the sum of (i) $18,000,000 (the "Initial
Purchase Price"), plus (ii) $3,000,000 (the "Seller Non- Compete Consideration")
in consideration of the Seller Non- Competition Agreement (as defined in Section
8.4) and (b) to assume the Assumed Liabilities as provided in Section 2.4. The
following portions of the Initial Purchase Price and the Seller Non-Compete
Consideration shall be payable, as follows:
(a) At the Closing, $20,150,000 will be wire transferred to such bank
account or accounts as specified in written instructions of the Seller, given to
the Buyer at least five days prior to the Closing; and
(b) At the Closing, $600,000 shall be deposited by the Buyer in escrow
for the satisfaction of the Seller's obligations under Section 12.2 and $250,000
(the "Purchase Price Escrow Deposit") shall be deposited by the Buyer in escrow
for satisfaction of the Seller's obligations under Section 2.7, in each case
pursuant to the Escrow Agreement (the "Escrow Agreement"), in substance and form
reasonably satisfactory to the Buyer and the Seller.
2.3 Allocation of Purchase Price. The parties agree to allocate the
aggregate of the Initial Purchase Price (as adjusted pursuant to Section 2.7)
and the Assumed Liabilities (as defined in Section 2.4) among the Assets, in
accordance with an allocation schedule to be agreed to by the Buyer and the
Seller no later than the earlier of (i) 30 days after the
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determination of the Final Net Worth pursuant to Section 2.7 or (ii) 30 days
before the date by which either the Buyer or the Seller is required to file a
Tax Return which includes the purchase and sale contemplated hereby. Such
allocation schedule shall be prepared in accordance with section 1060 of the
Code. In connection with the determination of such allocation schedule, the
parties shall cooperate with each other and provide such information as either
of them shall reasonably request. The parties will each report the federal,
state and local and other Tax consequences of the purchase and sale contemplated
hereby (including the filing of Internal Revenue Service Form 8594) in a manner
consistent with such allocation schedules.
2.4. Assumption of Liabilities. Subject to the terms and conditions set
forth herein, at the Closing the Buyer shall assume and agree to pay, honor and
discharge when due all of the following liabilities relating to the Assets, to
the extent such liabilities exist at or arise on or after the Closing Date
(collectively, the "Assumed Liabilities"):
(i) trade accounts payable and accrued expenses reflected on the
Closing Balance Sheet incurred in the ordinary course of business consistent
with past practices, outstanding as of the Closing Date;
(ii) all capital leases and operating leases set forth on Schedules
3.9(b) and 3.10(a), but not including any obligation or liability for any breach
thereof occurring prior to or on the Closing Date;
(iii) any and all liabilities, obligations and commitments arising out
of the agreements, contracts and commitments set forth on the Schedule 3.10(a),
but not including any obligation or liability for any breach thereof occurring
prior to or on the Closing Date unless any such breach occurring on the Closing
Date is solely attributable to
any action of the Buyer and is in no way attributable to any
action of the Seller; and
(iv) liabilities in respect of Transferred Employees to the extent
specifically assumed by the Buyer pursuant to Article X.
Notwithstanding the foregoing, the Assumed Liabilities shall not
include any liability (x) with respect to Taxes or (y) accrued pursuant to Item
1 of Schedule 2.7(a), whether or not any such liability is reflected on the
Closing Balance Sheet.
(b) At the Closing, the Buyer shall assume the Assumed Liabilities
relating to the business and operations of the Division by executing and
delivering to the Seller an Assumption Agreement, substantially in the form
attached hereto as Exhibit A (the "Assumption Agreement").
2.5 Excluded Liabilities. Notwithstanding the provisions of Section 2.4
or any other provision hereof or any schedule or exhibit hereto and regardless
of any disclosure to the Buyer, the Buyer shall not assume any liabilities,
obligations or commitments of the Seller
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of any nature whatsoever, whether known or unknown, contingent or otherwise,
other than the Assumed Liabilities, including, but not limited to, any such
liabilities, obligations or commitments to any Affiliates of the Seller or any
other third party (the "Excluded Liabilities").
2.6 Consent of Third Parties. Notwithstanding anything to the contrary
in this Agreement, this Agreement shall not constitute an agreement to assign or
transfer any instrument, contract, lease, permit or other agreement or
arrangement or any claim, right or benefit arising thereunder or resulting
therefrom if an assignment or transfer or an attempt to make such an assignment
or transfer without the consent of a third party would constitute a breach or
violation thereof; and any transfer or assignment to the Buyer by the Seller of
any interest under any such instrument, contract, lease, permit or other
agreement or arrangement that requires the consent of a third party shall be
made subject to such consent or approval being obtained. In the event any such
consent or approval is not obtained on or prior to the Closing Date, the Seller
shall continue to use all reasonable efforts to obtain any such consent or
approval after the Closing Date until such time as such consent or approval has
been obtained, and the Seller will cooperate with the Buyer in any lawful and
economically feasible arrangement to provide that the Buyer shall receive the
interest of the Seller in the benefits under any such instrument, contract,
lease or permit or other agreement or arrangement, including performance by the
Seller, as agent, if economically feasible, provided that the Buyer shall
undertake to pay or satisfy the corresponding liabilities for the enjoyment of
such benefit to the extent the Buyer would have been responsible therefor
hereunder if such consent or approval had been obtained. The Seller shall pay
and discharge, and shall indemnify and hold the Buyer harmless from and against,
any and all out-of-pocket costs of seeking to obtain or obtaining any such
consent or approval after the Closing Da te. Nothing in this Section 2.6 shall
be deemed a waiver by the Buyer of its right to have received on or before the
Closing an effective assignment of all of the Assets nor shall this Section 2.6
be deemed to constitute an agreement to exclude from the Assets any assets
described under Section 1.1.
2.7 The Purchase Price Adjustment. As soon as practicable (but in no
event later than 60 days) following the Closing Date, the Buyer shall prepare
and deliver to the Seller a balance sheet for the Division as of the Closing
Date (the "Closing Balance Sheet"), which shall (i) reflect Sections 1.1, 1.2,
2.4 and 2.5 and (ii) be prepared, except as set forth in Schedule 2.7(a),
consistently with (x) the Division Balance Sheet to the extent such Division
Balance Sheet has been prepared in accordance with GAAP and (y) GAAP to the
extent such Division Balance Sheet has not been prepared in accordance with
GAAP.
(b) Following the Closing Date, upon reasonable notice and during
normal business hours, the Seller shall afford the Buyer and its Affiliates and
their respective employees and advisors access to all books and records relating
to the Division and make available the assistance of any employees of the Seller
related to the Division, in each case as is necessary to enable the Buyer to
prepare the Closing Balance Sheet.
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(c) The Seller shall have a period of 30 days to review the Closing
Balance Sheet following delivery thereof by the Buyer. During such period, the
Buyer shall afford the Seller and its Affiliates and their respective employees
and advisors access to any of its books, records and work papers relating
exclusively to the Closing Balance Sheet. The Closing Balance Sheet will become
final and binding upon the parties on the 31st day following delivery thereof,
unless the Seller delivers a written notice (the "Seller's Notice") to the Buyer
prior to such date which specifies in reasonable detail the amount by which and
the reasons why it thinks particular line items in the Closing Balance Sheet
either contain mathematical errors or were not prepared in accordance with the
methodology specified in Section 2.7(a). The Seller's Notice may not specify any
other basis for disagreement with the Closing Balance Sheet other than as set
forth in the preceding sentence.
(d) If the Seller delivers a Seller's Notice in accordance with Section
2.7(c), then the parties shall, during the 30-day period beginning on the
Buyer's receipt of the Seller's Notice, seek in good faith to resolve in writing
any differences which they may have with respect to the matters specified in the
Seller's Notice. If the Seller and the Buyer are unable to resolve all of the
Seller's objections within such 30-day period, then such unresolved objections
shall be submitted to the New York office of Ernst & Young LLP (the "Third Party
Accountants") for review and final and binding resolution of any and all matters
which remain in dispute and which were properly included in the Seller's Notice.
The Seller and the Buyer shall use reasonable efforts to cause the Third Party
Accountants to render a decision resolving the matters in dispute within 30 days
following the final submission of such matter to the Third Party Accountants for
decision following such briefing and other procedures as the Third Party
Accountants shall establish. The Seller and the Buyer agree that judgment may be
entered upon the determination of the Third Party Accountants in any court
having jurisdiction over the party against which such determination is to be
enforced. The fees, costs and expenses of the Third Party Accountants (i) shall
be borne by the Seller in the proportion that the aggregate dollar amount of
such disputed items so submitted that are unsuccessfully disputed by the Seller
(as finally determined by the Third Party Accountants) bears to the aggregate
dollar amount of such items so submitted and (ii) shall be borne by the Buyer in
the proportion that the aggregate dollar amount of such disputed items so
submitted that are successfully disputed by the Seller (as finally determined by
the Third Party Accountants) bears to the aggregate dollar amount of such items
so submitted.
(e) Within 10 days after (x) the Closing Balance Sheet becomes final
pursuant to Section 2.7(c) or (y) the parties reach agreement pursuant to
Section 2.7(d) or (z) the Third Party Accountants render their decision pursuant
to Section 2.7(d), a final adjustment to the Purchase Price will be made as
follows and the Buyer and the Seller shall deliver joint instructions to the
Escrow Agent (as defined in the Purchase Price Escrow Agreement) for the
disposition of the Purchase Price Escrow Amount in accordance therewith:
(i) If the net worth of the Division as finally determined
(the "Final Net Worth") is less than $2,652,000, then the Initial
Purchase Price shall be decreased by the difference between $2,652,000
and the Final Net Worth and the Buyer shall be
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entitled to receive such difference (the "Buyer Adjustment"). The Buyer
shall receive from the Escrow Account, in accordance with the Escrow
Agreement, an amount equal to the Buyer Adjustment. If the Purchase
Price Escrow Deposit is insufficient to pay the entire Buyer
Adjustment, the Seller shall promptly pay to the Buyer, in cash, an
amount equal to the difference between the Buyer Adjustment and the
Purchase Price Escrow Deposit.
(ii) If the Final Net Worth exceeds $2,652,000, then the
Purchase Price shall be increased by such excess and the Buyer shall
promptly pay such excess to the Seller in cash and the Purchase Price
Escrow Deposit shall be returned to the Seller in accordance with the
Escrow Agreement, provided that notwithstanding the foregoing or
anything to the contrary in this Agreement the amount of such excess
payable by the Buyer pursuant to this subsection (ii) shall in no event
be more than $1,000,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE SELLER
The Seller represents and warrants to the Buyer as follows, as of the
date hereof and as of the Closing Date:
3.1 Authorization, etc. The Seller has full corporate power and
authority to execute and deliver this Agreement and the Ancillary Agreements, to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the Ancillary Agreements, the performance of the Seller's
obligations hereunder and thereunder, and the consummation of the transactions
contemplated hereby and thereby, have been duly authorized by all requisite
corporate action of the Seller. The Seller has duly executed and delivered this
Agreement and on the Closing Date will have duly executed and delivered the
Ancillary Agreements. This Agreement constitutes, and each such Ancillary
Agreement when so executed and delivered will constitute, the legal, valid and
binding obligation of the Seller enforceable against the Seller in accordance
with its respective terms.
3.2 No Conflicts, etc. The execution, delivery and performance of this
Agreement and the Ancillary Agreements by the Seller, and the consummation of
the transactions contemplated hereby and thereby, do not and will not conflict
with, contravene, result in a violation or breach of or default under (with or
without the giving of notice or the lapse of time or both), create in any other
Person a right or claim of termination, amendment, or require modification,
acceleration or cancellation of, or result in the creation of any Lien (or any
obligation to create any Lien) upon any of the properties or assets of the
Seller under, (a) any law applicable to the Seller or its properties or assets,
(b) any provision of any of the Organizational Documents of the Seller or (c)
any Contract to which the Seller is a party or
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by which any of its properties or assets may be bound, except, in the case of
this clause (c), for violations and defaults that, individually and in the
aggregate, will not have or result in a Material Adverse Effect.
3.3 Corporate Status. (a) Organization. The Seller is a corporation
duly organized, validly existing and in good standing under the laws of
Massachusetts, and has full corporate power and authority to conduct the
business of the Division and to own or lease and to operate the Assets as and in
the places where the business of the Division is conducted and such Assets are
owned, leased or operated.
(b) Qualification; Assumed Name Filings. The Seller is duly qualified
or licensed to do business and is in good standing and, by the Closing Date will
have made, assumed name filings in each of the jurisdictions specified in
Schedule 3.3(b), which are the only jurisdictions where the nature of its
activities conducted in connection with the business or operations of the
Division or the character of the properties owned, based or operated by it in
connection with the business or operations of the Division require such
qualification or licensing and filing.
(c) Organizational Documents. The Seller has delivered to the Buyer
complete and correct copies of the Organizational Documents of the Seller, as
amended, modified or waived through and in effect on the date hereof. Each of
the Organizational Documents of the Seller is in full force and effect.
3.4 Financial Statements. Schedule 3.4(a) sets forth complete and
correct copies of the Division Financial Statements. The Division Financial
Statements are complete and correct in all respects, have been (i) derived from
the accounting books and records of the Division, (ii) prepared in accordance
with GAAP applied on a consistent basis throughout the periods presented in the
Division Financial Statements subject only to normal recurring year-end
adjustments, (iii) otherwise prepared in a manner consistent with the Audited
Financial Statements and (iv) included in the Audited Financial Statements
without material adjustments thereto.
(b) The Division Balance Sheet presents fairly the financial position
of the Division as at the date thereof, and the statement of income included in
such Division Financial Statements presents fairly the results of operations of
the Division for the period indicated.
3.5 Undisclosed Liabilities, etc. The Seller has no liabilities or
obligations absolute, accrued, contingent or otherwise and whether due or to
become due, arising out of or related to the business or operations of the
Division except (a) as set forth in Schedule 3.5, (b) as and to the extent
disclosed or reserved against in the Division Balance Sheet or specifically
disclosed in the notes thereto and (c) for liabilities and obligations that (i)
are incurred after the date of the Division Balance Sheet in the ordinary course
of business and are not prohibited by this Agreement and (ii) individually and
in the aggregate, will not be material to the business or operations of the
Division or have or result in a Material Adverse Effect.
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3.6 Absence of Changes. Since the date of the Division Balance Sheet,
there has not occurred or come to exist any Material Adverse Effect or any
event, occurrence, fact,
condition, change, development or effect that, individually or in the aggregate,
will have orresult in a Material Adverse Effect, the Seller has conducted the
business and operations of the Division only in the ordinary course and has not,
on behalf of, in connection with or relating to the business or operations of
the Division or the Assets:
(a) mortgaged, pledged or otherwise subjected to any Lien, any
Real Property or other properties or assets, tangible or intangible,
except for Permitted Liens in the ordinary course of business;
(b) forgiven, cancelled, compromised, waived or released any
debts, claims or rights, except for debts, claims and rights against
Persons, forgiven, cancelled, compromised, waived or released in the
ordinary course of business;
(c) discharged or satisfied any Lien, other than those then
required to be discharged or satisfied, or paid any obligation or
liability, absolute, accrued, contingent or otherwise, whether due or
to become due, other than current liabilities shown on the Division
Balance Sheet and current liabilities incurred since the date thereof
in the ordinary course of business;
(d) except as set forth in Schedule 3.6(d), modified any
existing Contract or entered into (x) any agreement, commitment or
other transaction, other than agreements entered into in the ordinary
course of business and involving an expenditure of less than $100,000
in each case, or (y) any agreement or commitment that, pursuant to its
terms, is not cancelable without penalty on less than 30 days' notice;
(e) received any notice of termination of any existing
Contract, lease or other agreement which, in any case or in the
aggregate, will have or result in a Material Adverse Effect;
(f) except as set forth in Schedule 3.6(f), paid any bonus to
any officer, employee, sales representative, agent or consultant, or
granted to any officer, director, employee, sales representative, agent
or consultant any other increase in compensation in any form;
(g) entered into, adopted or amended any employment,
consulting, retention, change-in-control, collective bargaining, bonus
or other incentive compensation, profit-sharing, health or other
welfare, stock option or other equity, pension, retirement, vacation,
severance, deferred compensation or other employment, compensation or
benefit plan, policy, agreement, trust, fund or arrangement for the
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benefit of any officer, director, employee, sales representative,
agent, consultant or Affiliate (whether or not legally binding);
(h) except as set forth in Schedule 3.6(h), suffered any
damage, destruction or loss (whether or not covered by insurance), or
any strike or other employment-related problem, or any change in
relations with or any loss of a supplier, customer or employee, that,
individually or in the aggregate, will have or result in a Material
Adverse Effect;
(i) amended any of its Organizational Documents;
(j) changed in any respect its accounting practices,
policies or principles;
(k) made any capital expenditures or capital additions or
betterments in excess of $50,000 individually, or $150,000 in the
aggregate;
(l) except as set forth in Schedule 3.6(l), incurred, assumed,
guaranteed or otherwise become directly or indirectly liable with
respect to any liability or obligation in excess of $20,000 at any one
time outstanding (whether absolute, accrued, contingent or otherwise
and whether direct or indirect, or as guarantor or otherwise with
respect to any liability or obligation of any other Person);
(m) transferred or granted any rights or licenses under, or
entered into any settlement regarding the infringement of, Intellectual
Property or modified any existing rights with respect thereto;
(n) sold, transferred, leased to others or otherwise disposed
of any of the Assets with a value in excess of $25,000 in each case or
$100,000 in the aggregate, other than inventory in the ordinary course
of business;
(o) instituted, settled or agreed to settle any Litigation,
before any court or governmental body relating to the Division or the
Assets;
(p) failed to replenish the Division's inventories and
supplies in a normal and customary manner consistent with its prior
practice and prudent business practices prevailing in the industry, or
made any purchase commitment in excess of the normal, ordinary and
usual requirements of its business or at any price in excess of the
then current market price or upon terms and conditions more onerous
than those usual and customary in the industry;
(o) suffered any change, event or condition which, in any case
or in the aggregate, will have or result in a Material Adverse Effect,
including, without limitation, any change in the Division's revenues,
costs, backlog or relations with its employees, agents, customers or
suppliers;
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(p) entered into any transaction, contract or commitment other
than in the ordinary course of business or paid or agreed to pay any
legal, accounting, brokerage, finder's fee, taxes or other expenses in
connection with, or incurred any severance pay obligations by reason
of, this Agreement or the transactions contemplated thereby;
(s) made any material changes in policies or practices
relating to selling practices, returns, discounts or other terms of
sale or accounting therefor or in policies of employment; or
(t) taken any action or omitted to take any action that would
result in the occurrence of any of the foregoing.
3.7. TAX MATTERS. Except as set forth on Schedule 3.7(a), (i) all Tax
Returns relating to the Seller or the business or operations of the Division or
the Assets that were required to be filed on or before the Closing Date have
been duly and timely filed and are correct and complete in all material
respects, (ii) all Taxes shown as owing on such Tax Returns have been paid and
(iii) the Seller is not currently the beneficiary of any extension of time
within which to file any Tax Return.
(b) Except as set forth on Schedule 3.7(b), (i) all Taxes that are or
may become payable by the Seller or chargeable as a Lien upon the Assets as of
the Closing Date have been, or will as of the Closing Date be, duly and timely
paid and (ii) the Seller has duly and timely withheld all Taxes required to be
withheld in connection with the business or operations of the Division or the
Assets, and such withheld Taxes have been either duly and timely paid to the
proper governmental authorities or properly set aside in accounts for such
purpose.
(c) Except as set forth on Schedule 3.7(c), there has been no claim or
issue (other than a claim or issue that has been finally settled) concerning any
liability for Taxes of the Seller asserted, raised or threatened by any taxing
authority and, to the knowledge of the Seller and its Affiliates, no
circumstances exist to form the basis for such a claim or issue.
(d) Schedule 3.7(d) lists all Income Tax Returns that have been filed
with respect to the Seller for taxable periods ended on or after January 1,
1990, and that have not yet been audited or are currently the subject of audit.
(e) Except as set forth on Schedule 3.7(e), the Seller has not (i)
waived any statute of limitations, (ii) agreed to any extension of the period
for assessment or collection or (iii) executed or filed any power of attorney
with respect to Taxes, which waiver, agreement or power of attorney is currently
in force.
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3.8 ASSETS; OPERATIONS OF THE DIVISION. ASSETS. The Assets, taken as a
whole, constitute all of the properties and assets primarily relating to or used
or held for use in connection with, necessary for the conduct of or otherwise
material to, the Division during the past twelve months (except (i) inventories
sold, (ii) cash disposed of, (iii) accounts receivable collected, (iv) prepaid
expenses realized, (v) contracts fully performed, (vi) properties or assets
replaced by equivalent or superior properties or assets, in each case in the
ordinary course of business, (vii) employees not hired by the Buyer, and (viii)
the Excluded Assets). The Assets comprise all assets the use of which is
necessary for the continued conduct of the Division by the Buyer as currently
conducted by the Seller. Except for Excluded Assets, there are no assets or
properties used in the business or operations of the Division and owned by any
Person (other than the Seller) other than assets or properties leased or
licensed under agreements which shall be assigned to the Buyer in accordance
with Section 8.8. The Seller owns, or otherwise has sufficient and legally
enforceable rights to use the Assets. The Seller has good, valid and marketable
title to, or in the case of leased property has good and valid leasehold
interests in, all Assets that are material to the business or operations of the
Division, including, but not limited to, all such Assets reflected in the
Division Balance Sheet or acquired since the date thereof (except as may be
disposed of in the ordinary course of business after the date hereof and in
accordance with this Agreement), in each case free and clear of any Lien, except
Permitted Liens. The Seller has maintained all tangible Assets that are material
to such business or operations in good repair, working order and operating
condition subject only to ordinary wear and tear and maintenance expenditures
consistent with prior practice, provided that no representation is made with
respect to the condition of the equipment recently assigned to the Division by
Johnson Controls, Inc. set forth on Schedule 3.8(a).
(b) OPERATION OF THE DIVISION. The Seller has conducted the business
and operations of the Division only through the Division and not through any
other divisions or any direct or indirect subsidiary or affiliate of the Seller.
No part of the business or operations of the Division is operated by the Seller
through any entity other than the Seller.
3.9 REAL PROPERTY; PERSONAL PROPERTY. OWNED REAL PROPERTY. There is no
real property owned by the Seller or any of its Affiliates primarily relating to
or used or held for use in connection with, necessary for the conduct of the
business or operations of the Division as currently conducted.
(b) LEASES. Schedule 3.9(b) contains a complete and correct list of all
Leases setting forth the address, landlord and tenant for each Lease. The Seller
has delivered to the Buyer correct and complete copies of the Leases. Each Lease
is legal, valid, binding, in full force and effect and enforceable against the
Seller, and to the knowledge of the Seller, against the landlord, party thereto,
except to the extent that any failure to be so enforceable, individually and in
the aggregate, will not have or result in a Material Adverse Effect. The Seller
is not, and, to the knowledge of the Seller, no other party is, in default,
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violation or breach in any respect under any Lease, and no event has occurred
and is continuing that constitutes or, with notice or the passage of time or
both, would constitute a default, violation or breach in any respect under any
Lease, except as would not have a Material Adverse Effect. Each Lease grants the
tenant under the Lease the exclusive right to use and occupy the premises and
rights demised and intended to be demised thereunder. The Seller has good and
valid title to the leasehold estate under its respective Leases free and clear
of any Liens other than Permitted Liens. The Seller enjoys peaceful and
undisturbed possession under its respective Leases for the Leased Real Property.
(c) LEASEHOLD INTERESTS, ETC. The Leased Real Property constitutes all
the leasehold interests in real property held by the Seller in connection with
the business or operation of the Division, except for any such leasehold
interest acquired or disposed of in the ordinary course of business after the
date hereof and in accordance with this Agreement, and constitutes all of the
leasehold interests in real property relating to, used or held for use in
connection with, necessary for the conduct of, or otherwise material to, the
Division.
(d) NO PROCEEDINGS. There are no proceedings in eminent domain or other
similar proceedings pending or, to the knowledge of the Seller, threatened
affecting any portion of the Leased Real Property. There exists no writ,
injunction, decree, order or judgment outstanding, nor any litigation, pending
or threatened, relating to the ownership, lease, use, occupancy or operation by
any Person of any Leased Real Property.
(e) CURRENT USE. The use and operation of the Leased Real Property by
the Seller does not violate in any material respect any instrument of record or
agreement affecting the Leased Real Property. There is no violation of any
covenant, condition, restriction, easement or agreement or order of any
governmental authority or agency that affects the Leased Real Property or the
use or occupancy thereof. No material damage or destruction has occurred with
respect to any of the Leased Real Property that, individually or in the
aggregate, will have or result in a Material Adverse Effect.
(f) REAL PROPERTY TAXES. Each parcel included in the Leased Real
Property is assessed for real estate tax purposes as a wholly independent tax
lot, separate from any adjoining land or improvements not constituting a part of
that parcel.
(g) PERSONAL PROPERTY. Schedule 3.9(g) contains a complete and correct
list of all personal property. The Seller has good, valid and marketable title
to the personal property, free and clear of all Liens, other than Permitted
Liens.
3.10 CONTRACTS. DISCLOSURE. Schedule 3.10(a) contains a complete and
correct list, as of the date hereof, of all Contracts, including those Contracts
in respect of advances by customers of the Division, but excluding (i) Contracts
(other than employment contracts) entered into in the ordinary course involving
aggregate payment obligations of less than $10,000 over the term of each such
Contract and (ii) sales and purchase orders for goods or services issued in the
ordinary course in each case involving aggregate payment obligations of less
than $50,000. The Seller has delivered to the Buyer complete and correct copies
of all written Contracts together with all amendments thereto, and accurate
descriptions of all
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material terms of all oral Contracts, set forth or required to be set forth in
Schedule 3.10(a). None of (x) the International Representative and
Distributorship Agreements with each of Elcowa S.A., Able, J.W. Industrial Inst.
Ply Ltd, Quiminel, Instrunova ATS, Electroa-Sievert, Aries Ingenieria Y
Sistemas, S.A., Dycor Industrial Research, Willer Engineering, Shinyei
Corporation of America, F.P. Israel Sales & Service Ltd., Segatec SDN.BHD., and
Measuretronics Ltd. or (y) the Representative Agreements identified on Schedule
3.10(a) as U.S. representative agreements contain any terms and conditions that
are materially different from those contained in the form of representative
agreement set forth in Schedule 3.10(a).
(b) ENFORCEABILITY. (i) All Contracts are legal, valid, binding, in
full force and effect and enforceable against each party thereto, except to the
extent that any failure to be enforceable, individually and in the aggregate,
will not have or result in a Material Adverse Effect. Except as set forth in
Schedule 3.10(b), there does not exist under any Contract any violation, breach
or event of default, or event or condition that, after notice or lapse of time
or both, would constitute a violation, breach or event of default thereunder, on
the part of the Seller or, to the knowledge of the Seller, any other Person.
Except as set forth in Schedule 3.10(b), no consent by any third party is
required under any Contract as a result of or in connection with the execution,
delivery or performance of this Agreement or the consummation of the
transactions contemplated by this Agreement and the Ancillary Agreements.
(ii) The Seller has no outstanding powers of attorney relating to the
Division, except powers of attorney relating to representation before
governmental agencies or given in connection with qualification to conduct
business in another jurisdiction.
(c) GOVERNMENT CONTRACTS. Schedule 3.10(c) sets forth all Contracts
with any governmental authority or agency and the Seller has furnished correct
and complete copies of all such Contracts and all modifications, amendments and
waivers thereto to the Buyer (including correct and complete written
descriptions of all oral government contracts and any oral modifications,
waivers, amendments and supplements to any of them). The Seller has not received
notice of any material default under or notice of any material violation of the
terms of any Contract with any governmental authority or agency relating to the
Division, either directly or as a subcontractor, consultant or otherwise. The
Seller is not participating in any investigation by any governmental authority
or agency relating to the Contracts, billings, claims or business practices of
the Division that could lead to criminal or civil penalties, and, to the
knowledge of the Seller, the Division is not the subject of such an
investigation. The Seller has not been and is not debarred or suspended by any
governmental authority or agency from bidding for or obtaining any governmental
contract, and no such process is pending or to the knowledge of the Seller
threatened, which could result in the debarment or suspension of the Seller. No
material portion of the business or operations of the Division is dependent upon
the Seller's status as a "small company" under the Federal Acquisition
Regulations. Set forth on Schedule 3.10(c) is a list of all approvals,
clearances, permits, licenses, classifications and other authorizations the
Seller has received in order to fulfill its obligations under the Contracts
listed on Schedule 3.10(c).
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3.11. INTELLECTUAL PROPERTY. DISCLOSURE. Schedule 3.11(a) sets forth a
complete and correct list of all Intellectual Property that is owned by the
Seller and primarily related to, used or held for use in connection with, or
necessary for the conduct of, the business or operations of the Division as
currently conducted by the Seller (the "Owned Intellectual Property"), except
for any Owned Intellectual Property that consists of (i) inventions, trade
secrets, processes, formulae, know-how, designs, research and development,
ideas, engineering notebooks, and confidential business and technical
information and (ii) Intellectual Property that is not registered or subject to
application for registration and that is not material to the business or
operations of the Division.
(b) TITLE. All of the Division Intellectual Property (as defined in
Section 1.1(h)) is owned by the Seller, except as set forth in Schedule 3.11(b).
The Division Intellectual Property is valid, in full force and effect and Seller
has not received any notice or claim that any of the Division Intellectual
Property is invalid or unenforceable by it. The Seller has the exclusive right
to use the Division Intellectual Property for the life thereof in connection
with the business and operations of the Division free from any Liens (except for
Permitted Liens incurred in the ordinary course of business) and free from any
requirement of any past, present or future royalty payments, license fees,
charges or other payments, or conditions or restrictions whatsoever. The
Division Intellectual Property comprises all of the Intellectual Property
necessary for the Buyer to conduct and operate the Division as now being
operated by the Seller. Immediately after the Closing, the Buyer will own all of
the Owned Intellectual Property and will have a right to use all other Division
Intellectual Property, in each case free from Liens (except for Permitted Liens
incurred in the ordinary course of business) and on the same terms and
conditions as in effect prior to the Closing.
(c) LICENSING AND SIMILAR ARRANGEMENTS. Schedule 3.11(c) sets forth all
written or oral agreements, arrangements and applicable laws (i) pursuant to
which the Seller has licensed Division Intellectual Property to, or the use of
Division Intellectual Property is otherwise permitted (through non- assertion,
settlement or similar agreements or otherwise) with respect to, any other Person
(including any of the Seller's Affiliates), and (ii) pursuant to which the
Seller has had Intellectual Property licensed to it, or has otherwise been
permitted to use Intellectual Property (through non-assertion, settlement or
similar agreements or otherwise). All of the agreements, arrangements or
applicable laws set forth or required to be set forth in Schedule 3.11(c): (i)
are in full force and effect and enforceable in accordance with their terms, and
no default exists or is threatened thereunder by the Seller, or to the knowledge
of the Seller after due inquiry, by any other Person, (ii) are free and clear of
all Liens (except for Permitted Liens incurred in the ordinary course of
business), and (iii) except as set forth in Schedule 3.11(c)(iii) do not contain
any assignment, change in control or other terms or conditions that will become
applicable or inapplicable as a result of the consummation of the transactions
contemplated by this Agreement and the Ancillary Agreements. The Seller has
delivered to the Buyer true and complete copies of all agreements and
arrangements (including amendments) set forth on Schedule 3.11(c). All
royalties, license fees, charges and other amounts payable by, on
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behalf of, to, or for the account of, the Seller in respect of any Intellectual
Property are disclosed in the Division Financial Statements.
(d) NO INFRINGEMENT. The conduct of the business and operations of the
Division does not infringe or otherwise conflict with any rights of any Person
in respect of any Intellectual Property. To the knowledge of the Seller, none of
the Division Intellectual Property is being infringed or otherwise used or
available for use by any Person. Except as set forth in Schedule 3.11(d), the
Seller has not taken or omitted to take any action which would have the effect
of waiving any rights to the Division Intellectual Property, the waiver of which
would have the effect of making the Buyer or its subsidiaries unable to operate
the Division as currently operated by the Seller or of allowing any other Person
to compete more effectively with the Buyer or its subsidiaries than it now does
with the Seller.
(e) NO INTELLECTUAL PROPERTY LITIGATION. No claim or demand of any
Person has been made or, to the knowledge of the Seller, threatened, nor is
there any Litigation that is pending or, to the knowledge of the Seller,
threatened, that (i) challenges the rights of the Seller in respect of any
Division Intellectual Property, (ii) asserts that the Seller is infringing or
otherwise in conflict with, or is (except as set forth in Schedule 3.11(e)),
required to pay any royalty, license fee, charge or other amount with regard to,
any Intellectual Property, or (iii) claims that any default exists under any
agreement or arrangement set forth or required to be set forth in Schedule
3.11(e). None of the Division Intellectual Property is subject to any
outstanding order, ruling, decree, judgment or stipulation by or with any court,
tribunal, arbitrator or other governmental authority or agency, or has been the
subject of any Litigation within the last ten years, whether or not resolved in
favor of the Seller.
(f) DUE REGISTRATION, ETC. The Owned Intellectual Property has been
duly registered with, filed in or issued by, as the case may be, the United
States Patent and Trademark Office, the United States Copyright Office or other
filing offices, domestic or foreign, to the extent necessary or desirable to
ensure full protection under any applicable law, and such registrations,
filings, issuances and other actions remain in full force and effect, in each
case, to the extent material to the business or operations of the Division.
Except as set forth in Schedule 3.11(f), the Seller has taken all necessary
actions to ensure full protection of the Division Intellectual Property
(including reasonable and customary actions to maintain the secrecy of all
confidential Intellectual Property) under any applicable law.
(g) USE OF NAME AND MARK. Except as set forth in Schedule 3.11(g),
there are, and immediately after the Closing will be, no contractual restriction
or limitations pursuant to any orders, decisions, injunctions, judgments, awards
or decrees of any governmental authority or agency on the Buyer's right to use
the names and marks "General Eastern" and "General Eastern Instruments" in the
conduct of the business or operations of the Division as presently carried on by
the Seller or as such business or operations may be extended by the Buyer.
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(h) CALENDAR FUNCTION. All internally developed Software used in the
business or operations of the Division, including, but not limited to, any
Software used in the products and product test software products identified on
Schedule 3.11(h) and, to the knowledge of Seller, all other Software used in the
business or operations of the Division, to the extent such Software is intended
to process date/time data, is able to process date/time data (including, but not
limited to, calculating, comparing, and sequencing) from, into, and between the
twentieth and twenty-first centuries, and the years 1999 and 2000 and leap year
calculations when used in accordance with the applicable instructions and will
be able to do so until December 31, 2077. With respect to the product test
software products identified on Schedule 3.11(h), this warranty is subject to
the assumption that all products (e.g., hardware, software and firmware) used in
combination with such products properly exchange date data with the product test
software products.
(i) GOVERNMENT CONTRACTS. There are no agreements or arrangements to
which the Seller is a party or under which the Seller has rights or obligations
or any governmental contract or subcontract pursuant to which any governmental
authority or agency is permitted to use the Owned Intellectual Property that
gives rise to any right of any governmental authority or agency in the Owned
Intellectual Property beyond "limited rights" with reference to technical data
or "restricted rights" with reference to computer software within the meaning of
the Federal Acquisition Regulations or the equivalent thereof under foreign
applicable law, nor has any governmental authority or agency acquired any rights
outside of any such agreements, arrangements or subcontracts as the result of
providing any funding relating to the development of the Owned Intellectual
Property directly or indirectly to the Seller.
3.12 INSURANCE. Schedule 3.12 contains a complete and correct list of
all insurance policies maintained by the Seller for the benefit of or in
connection with the Assets or the business or operations of the Division. The
Seller has delivered to the Buyer complete and correct copies of all such
policies together with all riders and amendments thereto. Such policies are in
full force and effect, and all premiums due thereon have been paid. The Seller
has complied in all material respects with the terms and provisions of such
policies. The insurance coverage provided by such policies is adequate and
suitable for the business or operations of the Division, and is on such terms
(including without limitation as to deductibles and self-insured retentions),
covers such risks, contains such deductibles and retentions, and is in such
amounts, as the insurance customarily carried by comparable companies of
established reputation similarly situated and carrying on the same or similar
business.
3.13 LITIGATION. Except as set forth on Schedule 3.13, there is no
Litigation pending or, to the knowledge of the Seller, threatened by, against or
affecting the Seller with respect to the properties or the business or
operations of the Division or the Assets, that, individually or in the
aggregate, will have or result in a Material Adverse Effect (in each case, if
adversely determined, and without regard to whether the defense thereof or
liability in respect thereof is covered by policies of insurance or any
indemnity, contribution, cost
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sharing or similar agreement or arrangement by or with any other Person). There
are no outstanding orders, judgments, decrees or injunctions issued by any
governmental authority or agency against or affecting the Seller that will have
or result in a Material Adverse Effect.
3.14 COMPLIANCE WITH LAWS AND INSTRUMENTS; CONSENTS; GOVERNMENTAL
CONTRACTS. (A) COMPLIANCE. Except as set forth on Schedule 3.14(a), (i) the
Seller is not in conflict with or in violation or breach of or default under
(and there exists no event that, with notice or passage of time or both, would
constitute a conflict, violation, breach or default with, of or under) (x) any
law applicable to it or any of the properties, the Assets, or the business or
operations of the Division, (y) any provision of its Organizational Documents,
or (z) any Contract, or any other agreement or instrument to which it is party
or by which it or any of the properties or assets of the Division is bound or
affected, except in the case of the foregoing clauses (x) and (z) for any such
conflicts, breaches, violations and defaults that, individually or in the
aggregate, will not have or result in a Material Adverse Effect, and (ii) the
Seller has not received any notice or has knowledge of any claim alleging any
such conflict, violation, breach or default.
(b) CONSENTS. (i) Except as specified in Schedule 3.14(b)(i), no
governmental approval or other consent is required to be obtained or made by the
Seller in connection with the execution and delivery of this Agreement and the
Ancillary Agreements or the consummation of the transactions contemplated hereby
or thereby, except for consents the failure of which to be made or obtained,
individually and in the aggregate, will not have or result in a Material Adverse
Effect or the ability of the Buyer, following the Closing, to continue to
conduct the business or operations of the Division or to own or lease and to
operate the Assets.
(ii) Schedule 3.14(b)(ii) contains a complete and correct list
of all governmental permits and other authorizations necessary for, or otherwise
material to, the conduct of the business or operations of the Division. Except
as set forth in Schedule 3.14(b)(ii), all such governmental permits and other
authorizations have been duly obtained and are held by the Seller and are in
full force and effect. The Seller is in compliance with all governmental permits
and other authorizations held by it, except for such failures so to comply that,
individually and in the aggregate, will not have or result in a Material Adverse
Effect. There is no Litigation pending or, to the knowledge of the Seller,
threatened, that would result in the revocation, cancellation, suspension or
modification or nonrenewal of any such governmental permit or other
authorization; the Seller has not been notified that any such governmental
permit or other authorization will be modified, suspended, cancelled modified or
cannot be renewed in the ordinary course of business; and to the knowledge of
the Seller, there is no reasonable basis for any such revocation, cancellation,
suspension, modification or nonrenewal. The execution, delivery and performance
of this Agreement and the Ancillary Agreements and the consummation of the
transactions contemplated hereby and thereby do not and will not violate any
such governmental permit or other authorization, or result in any revocation,
cancellation, suspension, modification or nonrenewal thereof.
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(c) GOVERNMENTAL FILINGS. Each registration, report, statement, notice
or other filing required to be filed by the Seller with the Commission or any
other governmental authority or agency under the Exchange Act, the Securities
Act or any other applicable law has been timely filed, and when filed complied
and continues to comply with applicable law in all material respects. As of
their respective dates, none of such registrations, reports, statements, notices
or other filings contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
3.15 ENVIRONMENTAL MATTERS. (a) COMPLIANCE WITH ENVIRONMENTAL LAW. The
Seller has complied and is in compliance in all material respects with all
applicable Environmental Laws pertaining to any of the Assets and the use and
ownership thereof, and to the operation of the business of the Division. No
material violation by the Seller has been or currently is being alleged of any
applicable Environmental Law relating to any of the Assets or the use or
ownership thereof, or to the operation of the business of the Division.
(b) PERMITS. All Environmental Permits are identified in Schedule
3.15(b), and the Seller currently holds, and at all times has held, all such
Environmental Permits necessary to the business or operations of the Division,
and all such Environmental Permits shall be validly transferred to the Buyer on
or prior to the Closing Date. The Seller has not been notified by any relevant
governmental authority or agency that any Environmental Permit will be modified,
suspended, cancelled or revoked, or cannot be renewed in the ordinary course of
business.
(c) OTHER ENVIRONMENTAL MATTERS. Neither the Seller nor to the
knowledge of the Seller any other Person (including any tenant) has caused or
taken any action that will result in, and the Seller is not subject to, any
material liability or obligation on the part of the Seller, or the Buyer or any
of its Affiliates, relating to (x) the environmental conditions on, under, or
about the real property or other properties or assets owned, leased, operated or
used by the Seller or any predecessor thereto at the present time or in the past
in connection with, necessary for the conduct of, or otherwise material to, the
business operations of the Division, including without limitation, the air, soil
and groundwater conditions at such properties or (y) the past or present use,
management, handling, transport, treatment, generation, storage, disposal or
Release or threatened Release of any Hazardous Materials.
(ii) The Seller has disclosed and made available to the Buyer all
information, including, without limitation, all studies, analyses and test
results, in the possession, custody or control of or otherwise known to the
Seller relating to (x) the environmental conditions on, under or about the real
property or other properties or assets owned, leased, operated or used by the
Seller or any predecessor in interest thereto at the present time or in the
past, and (y) any Hazardous Materials used, managed, handled, transported,
treated, generated, stored or Released by the Seller or any other Person on,
under, about or from any of the real
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property, or otherwise in connection with the use or operation of any of the
properties and assets of the Seller or its business in connection with,
necessary for the conduct of, or otherwise material to, the business operations
of the Division.
(iii) None of the real property is, and the Seller nor any of its
Affiliates has transported or arranged for transportation of any Hazardous
Substances relating to the Assets or the real property to any location that is,
listed or proposed for listing under CERCLA, or on any similar state list, or
the subject of federal, state or local enforcement actions or investigations or
Remedial Action.
(iv) No work, repair, construction or capital expenditure is required
or planned in respect of the Assets pursuant to or to comply with any
Environmental Law, nor has the Seller or its Affiliates received any notice of
any such requirement, except for such work, repair, construction or capital
expenditure as is not material to the business or operations of the Division and
is in the ordinary course of business.
3.16 Affiliate Transactions. Except as set forth on Schedule 3.16,
during the past three years the Seller has not, primarily in connection with its
operation of the Division, directly or indirectly purchased, leased from others
or otherwise acquired any property or obtained any services from, or sold,
leased to others or otherwise disposed of any property or furnished any services
to, or otherwise dealt with (except with respect to remuneration for services
rendered as a director, officer or employee of Seller), in the ordinary course
of business or otherwise, (i) any Person beneficially owning 10% or more of the
common stock of the Seller (a "Major Stockholder") or (ii) any Person which,
directly or indirectly, alone or together with others, controls, is controlled
by or is under common control with the Seller. The Seller, in connection with
its operation of the Division, does not owe any amount to, or has any contract
with or commitment to, any Major Stockholders, directors, officers, employees or
consultants (other than compensation for current services not yet due and
payable and reimbursement of expenses arising in the ordinary course of
business), and none of such persons owes any amount to the Seller in connection
with its operation of the Division.
3.17 Employees, Labor Matters, etc. Except as set forth on Schedule
3.17, the Seller is not a party to or bound by any collective bargaining
agreement, and there are no labor unions or other organizations representing,
purporting to represent or attempting to represent any employees employed by the
Seller in connection with the Division. Since February 1995, there has not
occurred or been threatened any material strike, slowdown, picketing, work
stoppage, concerted refusal to work overtime or other similar labor activity
with respect to any employees of the Seller in connection with the Division.
Except as set forth on Schedule 3.17, there are no labor disputes currently
subject to any grievance procedure, arbitration or litigation and there is no
representation petition pending or threatened with respect to any employee of
the Seller in connection with the Division. The Seller has complied with all
applicable laws pertaining to the employment or termination of employment of the
employees employed in connection with the Division, including, without
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limitation, all such laws relating to labor relations, equal employment
opportunities, fair employment practices, prohibited discrimination or
distinction and other similar employment activities, except for any failure so
to comply that, individually and in the aggregate, will not result in any
material liability or obligation on the part of the Seller or the Buyer or any
of its Affiliates, or have or result in a Material Adverse Effect.
3.18 Employee Benefit Plans and Related Matters; ERISA; Workers'
Compensation. Employee Benefit Plans. Schedule 3.18(a) sets forth a complete and
correct list of each "employee benefit plan", as such term is defined in section
3(3) of ERISA, and each bonus, incentive or deferred compensation, severance,
termination, retention, change of control, stock option, stock appreciation,
stock purchase, phantom stock or other equity-based, performance or other
employee or retiree benefit or compensation plan, program, arrangement,
agreement, policy or understanding, whether written or unwritten, that provides
or may provide benefits or compensation in respect of any employee or former
employee of the Seller or the beneficiaries or dependents of any such employee
or former employee in connection with the Division (collectively, the
"Employees") or under which any Employee is or may become eligible to
participate or derive a benefit and that is or has been maintained or
established by the Seller or any other trade or business, whether or not
incorporated, which, together with the Seller is or would have been at any date
of determination occurring within the preceding six years, treated as a single
employer under section 414 of the Code (such other trades and businesses
hereinafter referred to as the "Related Persons"), or to which the Seller or any
Related Person contributes or is or has been obligated or required to contribute
(collectively, the "Plans"). With respect to each such Plan, the Seller has
provided the Buyer complete and correct copies of such Plan, if written, or a
description of such Plan, if not written. To the knowledge of the Seller, there
are no claims pending or threatened for employees of the Division for workers'
compensation benefits.
(b) Qualification. Each Plan intended to be qualified under section
401(a) of the Code, and the trust (if any) forming a part thereof, has received
a favorable determination letter from the IRS as to its qualification under the
Code and to the effect that each such trust is exempt from taxation under
section 501(a) of the Code, and nothing has occurred since the date of such
determination letter that could reasonably be expected to adversely affect such
qualification or tax-exempt status. None of the Assets are subject to any lien
in favor of, or enforceable by, the Pension Benefit Guaranty Corporation.
(c) Affirmative Action Plans. The Seller is in compliance with
Executive Order 11246, as amended (the "Order") and the Office of Federal
Contract Compliance Programs ("OFCCP") regulations implementing the Order.
(d) Employment Agreements. Schedule 3.18(d) sets forth a complete and
correct list of all employment, consulting, confidentiality, non-competition,
severance, change of control, retention and termination agreements that have
been entered into by the Seller and are primarily related to, used or held for
use in connection with the employees, business or
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operations of the Division. All of the rights in and to the Division Employment
Agreements (as defined in Section 1.1(o)) are owned by the Seller, except as set
forth in Schedule 3.18(d). The Division Employment Agreements are valid, in full
force and effect and Seller has not received any notice or claim that any of the
Division Employment Agreements are invalid or unenforceable by it. Immediately
after the Closing, the Buyer will own all of the rights in and to the Division
Employment Agreements and will have a right to enforce all such agreements on
the same terms and conditions as in effect prior to the Closing.
3.19 Accounts Receivable. The Seller has delivered or caused to be
delivered to the Buyer a complete and accurate aging of all accounts receivable
of the Division as of the end of each monthly period since the date of the
Division Balance Sheet. All accounts receivable reflected on the Division
Balance Sheet or on such books have been generated in the ordinary course of
business and reflect a bona fide obligation for the payment of goods or services
provided by the Seller. The Seller has no knowledge of any facts or
circumstances generally (except general economic conditions) which would result
in any material increase in the uncollectability of such receivables in excess
of the reserves therefor set forth on the Division Balance Sheet.
3.20 No Guaranties. None of the obligations or liabilities of the
Seller incurred in connection with its operation of the Division is guaranteed
by or subject to a similar contingent obligation of any other person, firm or
corporation, nor has the Seller guaranteed or become subject to a similar
contingent obligation in respect of the obligations or liabilities of any other
person, firm or corporation.
3.21 Inventories. All inventories of raw materials, supplies, work in
progress and finished goods of the Division are of good, usable and merchantable
quality in all material respects, and, except as set forth in Schedule 3.21, do
not include a material amount of obsolete or discontinued items except as fully
and adequately reserved against as reflected in the Division Balance Sheet.
Except as set forth in Schedule 3.21, (a) all such inventories are of such
quality as to meet in all material respects the quality control standards of the
Seller and any applicable governmental quality control standards, (b) all such
finished goods are saleable as current inventories at the current prices of the
Division in the ordinary course of business, (c) all such inventories are
recorded on the books at the lower of cost or market value determined in
accordance with GAAP and (d) no write-down in any material inventory has been
made or should have been made pursuant to GAAP during the past two years.
3.22 Customers; Sales Representatives. Schedule 3.22(a) sets forth for
each of the years ended April 1996 and 1997 (a) the names and addresses of the
20 largest customers of the Division based on the aggregate value of goods and
services ordered from the Division by such customers during each such period and
the amount for which each such customer was invoiced during each such period and
(b) sets forth for the 9-month period ended January 25, 1998, the names and
addresses of the 20 largest customers of the Division and the amount for which
each such customer was invoiced during such period. The Seller has not received
any notice that any material customer of the Division (i) has ceased, or will
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cease, to use the products, goods or services of the Division, (ii) has
materially reduced or will materially reduce, the use of products, goods or
services of the Division or (iii) has sought, or is seeking, to materially
reduce the price it will pay for products, goods or services of the Division,
which cessations and reductions, either individually or in the aggregate, will
have or result in a Material Adverse Effect. Notwithstanding, the foregoing, the
Seller has granted two customers certain discounts as disclosed on Schedule
3.22(a).
(b) Schedule 3.22(b) sets forth a complete and correct list of (a) each
sales representative who is individually responsible for the account of any
customer of the Division that ordered goods and services from the Division with
an aggregate value of $100,000 or more during the nine-month period ended
January 31, 1998 and (b) all sales representatives who collectively are
responsible for the account of any customer of the Division that ordered goods
and services from the Division with aggregate value of $75,000 or more during
the nine-month period ended January 31, 1998 (collectively, the "Sales
Representatives"), indicating with respect to each such Sales Representative the
aggregate value of goods and services ordered from the Division by customers for
whose accounts such Sales Representative was responsible.
3.23 Suppliers; Raw Materials. Schedule 3.23 sets forth for the period
since August 25, 1996 (which includes the nine-month period ending January 25,
1998) (a) the names and addresses of the 10 largest suppliers of the Division
based on the aggregate value of raw materials, supplies, merchandise and other
goods and services ordered by the Division from such suppliers during each such
period and (b) the amount for which each such supplier invoiced the Division
during each such period. Except as set forth in Schedule 3.6(h), the Seller has
not received any notice or has any reason to believe that there has been any
material adverse change in the price of such raw materials, supplies,
merchandise or other goods or services, or that any such supplier will not sell
raw materials, supplies, merchandise and other goods to the Division at any time
after the Closing Date on terms and conditions substantially the same as those
used in its current sales to the Division, subject to general and customary
price increases.
3.24 Products. (a) Warranties. The Seller has delivered to the Buyer
complete and correct copies of the standard terms and conditions of sale or
lease for each of the products or services of the Division (containing
applicable guaranty, warranty and indemnity provisions). Except as required by
law or as set forth on Schedule 3.24(a), no product manufactured, sold, leased
or delivered by, or service rendered by or on behalf of, the Seller in
connection with the Business is subject to any guaranty, warranty or other
indemnity, express or implied, beyond such standard terms and conditions.
(b) Product Liability. Except as set forth in Schedule 3.24(b), the
Seller has no liability or obligation accrued, absolute, contingent or
otherwise, and whether based on strict liability, negligence, breach of
warranty, breach of contract or otherwise, in respect of any product, component
or other item manufactured, sold, designed or produced prior to the Closing by,
or service rendered prior to the Closing by, the Seller in connection with the
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business or operations of the Division, that (i) is not fully and adequately
covered by policies of insurance or by indemnity, contribution, cost sharing or
similar agreements or arrangements by or with other Persons, (ii) is not
otherwise fully and adequately reserved against as reflected in the Division
Balance Sheet or (iii) will not otherwise be fully and adequately reserved
against as reflected in the Closing Balance Sheet (as defined in Section 2.7).
(c) Product Returns. To the knowledge of the Seller, based upon the
Seller's historical rate of warranty returns, the products of the Seller sold
prior to the Closing in connection with the business or operations of the
Division and returned under warranty by any purchaser of such products to the
Seller following the Closing shall not exceed in the aggregate, based on the
cost to repair or replace such products, 0.5% percent of the aggregate gross
sales of the Division during the 12-month period immediately preceding the
Closing Date.
3.25 Absence of Certain Business Practices. Neither the Seller nor any
officer, employee or agent of Seller or the Division, or any other Person acting
on their behalf, has, within the past five years given or agreed to give any
gift or similar benefit to any customer, supplier, governmental employee or
other person who is or may be in a position to help or hinder the business or
operations of the Division (or assist the Seller in connection with any actual
or proposed transaction relating to the Division) (i) which subjected or might
have subjected the Seller to any damage or penalty in any civil, criminal or
governmental litigation or proceeding, (ii) which if not given in the past,
might have had an adverse effect on the Assets or the business or operations of
the Division, (iii) which if not continued in the future, might have an adverse
effect on the Assets, the business or operations of the Division or the
prospects of the Division or subject the Seller to suit or penalty in any
private or governmental litigation or proceeding, (iv) for any of the purposes
described in Section 162(c) of the Code or (v) for the purpose of establishing
or maintaining any concealed fund or concealed bank account.
3.26 Territorial Restrictions. Except as set forth in Schedule 3.26,
the Seller is not restricted by any written agreement or understanding with
third parties from carrying on the business or operations of the Division
anywhere in the world.
3.27 Brokers, Finders, etc. All negotiations relating to this
Agreement, the Ancillary Agreements and the transactions contemplated hereby and
thereby have been carried on without the participation of any Person acting on
behalf of the Seller in such a manner as to, and the transactions contemplated
hereby and thereby will not otherwise, give rise to any valid claim against the
Seller or the Buyer for any brokerage or finder's commission, fee or similar
compensation, or for any bonus payable to any officer, director, employee, agent
or representative of or consultant to the Seller upon consummation of the
transactions contemplated hereby or thereby.
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3.28 No Other Warranties. Except for the representations and warranties
set forth in this Agreement, the Ancillary Agreements or the certificates or
other documents furnished by the Seller prior to or as of the Closing Date, the
Seller hereby expressly disclaims all representations and warranties express or
implied with respect to any and all of the Assets or the Assumed Liabilities,
including any warranty of merchantability or fitness of any Asset for a
particular purpose.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF BUYER
4.1 Representations and Warranties of the Buyer. The Buyer represents
and warrants to the Seller as follows; as of the date hereof and as of the
Closing Date:
4.2 Corporate Status; Authorization, etc. The Buyer is a corporation
duly organized, validly existing and in good standing, under the laws of the
jurisdiction of its incorporation with full corporate power and authority to
execute and deliver this Agreement and the Ancillary Agreements, to perform its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by the Buyer of this
Agreement and the Ancillary Agreements, the performance of the Buyer's
obligations hereunder and thereunder, and the consummation of the transactions
contemplated hereby and thereby, have been authorized by all requisite corporate
action of the Buyer. The Buyer has duly executed and delivered this Agreement
and on the Closing Date the Buyer will have duly executed and delivered the
Ancillary Agreements. This Agreement constitutes each such Ancillary Agreement
will constitute, the legal valid and binding obligation of the Buyer enforceable
against the Buyer in accordance with its respective terms.
4.3 No Conflicts, etc. The execution, delivery and performance by the
Buyer of this Agreement and each of the Ancillary Agreements, and the
consummation of the transactions contemplated hereby and thereby, do not and
will not conflict with, contravene or result in a violation or breach of or
default under (with or without the giving of notice or the lapse of time, or
both) (i) the certificate of incorporation or by-laws of the Buyer, (ii) any law
applicable to the Buyer or any of its Affiliates or any of their respective
properties or assets or (iii) any contract, agreement or other instrument
applicable to the Buyer or any of its Affiliates or any of their respective
properties or assets, except, in the case of clause (iii), for violations and
defaults that, individually and in the aggregate, will not have a Material
Adverse Effect. Except as specified in Schedule 4.3, no governmental approval or
other consent is required to be obtained or made by the Buyer in connection with
the execution and delivery of this Agreement or the Ancillary Agreements or the
consummation of the transactions contemplated thereby.
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4.4 Litigation. There is no action, claim, suit or proceeding pending,
or to the Buyer's knowledge threatened, by or against or affecting the Buyer in
connection with or relating to the transactions contemplated by this Agreement
or of any action taken or to be taken in connection herewith or the consummation
of the transactions contemplated hereby.
4.5 Brokers, Finders, etc. All negotiations relating to this Agreement
and the transactions contemplated hereby have been carried on without the
participation of any Person acting on behalf of the Buyer in such manner as to
give rise to any valid claim against the Seller for any brokerage or finder's
commission, fee or similar compensation.
ARTICLE V
COVENANTS OF SELLER
5.1 Conduct of Business. From the date hereof to the Closing Date,
except as expressly permitted or required by this Agreement or as otherwise
consented to by the Buyer in writing, the Seller will:
(a) carry on the business and operations of the Division in,
and only in, the ordinary course, in substantially the same manner as
heretofore conducted, and use all reasonable efforts to preserve intact
its present business organization, maintain its properties in good
operating condition and repair, keep available the services of its
present officers and significant employees, and preserve its
relationship with customers, suppliers and others having business
dealings with it, to the end that its goodwill and going business shall
be in all material respects unimpaired following the Closing;
(b) pay accounts payable and other obligations of the business
and operations of the Division when they become due and payable in the
ordinary course of business consistent with prior practice;
(c) perform in all material respects all of its obligations
under all Contracts and other agreements and instruments relating to or
affecting the business or operations of the Division or the Assets, and
comply in all material respects with all laws applicable to it, the
Assets or the business or operations of the Division;
(d) not enter into or assume any material agreement, contract
or instrument relating to the business or operations of the Division,
or enter into or permit any material amendment, supplement, waiver or
other modification in respect thereof;
(e) not grant (or commit to grant) any increase in the
compensation (including incentive or bonus compensation) of any
employee employed in the operation of the business of the Division or
institute, adopt or
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amend (or commit to institute, adopt or amend) any compensation or
benefit plan, policy, program or arrangement or collective bargaining
agreement applicable to any such employee;
(f) not transfer or grant any rights or licenses under, or
enter into any settlement regarding the breach or infringement of, any
license or any Division Intellectual Property, or modify any existing
rights with respect thereto; and
(g) not take any action or omit to take any action, which
action or omission would result in a breach of any of its
representations and warranties set forth in Section 3.
5.2 No Solicitation. During the term of this Agreement, neither the
Seller, any of its Affiliates or any Person acting on their behalf shall (i)
engage in any discussions, solicitations or enter into any agreements with
respect to, the sale of all or any part of the business, operations or assets of
the Division or (ii) furnish or cause to be furnished any information concerning
the business, operations or assets of the Division to any Person (other than the
Buyer and its agents and representatives), except that the Seller may receive
unsolicited communications from third parties and inform any such third parties
that the Seller cannot engage in any discussions regarding the business,
operations or assets of the Division.
5.3 Access and Information. So long as this Agreement remains in
effect, the Seller will (and will cause each of its Affiliates and its and its
Affiliates' accountants, counsel, consultants, employees and agents), upon
reasonable notice, give the Buyer and its accountants, counsel, consultants,
employees and agents, full access during normal business hours to, and furnish
them with all documents, records, work papers and information with respect to,
all of such Person's properties, assets, books, contracts, commitments, reports
and records relating to the business or operations of the Division, as the Buyer
shall from time to time reasonably request. In addition, the Seller will permit
the Buyer and its accountants, counsel, consultants, employees and agents,
reasonable access to such personnel of the Seller during normal business hours
as may be necessary or useful to the Buyer in its review of the properties,
assets and business affairs of the Division and the above-mentioned documents,
records and information. The Seller will keep the Buyer generally informed as to
the affairs of the Division.
(b) The Seller will, and will cause each of its Affiliates to, retain
all books and records relating to the Division in accordance with the Seller's
record retention policies as presently in effect. During the seven-year period
beginning on the Closing Date, the Seller shall not dispose of or permit the
disposal of any such books and records not required to be retained under such
policies without first giving 60 days' prior written notice to the Buyer
offering to surrender the same to the Buyer at the Buyer's expense.
(c) The Seller shall take all steps necessary to preserve the
confidential nature of all material confidential information (including, without
limitation, any proprietary
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information) with respect to the business and
operations of the Division, including, but not limited to, the manufacturing or
marketing of any of the products or services of the Division.
5.4 Financial Statements. Until the Closing, on or before the tenth
business day of each month, the Seller shall deliver to the Buyer unaudited
consolidated financial statements of the business and operations of the Division
as at and for the monthly period ending the last day of the preceding month,
which shall include a balance sheet and statement of income. At the time that
such financial statements are delivered to the Buyer, the Seller shall by such
delivery be deemed to have made the representations and warranties to the Buyer
set forth in Section 3.4 with respect to such financial statements.
5.5 Public Announcements. The Buyer acknowledges that circumstances may
arise where the Seller is advised by its financial advisors to make an
announcement in respect of the transactions contemplated hereby, and on the
execution of this Agreement, the Seller will be required to make a public
announcement in respect of the transactions contemplated hereby. Except as
required by applicable law or under the circumstances described in the prior
sentence (in which case the Seller shall obtain the Buyer's prior written
approval as to the form and wording of any such announcement), the Seller shall
not, and shall not permit any Affiliate to, make any public announcement in
respect of this Agreement or the transactions contemplated hereby without the
prior written consent of the Buyer. The Seller hereby grants the Buyer the
option, but not the obligation, to participate in any announcement or other
communication with any employees of the Seller employed in the business or
operations of the Division regarding the transactions contemplated hereby which
is required to be made prior to the Closing.
5.6 Further Actions. The Seller agrees to use all reasonable good faith
efforts to take all actions and to do all things necessary, proper or advisable
to bring about the satisfaction as soon as practicable of all the conditions
contained in Article VIII. Without limiting the generality of the foregoing:
(a) the Seller will, as promptly as practicable, file or supply, or
cause to be filed or supplied, all applications, notifications and information
required to be filed or supplied by it pursuant to applicable law in connection
with this Agreement, the Ancillary Agreements, the sale and transfer of the
Assets pursuant to this Agreement and the consummation of the other transactions
contemplated hereby and thereby, including, but not limited to, filings pursuant
to the HSR Act;
(b) the Seller, as promptly as practicable, will use all reasonable
efforts to obtain, or cause to be obtained, all consents (including, without
limitation, all governmental approvals and any consents required under any
Contract (including, but not limited to, those Contracts set forth on Schedule
3.10 and any Intellectual Property license)) necessary to be obtained by it in
order to consummate the sale and transfer of the Assets pursuant to this
Agreement and the consummation of the transactions contemplated hereby;
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(c) the Seller will, and will cause each of its Affiliates to,
coordinate and cooperate with the Buyer in exchanging such information and
supplying such assistance as may be reasonably requested by the Buyer in
connection with the filings and other actions contemplated by Section 6.2;
(d) the Seller will, as promptly as practicable, use its good faith
reasonable efforts to obtain, or cause to be obtained from third parties, or
enter into with the Buyer such agreements and other arrangements (including
sublicenses and subleases) as are necessary or reasonably requested by Buyer to
provide the benefits received by the Division under the Non-Transferred
Contracts set forth on Schedule 5.6(d) to the Buyer on terms and conditions no
less favorable than those in effect under the Non-Transferred Contracts prior to
the Closing;
(e) the Seller shall deliver to the Buyer a complete copy of Contract
No. GS-24F-3034G, between the Seller, the Division and General Services
Administration, effective February 1, 1997 through July 31, 1999, with all
amendments thereto, including the amendments dated May 14, 1997 and November 12,
1997 ("the GSA Contract"); and
(f) at all times prior to the Closing, the Seller shall promptly notify
the Buyer in writing of any fact, condition, event or occurrence that will or
may result in the failure of any of the conditions contained in Articles VII and
VIII to be satisfied, promptly upon becoming aware of the same.
5.7 Further Assurances. Following the Closing, the
Seller shall, and shall cause each of its Affiliates to, from
time to time, execute and deliver such additional instruments,
documents, conveyances or assurances and take such other actions as shall be
necessary, or otherwise reasonably requested by the Buyer, to confirm and assure
the rights and obligations provided for in this Agreement and in the Ancillary
Agreements and render effective the consummation of the transactions
contemplated hereby and thereby.
5.8 Liability for Transfer Taxes. The Seller shall be responsible for
the timely payment of, and shall indemnify and hold harmless the Buyer against,
(a) all sales (including, without limitation, bulk sales), use, value added,
documentary, stamp, gross receipts, registration, transfer, conveyance, excise,
recording, license and other similar Taxes and fees ("Transfer Taxes"), arising
out of or in connection with or attributable to the transactions effected
pursuant to this Agreement and the Ancillary Agreements and (b) all property
Taxes in respect of the Assets attributable to periods (or portions thereof) up
to and including the Closing Date. The Seller shall prepare and timely file all
Tax Returns required to filed in respect of Transfer Taxes (including, without
limitation, all notices required to be given with respect to bulk sales taxes),
provided that the Buyer shall be permitted to prepare any such Tax Returns that
are the primary responsibility of the Buyer under applicable law. The Buyer's
preparation of any such Tax Returns shall be subject to the Seller's approval,
which approval shall not be withheld unreasonably.
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5.9 Certificates of Tax Authorities. On or before the Closing Date, the
Seller shall provide to the Buyer copies of certificates from the appropriate
taxing authority stating that no Taxes are due to any state or other taxing
authority for which the Buyer could have liability to withhold or pay Taxes with
respect to the transfer of the Assets or the business or operations of the
Division, provided that any failure to provide such certificates to the Buyer
which is not the fault of the Seller shall not relieve the Buyer of its
obligations to enter into and complete the Closing. If the Seller shall fail to
provide such certificates, the Buyer shall withhold or, where appropriate,
escrow such amount as necessary based upon the Buyer's reasonable estimate of
the amount of such potential liability, or as determined by the appropriate
taxing authority, to cover such Taxes until such time as certificates are
provided.
5.10 Use of Business Names and Marks. After the Closing, the Seller
will not, directly or indirectly, use or do business, or allow any Affiliate to
use or do business, or assist any third party in using or doing business, under
the names and marks "General Eastern Instruments" and "General Eastern" (or any
other name or mark confusingly similar to such names and marks).
5.11 Environmental Assessment. The Buyer shall retain environmental
consultants to conduct an environmental assessment of the real property and the
other assets, equipment and facilities owned, leased, operated or used by the
Seller in connection with the Division of a scope satisfactory to the Buyer. The
costs of such environmental assessment shall be borne by the Buyer.
5.12 Novation Agreements. Each of the Seller and the Buyer agree to use
its reasonable efforts (including, without limitation, delivering all required
documentation, legal opinions and financial statements and reports) to enter
into novation agreements among the Seller, the government of the United States
and the Buyer, substantially in the form set forth in the Federal Acquisitions
Regulation as soon as practicable following the Closing.
5.13 Bank Accounts. The Seller shall, and shall cause each of its
Affiliates to, execute and deliver any instruments or documents and take such
other actions as shall be necessary, or otherwise reasonably requested by the
Buyer, to vest in the Buyer as of the Closing Date all right, title and interest
in and to the cash and cash equivalent accounts of the Division as of the
Closing Date.
5.14 Insurance. In the event that, after the Closing, the Buyer or any
of its Affiliates shall suffer any loss, arising out of a third party claim or
otherwise, that the Buyer in good faith notifies the Seller would be covered by
any insurance policy maintained by the Seller or any of its Affiliates for the
benefit of the Division, the Seller shall, and shall cause each of its
Affiliates to, present and diligently prosecute a claim for payment under such
policy in respect of such loss, and pay to the Buyer the proceeds of such claim
under such policy as reimbursement in respect of the amount of such loss,
subject to the provisions of this Section 5.14. The amount of proceeds of any
such insurance claim to be paid over to the
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Buyer shall be limited to the amount actually received by the Seller or its
Affiliates from their respective insurers with respect to such claim (net of
any self-insured retention amount, deductible amount, or other amount that
the Seller or any of its Affiliates is required to reimburse its insurers
under its contractual agreements with them, in each case with respect to such
claim), minus the aggregate amount of all reasonable out-of-pocket expenses
incurred by the Seller and its Affiliates in presenting and prosecuting such
claim (to the extent not paid or reimbursed by its insurers). Nothing
contained in this Section 5.14 shall require the Seller or any of its
Affiliates to keep in force and effect after the Closing any insurance
coverage in effect at the time of the Closing, provided that the Seller gives
the Buyer 30 days advance notice of any cancellation or non-renewal and such
cancellation is not made specifically to the insurance policies of the Seller
relating to the Division.
5.15 Phys-Chem Agreement. The Seller shall enforce its rights under
Articles 8 and 12 of the Phys-Chem Asset Purchase Agreement, by and among the
Seller, Phys-Chem Scientific Corp. and Stephen Weisskoff, dated as of June 25,
1997 (the "Phys-Chem Agreement") and take all actions as reasonably required to
obtain the benefit of the Phys-Chem Agreement for the Buyer, including, but not
limited to the delivery of indemnification proceeds, such that the Buyer obtains
the benefit of the Phys-Chem Agreement as if it had been assigned to the Buyer.
5.16 No Excluded Technology. The Seller hereby represents and warrants
to the Buyer that the conduct of the business and operations of the Division
immediately prior to the Closing Date does not use any proprietary or
intellectual property rights of the Seller or its Affiliates except for the
intellectual property and proprietary rights set forth on Schedule 3.11. To the
extent that the Schedule 3.11 does not include any intellectual property or
proprietary rights used by Seller in the operation of the business and
operations of the Division immediately prior to the Closing Date, the Seller
covenants that it shall not assert (and it shall cause its Affiliates not to
assert) any of said rights against the Buyer, the Buyer's customers or any other
person in the chain of title from such customers. The Buyer shall bear the
burden of establishing that any intellectual property or proprietary rights not
set forth on Schedule 3.11 were being used in the business or operations of the
Division immediately prior to the Closing Date.
ARTICLE VI
COVENANTS OF BUYER
6.1 Public Announcements. The Seller acknowledges that circumstances
may arise where the Buyer is advised by its financial advisors to make an
announcement in respect of the transactions contemplated hereby, and on the
execution of this Agreement, the Buyer will be required to make a public
announcement in respect of the transactions contemplated hereby. Prior to the
Closing, except as required by applicable law or in accordance with the rules of
the International Stock Exchange of the United Kingdom and the Republic of
Ireland Limited, as in effect from time to time or under the circumstances
described in the
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prior sentence (in which case the Buyer shall obtain the Seller's prior
approval as to the form and wording of any such announcement), the Buyer
shall not, and shall not permit its Affiliates to, make any public
announcement in respect of this Agreement or the transactions contemplated
hereby without the prior written consent of the Seller.
6.2 Further Actions. The Buyer agrees to use all reasonable good faith
efforts to take all actions and to do all things necessary, proper or advisable
to consummate the transactions contemplated hereby by the Closing Date.
(b) The Buyer will, as promptly as practicable, file or supply, or
cause to be filed or supplied, all applications, notifications and information
required to be filed or supplied by the Buyer pursuant to applicable law in
connection with this Agreement, the Ancillary Agreements, the Buyer's
acquisition of the Assets pursuant to this Agreement and the consummation of the
other transactions contemplated hereby and thereby, including, but not limited
to, filings pursuant to the HSR Act.
(c) The Buyer will coordinate and cooperate with the Seller in
exchanging such information and supplying such reasonable assistance as may be
reasonably requested by the Seller in connection with the filings and other
actions contemplated by Section 5.6.
(d) At all times prior to the Closing, the Buyer shall promptly notify
the Seller in writing of any fact, condition, event or occurrence that will or
may result in the failure of any of the conditions contained in Articles VII and
IX to be satisfied, promptly upon becoming aware of the same.
(e) The Buyer shall use good faith reasonable efforts to assist the
Seller in its obligations under Section 8.2(ii).
6.3 Further Assurances. Following the Closing, the Buyer shall, and
shall cause its Affiliates to, from time to time, execute and deliver such
additional instruments, documents, conveyances or assurances and take such other
actions as shall be necessary, or otherwise reasonably requested by the Seller,
to confirm and assure the rights and obligations provided for in this Agreement
and in the Ancillary Agreements and render effective the consummation of the
transactions contemplated hereby and thereby.
6.4 Use of Business Names and Marks by the Buyer. To the extent the
trademarks, service marks, brand names or trade, corporate or business names of
the Seller or of any of its Affiliates or divisions (other than the Division)
are used by the Division on stationery, signage, invoices, receipts, forms,
packaging, advertising and promotional materials, product, training and service
literature and materials, computer programs or like materials ("Marked
Materials") or appear on Inventory at the Closing, the Buyer may use such Marked
Materials or sell such Inventory after the Closing for a period of one year
without altering or modifying such Marked Materials or Inventory, or removing
such trademarks, service marks, brand names, or trade, corporate or business
names, but the Buyer shall not thereafter
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use such trademarks, service marks, brand names or trade, corporate or business
names in any other manner without the prior written consent of the Seller.
ARTICLE VII
CONDITIONS PRECEDENT
TO OBLIGATIONS OF EACH PARTY
The obligations of the parties to consummate the transactions
contemplated hereby shall be subject to the fulfillment on or prior to the
Closing Date of the following conditions:
7.1 HSR Act Notification. In respect of the notifications of the Buyer
and the Seller pursuant to the HSR Act, the applicable waiting period and any
extensions thereof shall have expired or been terminated.
7.2 No Injunction, etc. Consummation of the transactions contemplated
hereby shall not have been restrained, enjoined or otherwise prohibited by any
applicable law, including any order, injunction, decree or judgment of any court
or other governmental authority or agency. No court or other governmental
authority or agency shall have determined any applicable law to make illegal the
consummation of the transactions contemplated hereby or by the Ancillary
Agreements, and no proceeding with respect to the application of any such
applicable law to such effect shall be pending.
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE BUYER
The obligations of the Buyer to consummate the transactions
contemplated hereby shall be subject to the fulfillment (or waiver by the Buyer)
on or prior to the Closing Date of the following additional conditions, which
the Seller agrees to use reasonable good faith efforts to cause to be fulfilled:
8.1 Representations, Performance. The representations and warranties of
the Seller contained in this Agreement and in the Ancillary Agreements (i) shall
be true and correct in all respects (in the case of any representation or
warranty containing any materiality qualification) or in all material respects
(in the case of any representation or warranty without any materiality
qualification) at and as of the date hereof, and (ii) shall be repeated and
shall be true and correct in all respects (in the case of any representation or
warranty containing any materiality qualification) or in all material respects
(in the case of any representation or warranty without any materiality
qualification) on and as of the Closing Date with the same effect as though made
on and as of the Closing Date. The Seller shall have duly performed and complied
in all material respects with all agreements and conditions required by this
Agreement and each of the Ancillary Agreements to be
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performed or complied with by it prior to or on the Closing Date. The Seller
shall have delivered to the Buyer a certificate, dated the Closing Date and
signed by its duly authorized officers, to the foregoing effect.
8.2 Consents. The Seller shall have obtained and shall have delivered
to the Buyer copies of (i) all governmental approvals required to be obtained by
the Seller in connection with the execution and delivery of the this Agreement
and the Ancillary Agreements and the consummation of the transactions
contemplated hereby or thereby and (ii) all consents (including, without
limitation, all consents required under any Contract (including, but not limited
to, those Contracts set forth in Schedule 3.10 and any Intellectual Property
license) necessary to be obtained in order to consummate the sale and transfer
of the Assets pursuant to this Agreement and the consummation of the other
transactions contemplated thereby and by the Ancillary Agreements.
8.3 No Material Adverse Effect. Except as set forth in Schedule 3.6, no
event, occurrence, fact, condition, change, development or effect shall have
occurred, exist or come to exist since the date of the Division Balance Sheet
that, individually or in the aggregate, has constituted or resulted in, or could
reasonably be expected to constitute or result in, a Material Adverse Effect.
8.4 Ancillary Agreements. The Seller or one of its Affiliates, as the
case may be, shall have entered into each of the following agreements with the
Buyer:
(a) Non-Competition Agreement, substantially in the form
attached hereto as Exhibit B (the "Seller Non-Competition Agreement");
(b) an Employment and Non-Competition Agreement, in substance
and form reasonably satisfactory to the Buyer, pursuant to which James
Schleckser agrees to enter into the employment of the Buyer;
(c) the Escrow Agreement (as defined in Section 2.2(b)), in
substance and form reasonably satisfactory to the Buyer and the Seller;
and
(d) a Transitional Services Agreement, in substance and form
reasonably satisfactory to the Buyer and the Seller.
8.5 Subsequent Monthly Financial Statements. The Buyer shall have
received the monthly financial statements referred to in Section 5.4. Except as
set forth in Schedule 8.5, such financial statements shall (a) contain no
liabilities in excess of $50,000 in the aggregate different in kind or in scope
from the liabilities set forth in the Division Balance Sheet, (b) confirm and be
consistent with the information concerning the business and operations of the
Division (including the projected results of operations) previously provided to
the Buyer by the Seller prior to the date hereof and (c) otherwise be
satisfactory to the Buyer.
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8.6 Opinion of Counsel. The Buyer shall have received an opinion,
addressed to it and dated the Closing Date, from Bingham Dana LLP, counsel to
the Seller, in substance and form reasonably satisfactory to the Buyer.
8.7 Corporate Proceedings. All corporate and other proceedings of the
Seller in connection with the this Agreement and the Ancillary Agreements and
the transactions contemplated hereby and thereby, and all documents and
instruments incident thereto, shall be reasonably satisfactory in substance and
form to the Buyer and its counsel, and the Buyer and its counsel shall have
received all such documents and instruments, or copies thereof, certified if
requested, as may be reasonably requested.
8.8 Transfer Documents. The Seller shall have delivered to the Buyer at
the Closing all documents, certificates and agreements necessary to transfer to
the Buyer good and marketable title to the Assets, free and clear of any and all
Liens thereon, other than Permitted Liens, including without limitation:
(a) bill of sale, assignment and general conveyance, in form
and substance reasonably satisfactory to the Buyer, dated the Closing
Date, with respect to the Assets (other than any Asset to be
transferred pursuant to any of the instruments referred to in any other
clause of this Section 8.8);
(b) assignments of all Contracts, Intellectual Property and
any other agreements and instruments constituting the Assets, dated the
Closing Date, assigning to the Buyer all of the Seller's right, title
and interest therein and thereto, with any required consent endorsed
thereon;
(c) an assignment of lease, dated as of the Closing Date, with
respect to each Lease, together with any necessary transfer
declarations or other filings; and
(d) certificates of title to all motor vehicles included in
the Assets to be transferred to the Buyer hereunder, duly endorsed for
transfer to the Buyer as of the Closing Date.
8.9 Environmental Assessment. The Buyer shall have received the
environmental assessment referred to in Section 5.11 and such environmental
assessment shall be in form and substance satisfactory to the Buyer.
8.10 Consents and Estoppels. The Buyer shall have received consents
from the lessor of each Lease listed on Schedule 3.9(b) to the assignment of
such Lease to the Buyer. The Buyer shall also have received estoppel
certificates addressed to the Buyer from the lessor of each Lease, dated within
30 days of the Closing Date, identifying the Lease documents and any amendments
thereto, stating that the Lease is in full force and effect and, to the best
knowledge of the lessor, that the tenant is not in default under the Lease and
no event has occurred that, with notice or lapse of time or both, would
constitute a default by
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the tenant under the Lease and containing any other information reasonably
requested by the Buyer.
8.11 FIRPTA Certificate. The Buyer shall have received a certificate of
the Seller, dated the Closing Date and sworn to under penalty of perjury,
setting forth the name, address and federal tax identification number of the
Seller and stating that the Seller is not a "foreign person" within the meaning
of Section 1445 of the Code, such certificate to be in the form set forth in the
Treasury Regulations thereunder.
8.12 Releases and Reassignments. (a) Intellectual Property. The Seller
shall have delivered to the Buyer executed copies of any and all releases,
terminations of security interests, assignments, reassignments, powers of
attorney and any other documents and instruments necessary to release any and
all security interests in, terminate any collateral assignments of, or reassign
to the Seller any Intellectual Property included in Assets, file stamped to show
receipt by the United States Patent and Trademark Office or other appropriate
governmental authority.
(b) Financing Statements. The Seller shall have delivered to the Buyer
releases or terminations under the Uniform Commercial Code and any other
applicable federal, state or local statutes or regulations of any financing
statements or similar filings filed against any of the Assets (including,
without limitation, any Liens asserted by any governmental authority with
respect to Taxes) except for UCC-1 financing statements filed by lessors with
respect to equipment leases listed on Schedule 3.10(a).
8.13 Corporate Proceedings of Buyer. This Agreement and the
transactions contemplated hereby shall have been approved by all necessary
corporate proceedings of the Buyer.
8.14 Non-Transferred Contracts. The Seller shall have obtained, or
caused to be obtained from third parties, or entered into with the Buyer such
agreements and other arrangements (including sublicenses and subleases) as are
necessary or reasonably requested by Buyer to provide the benefits received by
the Division under the Non-Transferred Contracts to the Buyer on terms and
conditions no less favorable than those in effect under the Non-Transferred
Contracts prior to the Closing.
8.15 Suppliers. The Buyer shall be satisfied that relationships with
certain key suppliers to be identified during due diligence are satisfactory and
will be available on a continuing basis.
8.16 GSA Contract. The Buyer shall have received a complete copy of and
be reasonably satisfied with the terms and conditions of the GSA Contract to be
provided by the Seller pursuant to Section 5.6(e).
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ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligation of the Seller to consummate the transactions
contemplated hereby shall be subject to the fulfillment (or waiver by the
Seller), on or prior to the Closing Date, of the following additional
conditions, which the Buyer agrees to use reasonable good faith efforts to cause
to be fulfilled.
9.1 Representations, Performance, etc. The representations and
warranties of the Buyer contained in this Agreement and the Ancillary Agreements
(i) shall be true and correct in all respects (in the case of any representation
or warranty containing any materiality qualification) or in all material
respects (in the case of any representation or warranty without any materiality
qualification) at and as of the date hereof and (ii) shall be repeated and shall
be true and correct in all respects (in the case of any representation or
warranty containing any materiality qualification) or in all material respects
(in the case of any representation or warranty without any materiality
qualification) on and as of the Closing Date with the same effect as though made
at and as of such time. The Buyer shall have duly performed and complied in all
material respects with all agreements and conditions required this Agreement and
the Ancillary Agreements to be performed or complied with by it prior to or on
the Closing Date. The Buyer shall have delivered to the Seller a certificate,
dated the Closing Date and signed by its duly authorized officer, to the
foregoing effect.
9.2 Assumption Agreement. The Seller shall have received from the Buyer
the Assumption Agreement (as defined in Section 2.4(b)).
9.3 Opinion of Counsel. The Seller shall have received an opinion,
addressed to it and dated the Closing Date, of Debevoise & Plimpton, special
counsel for the Buyer, in form and substance reasonably satisfactory to the
Seller.
9.4 HSR Approval. The Seller shall have obtained notification that the
waiting period, or any extensions thereof, under the HSR Act have expired or
been terminated.
9.5 Ancillary Agreements. The Buyer shall have entered
into each of the Ancillary Agreements.
9.6 Environmental Assessment. The Seller shall have received the
environmental assessment referred to in Section 5.11 and such environmental
assessment shall be in form and substance satisfactory to the Seller.
ARTICLE X
EMPLOYEES AND EMPLOYEE BENEFIT PLANS
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10.1 Employment of the Seller's Employees. Effective as of the Closing
Date, Buyer shall offer employment to those employees selected by Buyer who are
employed by Seller principally in the operation of the Division. Such offers of
employment shall be at wage or salary levels that are substantially equivalent
to the total base salary compensation or hourly rates applicable to such
employees immediately prior to the Closing Date. For a period of one year
immediately following the Closing Date, the Buyer shall continue to provide to
the Transferred Employees (as defined below) employee benefits which in the
aggregate provide benefits that are substantially similar to those employee
benefits provided to them under the Plans as of the Closing Date, provided that
the aggregate cost of such benefits is reasonable as determined by Buyer, taking
into account Seller's aggregate cost of providing such benefits to the
Employees. Those employees who accept such offers of employment effective as of
the Closing Date shall be referred to herein as the "Transferred Employees".
Effective as of the Closing Date, the Buyer shall assume the liability of the
Seller in respect of the Transferred Employees for accrued but unpaid salaries,
wages, vacation and sick pay and fiscal 1998 incentive compensation (including,
but not limited to the Division's Management Bonus Plan), but only to the extent
such liability is properly reflected on the Closing Balance Sheet (as defined in
Section 2.7). Notwithstanding anything else to the contrary, the Seller shall
remain responsible for payment of any and all retention, change in control,
severance or other similar compensation or benefits which are or may become
payable in connection with the consummation of the transactions contemplated by
this Agreement or the Ancillary Agreements. With respect to the Division's
Management Bonus Plan, the Buyer shall pay bonuses equal to the total amount set
forth as "Total Bonus Payment" in Schedule 10.1(a).
(b) The Seller will, and will cause each of its Affiliates to, use all
reasonable efforts to cause the employees employed in the business and
operations of the Division to make available their employment services to the
Buyer. For a period of two years from the Closing Date, the Seller will not, and
will not permit any of its Affiliates to, solicit, offer to employ or retain the
services of or otherwise interfere with the relationship of the Buyer with any
Person employed by or otherwise engaged to perform services for the Buyer in
connection with the operation of the Division.
(c) Neither the Buyer nor any of its Affiliates shall have any Benefit
Liability with respect to any Employee (as defined in Section 3.18(a)) or Plan
(as defined in Section 3.18(a)) or any claim thereof or related thereto except
to the extent expressly provided in this Article X with respect to the
Transferred Employees. From and after the Closing, the Seller shall remain
solely responsible for any and all Benefit Liabilities in respect of the
Employees, including the Transferred Employees and their beneficiaries and
dependents, relating to or arising in connection with or as a result of (i) the
employment or the actual or constructive termination of employment of any such
Employee by the Seller (including, without limitation, in connection with the
consummation of the transactions contemplated by this Agreement or the Ancillary
Agreements), (ii) the participation in or accrual of benefits or compensation
under, or the failure to participate in or to accrue compensation or benefits
under, any Plan or other employee or retiree benefit or compensation plan,
program,
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practice, policy, agreement or arrangement of the Seller or (iii) accrued but
unpaid salaries, wages, bonuses, incentive compensation, vacation or sick pay or
other compensation or payroll items (including, without limitation, deferred
compensation), except, in any such case, to the extent any such Benefit
Liability is (x) specifically assumed by Buyer pursuant to this Article X or (y)
reflected on the Closing Balance Sheet.
10.2 Welfare and Fringe Benefit Plans. From and after the Closing Date,
the Seller shall remain solely responsible for any and all Benefit Liabilities
to or in respect of the Transferred Employees or their beneficiaries or
dependents based upon the occurrence of any claims, whether such claims are
asserted before, on or after the Closing Date, for life, disability, accidental
death or dismemberment, supplemental unemployment compensation, medical, dental,
hospitalization, other health or other welfare or fringe benefits or expense
reimbursements which claims relate to or are based upon an occurrence on or
before the Closing Date (excluding claims for continuing treatment in respect of
any illness, accident, disability, condition or confinement which occurs or
commences on or before the Closing Date).
(b) From and after the Closing Date, the Seller shall remain solely
responsible for any and all Benefit Liabilities relating to or arising in
connection with the requirements of section 4980B of the Code to provide
continuation of health care coverage under any Plan in respect of (A) Employees,
other than the Transferred Employees and their covered dependents, and (B) to
the extent related to a qualifying event occurring on or before the Closing
Date, Transferred Employees and their covered dependents.
10.3 Workers' Compensation. From and after the Closing Date, the Seller
shall remain solely responsible for any and all Benefit Liabilities to or in
respect of any Employee relating to or arising in connection with any and all
claims for workers' compensation benefits arising in connection with any
occupational injury or disease occurring or existing on or prior to the Closing
Date, except for Benefit Liabilities relating to or arising in connection with
the reinstatement rights of any such Employee and the reinjury by any
Transferred Employee of an injury which occurred while such Transferred Employee
was employed by Seller.
10.4 Employment Taxes. The Seller will, and the Buyer will (i) treat
the Buyer as a "successor employer" and the Seller as a "predecessor," within
the meaning of sections 3121(a)(1) and 3306(b)(1) of the Code, with respect to
Transferred Employees who are employed by the Buyer for purposes of Taxes
imposed under the United States Federal Unemployment Tax Act ("FUTA") or the
United States Federal Insurance Contributions Act ("FICA") and (ii) cooperate
with each other to avoid, to the extent possible, the filing of more than one
IRS Form W-2 with respect to each such Transferred Employee for the calendar
year within which the Closing Date occurs.
(b) At the request of the Buyer with respect to any particular
applicable Tax law relating to employment, unemployment insurance, social
security, disability, workers'
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compensation, payroll, health care or other similar Tax other than Taxes imposed
under FICA and FUTA, the Seller will and the Buyer will (i) treat the Buyer as a
successor employer and Seller as a predecessor employer, within the meaning of
the relevant provisions of such Tax law, with respect to Transferred Employees
who are employed by the Buyer and (ii) cooperate with each other to avoid, to
the extent possible, the filing of more than one individual information
reporting form pursuant to each such Tax law with respect to each such
Transferred Employee for the calendar year within which the Closing Date occurs.
ARTICLE XI
TERMINATION
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) by the written agreement of the Buyer and the
Seller;
(b) by the Seller or the Buyer by written notice to the other
party if the transactions contemplated hereby shall not have been
consummated pursuant hereto by 5:00 p.m. New York City time on April 6,
1998, unless such date shall be extended by the mutual written consent
of the Seller and the Buyer;
(c) by the Buyer by written notice to the Seller if (i) the
representations and warranties of the Seller shall not have been true
and correct in all respects (in the case of any representation or
warranty containing any materiality qualification) or in all material
respects (in the case of any representation or warranty without any
materiality qualification) as of the date when made or (ii) if any of
the conditions set forth in Articles VII or VIII shall not have been
fulfilled by 5:00 p.m. New York City time on April 6, 1998, unless such
failure shall be due to the failure of the Buyer to perform or comply
with any of the covenants, agreements or conditions hereof to be
performed or complied with by it prior to the Closing; or
(d) by the Seller by written notice to the Buyer if (i) the
representations and warranties of the Buyer shall not have been true
and correct in all respects (in the case of any representation or
warranty containing any materiality qualification) or in all material
respects (in the case of any representation or warranty without any
materiality qualification) as of the date when made or (ii) if any of
the conditions set forth in Articles VII or IX shall not have been
fulfilled by 5:00 p.m. New York City time on April 6, 1998 unless such
failure shall be due to the failure of the Seller to perform or comply
with any of the covenants, agreements or conditions hereof to be
performed or complied with by it prior to the Closing.
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11.2 Effect of Termination. In the event of the termination of this
Agreement pursuant to the provisions of Section 11.1, this Agreement shall
become void and have no effect, without any liability to any Person in respect
hereof or of the transactions contemplated hereby on the part of any party
hereto, or any of its directors, officers, employees, agents, consultants,
representatives, advisers, stockholders or Affiliates, except for the
Confidentiality Agreement, as specified in Sections 12.2 and 12.4 and except for
any liability resulting from such party's breach of this Agreement.
ARTICLE XII
DEFINITIONS, MISCELLANEOUS
12.1 Definition of Certain Terms. The terms defined in this Section
12.1, whenever used in this Agreement (including in the Schedules), shall have
the respective meanings indicated below for all purposes of this Agreement. All
references herein to a Section, Article or Schedule are to a Section, Article or
Schedule of or to this Agreement, unless otherwise indicated.
Affiliate: of a Person means a Person that directly or indirectly
through one or more intermediaries, controls, is controlled by, or is under
common control with, the first Person. "Control" (including the terms
"controlled by" and "under common control with") means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of voting securities, by
contract or credit arrangement, as trustee or executor, or otherwise.
Agreement: this Asset Purchase Agreement, including the
Schedules hereto.
Ancillary Agreements: the agreements and other documents
and instruments described in Section 8.4.
Assumed Liabilities: as defined in Section 2.4.
Assumption Agreement: as defined in Section 2.4(b).
Audited Financial Statements: the consolidated financial statements of
the Seller as at and for the 12-month period ended April 27, 1997, together with
reports on such year-end statements by Grant Thorton LLP, the Seller's
independent public accountants, including a balance sheet, a statement of
income, a statement of stockholders' equity and a statement of cash flow, and
accompanying notes.
Benefit Liabilities: liabilities, obligations, commitments, costs and
expenses, including reasonable fees and disbursements of attorneys and other
advisors, including any such expenses incurred in connection with the
enforcement of any applicable provision of this Agreement.
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Buyer: as defined in the first paragraph of this
Agreement.
CERCLA: the Comprehensive Environmental Response,
Compensation and Liability Act, as amended, 42 U.S.C. s. 9601
et seq.
Closing: as defined in Section 2.1.
Closing Balance Sheet: as defined in Section 2.7(a).
Closing Date: as defined in Section 2.1.
Code: the Internal Revenue Code of 1986, as amended.
Confidentiality Agreement: the Confidentiality Agreement,
dated as of February 3, 1998, between High Voltage Engineering
Corporation and Bowthorpe plc.
Contracts: contracts, arrangements, licenses, leases and
other agreements.
Division: as defined in the first WHEREAS clause of this
Agreement.
Division Balance Sheet: the unaudited balance sheet of
the Division as of December 27, 1997 contained in the Division
Financial Statements.
Division Financial Statements: the unaudited financial
statements of the Division as at and for the 8-month period
ended December 27, 1997, including a balance sheet and a
statement of income.
Division Intellectual Property: as defined in Section
1.1(h).
$ or dollars: lawful money of the United States.
Escrow Agreement: as defined in Section 2.2(b).
Employee: as defined in Section 3.18.
Environmental Laws: all applicable laws relating to the protection of
the environment, to human health and safety, or to any emission, discharge,
generation, processing, storage, holding, abatement, existence, Release,
threatened Release or transportation of any Hazardous Substances, including,
without limitation, (i) CERCLA, the Resource Conservation and Recovery Act, and
the Occupational Safety and Health Act, (ii) all other requirements pertaining
to reporting, licensing, permitting, investigation or remediation of emissions,
discharges, releases or threatened releases of Hazardous Materials into the air,
surface water, groundwater or land, or relating to the manufacture, processing,
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distribution, use, sale, treatment, receipt, storage, disposal, transport or
handling of Hazardous Substances, and (iii) all other requirements pertaining to
the protection of the health and safety of employees or the public.
Environmental Liabilities and Costs: all Losses, whether direct or
indirect, known or unknown, current or potential, past, present or future,
imposed by, under or pursuant to Environmental Laws, including, without
limitation, all Losses related to Remedial Actions, and all fees, disbursements
and expenses of counsel, experts, personnel and consultants based on, arising
out of or otherwise in respect of: (i) the ownership or operation of the
Division, Real Property or Leases or any other real properties, assets,
equipment or facilities, by the Seller, or any of their predecessors or
Affiliates; (ii) the environmental conditions existing on the Closing Date on,
under, above, or about any Real Property or property subject to Leases or any
other real properties, assets, equipment or facilities currently or previously
owned, leased or operated by the Seller, or any of their predecessors or
Affiliates; and (iii) expenditures necessary to cause any Real Property or any
aspect of the business of the Division to be in compliance with any and all
requirements of Environmental Laws as of the Closing Date, including, without
limitation, all Environmental Permits issued under or pursuant to such
Environmental Laws, and reasonably necessary to make full economic use of any
Real Property.
Environmental Permits: any federal, state and local permit, license,
registration, consent, order, administrative consent order, certificate,
approval or other authorization with respect to the Seller necessary for the
conduct of the business of the Division as currently conducted or previously
conducted under any Environmental Law.
ERISA: the Employee Retirement Income Security Act of
1974, as amended.
Excluded Assets: as defined in Section 1.2.
Excluded Liabilities: as defined in Section 2.5.
GAAP: generally accepted accounting principles as in
effect in the United States.
Hazardous Substances: any material or substance that: (i) is or
contains asbestos, urea formaldehyde foam insulation, polychlorinated biphenyls,
petroleum or petroleum- derived substances or wastes, radon gas or related
materials (ii) requires investigation, removal or remediation under any
Environmental Law, or is defined, listed or identified as a "hazardous waste" or
"hazardous substance" thereunder, or (iii) is toxic, explosive, corrosive,
flammable, infectious, radioactive, carcinogenic, mutagenic, or otherwise
hazardous and is regulated by any Governmental Authority or Environmental Law.
HSR Act: the Hart-Scott-Rodino Anti-trust Improvements
Act of 1976, as amended.
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Intellectual Property: any and all United States and foreign: (a)
patents (including design patents, industrial designs and utility models) and
patent applications (including docketed patent disclosures awaiting filing,
reissues, divisions, continuations, continuations-in-part and extensions),
patent disclosures awaiting filing determination, inventions and improvements
thereto; (b) trademarks, service marks, trade names, trade dress, domain names,
logos, business and product names, slogans, and registrations and applications
for registration thereof; (c) copyrights (including software) and registrations
thereof; (d) inventions, processes, designs, formulae, trade secrets, know-how,
research and development, ideas, engineering notebooks, industrial models,
confidential and technical information, manufacturing, engineering and technical
drawings, product specifications and confidential business information; (e) mask
work and other semiconductor chip rights and registrations thereof; (f)
intellectual property rights similar to any of the foregoing; (g) Software,
firmware; (h) copies and tangible embodiments thereof (in whatever form or
medium, including electronic media) and (i) licenses of any of the foregoing.
IRS: the Internal Revenue Service.
knowledge: means, with respect to the Seller, actual knowledge after
due inquiry of a particular fact or other matter by Laurence Levy, James
Schleckser, Joseph McHugh, Philip Feeley and Chris Krstanovic.
Leased Real Property: means all interests leased pursuant
to the Leases.
Leases: means the real property leases, subleases, licenses and
occupancy agreements pursuant to which the Seller or any Subsidiary is the
lessee, sublessee, licensee or occupant other than real property leases,
subleases, licenses and occupancy agreements included in Excluded Assets.
Lien: any mortgage, pledge, hypothecation, right of others, claim,
security interest, encumbrance, lease, sublease, license, occupancy agreement,
adverse claim or interest, easement, covenant, encroachment, burden, title
defect, title retention agreement, voting trust agreement, interest, equity,
option, lien, right of first refusal, charge or other restrictions or
limitations of any nature whatsoever, including but not limited to such as may
arise under any Contracts.
Material Adverse Effect: any event, occurrence, fact, condition, change
or effect that is materially adverse to the business, operations, prospects,
results of operations, prospects, condition (financial or otherwise), properties
(including intangible properties), assets (including intangible assets) or
liabilities of the Division, or that will materially impair the ability of the
party to perform its obligations under this Agreement or the Ancillary
Agreements.
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Non-Transferred Contracts: Contracts between (a) the Seller and third
parties that will not be assigned to the Buyer at the Closing and (b) the
Division and third parties that are non-transferrable or non-assignable.
Organizational Documents: as to any Person, its
certificate of incorporation or articles of incorporation, by-
laws and other organizational documents.
Owned Intellectual Property: as defined in Section
3.11(a).
Permitted Liens: (i) Liens for Taxes not yet due and payable or which
are being contested in good faith and by appropriate proceedings if adequate
reserves with respect thereto are maintained on the books of the Seller in
accordance with GAAP, or (ii) Liens that, individually and in the aggregate, do
not and would not materially detract from the value of any of the property or
assets of the Division or materially interfere with the use thereof as currently
used or contemplated to be used or otherwise.
Person: any natural person, firm, partnership,
association, corporation, company, trust, business trust,
governmental authority or other entity.
Plans: as defined in Section 3.18.
Purchase Price Escrow Deposit: as defined in Section
2.2(c).
Release: any releasing, disposing, discharging, injecting, spilling,
leaking, leaching, pumping, dumping, emitting, escaping, emptying, seeping,
dispersal, migration, transporting, placing and the like, including without
limitation, the moving of any materials through, into or upon, any land, soil,
surface water, ground water or air, or otherwise entering into the environment.
Seller: as defined in the first WHEREAS clause of this
Agreement.
Seller Non-Competition Agreement: as defined in Section
8.4(a).
Software: all computer software, including all source code and object
code versions thereof, in any and all forms and media, whether recorded on
paper, magnetic media or other electronic or non-electronic media (including
data and related documentation, user manuals, training materials, flow charts,
diagrams, descriptive tests and programs, computer print-outs, underlying tapes,
computer databases and similar items) and computer applications and operating
programs.
Subsidiaries: each corporation or other Person in which a Person owns
or controls, directly or indirectly, capital stock or other equity interests
representing at least 50% of the outstanding voting stock or other equity
interests.
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Tax: any federal, state, provincial, local, foreign or other income,
alternative, minimum, accumulated earnings, personal holding company, franchise,
capital stock, net worth, capital, profits, windfall profits, gross receipts,
value added, sales, use, goods and services, excise, customs duties, transfer,
conveyance, mortgage, registration, stamp, documentary, recording, premium,
severance, environmental (including taxes under Section 59A of the Code), real
property, personal property, ad valorem, intangibles, rent, occupancy, license,
occupational, employment, unemployment insurance, social security, disability,
workers' compensation, payroll, health care, withholding, estimated or other
similar tax, duty or other governmental charge or assessment or deficiencies
thereof (including all interest and penalties thereon and additions thereto
whether disputed or not).
Tax Return: any return, report, declaration, form, claim
for refund or information return or statement relating to
Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
Treasury Regulations: the regulations prescribed pursuant
to the Code.
12.2 Indemnification. (a) By Seller. The Seller covenants and agrees to
defend, indemnify and hold harmless the Buyer, its officers, directors,
employees, agents, advisers, representatives and Affiliates (collectively, the
"Buyer Indemnitees") from and against, and pay or reimburse the Buyer
Indemnitees for, any and all claims, liabilities, obligations, losses, fines,
costs, royalties, proceedings, deficiencies or damages (whether absolute,
accrued, conditional or otherwise and whether or not resulting from third party
claims), including out-of-pocket expenses and reasonable attorneys' and
accountants' fees incurred in the investigation or defense of any of the same or
in asserting any of their respective rights hereunder (collectively, "Losses"),
resulting from or arising out of:
(i) any inaccuracy of any representation or warranty made by
the Seller herein or under any Ancillary Agreement or document or
certificate delivered in connection herewith or therewith;
(ii) any failure of the Seller to perform any covenant or
agreement hereunder or under any Ancillary Agreement or fulfill any
other obligation in respect hereof or of any Ancillary Agreement;
(iii) any Excluded Liabilities (as defined in Section 2.5) or
Excluded Assets (as defined in Section 1.2);
(iv) any and all Taxes of the Seller and all
Affiliates;
(v) any and all Benefit Liabilities in respect of Employees
except, with respect to Transferred Employees, to the extent assumed by
the Buyer pursuant to Article X;
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(vi) all Environmental Liabilities and Costs arising out of
the business or operations of the Division prior to the Closing Date or
relating to the Excluded Assets including, without limitation,
liabilities or remedial costs incurred in connection with
implementation of corrective measures recommended under the
environmental assessment conducted pursuant to Section 5.11;
(vii) any product liability claim with respect to products
manufactured or sold or events occurring prior to the Closing;
(viii) any failure of the Seller to comply with applicable
bulk sales laws (in consideration of which indemnification obligation
the Buyer hereby waives compliance by the Seller with any applicable
bulk sales laws);
(ix) any failure by the Seller to obtain, or cause to be
obtained for the Buyer, the benefits received by the Division prior to
the Closing under the Non-Transferred Contracts; and
(x) any violation, breach or event of default or alleged
breach, violation, breach or event of default, of the Seller of the
Sublicense Agreement between Energy Controls Inc. and the Division,
dated June 29, 1994 and modified on May 1, 1996 (the "Sublicense"),
provided, however, that the Seller's indemnification obligation with
respect to this subsection (x) shall not apply in the extent the Buyer
fails to use commercially reasonable efforts to promote, market and
sell Licensed Products as defined in Section 1.7 of the Sublicense) and
fulfill the market demands for Licensed Products.
(b) By the Buyer. The Buyer covenants and agrees to defend, indemnify
and hold harmless the Seller and its officers, directors, employees, agents,
advisers, representatives and Affiliates (collectively, the "Seller
Indemnities") from and against any and all Losses resulting from or arising out
of:
(i) any inaccuracy in any representation or warranty by the
Buyer made or contained in this Agreement or any Ancillary Agreement or
in connection herewith or therewith; or
(ii) any failure of Buyer to perform any covenant or agreement
made or contained in this Agreement or any Ancillary Agreement or
fulfill any other obligation in respect hereof or thereof;
(iii) the Assumed Liabilities;
(iv) the use by the Buyer of any tradenames of the Seller or
trademarks after the Closing Date as contemplated by Section 6.4; and
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(v) the operation of the Division by the Buyer or the Buyer's
ownership, operation or use of the Assets following the Closing Date,
except to the extent such Losses result from or arise out of the Excluded
Liabilities or constitute Losses for which the Seller is required to indemnify
the Buyer Indemnities under Section 12.2(a).
(c) Effect of Indemnification. The provisions of this Section 12.2
shall in no way limit, supersede or otherwise affect the rights of any party
under Section 2.7, and nothing contained in Section 2.7 relating to an
adjustment to the Purchase Price shall limit, supersede or otherwise affect the
rights of any party under this Section 12.2; provided, that no party shall be
entitled to be compensated more than once for the same Loss.
(d) Limitations on Indemnity Obligation. Notwithstanding anything in
this Section 12.2 to the contrary, to the extent indemnification is sought under
Section 12.2(a)(i) or 12.2(b)(i), the Seller or the Buyer, as the case may be,
shall be required to provide indemnification only at such time as the aggregate
amount of Losses arising under Section 12.2(a)(i) or 12.2(b)(i), as the case may
be, exceeds $100,000, in which event the Indemnifying Party shall indemnify for
the full amount of Losses, without regard to such $100,000 limitation, up to a
maximum of $13,500,000, provided, however, that the Seller or the Buyer, as the
case may be, shall be required to provide indemnification for Losses resulting
from or arising out of a breach of any representation or warranty contained in
Section 3.7 without regard to such $100,000 limitation and Sections 3.7, 3.9(f)
and 10.4 or any other Losses under Sections 12.2(a) or 12.2(b) without regard to
such $13,500,000 cap, provided further, that the Seller's obligation to provide
indemnification for Losses shall be net of any insurance proceeds paid to and
actually realized by the Indemnified Party minus any related costs and expenses,
including, without limitation, the cost of pursuing any related insurance claims
and the cost of any corresponding increases in insurance premiums or other
chargebacks.
(e) Indemnification Procedures. (i) Third Party Claims. In the case of
any claim asserted by a third party against, or commencement of any action by a
third party reasonably believed to give rise to a claim for indemnification
from, a party entitled to indemnification under this Agreement (the "Indemnified
Party"), notice shall be given by the Indemnified Party to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and the Indemnified Party shall permit the Indemnifying Party (at the
expense of such Indemnifying Party) to assume the defense of any claim or any
litigation resulting therefrom, provided that (i) the counsel for the
Indemnifying Party who shall conduct the defense of such claim or litigation
shall be reasonably satisfactory to the Indemnified Party, (ii) the Indemnified
Party may participate in such defense at such Indemnified Party's expense, and
(iii) the omission by any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its indemnification obligation under
this Agreement except to the extent that such omission results in a failure of
actual notice to the
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Indemnifying Party and such Indemnifying Party is materially damaged as a result
of such failure to give notice. Except with the prior written consent of the
Indemnified Party, (such consent not to be unreasonably withheld) no
Indemnifying Party, in the defense of any such claim or litigation, shall
consent to entry of any judgment or enter into any settlement that provides for
injunctive or other nonmonetary relief affecting the Indemnified Party or that
does not include as an unconditional term thereof the giving by each claimant or
plaintiff to such Indemnified Party of a release from all liability with respect
to such claim or litigation. In the event that the Indemnified Party shall in
good faith determine that the conduct of the defense of any claim subject to
indemnification hereunder or any proposed settlement of any such claim by the
Indemnifying Party might be expected to affect adversely the Indemnified Party's
Tax liability or the ability of the Buyer to conduct its business, or that the
Indemnified Party may have available to it one or more defenses or counterclaims
that are inconsistent with one or more of those that may be available to the
Indemnifying Party in respect of such claim or any litigation relating thereto,
the Indemnified Party shall have the right at all times to take over and assume
control over the defense, settlement, negotiations or litigation relating to any
such claim at the sole cost of the Indemnifying Party, provided that if the
Indemnified Party does so take over and assume control, the Indemnified Party
shall not settle such claim or litigation without the written consent of the
Indemnifying Party, such consent not to be unreasonably withheld. In the event
that the Indemnifying Party does not accept the defense of any matter as above
provided, the Indemnified Party shall have the full right to defend against any
such claim or demand and shall be entitled to settle or agree to pay in full
such claim or demand. In any event, the Indemnifying Party and the Indemnified
Party shall cooperate in the defense of any claim or litigation subject to this
Section 12.2 and the records of each shall be available to the other with
respect to such defense.
(ii) Other Claims. In the event an Indemnified Party obtains knowledge
that it has sustained any Loss not involving a third party claim or action which
such Indemnified Party reasonably believes may give rise to a claim for
indemnification from an Indemnifying Party hereunder, notice shall be given by
the Indemnified Party to the Indemnifying Party promptly setting forth in
reasonable detail such claim or action, provided that the omission by any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its indemnification obligation under this Agreement except
to the extent that such omission results in a failure of actual notice to the
Indemnifying Party and such Indemnifying Party is materially damaged as a result
of such failure to give notice. If the Indemnifying Party does not notify the
Indemnified Party within 30 calendar days following its receipt of such notice
that the Indemnifying Party disputes its liability to the Indemnified Party
under this Section 12.2, such claim specified by the Indemnified Party in such
notice shall be conclusively deemed a liability of the Indemnifying Party under
this Section 12.2 and the Indemnifying Party shall pay the amount of such claim
to the Indemnified Party on demand or, in the case of any notice in which the
amount of the claim (or any portion thereof) is estimated, on such later date
when the amount of such claim (or such portion thereof) becomes finally
determined. If the Indemnifying Party has timely disputed its liability with
respect to such claim, as provided above, the Indemnifying Party
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and the Indemnified Party shall proceed in good faith to negotiate a resolution
of such dispute and, if not resolved through negotiations, such dispute shall be
resolved by litigation in an appropriate court of competent jurisdiction in
accordance with Section 12.10.
(f) Time Limitation. All claims for indemnification under clause (i) of
the first sentence of Section 12.2(a) or clause (i) of the first sentence of
Section 12.2(b) must be asserted within 15 days of the termination of the
respective survival periods set forth in Section 12.3.
(g) Tax Treatment of Indemnity Payments. The parties agree to treat any
indemnity payment made pursuant to Section 12.2(a) or 12.2(b) as an adjustment
to the Initial Purchase Price for all Tax purposes unless otherwise required by
law.
12.3 Survival of Representations and Warranties, etc. The
representations and warranties contained in this Agreement shall survive the
execution and delivery of this Agreement, any examination by or on behalf of the
parties hereto and the completion of the transactions contemplated herein, but
only to the extent specified below:
(a) except as set forth in clauses (b) and (c) below, the
representations and warranties contained in Articles III and IV shall
survive for a period of 18 months following the Closing Date.
(b) the representations and warranties contained in Section
3.15 shall survive for a period of three years following the Closing
Date.
(c) the representations and warranties contained in Sections
3.8(a), 3.9(a) and (h) shall survive without limitation;
(d) the representations and warranties of the Seller contained
in Sections 3.7, 3.9(f) and 3.18 and Article X shall survive as to any
Tax or ERISA matter covered by such representations and warranties for
15 days following the expiration of the applicable statute of
limitations for such Tax or ERISA matter; and
(e) notwithstanding anything in this Agreement to the
contrary, to the extent that a claim is brought within the time period
specified in Section 12.3, the representations and warranties which
underlie such claim will survive solely with respect to such claim
until the final resolution of such claim pursuant to Section 12.3.
12.4 Expenses. Except as provided in Section 5.8 and 2.7(d), the
Seller, on the one hand, and the Buyer, on the other hand, shall bear their
respective expenses, costs and fees (including attorneys', auditors' and
financing commitment fees) in connection with the transactions contemplated
hereby, including the preparation, execution and delivery of this Agreement and
compliance herewith, whether or not the transactions contemplated hereby shall
be consummated.
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12.5 Severability. If any provision of this Agreement, including any
phrase, sentence, clause, Section or subsection is inoperative or unenforceable
for any reason, such circumstances shall not have the effect of rendering the
provision in question inoperative or unenforceable in any other case or
circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative, or unenforceable to any extent whatsoever.
12.6 Notices. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail,
return receipt requested, postage prepaid, or (c) sent by next-day or overnight
mail or delivery or (d) sent by telecopy or telegram.
(i) if to the Buyer to,
GEI Acquisition Inc.
c/o Tempo Instruments, Inc.
87 Modular Avenue
Commack, New York 11725
Attention: John Knox
with a copy to:
Debevoise & Plimpton
875 Third Avenue
New York, New York 10022
Attention: Margaret A. Davenport
(ii) if to the Seller,
High Voltage Engineering Corporation
401 Edgewater Place
Suite 680
Wakefield, Massachusetts 01880
Attention: Joseph W. McHugh, Jr.
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Attention: Michael P. O'Brien, Esq.
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<PAGE>
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery on the day
after such delivery, (x) if by certified or registered mail, on the seventh
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
12.7 Headings. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
12.8 Entire Agreement. This Agreement (including the Schedules hereto)
and the Ancillary Agreements (when executed and delivered) constitute the entire
agreement and supersede all prior agreements and understandings, both written
and oral, between the parties with respect to the subject matter hereof.
12.9 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
12.10 Governing Law, etc. This Agreement shall be governed in all
respects, including as to validity, interpretation and effect, by the internal
laws of the State of New York, without giving effect to the conflict of laws
rules thereof. The Buyer and the Seller hereby irrevocably submit to the
jurisdiction of the courts of the State of New York and the Federal courts of
the United States of America located in the State, City and County of New York
solely in respect of the interpretation and enforcement of the provisions of
this Agreement and of the documents referred to in this Agreement, and hereby
waive, and agree not to assert, as a defense in any action, suit or proceeding
for the interpretation or enforcement hereof or of any such document, that it is
not subject thereto or that such action, suit or proceeding may not be brought
or is not maintainable in said courts or that the venue thereof may not be
appropriate or that this Agreement or any of such document may not be enforced
in or by said courts, and the parties hereto irrevocably agree that all claims
with respect to such action or proceeding shall be heard and determined in such
New York State or Federal court. The Buyer and the Seller hereby consent to and
grant any such court jurisdiction over the person of such parties and over the
subject matter of any such dispute and agree that mailing of process or other
papers in connection with any such action or proceeding in the manner provided
in Section 12.6, or in such other manner as may be permitted by law, shall be
valid and sufficient service thereof.
12.11 Binding Effect. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
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12.12 Assignment. This Agreement shall not be assignable or otherwise
transferable by any party hereto without the prior written consent of the other
party hereto, provided that the Buyer may assign this Agreement to any
Subsidiary of the Buyer or to any lender to the Buyer or any Subsidiary or
Affiliate thereof as security for obligations to such lender in respect of the
financing arrangements entered into in connection with the transactions
contemplated hereby and any refinancings, extensions, refundings or renewals
thereof, provided, further, that no assignment to any such lender shall in any
way affect the Buyer's obligations or liabilities under this Agreement.
12.13 No Third Party Beneficiaries. Except as provided in Section 12.2
with respect to indemnification of Indemnified Parties hereunder, nothing in
this Agreement shall confer any rights upon any person or entity other than the
parties hereto and their respective heirs, successors and permitted assigns.
12.14 Amendment; Waivers, etc. No amendment, modification or discharge
of this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specific matter described in such
writing and shall in no way impair the rights of the party granting such waiver
in any other respect or at any other time. Neither the waiver by any of the
parties hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties, on one or more occasions, to
enforce any of the provisions of this Agreement or to exercise any right or
privilege hereunder, shall be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights or
privileges hereunder. The rights and remedies herein provided are cumulative and
are not exclusive of any rights or remedies that any party may otherwise have at
law or in equity. The rights and remedies of any party based upon, arising out
of or otherwise in respect of any inaccuracy or breach of any representation,
warranty, covenant or agreement or failure to fulfill any condition shall in no
way be limited by the fact that the act, omission, occurrence or other state of
facts upon which any claim of any such inaccuracy or breach is based may also be
the subject matter of any other representation, warranty, covenant or agreement
as to which there is no inaccuracy or breach. The representations and warranties
of the Seller shall not be affected or deemed waived by reason of any
investigation made by or on behalf of the Buyer (including but not limited to by
any of its advisors, consultants or representatives) or by reason of the fact
that the Buyer or any of such advisors, consultants or representatives knew or
should have known that any such representation or warranty is or might be
inaccurate.
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IN WITNESS WHEREOF, the parties have duly executed this
Agreement as of the date first above written.
GEI ACQUISITION INC.
By: /s/ L. John Knox
---------------------------
Name: L. John Knox
Title: President
HIGH VOLTAGE ENGINEERING CORPORATION
By: /s/ Laurence S. Levy
---------------------------
Name: Laurence S. Levy
Title: Chief Executive Officer
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Exhibit 4.2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
HIGH VOLTAGE ENGINEERING CORPORATION
and
STATE STREET BANK AND TRUST COMPANY, as Trustee
------------------------
FIRST SUPPLEMENTAL INDENTURE
Dated as of March 19, 1998
to
INDENTURE
Dated as of August 8, 1997
by and between
HIGH VOLTAGE ENGINEERING CORPORATION
and
STATE STREET BANK AND TRUST COMPANY, as Trustee
-------------------------
$155,000,000
10 1/2% Senior Notes Due 2004
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
FIRST SUPPLEMENTAL INDENTURE (the "Supplemental Indenture"), dated
as of March 19, 1998, by and between HIGH VOLTAGE ENGINEERING CORPORATION, a
Massachusetts corporation (the "Company") and STATE STREET BANK AND TRUST
COMPANY (the "Trustee").
RECITALS
WHEREAS, the Company and the Trustee have entered into that certain
Indenture dated as of August 8, 1997 (the "Original Indenture") providing for
the issuance and delivery by the Company of its 10 1/2% Senior Notes due 2004;
and
WHEREAS, the Company is entering into certain financing and related
transactions (the "Transactions") which will benefit the Company and its
Subsidiaries; and
WHEREAS, Article 8 of the Indenture provides a manner by which the
Indenture may be amended, and by which compliance with the provisions of the
Original Indenture may be waived, with the consent of the Holders of a
majority in aggregate principal amount of the then outstanding Notes by
written act of said Holders delivered to the Company and the Trustee; and
WHEREAS, the Holders of a majority in aggregate principal amount of
the outstanding Notes have delivered said consents to the Trustee and the
Company; and
WHEREAS, pursuant to and in accordance with Section 8.02 of the
Original Indenture, and with the consent of the Holders of a majority in
aggregate principal amount of the outstanding Notes, the Company and the
Trustee have agreed to enter into this Supplemental Indenture;
NOW THEREFORE, in consideration of the mutual agreements contained
herein and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as follows
for the benefit of each other party and for the equal and ratable benefit of
the Holders of the Company's 10 1/2% Senior Notes due 2004:
Section 1. AMENDMENTS AND WAIVER.
1.1. Subject to Section 2.2 hereof, the following definitions are
added to Section 1.01 of the Original Indenture as follows:
<PAGE>
"Benner Berg" means Benner Berg, Inc., an Illinois corporation.
"HVE Acquisition Corp." means HVE Acquisition Corp., an Illinois
corporation.
"Stewart Warner" means Stewart Warner Instrument Corporation, an
Illinois corporation.
"Stewart Warner Acquisition" means the acquisition directly or
indirectly of all of the issued and outstanding shares of capital stock
of Stewart Warner and of each of Benner Berg, Stewart Warner Instruments
(Barbados) Inc., a Barbados corporation, TTS Mexican Holding Company,
Inc., an Illinois corporation, and Instrumentos Stewart Warner de
Mexico, S.A. de C.V,. a Mexican corporation, pursuant to the certain
Stock Purchase Agreement, dated as of February 4, 1998, by and among
Carolyn Corporation, a wholly owned subsidiary of the Company, and the
direct and indirect selling shareholders of Stewart Warner listed on the
signature pages attached thereto.
1.2. Subject to Section 2.2 hereof, the definition of
"Intercompany Notes" contained in Section 1.01 of the Original Indenture is
hereby amended to read in its entirety as follows:
"Intercompany Notes" means the Intercompany Notes issued by certain
Subsidiaries of the Company 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; (v) HIVEC Holdings: $3.5 million;
and (vi) Stewart Warner: $20.0 million.
1.3. Subject to Section 2.2 hereof, the definition of
"Restricted Subsidiary" contained in Section 1.01 of the Original Indenture
is hereby amended to read in its entirety as follows:
"Restricted Subsidiary" means a Subsidiary of the Company other
than an Unrestricted Subsidiary and includes (i) all of the direct and
indirect Subsidiaries of the Company existing as of the Issue Date and
(ii) Stewart Warner, HVE Acquisition Corp. and each of Stewart Warner's
wholly owned Subsidiar-
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<PAGE>
ies. The Board of Directors of the Company may designate any Unrestricted
Subsidiary or any Person to be acquired that is to become a Subsidiary
as a Restricted Subsidiary if immediately after giving effect to such
action (and treating any Acquired Indebtedness as having been incurred
at the time of such action), (i) the Company could have incurred at
least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 4.06 of this Indenture, or (ii) the
Company's Fixed Charge Coverage Ratio (determined on a pro forma basis
for the last four fiscal quarters of the Company for which financial
statements are available at the date of determination in accordance with
Section 4.06 of this Indenture) does not decrease, the Company does not
incur any Indebtedness (other than Indebtedness under the Notes
permitted under clause (ii) of the definition of "Permitted
Indebtedness") and such Subsidiary shall execute and deliver to the
Trustee a supplemental indenture, in form reasonably satisfactory to the
Trustee, providing for the Guarantee by such Subsidiary of the payment
of the obligations of the Company under the Notes in the manner set
forth under Article X; provided, however that the Indebtedness
incurrence condition set forth under clause (i) above shall not apply to
the designation as a Restricted Subsidiary of the Subsidiary ("Anderson
Ireland") to which is to be transferred the assets and liabilities of
the Fermoy, Ireland division of HIVEC, B.V. that is associated with the
business of Anderson.
1.4. Subject to Section 2.2 hereof, Section 2.02 of the Original
Indenture is hereby amended to read in its entirety as follows:
Section 2.02 Execution and Authentication.
Two Officers shall sign, or one Officer shall sign and one Officer
(each of whom shall, in each case, have been duly authorized by all
requisite corporate actions) shall attest to, the Notes for the Company
by manual or facsimile signature.
If an Officer whose signature is on a Note was an Officer at the
time of such execution but no longer holds that office at the time the
Trustee
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authenticates the Note, the Note shall be valid nevertheless.
No Note shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Note a
certificate of authentication substantially in the form provided for
herein executed by the Trustee by manual signature, and such certificate
upon any Note shall be conclusive evidence, and the only evidence, that
such Note has been duly authenticated and delivered hereunder.
Notwithstanding the foregoing, if any Note shall have been authenticated
and delivered hereunder but never issued and sold by the Company, and
the Company shall deliver such Note to the Trustee for cancellation as
provided in Section 2.11, for all purposes of this Indenture such Note
shall be deemed never to have been authenticated and delivered hereunder
and shall never be entitled to the benefits of this Indenture.
The Trustee or an authenticating agent shall authenticate (i) Notes
for original issue in the aggregate principal amount of up to
$135,000,000 upon a Company Request and (ii) Notes for issuance
subsequent to the Issue Date upon the consummation of the Stewart Warner
Acquisition in the aggregate principal amount of up to $20,000,000 upon
a Company Request. The aggregate principal amount of Notes outstanding
at any time may not exceed such amount except as provided in Section
2.07 hereof. Upon receipt of the Company Request and an Officers'
Certificate certifying that the registration statement relating to the
exchange offer specified in the Registration Rights Agreement is
effective and that the conditions precedent to a Private Exchange
thereunder have been met, the Trustee shall authenticate one or more
additional series of Notes in an aggregate principal amount not to
exceed $155,000,000 for issuance in exchange for all Notes previously
issued pursuant to an exchange offer registered under the Securities Act
or pursuant to a Private Exchange. Exchange Notes or Private Exchange
Notes may have such distinctive series designations and such changes in
the form thereof as are specified in the Company Request referred to in
the preceding sentence. The Exchange Notes and Private Exchange Notes
shall be issuable only in registered form
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<PAGE>
without coupons and only in denominations of $1,000 and integral
multiples thereof.
The Trustee may appoint an authenticating agent reasonably
acceptable to the Company to authenticate the Notes. Unless otherwise
provided in the appointment, an authenticating agent may authenticate
the Notes whenever the Trustee may do so. Each reference in this
Indenture to authentication by the Trustee includes authentication by
such agent. An authenticating agent has the same rights as an Agent to
deal with the Company and Affiliates of the Company. Each Paying Agent
is designated as an authenticating agent for purposes of this Indenture.
The Notes shall be issuable only in registered form without coupons
in denominations of $1,000 and any integral multiple thereof.
1.5. Subject to Section 2.2 hereof, Section 4.09 of the Original
Indenture is hereby amended to read in its entirety as follows:
Section 4.09. Limitation on Restricted Payments.
The Company shall not make, and shall not permit any of its
Restricted Subsidiaries to, directly or indirectly, make, any Restricted
Payment, unless:
(a) no Default or Event of Default shall have occurred and be
continuing at the time of or immediately after giving effect to
such Restricted Payment;
(b) immediately after giving pro forma effect to such
Restricted Payment, the Company could incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) under Section
4.06; and
(c) immediately after giving effect to such Restricted
Payment, the aggregate of all Restricted Payments declared or made
after the Issue Date does not exceed the sum of (1) 50% of the
Company's cumulative Consolidated Net Income after the Issue Date
(or minus 100% of any cumulative deficit in Consolidated Net Income
during such period), (2) 100% of the ag-
5
<PAGE>
gregate Net Proceeds and the fair market value of securities or
other property received by the Company as a capital contribution to
the common equity of the Company after the Issue Date and from the
issue or sale, after the Issue Date, of Capital Stock (other than
Disqualified Capital Stock or Capital Stock of the Company issued
to any Subsidiary of the Company) of the Company or any
Indebtedness or other securities of the Company convertible into or
exercisable or exchangeable for Capital Stock (other than
Disqualified Capital Stock) of the Company which has been so
converted or exercised or exchanged, as the case may be and (3)
$350,000. For purposes of determining under this clause (c) the
amount expended for Restricted Payments, cash distributed shall be
valued at the face amount thereof and property other than cash
shall be valued at its fair market value.
The provisions of this covenant shall not prohibit (i) the payment
of any distribution within 60 days after the date of declaration
thereof, if at such date of declaration such payment would comply with
the provisions of this Indenture, (ii) the retirement of any shares of
Capital Stock of the Company or subordinated Indebtedness by conversion
into, or by or in exchange for, shares of Capital Stock (other than
Disqualified Capital Stock), or out of, the Net Proceeds of the
substantially concurrent sale (other than to a Subsidiary of the
Company) of other shares of Capital Stock of the Company (other than
Disqualified Capital Stock), (iii) the redemption or retirement of
Indebtedness of the Company subordinated to the Notes in exchange for,
by conversion into, or out of the Net Proceeds of, a substantially
concurrent sale or incurrence of Indebtedness (other than any
Indebtedness owed to a Subsidiary) of the Company that is contractually
subordinated in right of payment to the Notes to at least the same
extent as the Subordinated Indebtedness being redeemed or retired, (iv)
the retirement of any shares of Disqualified Capital Stock by conversion
into, or by exchange for, shares of Disqualified Capital Stock, or out
of the Net Proceeds of the substantially concurrent sale (other than to
a Subsidiary of the Company) of other shares of Disqualified Capital
Stock, (v) so long as no Default
6
<PAGE>
or Event of Default shall have occurred and be continuing, the payment of
cash dividends on the Series A Preferred Stock when such dividends are
required to be paid in cash in accordance with the Restated Articles, (vi)
payment, from the net proceeds of the Offerings, of up to $2,250,000 to
Parent to be used to repurchase from the High Voltage Engineering
Corporation Retirement Plan shares of the common stock of Parent within 60
days of the Issue Date for not more than $2,250,000, and fund a
proportional accrual relating to the Subordinated Notes Warrants of up to
$150,000, (vii) so long as no Default or Event of Default shall have
occurred and be continuing, the exchange of Warrants for Subsidiary
Warrants or Common Shares for Subsidiary Shares in the event of a Qualified
Subsidiary IPO, (viii) payments required to effect the reclassification of
an Unrestricted Subsidiary as a Restricted Subsidiary in compliance Section
4.22 and (ix) the payment of management fees for services provided by
Parent or its employees in an aggregate annual amount not to exceed
$750,000; provided, however, that any amounts paid by the Company pursuant
to clauses (i), (v), (vi) and (vii) shall reduce amounts otherwise
available for Restricted Payments.
Not later than the date of making any Restricted Payment, the
Company shall deliver to the Trustee an Officers' Certificate stating
that such Restricted Payment is permitted and setting forth the basis
upon which the calculations required by this Section 4.09 were computed,
which calculations may be based upon the Company's latest available
financial statements, and that no Default or Event of Default exists and
is continuing and no Default or Event of Default will occur immediately
after giving effect to any Restricted Payments.
1.6. Subject to Section 2.2 hereof, Section 4.25 of the Original
Indenture is hereby amended to read in its entirety as follows:
Section 4.25. Limitation on Business of HIVEC
Holdings; Capital Stock of
Foreign Subsidiaries
HIVEC Holdings shall not engage in any trade or business, incur any
Indebtedness other than Permit-
7
<PAGE>
ted Indebtedness, incur any liabilities other than nominal expenses
necessary to maintain its corporate existence, hold any assets other
than the capital stock of HIVEC, B.V., or sell, pledge, encumber or
transfer or cause or permit the sale, pledge, encumbrance or transfer of
Capital Stock of any of its direct or indirect Subsidiaries. Datcon
shall not sell, pledge, encumber or transfer the Capital Stock of any of
its direct or indirect foreign subsidiaries including, but not limited
to, Instrumentos Stewart Warner de Mexico, S.A. de C.V. Notwithstanding
the foregoing, by May 31, 1998, the Company shall cause HIVEC Holdings
and HIVEC, B.V. to: (i) transfer (directly or indirectly) to Datcon all
of the capital stock of Industrias Jorda that is not held by Datcon (or
a direct or indirect subsidiary of Datcon); and (ii) transfer (directly
or indirectly) all of the assets of Anderson Ireland to Anderson (or a
direct or indirect subsidiary of Anderson) ((i) and (ii) together, the
"Foreign Realignment").
1.7. Subject to Section 2.2 hereof, Section 10.05 of the
Original Indenture is hereby amended to read in its entirety as follows:
Section 10.05. Release of Guarantor.
A Guarantor shall be released from all of its obligations under its
Guarantee if:
(i) the Guarantor has sold all or substantially all of its
assets or the Company and its Restricted Subsidiaries have sold all
of the Capital Stock of the Guarantor owned by them, in each case
in a transaction in compliance with Sections 4.10 and 5.01 hereof;
or
(ii) the Guarantor merges with or into or consolidates with,
or transfers all or substantially all of its assets to, (i) the
Company, (ii) another Guarantor or (iii) a Restricted Subsidiary
that is an obligor under an Intercompany Note in a transaction in
compliance with Section 5.01 hereof;
and in each such case, such Guarantor has delivered to the Trustee an
Officers' Certificate and an Opin-
8
<PAGE>
ion of Counsel, each stating that all conditions precedent herein
provided for relating to such transactions have been complied with.
1.8. Subject to Section 2.2 hereof, paragraph 5 of Exhibit A,
the Form of Notes, is hereby amended to read in its entirety as follows:
Optional Redemption. The Company, at its option, may redeem the
Notes, in whole or in part, at any time on or after August 15, 2001
upon not less than 30 nor more than 60 days' notice, at the redemption
prices (expressed as percentages of principal amount), set forth below,
together, in each case, with accrued and unpaid interest to the
Redemption Date, if redeemed during the twelve month period beginning on
August 15 of each year listed below:
<TABLE>
<CAPTION>
Redemption
Year Price
- ----- ----------
<S> <C>
2001........................................................ 105.250%
2002........................................................ 102.625%
2003 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, the Company may redeem in the
aggregate up to 35% of the original principal amount of Notes at any
time and from time to time on or prior to August 15, 2000 at a
redemption price equal to 110.500% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon to the Redemption Date
with the Net Proceeds of one or more Qualified Equity Offerings of the
Company or Parent to the extent such proceeds were contributed to the
Company as common equity; provided, that at least $100.75 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.
1.9. Subject to Section 2.2 hereof, compliance by the Company
with Sections 5.01 and 5.02 of the Original Indenture are hereby waived to
the extent any default would occur under such Sections as a result of the
transactions contemplated by the Stewart Warner Acquisition (as defined in
the Of-
9
<PAGE>
fering Memorandum of the Company dated of March 16, 1998 relating to the
Company's 10 1/2% Senior Notes due 2004).
Section 2. MISCELLANEOUS.
2.1. GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH
OF MASSACHUSETTS, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE
COMMONWEALTH OF MASSACHUSETTS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF
THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS SUPPLEMENTAL INDENTURE.
2.2. Operative Time. Upon the execution and delivery of this
Supplemental Indenture by the Company and the Trustee, the Indenture shall
be supplemented in accordance herewith, and this Supplemental Indenture
shall form a part of the Original Indenture for all purposes, and every
Holder of Notes heretofore or hereafter authenticated and delivered under
the Original Indenture shall be bound hereby and thereby; provided,
however, that Section 1 hereof shall become operative upon the satisfaction
(or waiver by the Company) of the Acquisition Condition (as defined in the
Consent Solicitation Statement, dated March 5, 1998, that was provided to
Holders of Notes in connection with the Company's solicitation of consents
by such Holders to the waiver and amendments set forth herein). Upon the
receipt by the Trustee of (i) an Officers' Certificate certifying that such
conditions have been satisfied, or waived by the Company, and (ii) an
Opinion of Counsel to the effect set forth in Section 8.06 of the Original
Indenture, the amendments set forth herein shall become operative.
2.3. Confirmation of the Original Indenture. Except as amended
hereby, the Original Indenture shall remain in full force and effect and is
hereby ratified and confirmed in all respects.
2.4. Multiple Counterparts. The parties may sign multiple
counterparts of this Supplemental Indenture. Each signed counterpart shall
be deemed an original, but all of them together represent one and the same
agreement.
2.5. Separability. Each provision of this Supplemental
Indenture shall be considered separable and if for any reason any provision
which is not essential to the effectuation of the basic purpose of this
Supplemental Indenture shall be
10
<PAGE>
invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
2.6. Headings. The captions of the various section headings of
this Supplemental Indenture have been inserted for convenience of reference
only, are not to be considered a part hereof, and shall in no way modify or
restrict any of the terms or provisions hereof.
2.7. The Trustee. The Trustee shall not be responsible in any
manner whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained
herein, all of which recitals are made solely by the Company.
2.8. Definitions. All terms defined in the Original Indenture
shall have the same meaning in this Supplemental Indenture unless otherwise
defined herein.
11
<PAGE>
IN WITNESS WHEREOF, the parties hereto caused this Supplemental
Indenture to be duly executed as of this day of March, 1998.
HIGH VOLTAGE ENGINEERING CORPORATION
By: /s/ Joseph W. McHugh, Jr.
--------------------------------
Name: Joseph W. McHugh, Jr.
Title: Vice President, Chief
Financial Officer and Clerk
STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: /s/ Chi C. Ma
--------------------------------
Name: Chi C. Ma
Title: Assistant Vice President
<PAGE>
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
Dated as of March 19, 1998
by and among
HIGH VOLTAGE ENGINEERING CORPORATION
and
CIBC OPPENHEIMER CORP.,
as Initial Purchaser
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions.............................................................. 1
2. Exchange Offer........................................................... 5
3. Shelf Registration....................................................... 9
(a) Initial Shelf Registration......................................... 9
(b) Subsequent Shelf Registrations..................................... 9
(c) Supplements and Amendments.........................................10
4. Additional Interest......................................................10
5. Registration Procedures..................................................12
6. Registration Expenses....................................................23
7. Indemnification..........................................................24
8. Rules 144 and 144A.......................................................28
9. Underwritten Registrations...............................................28
10. Miscellaneous............................................................29
(a) Remedies...........................................................29
(b) Enforcement .......................................................29
(c) No Inconsistent Agreements.........................................29
(d) Adjustments Affecting Registrable Notes ...........................29
(e) Amendments and Waivers.............................................30
(f) Notices ...........................................................30
(g) Successors and Assigns.............................................31
(h) Counterparts.......................................................31
(i) Headings...........................................................31
(j) Governing Law .....................................................31
(k) Severability.......................................................31
(l) Entire Agreement...................................................32
(m) Notes Held by the Company or Its Affiliates .......................32
i
<PAGE>
REGISTRATION RIGHTS AGREEMENT (the "Agreement") dated as
of March 19, 1998, by and among HIGH VOLTAGE ENGINEERING CORPORATION, a
Massachusetts corporation (the "Company"), and CIBC OPPENHEIMER CORP. (the
"Initial Purchaser").
This Agreement is entered into in connection with the
Securities Purchase Agreement, dated as of March 16, 1998, by and among the
Company and the Initial Purchaser (the "Purchase Agreement") relating to the
sale by the Company to the Initial Purchaser of $20,000,000 aggregate
principal amount of 10 1/2% Senior Notes due 2004 of the Company (the "Notes").
On August 8, 1997, the Company issued $135,000,000
aggregate principal amount of its 10 1/2% Senior Notes due 2004 (the "Original
Notes") under the Indenture (as defined herein). On January 16, 1998, the
Company exchanged $134,500,000 aggregate principal amount of the Original
Notes for 10 1/2% Senior Notes due 2004 (the "Registered Existing Notes")
registered under the Securities Act (as defined herein). The Notes are being
issued pursuant to a supplement to the Indenture and are identical to the
Registered Existing Notes other than the issue date and except that the Notes
are subject to certain transfer restrictions and are entitled to the benefit
of this Agreement.
In order to induce the Initial Purchaser to enter into the
Purchase Agreement, the Company has agreed to provide the registration rights
set forth in this Agreement for the benefit of the Initial Purchaser. The
execution and delivery of this Agreement is a condition to the Initial
Purchaser's obligation to purchase the Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
As used in this Agreement, the following terms shall have
the following meanings:
Additional Interest: See Section 4(a).
Advice: See Section 5.
Applicable Period: See Section 2(b).
Closing: See the Purchase Agreement.
Company: See the introductory paragraph to this Agreement.
<PAGE>
Effectiveness Date: The 135th day after the Issue Date.
Effectiveness Period: See Section 3(a).
Event Date: See Section 4(b).
Exchange Act: The Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC
promulgated thereunder.
Exchange Notes: See Section 2(a).
Exchange Offer: See Section 2(a).
Exchange Registration Statement: See Section 2(a).
Filing Date: The 45th day after the Issue Date.
Holder: Any holder of a Registrable Note or Registrable
Notes.
Indemnified Person: See Section 7(c).
Indemnifying Person: See Section 7(c).
Indenture: The Indenture, dated as of August 8, 1997, by
and between the Company and State Street Bank and Trust Company, as trustee,
pursuant to which the Notes are being issued, as amended or supplemented from
time to time in accordance with the terms thereof.
Initial Purchaser: See the introductory paragraph to this
Agreement.
Initial Shelf Registration: See Section 3(a).
Inspectors: See Section 5(o).
Issue Date: The date on which the Notes are originally
sold to the Initial Purchaser pursuant to the Purchase Agreement.
Lien: See the Indenture.
NASD: See Section 5(t).
2
<PAGE>
Notes: See the introductory paragraphs to this Agreement.
Original Notes: See the introductory paragraph to this
Agreement.
Participant: See Section 7(a).
Participating Broker-Dealer: See Section 2(b).
Person: An individual, corporation, partnership, joint
venture, association, joint stock company, trust, unincorporated organization
or government (including any agency or political subdivision thereof).
Private Exchange: See Section 2(b).
Private Exchange Notes: See Section 2(b).
Prospectus: The prospectus included in any Registration
Statement (including, without limitation, any prospectus subject to completion
and a prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in reliance
upon Rule 430A promulgated under the Securities Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Registrable Notes covered by such Registration
Statement, and all other amendments and supplements to the Prospectus,
including post-effective amendments, and all material incorporated by
reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the introductory paragraphs to
this Agreement.
Records: See Section 5(o).
Registered Existing Notes: See the introductory
paragraphs to this Agreement.
Registrable Notes: The Notes upon original issuance of
the Notes and at all times subsequent thereto and, if issued, the Private
Exchange Notes, until in the case of any such Notes or any such Private
Exchange Notes, as the case may be, (i) a Registration Statement covering such
Notes or such Private Exchange Notes has been declared effective by the SEC
and such Notes or such Private Exchange Notes, as the case may be, have been
disposed of in accordance with such effective Registration
3
<PAGE>
Statement, (ii) such Notes or such Private Exchange Notes, as the case may be,
are sold in compliance with Rule 144, (iii) in the case of any Note, the
Exchange Offer has been consummated, (iv) such Notes or such Private Exchange
Notes, as the case may be, cease to be outstanding or (v) two years have
passed from the Issue Date.
Registration Default: See Section 4(a).
Registration Statement: Any registration statement of the
Company, including, but not limited to, the Exchange Registration Statement,
which covers any of the Registrable Notes pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits,
and all material incorporated by reference or deemed to be incorporated by
reference in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule (other than
Rule 144A) or regulation hereafter adopted by the SEC providing for offers and
sales of securities made in compliance therewith resulting in offers and sales
by subsequent holders that are not affiliates of an issuer of such securities
being free of the registration and prospectus delivery requirements of the
Securities Act.
Rule 144A: Rule 144A promulgated under the Securities
Act, as such Rule may be amended from time to time, or any similar rule (other
than Rule 144) or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act,
as such Rule may be amended from time to time, or any similar rule or
regulation hereafter adopted by the SEC.
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended,
and the rules and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2(c).
Shelf Registration: See Section 3(b).
Subsequent Shelf Registration: See Section 3(b).
4
<PAGE>
TIA: The Trust Indenture Act of 1939, as amended.
Trustee: The trustee under the Indenture and, if
existent, the trustee under any indenture governing the Exchange Notes and
Private Exchange Notes (if any).
Underwritten registration or underwritten offering: A
registration in which securities of the Company are sold to an underwriter(s)
for reoffering to the public.
2. Exchange Offer
(a) The Company agrees to use its best efforts to file
with the SEC as soon as practicable after the Closing, but in no event later
than the Filing Date, an offer to exchange (the "Exchange Offer") any and all
of the Notes for a like aggregate principal amount of debt securities of the
Company which are identical to the Notes (the "Exchange Notes") (and which are
entitled to the benefits of the Indenture or a trust indenture which is
substantially identical to the Indenture (other than such changes to the
Indenture or any such identical trust indenture as are necessary to comply
with any requirements of the SEC to effect or maintain the qualification
thereof under the TIA) and which, in either case, has been qualified under the
TIA), except that the Exchange Notes shall have been registered pursuant to an
effective Registration Statement under the Securities Act. The Exchange Offer
will be registered under the Securities Act on an appropriate form (the
"Exchange Registration Statement") and will comply with all applicable tender
offer rules and regulations under the Exchange Act. The Company agrees to use
its best efforts to (x) cause the Exchange Registration Statement to become
effective under the Securities Act on or before the Effectiveness Date; (y)
keep the Exchange Offer open for at least 30 days (or longer if required by
applicable law) after the date that notice of the Exchange Offer is mailed to
Holders; and (z) consummate the Exchange Offer on or prior to the 60th day
following the date on which the Exchange Registration Statement is declared
effective. The Company will use its best efforts to effect the Exchange Offer
in a manner such that, upon consummation of the Exchange Offer, the Notes and
the Registered Existing Notes will have the same CUSIP number; provided, (i)
purchasers are required to buy the Notes with interest accrued from February
15, 1998, the last date on which interest was paid on the Registered Existing
Notes and (ii) the Notes are not issued with original issue discount and the
Exchange Offer must be consummated. Each Holder who participates in the
Exchange Offer will be required to represent that any Exchange Notes received
by it
5
<PAGE>
will be acquired in the ordinary course of its business, that at the time of
the consummation of the Exchange Offer such Holder will have no arrangement or
understanding with any person to participate in the distribution of the
Exchange Notes, and that such Holder is not an affiliate of the Company within
the meaning of Rule 405 promulgated under the Securities Act or if it is such
an affiliate, that it will comply with the registration and prospectus
delivery requirements of the Securities Act, to the extent applicable. Upon
consummation of the Exchange Offer in accordance with this Section 2, the
provisions of this Agreement shall continue to apply, mutatis mutandis, solely
with respect to Registrable Notes that are Private Exchange Notes and Exchange
Notes held by Participating Broker-Dealers (as defined below), and the Company
shall have no further obligation to register Registrable Notes (other than
Private Exchange Notes and Exchange Notes held by Participating
Broker-Dealers) pursuant to Section 3 of this Agreement.
(b) The Company shall include within the Prospectus
contained in the Exchange Registration Statement a section entitled "Plan of
Distribution," reasonably acceptable to the Initial Purchaser, which shall
contain a summary statement of the positions taken or policies made by the
staff of the SEC with respect to the potential "underwriter" status of any
broker-dealer that is the beneficial owner (as defined in Rule 13d-3
promulgated under the Exchange Act) of Exchange Notes received by such
broker-dealer in the Exchange Offer (a "Participating Broker-Dealer"), whether
such positions or policies have been publicly disseminated by the staff of the
SEC or such positions or policies, in the reasonable judgment of the Initial
Purchaser, represent the prevailing views of the staff of the SEC. Such "Plan
of Distribution" section shall also allow the use of the Prospectus by all
persons subject to the prospectus delivery requirements of the Securities Act,
including all Participating Broker-Dealers, and include a statement describing
the means by which Participating Broker-Dealers may resell the Exchange Notes.
The Company shall use its best efforts to keep the
Exchange Registration Statement effective and to amend and supplement the
Prospectus contained therein, in order to permit such Prospectus to be
lawfully delivered by all persons subject to the prospectus delivery
requirements of the Securities Act for such period of time as such persons
must comply with such requirements in order to resell the Exchange Notes,
provided that such period shall not exceed 180 days (or such longer period if
extended pursuant to the last paragraph of Section 5)
6
<PAGE>
after the date of the consummation of the Exchange Offer (the "Applicable
Period").
If, prior to consummation of the Exchange Offer, the
Initial Purchaser holds any Notes acquired by it and having, or which are
reasonably likely to be determined to have, the status of an unsold allotment
in the initial distribution, the Company upon the request of such Initial
Purchaser shall, simultaneously with the delivery of the Exchange Notes in the
Exchange Offer, issue and deliver to such Initial Purchaser, in exchange (the
"Private Exchange") for the Notes held by such Initial Purchaser, a like
principal amount of debt securities of the Company that are identical in all
material respects to the Exchange Notes (the "Private Exchange Notes") (and
which are issued pursuant to the same indenture as the Exchange Notes). The
Private Exchange Notes shall bear the same CUSIP number as the Exchange Notes.
Interest on the Exchange Notes and any Private Exchange Notes will accrue
from (A) the later of (i) the last interest payment date on which interest was
paid on the Notes surrendered in exchange therefor or (ii) if the Notes are
surrendered for exchange on a date in a period which includes the record date
for an interest payment date to occur on or after the date of such exchange
and as to which interest will be paid, the date of such interest payment date
or (B), if no interest has been paid on the Notes, from the Issue Date.
In connection with the Exchange Offer, the Company shall:
(i) mail to each Holder a copy of the Prospectus forming
part of the Exchange Registration Statement, together with an
appropriate letter of transmittal and related documents;
(ii) utilize the services of a depository for the Exchange
Offer with an address in Boston, Massachusetts; and
(iii) permit Holders to withdraw tendered Notes at any
time prior to the close of business, New York time, on the last
business day on which the Exchange Offer shall remain open.
As soon as practicable after the close of the Exchange
Offer or the Private Exchange, as the case may be, the Company shall:
7
<PAGE>
(i) accept for exchange all Notes tendered and not
validly withdrawn pursuant to the Exchange Offer or the Private
Exchange;
(ii) deliver to the Trustee for cancellation all Notes so
accepted for exchange; and
(iii) cause the Trustee to authenticate and deliver
promptly to each Holder of Notes, Exchange Notes or Private
Exchange Notes, as the case may be, equal in principal amount
to the Notes of such Holder so accepted for exchange.
The Exchange Notes and the Private Exchange Notes may be
issued under (i) the Indenture or (ii) an indenture substantially identical to
the Indenture, which in either event will provide that the Exchange Notes will
not be subject to the transfer restrictions set forth in the Indenture and
that the Exchange Notes, the Private Exchange Notes and the Notes will vote
and consent together, to the extent provided by the Indenture, on all matters
as one class and that neither the Exchange Notes, the Private Exchange Notes
nor the Notes will have the right to vote or consent as a separate class on
any matter.
(c) If (1) prior to the consummation of the Exchange
Offer, the Company or Holders of at least a majority in aggregate principal
amount of the Registrable Notes reasonably determine in good faith that (i)
the Exchange Notes would not, upon receipt, be tradable by such Holders which
are not affiliates (within the meaning of the Securities Act) of the Company
without restriction under the Securities Act and without restrictions under
applicable state securities laws or (ii) after conferring with counsel, the
SEC is unlikely to permit the consummation of the Exchange Offer prior to 60
days after the Effectiveness Date, (2) subsequent to the consummation of the
Private Exchange, any holder of the Private Exchange Notes so requests, or (3)
the Exchange Offer is commenced and not consummated within 195 days of the
date of this Agreement, then the Company shall promptly deliver to the Holders
and the Trustee written notice thereof (the "Shelf Notice") and shall file an
Initial Shelf Registration pursuant to Section 3. Following the delivery of a
Shelf Notice to the Holders of Registrable Notes (in the circumstances
contemplated by clauses (1) and (3) of the preceding sentence), the Company
shall not have any further obligation to conduct the Exchange Offer or the
Private Exchange under this Section 2.
8
<PAGE>
3. Shelf Registration
If a Shelf Notice is delivered as contemplated by Section
2(c), then:
(a) Initial Shelf Registration. The Company shall
prepare and file with the SEC a Registration Statement for an offering to be
made on a continuous basis pursuant to Rule 415 covering all of the
Registrable Notes (the "Initial Shelf Registration"). The Company shall use
its best efforts to file with the SEC the Initial Shelf Registration within 30
days of the delivery of the Shelf Notice. The Initial Shelf Registration
shall be on Form S-1 or another appropriate form permitting registration of
such Registrable Notes for resale by such Holders in the manner or manners
designated by them (including, without limitation, one or more underwritten
offerings). The Company shall not permit any securities other than the
Registrable Notes to be included in the Initial Shelf Registration or any
Subsequent Shelf Registration (as defined below), other than any securities
requested by the holders thereof to be included in such registration pursuant
to that Registration Rights and Stockholders Agreement, dated as of May 9,
1996, among the Company, Letitia Corporation, a Delaware corporation, and the
purchasers of the Company's Senior Subordinated Notes due 2004 in an aggregate
principal amount of $25,000,000 and warrants to purchase shares of the Common
Stock, $.01 par value per share, of the Company. The Company shall use its
best efforts to cause the Initial Shelf Registration to be declared effective
under the Securities Act on or prior to the Effectiveness Date and to keep the
Initial Shelf Registration continuously effective under the Securities Act
until two years from the Issue Date (the "Effectiveness Period"), or such
shorter period ending when (i) all Registrable Notes covered by the Initial
Shelf Registration have been sold in the manner set forth and as contemplated
in the Initial Shelf Registration or (ii) a Subsequent Shelf Registration
covering all of the Registrable Notes has been declared effective under the
Securities Act.
(b) Subsequent Shelf Registrations. If the Initial Shelf
Registration or any Subsequent Shelf Registration ceases to be effective for
any reason at any time during the Effectiveness Period (prior to the sale of
all of the securities registered thereunder), the Company shall use its best
efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall within 45 days of such cessation
of effectiveness amend the Shelf Registration in a manner reasonably expected
to obtain the withdrawal of the
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order suspending the effectiveness thereof, or file an additional "shelf"
Registration Statement pursuant to Rule 415 covering all of the Registrable
Notes (a "Subsequent Shelf Registration"). In the event that the Company
becomes eligible to use any form other than form S-1 for a Subsequent Shelf
Registration, if permitted under applicable law, the Company shall be entitled
to cause a Subsequent Shelf Registration to be substituted for the Initial
Shelf Registration. If a Subsequent Shelf Registration is filed, the Company
shall use its best efforts to cause the Subsequent Shelf Registration to be
declared effective as soon as practicable after such filing and to keep such
Registration Statement continuously effective during the Effectiveness Period.
As used herein the term "Shelf Registration" means the Initial Shelf
Registration and any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Company shall
promptly supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Registration Statement or by any
underwriter(s) of such Registrable Notes.
4. Additional Interest
(a) The Company and the Initial Purchaser agree that the
Holders of Registrable Notes will suffer damages if the Company fails to
fulfill its obligations under Section 2 or Section 3 hereof and that it would
not be feasible to ascertain the extent of such damages with precision.
Accordingly, the Company agrees to pay additional interest on the Notes
("Additional Interest") under the circumstances set forth below:
(i) if the Exchange Registration Statement has not been
filed on or prior to the Filing Date or the Initial Shelf
Registration has not been filed within 30 days following the
delivery of a Shelf Notice prior to the filing date;
(ii) if neither the Exchange Registration Statement nor
the Initial Shelf Registration has been declared effective on
or prior to the Effectiveness Date; and/or
(iii) if either (A), if applicable, the Company has
not exchanged the Exchange Notes for all Notes validly
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tendered in accordance with the terms of the Exchange Offer on
or prior to 60 days after the date on which the Exchange
Registration Statement was declared effective or (B) , if
applicable, the Exchange 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 has
been declared effective and such Shelf Registration ceases to
be effective at any time prior to the earlier of the date on
which all Registrable Notes covered by the Shelf Registration
have been sold in the manner set forth and as contemplated in
the Shelf Registration or the second anniversary of the Issue
Date;
(each such event referred to in clauses (i) through (iii) above is a
"Registration Default"), the sole remedy available to holders of the Notes
will be the immediate accrual of Additional Interest as follows: the per
annum interest rate on the Notes will increase by 0.5% upon the occurrence of
the first Registration Default; and the per annum interest rate will increase
by an additional 0.25% for each subsequent 90-day period during which any
Registration Default remains uncured, up to a maximum additional interest rate
of 2.0% per annum for all Registration Defaults, provided, however, that (1)
upon the filing of the Exchange Registration Statement or the Initial Shelf
Registration (in the case of (i) above), (2) upon the effectiveness of the
Exchange Registration Statement or a Shelf Registration (in the case of (ii)
above) or (3) upon the exchange of Exchange Notes for all Notes tendered (in
the case of (iii)(A) above), or upon the effectiveness of the Exchange
Registration Statement which had ceased to remain effective (in the case of
(iii)(B) above), or upon the effectiveness of the Shelf Registration which had
ceased to remain effective (in the case of (iii)(C) above), Additional
Interest on the Notes as a result of such clause (i), (ii) or (iii) (or the
relevant subclause thereof), as the case may be, shall cease to accrue and the
interest rate on the Notes will revert to the interest rate originally borne
by the Notes and provided, further, that in the case of a Registration Default
under (iii)(c) above, Additional Interest will only be payable with respect to
Notes so long as they are Registrable Notes.
(b) The Company shall notify the Trustee within one
business day after each and every date on which an event occurs in respect of
which Additional Interest is required to be paid (an "Event Date"). Any
amounts of Additional Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of
this Section 4 will be payable in cash semi-annually on each February 1 and
August 1 (to the Holders of record on the January 15 and July 15 immediately
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<PAGE>
preceding such dates), commencing with the first such date occurring after any
such Additional Interest commences to accrue. The amount of Additional
Interest with respect to each Note will be determined by multiplying the
applicable Additional Interest rate by the principal amount of such Note,
multiplied by a fraction, the numerator of which is the number of days such
Additional Interest rate was applicable during such period (determined on the
basis of a 360-day year comprised of twelve 30-day months), and the
denominator of which is 360.
5. Registration Procedures
In connection with the registration of any Registrable
Notes or Private Exchange Notes pursuant to Section 2 or 3 hereof, the Company
shall effect such registrations to permit the sale of such Registrable Notes
or Private Exchange Notes in accordance with the intended method or methods of
disposition thereof, and pursuant thereto the Company shall:
(a) Prepare and file with the SEC, prior to the Filing
Date, a Registration Statement or Registration Statements as
prescribed by Section 2 or 3, and to use its best efforts to
cause each such Registration Statement to become effective and
remain effective as provided herein, provided that, if (1) such
filing is pursuant to Section 3, or (2) a Prospectus contained
in an Exchange Registration Statement filed pursuant to Section
2 is required to be delivered under the Securities Act by any
Participating Broker-Dealer who seeks to sell Exchange Notes
during the Applicable Period, before filing any Registration
Statement or Prospectus or any amendments or supplements
thereto, the Company shall, if requested by any Holders of
Registrable Notes, furnish to and afford such Holders of the
Registrable Notes and each such Participating Broker-Dealer, as
the case may be, covered by such Registration Statement, their
counsel and the managing underwriter(s), if any, a reasonable
opportunity to review copies of all such documents (including
copies of any documents to be incorporated by reference therein
and all exhibits thereto) proposed to be filed (at least 5
business days prior to such filing). The Company shall not
file any Registration Statement or Prospectus or any amendments
or supplements thereto in respect of which the Holders must be
afforded an opportunity to review prior to the filing of such
document, if the Holders of a majority in aggregate principal
amount of the Registrable Notes covered by such Registration
Statement, or such Participating Broker-Dealer, as the case may
be, their counsel,
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or the managing underwriter(s), if any, shall reasonably
object; provided, however, during any delay in meeting the time
frames contemplated by Section 4 hereof as a result of actions
of any Holder of Registrable Notes, no Additional Interest
shall accrue or be payable to such Holder.
(b) Prepare and file with the SEC such amendments and
post-effective amendments to each Shelf Registration or
Exchange Registration Statement, as the case may be, as may be
necessary to keep such Registration Statement continuously
effective for the Effectiveness Period or the Applicable
Period, as the case may be; cause the related Prospectus to be
supplemented by any prospectus supplement required by
applicable law, and as so supplemented to be filed pursuant to
Rule 424 (or any similar provisions then in force) under the
Securities Act; and comply with the provisions of the
Securities Act, the Exchange Act and the rules and regulations
of the SEC promulgated thereunder applicable to them with
respect to the disposition of all securities covered by such
Registration Statement as so amended or in such Prospectus as
so supplemented and with respect to the subsequent resale of
any securities being sold by a Participating Broker-Dealer
covered by any such Prospectus; the Company shall be deemed not
to have used its best efforts to keep a Registration Statement
effective during the Applicable Period if it voluntarily takes
any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating
Broker-Dealers seeking to sell Exchange Notes not being able to
sell such Registrable Notes or such Exchange Notes during that
period unless such action is required by applicable law or
unless the Company complies with this Agreement, including
without limitation, the provisions of clause 5(c)(v) below.
(c) If (1) a Shelf Registration is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange
Registration Statement filed pursuant to Section 2 is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, notify the selling Holders of Registrable
Notes, or each such Participating Broker-Dealer, as the case
may be, their counsel and the managing underwriter(s), if any,
promptly (but in any event within two business days), and
confirm such notice in writing, (i) when a Prospectus or any
prospectus supplement or post-effective amendment thereto has
been filed, and, with respect to a Registration Statement or
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<PAGE>
any post-effective amendment thereto, when the same has become
effective (including in such notice a written statement that
any Holder may, upon request, obtain, without charge, one
conformed copy of such Registration Statement or post-effective
amendment thereto including financial statements and schedules,
documents incorporated or deemed to be incorporated by
reference and exhibits), (ii) of the issuance by the SEC of any
stop order suspending the effectiveness of a Registration
Statement or of any order preventing or suspending the use of
any preliminary Prospectus or the initiation of any proceedings
for that purpose, (iii) if at any time when a Prospectus is
required by the Securities Act to be delivered in connection
with sales of the Registrable Notes the representations and
warranties of the Company contained in any agreement (including
any underwriting agreement) contemplated by Section 5(n) below
cease to be true and correct, (iv) of the receipt by the
Company of any notification with respect to the suspension of
the qualification or exemption from qualification of a
Registration Statement or any of the Registrable Notes or the
Exchange Notes to be sold by any Participating Broker-Dealer
for offer or sale in any jurisdiction, or the initiation or
threatening of any proceeding for such purpose, (v) of the
happening of any event or any information becoming known to the
Company that makes any statement made in such Registration
Statement or related Prospectus or any document incorporated or
deemed to be incorporated therein by reference untrue in any
material respect or that requires the making of any changes in,
or amendments or supplements to, such Registration Statement,
Prospectus or documents so that, in the case of the
Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the
statements therein not misleading, and that in the case of the
Prospectus, it will not contain any untrue statement of a
material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading, and (vi) the Company's reasonable determination
that a post-effective amendment to a Registration Statement
would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange
Registration Statement filed pursuant to Section 2 is required
to be delivered under the Securities Act by any
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<PAGE>
Participating Broker-Dealer who seeks to sell Exchange Notes
during the Applicable Period, use its best efforts to prevent
the issuance of any order suspending the effectiveness of a
Registration Statement or of any order preventing or suspending
the use of a Prospectus or suspending the qualification (or
exemption from qualification) of any of the Registrable Notes
or the Exchange Notes to be sold by any Participating
Broker-Dealer, for sale in any jurisdiction, and, if any such
order is issued, to use its best efforts to obtain the
withdrawal of any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section
3 and if reasonably requested by the managing underwriter(s),
if any, or the Holders of a majority in aggregate principal
amount of the Registrable Notes being sold in connection with
an underwritten offering, (i) promptly incorporate in a
Prospectus supplement or post-effective amendment thereto such
information as the managing underwriter(s), if any, or such
Holders reasonably request to be included therein, (ii) make
all required filings of such Prospectus supplement or such
post-effective amendment thereto as soon as practicable after
the Company has received notification of the matters to be
incorporated in such Prospectus supplement or post-effective
amendment thereto and (iii), if applicable, supplement or make
amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange
Registration Statement filed pursuant to Section 2 is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, furnish to each selling Holder of
Registrable Notes and to each such Participating Broker-Dealer
who so requests and to counsel and the managing underwriter(s),
if any, without charge, one conformed copy of the Registration
Statement or Registration Statements and each post-effective
amendment thereto, including financial statements and
schedules, and, if requested, all documents incorporated or
deemed to be incorporated therein by reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange
Registration Statement filed pursuant to Section 2 is required
to be delivered under the Securities Act by any
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<PAGE>
Participating Broker-Dealer who seeks to sell Exchange Notes
during the Applicable Period, deliver to each selling Holder of
Registrable Notes, or each such Participating Broker-Dealer, as
the case may be, their counsel, and the managing underwriter
or underwriters, if any, without charge, as many copies of the
Prospectus or Prospectuses (including each form of preliminary
Prospectus) and each amendment or supplement thereto and any
documents incorporated by reference therein as such Persons may
reasonably request; and, subject to the last paragraph of this
Section 5, the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of
the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, and the
managing underwriter or underwriters or agents, if any, and
dealers (if any), in connection with the offering and sale of
the Registrable Notes covered by or the sale by Participating
Broker-Dealers of the Exchange Notes pursuant to such
Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or
any delivery of a Prospectus contained in the Exchange
Registration Statement by any Participating Broker-Dealer who
seeks to sell Exchange Notes during the Applicable Period, to
use its best efforts to register or qualify, and to cooperate
with the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, the managing
underwriter or underwriters, if any, and their respective
counsel in connection with the registration or qualification
(or exemption from such registration or qualification) of such
Registrable Notes or Exchange Notes for offer and sale under
the securities or Blue Sky laws of such jurisdictions within
the United States as any selling Holder, Participating
Broker-Dealer, or the managing underwriter or underwriters, if
any, reasonably request in writing, provided that where
Exchange Notes held by Participating Broker-Dealers or
Registrable Notes are offered other than through an
underwritten offering, the Company agrees to cause its counsel
to perform Blue Sky investigations and file registrations and
qualifications required to be filed pursuant to this Section
5(h); keep each such registration or qualification (or
exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do
any and all other acts or things reasonably necessary or
advisable to enable the disposition in such jurisdictions of
the Exchange Notes held by Participating Broker-
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<PAGE>
Dealers or the Registrable Notes covered by the applicable
Registration Statement; provided that the Company shall not be
required to (A) qualify generally to do business in any
jurisdiction where it is not then so qualified, (B) take any
action that would subject it to general service of process in
any such jurisdiction where it is not then so subject or (C)
subject itself to taxation in excess of a nominal dollar
amount in any such jurisdiction.
(i) If a Shelf Registration is filed pursuant to Section
3, cooperate with the selling Holders of Registrable Notes and
the managing underwriter or underwriters, if any, to
facilitate the timely preparation and delivery of certificates
representing Registrable Notes to be sold, which certificates
shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company; and
enable such Registrable Notes to be in such denominations and
registered in such names as the managing underwriter or
underwriters, if any, or Holders may reasonably request and
which are consistent with the terms of the indenture under
which the Registrable Notes are issued.
(j) Use its best efforts to cause the Registrable Notes
covered by the Registration Statement to be registered with or
approved by such other United States governmental agencies or
authorities as may be necessary to enable the seller or
sellers thereof or the managing underwriter or underwriters,
if any, to consummate the disposition of such Registrable
Notes, except as may be required solely as a consequence of
the nature of such selling Holder's business, in which case
the Company will cooperate in all reasonable respects with the
filing of such Registration Statement and the granting of such
approvals at such sellers' cost and expense.
(k) If (1) a Shelf Registration is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange
Registration Statement filed pursuant to Section 2 is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, upon the occurrence of any event
contemplated by paragraph 5(c)(v) or 5(c)(vi) above, as
promptly as reasonably practicable prepare and (subject to
Section 5(a) above) file with the SEC, at the expense of the
Company, a supplement or post-effective amendment to the
Registration Statement or a supplement to
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<PAGE>
the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, or file any other
required document so that, as thereafter delivered to the
purchasers of the Registrable Notes being sold thereunder or
to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer
during the Applicable Period, any such Prospectus will not
contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(l) Use its best efforts to cause the Registrable Notes
covered by a Registration Statement or the Exchange Notes sold
by a Participating Broker-Dealer during the Applicable Period,
as the case may be, to be rated with the appropriate rating
agencies, if so requested by the Holders of a majority in
aggregate principal amount of Registrable Notes covered by
such Registration Statement or the managing underwriter or
underwriters, if any.
(m) Prior to the effective date of the first
Registration Statement relating to the Registrable Notes, (i)
provide the Trustee with printed certificates for the
Registrable Notes in a form eligible for deposit with The
Depository Trust Company and (ii) provide a CUSIP number for
the Registrable Notes.
(n) In connection with an underwritten offering of
Registrable Notes pursuant to a Shelf Registration, enter into
an underwriting agreement as is customary in underwritten
offerings of debt securities similar to the Notes and take all
such other actions as are reasonably requested by the managing
underwriter(s), if any, in order to expedite or facilitate the
registration or the disposition of such Registrable Notes, and
in such connection, (i) make such reasonable representations
and warranties to the managing underwriter or underwriters on
behalf of any underwriters, with respect to the business of
the Company and its subsidiaries and the Registration
Statement, Prospectus and documents, if any, incorporated or
deemed to be incorporated by reference therein, in each case,
as are customarily made by issuers to underwriters in
underwritten offerings of debt securities, and confirm the
same if and when requested; (ii) obtain opinions of counsel to
the Company and updates thereof in form and substance
reasonably satisfactory to the managing underwriter or
underwriters,
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<PAGE>
addressed to the managing underwriter or underwriters covering
the matters customarily covered in opinions requested in
underwritten offerings of debt securities and such other
matters as may be reasonably requested by underwriters; (iii)
obtain "cold comfort" letters and updates thereof in form and
substance reasonably satisfactory to the managing underwriter
or underwriters from the independent certified public
accountants of the Company (and, if necessary, any other
independent certified public accountants of any subsidiary of
the Company or of any business acquired by the Company for
which financial statements and financial data are, or are
required to be, included in the Registration Statement),
addressed to the managing underwriter or underwriters on
behalf of any underwriters, such letters to be in customary
form and covering matters of the type customarily covered in
"cold comfort" letters in connection with underwritten
offerings of debt securities and such other matters as
reasonably requested by the managing underwriter or
underwriters; and (iv) if an underwriting agreement is entered
into, the same shall contain indemnification provisions and
procedures no less favorable than those set forth in Section 7
hereof (or such other provisions and procedures acceptable to
Holders of a majority in aggregate principal amount of
Registrable Notes covered by such Registration Statement and
the managing underwriter or underwriters or agents) with
respect to all parties to be indemnified pursuant to said
Section. The above shall be done at each closing under such
underwriting agreement, or as and to the extent required
thereunder.
(o) If (1) a Shelf Registration is filed pursuant to
Section 3, or (2) a Prospectus contained in an Exchange
Registration Statement filed pursuant to Section 2 is required
to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, make available for inspection by any
selling Holder of such Registrable Notes being sold who hold
at least $2.0 million in aggregate principal amount of
Registrable Notes, or each such Participating Broker-Dealer,
as the case may be, the managing underwriter or underwriters
participating in any such disposition of Registrable Notes, if
any, and any attorney, accountant or other agent retained by
any such selling Holder or each such Participating
Broker-Dealer, as the case may be (collectively, the
"Inspectors"), at the offices where normally kept, during
reasonable business hours, all financial and other records,
pertinent corporate
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documents and properties of the Company and its subsidiaries
(collectively, the "Records") as shall be reasonably necessary
to enable them to exercise any applicable due diligence
responsibilities, and cause the officers, directors and
employees of the Company and its subsidiaries to supply all
information in each case reasonably requested by any such
Inspector in connection with such Registration Statement.
Records which the Company determines, in good faith, to be
confidential and any Records which it notifies the Inspectors
are confidential shall not be disclosed by the Inspectors
unless (i) the disclosure of such Records is necessary to
avoid or correct a material misstatement or material omission
in such Registration Statement and the Company fails to
promptly correct such material misstatement or omission after
notice thereof, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of
competent jurisdiction or (iii) the information in such
Records has been made generally available to the public other
than through the Inspectors' breach of any confidentiality
agreement. Each selling Holder of such Registrable Notes and
each such Participating Broker-Dealer or underwriter will be
required to agree that information obtained by it as a result
of such inspections shall be deemed confidential and shall not
be used by it for any purpose other than discharging due
diligence responsibilities. In addition, such information
shall not be used as the basis for any market transactions in
the securities of the Company unless and until such is made
generally available to the public. Each selling Holder of
such Registrable Notes and each such Participating
Broker-Dealer will be required to further agree that it will,
upon learning that disclosure of such Records is sought in a
court of competent jurisdiction, give notice to the Company
and allow the Company to undertake appropriate action to
prevent disclosure of the Records deemed confidential at its
expense.
(p) Provide an indenture trustee for the Registrable
Notes or the Exchange Notes, as the case may be, and cause the
Indenture or the trust indenture provided for in Section 2(a),
as the case may be, to be qualified under the TIA not later
than the effective date of the Exchange Offer Registration
Statement or the first Registration Statement relating to the
Registrable Notes; and in connection therewith, cooperate with
the trustee under any such indenture and the Holders of the
Registrable Notes, to effect such changes to such indenture as
may be required for such indenture to be so qualified in
accordance
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<PAGE>
with the terms of the TIA; and execute, and use its best
efforts to cause such trustee to execute, all documents as may
be required to effect such changes, and all other forms and
documents required to be filed with the SEC to enable such
indenture to be so qualified in a timely manner.
(q) Comply with all applicable rules and regulations of
the SEC and make generally available to its securityholders
earnings statements satisfying the provisions of Section 11(a)
of the Securities Act and Rule 158 thereunder (or any similar
rule promulgated under the Securities Act) no later than 45
days after the end of any 12-month period (or 90 days after
the end of any 12-month period if such period is a fiscal
year) (i) commencing at the end of any fiscal quarter in which
Registrable Notes are sold to underwriters in a firm
commitment or best efforts underwritten offering and (ii) if
not sold to underwriters in such an offering, commencing on
the first day of the first fiscal quarter of the Company after
the effective date of a Registration Statement, which
statements shall cover said 12-month periods.
(r) Upon consummation of an Exchange Offer or a Private
Exchange, obtain an opinion of counsel to the Company, in a
form customary for underwritten offerings of debt securities
similar to the Notes, addressed to the Trustee for the benefit
of all Holders of Registrable Notes participating in the
Exchange Offer or the Private Exchange, as the case may be,
and which includes an opinion that (i) the Company has duly
authorized, executed and delivered the Exchange Notes and
Private Exchange Notes and the related indenture and (ii) each
of the Exchange Notes or the Private Exchange Notes, as the
case may be, and related indenture constitute a legal, valid
and binding obligation of the Company, enforceable against the
Company in accordance with its respective terms (with
customary exceptions).
(s) If an Exchange Offer or a Private Exchange is to be
consummated, upon delivery of the Registrable Notes by Holders
to the Company (or to such other Person as directed by the
Company) in exchange for the Exchange Notes or the Private
Exchange Notes, as the case may be, the Company shall mark, or
cause to be marked, on such Registrable Notes that such
Registrable Notes are being canceled in exchange for the
Exchange Notes or the Private Exchange Notes, as the case may
be; and, in no event shall
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such Registrable Notes be marked as paid or otherwise satisfied.
(t) Cooperate with each seller of Registrable Notes
covered by any Registration Statement and the managing
underwriter(s), if any, participating in the disposition of
such Registrable Notes and their respective counsel in
connection with any filings required to be made with the
National Association of Securities Dealers, Inc. (the "NASD").
(u) Use its reasonable best efforts to take all other
steps necessary to effect the registration of the Registrable
Notes covered by a Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes
or Participating Broker-Dealer as to which any registration is being effected
to furnish to the Company such information regarding such seller or
Participating Broker-Dealer and the distribution of such Registrable Notes or
Exchange Notes to be sold by such Participating Broker-Dealer, as the case
may be, as the Company may, from time to time, reasonably request. The
Company may exclude from such registration the Registrable Notes of any
seller or Participating Broker-Dealer who fails to furnish such information
within a reasonable time after receiving such request, and during any delay
in meeting the time frames contemplated by Section 4 hereof as a result of a
delay in receiving any such information, no Additional Interest shall accrue
or be payable.
Each Holder of Registrable Notes and each Participating
Broker-Dealer agrees by acquisition of such Registrable Notes or Exchange
Notes to be sold by such Participating Broker-Dealer, as the case may be,
that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or
5(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Notes covered by such Registration Statement or Prospectus or
Exchange Notes to be sold by such Holder or Participating Broker-Dealer, as
the case may be, until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k), or until it
is advised in writing (the "Advice") by the Company that the use of the
applicable Prospectus may be resumed, and has received copies of any
amendments or supplements thereto. In the event the Company shall give any
such notice, the Applicable Period shall be extended by the number of days
during such period from and
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including the date of the giving of such notice to and including the date
when each seller of Exchange Notes to be sold by such Participating
Broker-Dealer, shall have received (x) the copies of the supplemented or
amended Prospectus contemplated by Section 5(k) or (y) the Advice.
6. Registration Expenses
(a) All fees and expenses incident to the performance of
or compliance with this Agreement by the Company shall be borne by the
Company whether or not the Exchange Offer or a Shelf Registration is filed or
becomes effective, including, without limitation, (i) all registration and
filing fees (including, without limitation, (A) fees with respect to filings
required to be made with the NASD in connection with one underwritten
offering and (B) fees and expenses of compliance with state securities or
Blue Sky laws (including, without limitation, reasonable fees and
disbursements of counsel in connection with Blue Sky qualifications of the
Registrable Notes or Exchange Notes and determination of the eligibility of
the Registrable Notes or Exchange Notes for investment under the laws of
such jurisdictions (x) where the Holders of Registrable Notes are located, in
the case of the Exchange Notes, or (y) as provided in Section 5(h), in the
case of Registrable Notes or Exchange Notes to be sold by a Participating
Broker-Dealer during the Applicable Period)), such expenses not to exceed
$10,000 in the aggregate, (ii) printing expenses (including, without
limitation, expenses of printing certificates for Registrable Notes or
Exchange Notes in a form eligible for deposit with The Depository Trust
Company and of printing Prospectuses if the printing of Prospectuses is
reasonably requested by the managing underwriter or underwriters, if any, or,
in respect of Registrable Notes or Exchange Notes to be sold by any
Participating Broker-Dealer during the Applicable Period, by the Holders of a
majority in aggregate principal amount of the Registrable Notes included in
any Registration Statement or of such Exchange Notes, as the case may be),
(iii) reasonable messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and fees and disbursements of
special counsel for the sellers of Registrable Notes (subject to the
provisions of Section 6(b)), (v) fees and disbursements of all independent
certified public accountants referred to in Section 5(n)(iii) (including,
without limitation, the expenses of any special audit and "cold comfort"
letters required by or incident to such performance), (vi) rating agency
fees, (vii) Securities Act liability insurance, if the Company desires such
insurance, (viii) fees and expenses of the Trustee (including, without
limitation, fees
23
<PAGE>
and disbursements of counsel), (ix) fees and expenses of all other Persons
retained by the Company, (x) internal expenses of the Company (including,
without limitation, all salaries and expenses of officers and employees of
the Company performing legal or accounting duties), (xi) the expense of any
annual audit, (xii) the reasonable fees and expenses incurred in connection
with any listing of the securities to be registered on any securities
exchange if the Company elects to list any such securities and (xiii) the
expenses incurred by the Company relating to printing, word processing and
distributing all Registration Statements, underwriting agreements, securities
sales agreements, indentures and any other documents necessary in order to
comply with this Agreement.
(b) In connection with any Shelf Registration hereunder,
the Company shall reimburse the Holders of the Registrable Notes being
registered in such registration for the actual reasonable fees and
disbursements of not more than one counsel (in addition to appropriate local
counsel) chosen by the Holders of a majority in aggregate principal amount of
the Registrable Notes to be included in such Registration Statement and other
reasonable out-of-pocket expenses of the Holders of Registrable Notes
incurred in connection with the registration of the Registrable Notes,
subject to a maximum of $25,000. Notwithstanding anything to the contrary
contained herein, the Company shall not have any obligation to pay any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Notes.
7. Indemnification
(a) The Company agrees to indemnify and hold harmless
each Holder of Registrable Notes and each Participating Broker-Dealer selling
Exchange Notes during the Applicable Period, the officers and directors of
each such person, and each person, if any, who controls any such person
within the meaning of either Section 15 of the Securities Act or Section 20
of the Exchange Act (each, a "Participant"), from and against any and all
losses, claims, damages and liabilities (including, without limitation, the
reasonable legal fees and other expenses incurred in connection with any
suit, action or proceeding or any claim asserted) caused by, arising out of
or based upon any untrue statement or alleged untrue statement of a material
fact contained in any Registration Statement or Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary Prospectus, or caused by, arising out
of or based upon any omission or alleged omission to state therein a material
fact required to
24
<PAGE>
be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with information relating to any Participant
or underwriter furnished to the Company in writing by such Participant or
underwriter expressly for use therein; provided that the foregoing indemnity
with respect to any preliminary Prospectus shall not inure to the benefit of
any Participant or underwriter (or to the benefit of any person controlling
such Participant or underwriter) from whom the person asserting any such
losses, claims, damages or liabilities purchased Registrable Notes or
Exchange Notes if such untrue statement or omission or alleged untrue
statement or omission made in such preliminary Prospectus is eliminated or
remedied in the related Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) and a copy of the
related Prospectus (as so amended or supplemented) shall have been furnished
to such Participant or underwriter at or prior to the sale of such
Registrable Notes or Exchange Notes, as the case may be, to such person or at
a time the Company had notified persons under the last paragraph of Section 5
hereof to cease using such Registration Statement or Prospectus.
(b) Each Participant will be required to agree,
severally and not jointly, to indemnify and hold harmless the Company, its
directors and officers and each person who controls any such person within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act to the same extent as the foregoing indemnity from the Company to each
Participant, but only with reference to information relating to such
Participant furnished to the Company in writing by such Participant expressly
for use in any Registration Statement or Prospectus, any amendment or
supplement thereto, or any preliminary Prospectus. The liability of any
Participant under this paragraph (b) shall in no event exceed the proceeds
received by such Participant from sales of Registrable Notes giving rise to
such obligations.
(c) If any suit, action, proceeding (including any
governmental or regulatory investigation), claim or demand shall be brought
or asserted against any person in respect of which indemnity may be sought
pursuant to either paragraph (a) or (b) of this Section 7, such person (the
"Indemnified Person") shall promptly notify the person against whom such
indemnity may be sought (the "Indemnifying Person") in writing, and
25
<PAGE>
the Indemnifying Person, upon request of the Indemnified Person, shall retain
one counsel reasonably satisfactory to the Indemnified Person to represent
the Indemnified Person and any others the Indemnifying Person may reasonably
designate in such proceeding and shall pay the reasonable fees and expenses
incurred by such counsel related to such proceeding. In any such proceeding,
any Indemnified Person shall have the right to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Person unless (i) the Indemnifying Person and the Indemnified
Person shall have mutually agreed in writing to the contrary, (ii) the
Indemnifying Person has failed within a reasonable time to retain counsel
reasonably satisfactory to the Indemnified Person or (iii) the named parties
in any such proceeding (including any impleaded parties) include both the
Indemnifying Person and the Indemnified Person and representations of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the Indemnifying
Person shall not, in connection with any proceeding or related proceeding in
the same jurisdiction, be liable for the fees and expenses of more than one
separate law firm (in addition to any local counsel) for all Indemnified
Persons, and that all such fees and expenses shall be reimbursed as they are
incurred. Any such separate firm for the Participants and such control
persons of Participants shall be designated in writing by Participants who
sold a majority in interest of Registrable Notes sold by all such
Participants and any such separate firm for the Company, its directors, its
officers and such control persons of the Company shall be designated in
writing by the Company. The Indemnifying Person shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the plaintiff,
the Indemnifying Person agrees to indemnify any Indemnified Person from and
against any loss or liability by reason of such settlement or judgment.
Notwithstanding the foregoing sentence, if at any time an Indemnified Person
shall have requested an Indemnifying Person to reimburse the Indemnified
Person for reasonable fees and expenses incurred by counsel as contemplated
by the third sentence of this paragraph, the Indemnifying Person agrees that
it shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days
after receipt by such Indemnifying Person of the aforesaid request and (ii)
such Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement; provided,
however, that the Indemnifying Person shall not be liable for any settlement
effected without its consent pursuant
26
<PAGE>
to this sentence if the Indemnifying Party is contesting, in good faith, the
request for reimbursement. No Indemnifying Person shall, without the prior
written consent of the Indemnified Person, effect any settlement of any
pending or threatened proceeding in respect of which any Indemnified Person
is or could have been a party, unless such settlement includes an
unconditional release of such Indemnified Person from all liability on claims
that are the subject matter of such proceeding.
If the indemnification provided for in paragraphs (a) and
(b) of this Section 7 is unavailable to an Indemnified Person in respect of
any losses, claims, damages or liabilities referred to therein, then each
Indemnifying Person under such paragraphs, in lieu of indemnifying such
Indemnified Person thereunder, shall contribute to the amount paid or payable
by such Indemnified Person as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative
fault of the Company on the one hand and the Participants on the other in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and the
Participants on the other shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company or by the Participants and the parties'
relative intent, knowledge, access to information and opportunity to correct
or prevent such statement or omission.
The parties shall agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Participants were treated as one entity for such
purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an Indemnified Person as a result
of the losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations
set forth above, any reasonable legal or other expenses actually incurred by
such Indemnified Person in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 7, in no
event shall a Participant be required to contribute any amount in excess of
the amount by which proceeds received by such Participant from sales of
Registrable Notes or Exchange Notes exceeds the amount of any damages that
such Participant has otherwise been required to pay by reason of such
27
<PAGE>
untrue or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in
this Section 7 will be in addition to any liability which the Indemnifying
Persons may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A
The Company covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and
the rules and regulations adopted by the SEC thereunder in a timely manner
and, if at any time the Company is not required to file such reports, it
will, upon the request of any Holder of Registrable Notes, make publicly
available other information of a like nature until no longer necessary to
permit sales pursuant to Rule 144 or Rule 144A. The Company further
covenants that so long as any Registrable Notes remain outstanding to make
available to any Holder of Registrable Notes in connection with any sale
thereof, the information required by Rule 144A(d)(4) under the Securities Act
in order to permit resales of such Registrable Notes pursuant to (a) such
Rule 144A, or (b) any similar rule or regulation hereafter adopted by the
SEC, unless at such time the Registrable Notes are fully salable under Rule
144 or any successor provision.
9. Underwritten Registrations
If any of the Registrable Notes covered by any Shelf
Registration are to be sold in an underwritten offering, the investment
banker or investment bankers and manager or managers that will manage the
offering will be selected by the Holders of a majority in aggregate principal
amount of such Registrable Notes included in such offering and shall be
reasonably acceptable to the Company.
No Holder of Registrable Notes may participate in any
underwritten registration hereunder unless such Holder (a) agrees to sell
such Holder's Registrable Notes on the basis provided in any underwriting
arrangements approved by the Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents
28
<PAGE>
reasonably required under the terms of such underwriting arrangements.
10. Miscellaneous
(a) Remedies. In the event of a breach by the Company
of any of its obligations under this Agreement, other than the occurrence of
an event which requires payment of Additional Interest, each Holder of
Registrable Notes, in addition to being entitled to exercise all rights
provided herein, in the Indenture or, in the case of the Initial Purchaser,
in the Purchase Agreement or granted by law, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement.
In the event of a breach by the Company of any of its obligations under this
Agreement, other than the occurrence of an event which required payment of
Additional Interest, the Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of
any of the provisions of this Agreement and hereby further agrees that, in
the event of any action for specific performance in respect of such breach,
it shall waive the defense that a remedy at law would be adequate.
(b) Enforcement. The Trustee shall be authorized to
enforce the provisions of this Agreement for the ratable benefit of the
Holders.
(c) No Inconsistent Agreements. The Company does not
have, as of the date hereof, and the Company shall not, after the date of
this Agreement, enter into any agreement with respect to any of its
securities that is inconsistent with the rights granted to the Holders of
Registrable Notes in this Agreement or otherwise conflicts with the
provisions hereof. The Company (i) has not entered into any agreement with
respect to any of its securities which will grant to any Person piggy-back
rights with respect to a Registration Statement, other than pursuant to that
Registration Rights and Stockholders Agreement, dated as of May 9, 1996,
among the Company, Letitia Corporation, a Delaware corporation, and the
purchasers of the Company's Senior Subordinated Notes due 2004 in an
aggregate principal amount of $25,000,000 and warrants to purchase shares of
the Common Stock, $.01 par value per share, of the Company and (ii) will not
enter into any agreement with respect to any of its securities which will
grant to any Person piggy-back rights with respect to a Registration
Statement.
(d) Adjustments Affecting Registrable Notes. The
Company shall not, directly or indirectly, take any action with
29
<PAGE>
respect to the Registrable Notes as a class that would adversely affect the
ability of the Holders of Registrable Notes to include such Registrable Notes
in a registration undertaken pursuant to this Agreement.
(e) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be amended,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Company has obtained the
written consent of Holders of at least a majority of the then outstanding
aggregate principal amount of Registrable Notes. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders of
Registrable Notes whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect, impair, limit or
compromise the rights of other Holders of Registrable Notes may be given by
Holders of at least a majority in aggregate principal amount of the
Registrable Notes being sold by such Holders pursuant to such Registration
Statement, provided that the provisions of this sentence may not be amended,
modified or supplemented except in accordance with the provisions of the
immediately preceding sentence.
(f) Notices. All notices and other communications
(including without limitation any notices or other communications to the
Trustee) provided for or permitted hereunder shall be made in writing by
hand-delivery, registered first-class mail, next-day air courier or
telecopier:
(i) if to a Holder of Registrable Notes, at the most
current address given by the Trustee to the Company; and
(ii) if to the Company:
High Voltage Engineering Corporation
401 Edgewater Place, Suite 680
Wakefield, Massachusetts 01880
Attention: President
Tel: (617) 224-1001
Fax: (617) 224-1011
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110-1726
30
<PAGE>
Attention: Michael P. O'Brien, Esq.
Tel: (617) 951-8000
Fax: (617) 951-8736
All such notices and communications shall be deemed to
have been duly given: (i) when delivered by hand, if personally delivered;
(ii) three business days after being deposited in the mail, postage prepaid,
if mailed; (iii) one business day after being timely delivered to a next-day
air courier; and (iv) when receipt is acknowledged by the addressee, if
telecopied.
Copies of all such notices, demands or other
communications shall be concurrently delivered by the Person giving the same
to the Trustee under the Indenture at the address specified in such Indenture.
(g) Successors and Assigns. This Agreement shall inure
to the benefit of and be binding upon the successors and assigns of each of
the parties, including without limitation and without the need for an express
assignment, subsequent Holders of Registrable Notes.
(h) Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(i) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(j) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES
TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(k) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated,
31
<PAGE>
and the parties hereto shall use commercially reasonable efforts to find and
employ an alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or restriction.
(l) Entire Agreement. This Agreement, together with the
Purchase Agreement and the Indenture, is intended by the parties as a final
expression of their agreement, and is intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect
of the subject matter contained herein and therein.
(m) Notes Held by the Company or Its Affiliates.
Whenever the consent or approval of Holders of a specified percentage of
Registrable Notes is required hereunder, Registrable Notes held by the
Company or its affiliates (as such term is defined in Rule 405 under the
Securities Act) shall not be deemed outstanding for such purpose and shall
not be counted in determining whether such consent or approval was given by
the Holders of such required percentage.
32
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Notes
Registration Rights Agreement as of the date first written above.
HIGH VOLTAGE ENGINEERING
CORPORATION
By: /s/ Joseph W. McHugh, Jr.
-----------------------------
Name: Joseph W. McHugh, Jr.
Title: Chief Financial Officer,
Vice President and Clerk
CIBC OPPENHEIMER CORP.
By: /s/ Brian S. Gerson
-----------------------
Name: Brian S. Gerson
Title: Managing Director
33
<PAGE>
Exhibit 4.4
[FORM OF FACE OF NOTE]
CUSIP: 429810 AC 8
HIGH VOLTAGE ENGINEERING CORPORATION
No. [ ] $[ ]
10 1/2% SENIOR NOTE DUE 2004
HIGH VOLTAGE ENGINEERING CORPORATION, a Massachusetts corporation (the
"Company"), for value received, promises to pay to [ ] or registered assigns the
principal sum of $[ ] dollars on August 15, 2004.
Interest Payment Dates: February 15 and August 15
Record Dates: February 1 and August 1
Reference is made to the further provisions of this Note contained herein,
which will for all purposes have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Note to be signed manually
or by facsimile by its duly authorized officers.
HIGH VOLTAGE ENGINEERING
CORPORATION
By:
-----------------------------
Title:
By:
-----------------------------
Title:
Dated:
<PAGE>
Certificate of Authentication
This is one of the 10 1/2% Senior Notes due 2004 referred to in the
within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:
-----------------------------
Authorized Signatory
<PAGE>
[FORM OF REVERSE OF NOTE]
High Voltage Engineering Corporation
10 1/2% SENIOR NOTE DUE 2004
1. Interest. High Voltage Engineering Corporation, a Massachusetts
corporation (the "Company"), promises to pay, until the principal hereof is paid
or made available for payment, interest on the principal amount set forth on the
face hereof at a rate of 10 1/2% per annum. Interest hereon will accrue from and
including the most recent date to which interest has been paid or, if no
interest has been paid, from and including Feburary 15, 1998 to but excluding
the date on which interest is paid. Interest shall be payable in arrears on each
February 15 and August 15 commencing August 15, 1998. Interest will be computed
on the basis of a 360-day year of twelve 30-day months. The Company shall pay
interest on overdue principal and on overdue interest (to the full extent
permitted by law) at a rate of 10 1/2% per annum.
2. Method of Payment. The Company will pay interest hereon (except
defaulted interest) to the Persons who are registered Holders at the close of
business on February 1 or August 1 next preceding the interest payment date
(whether or not a Business Day). Holders must surrender Notes to a Paying Agent
to collect principal payments. The Company will pay principal and interest in
money of the United States of America that at the time of payment is legal
tender for payment of public and private debts. Interest may be paid by check
mailed to the Holder entitled thereto at the address indicated on the register
maintained by the Registrar for the Notes.
3. Paying Agent and Registrar. Initially, State Street Bank and Trust
Company (the "Trustee") will act as a Paying Agent and Registrar. The Company
may change any Paying Agent or Registrar without notice. Neither the Company nor
any of its Affiliates may act as Paying Agent or Registrar.
4. Indenture. The Company issued the Notes under an Indenture dated as of
August 8, 1997, as amended and supplemented by the First Supplemental Indenture,
dated as of March 19, 1998 (as amended, the "Indenture") by and between the
Company and the Trustee. This is one of an issue of Notes of the Company issued,
or to be issued, under the Indenture. The terms of the Notes include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb), as amended
from time to time. The Notes are subject to all such terms, and Holders are
referred to the Indenture and such Act for a statement of them. Capitalized and
certain other terms
<PAGE>
used herein and not otherwise defined have the meanings set forth in the
Indenture. The Notes are obligations of the Company limited in aggregate
principal amount to $135.0 million.
5. Optional Redemption. The Company, at its option, may redeem the Notes,
in whole or in part, at any time on or after August 15, 2001 upon not less than
30 nor more than 60 days, notice, at the redemption prices (expressed as
percentages of principal amount), set forth below, together, in each case, with
accrued and unpaid interest to the Redemption Date, if redeemed during the
twelve month period beginning on August 15 of each year listed below:
<TABLE>
<CAPTION>
Year Redemption Price
<S> <C>
2001....................................... 105.250%
2002....................................... 102.625%
2003 and thereafter........................ 100.000%
</TABLE>
Notwithstanding the foregoing, the Company may redeem in the aggregate up
to 35% of the original principal amount of Notes at any time and from time to
time on or prior to August 15, 2000 at a redemption price equal to 110.500% of
the aggregate principal amount thereof, plus accrued and unpaid interest thereon
to the Redemption Date with the Net Proceeds of one or more Qualified Equity
Offerings of the Company or Parent to the extent such proceeds were contributed
to the Company as common equity; provided, that at least $100.8 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.
6. Notice of Redemption. Notice of redemption will be mailed at least 30
days but not more than 60 days before the Redemption Date to each Holder of
Notes to be redeemed at his registered address. On and after the Redemption
Date, unless the Company defaults in making the redemption payment, interest
ceases to accrue on Notes or portions thereof called for redemption.
7. Offers to Purchase. The Indenture provides that upon the occurrence of a
Change of Control, Asset Sale or a Qualified Subsidiary IPO, and subject to
further limitations contained therein, the Company shall make an offer to
purchase outstanding Notes in accordance with the procedures set forth in the
Indenture.
8. Collateral. As provided in the Indenture and subject to certain
limitations set forth therein, the Company has secured a portion of its
Obligations under the Indenture with a first priority Lien on the Collateral.
Each Holder, by accepting a Note, agrees to be bound by the terms of the Pledge
Agreement, as the same may be amended from time to time. The Liens created under
the Pledge
2
<PAGE>
Agreement shall be released upon the terms and subject to the conditions set
forth in the Indenture and the Pledge Agreement. Each Holder, by accepting a
Note, agrees that a release of Collateral in accordance with the terms of the
Pledge Agreement will not be deemed for any purpose to be an impairment of the
security under the Indenture or the Pledge Agreement upon receipt of an Opinion
of Counsel stating that such release is authorized and permitted under the
Indenture and the Pledge Agreement.
9. Denominations, Transfer, Exchange. The Notes are in registered form
without coupons in denominations of $1,000 and integral multiples of $1,000. A
Holder may transfer or exchange Notes in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay to it any taxes and fees required
by law or permitted by the Indenture. The Registrar need not register the
transfer of or exchange any Notes or portion of a Note selected for redemption,
or register the transfer of or exchange any Notes for a period of 15 days before
a mailing of notice of redemption.
10. Persons Deemed Owners. The registered Holder of this Note may be
treated as the owner of this Note for all purposes.
11. Unclaimed Money. If money for the payment of principal or interest
remains unclaimed for two years, the Trustee will pay the money back to the
Company at its written request. After that, Holders entitled to the money must
look to the Company for payment as general creditors unless an "abandoned
property" law designates another Person.
12. Amendment, Supplement, Waiver, Etc. Subject to certain exceptions, the
Indenture or the Notes may be modified, amended or supplemented by the Company,
the Guarantors, if any, and the Trustee with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding and any
existing default or compliance with any provision may be waived in a particular
instance with the consent of the Holders of a majority in principal amount of
the Notes then outstanding. Without the consent of Holders, the Company, the
Guarantors, if any, and the Trustee may amend the Indenture or the Notes or
supplement the Indenture for certain specified purposes, including providing for
uncertificated Notes in addition to certificated Notes, and curing any
ambiguity, defect or inconsistency, or making any other change that does not
materially and adversely affect the rights of any Holder.
13. Restrictive Covenants. The Indenture imposes certain limitations on the
ability of the Company and its Restricted Subsidiaries to, among other things,
incur additional Indebtedness, make payments in respect of their Capital Stock
or certain Indebtedness, make certain Investments, create or incur liens, enter
into
3
<PAGE>
transactions with Affiliates, enter into agreements restricting the ability
of Restricted Subsidiaries to pay dividends and make distributions, enter into
sale and leaseback transactions and on the ability of the Company to merge or
consolidate with any other Person or transfer all or substantially all of the
Company's or any Guarantor's assets. Such limitations are subject to a number of
important qualifications and exceptions. Pursuant to Section 4.04 of the
Indenture, the Company must annually report to the Trustee on compliance with
such limitations.
14. Successor Corporation. When a successor corporation assumes all the
obligations of its predecessor under the Notes and the Indenture and the
transaction complies with the terms of Article 5 of the Indenture, the
predecessor corporation will, except as provided in Article 5, be released from
those obligations.
15. Defaults and Remedies. Events of Default are set forth in the
Indenture. Subject to certain limitations in the Indenture, if an Event of
Default (other than an Event of Default specified in Section 6.01(6) or (7) of
the Indenture with respect to the Company) occurs and is continuing, the Trustee
or the Holders of not less than 25% in aggregate principal amount of the
outstanding Notes may, by written notice to the Trustee and the Company, and the
Trustee upon the request of the Holders of not less than 25% in aggregate
principal amount of the outstanding Notes shall, declare all principal of and
accrued interest on all Notes to be immediately due and payable; provided,
however, that after such acceleration but before judgment or decree based on
such acceleration is obtained by the Trustee, the Holders of a majority in
aggregate principal amount of the outstanding Notes may rescind and annul such
acceleration and its consequences if all existing Events of Default, other than
the nonpayment of principal, premium or interest that has become due solely
because of the acceleration, have been cured or waived and if the rescission
would not conflict with any judgment or decree. If an Event of Default specified
in Section 6.01(6) or (7) of the Indenture occurs with respect to the Company,
the principal amount of and interest on, all Notes shall ipso facto become and
be immediately due and payable without any declaration or other act on the part
of the Trustee or any Holder. Holders may not enforce the Indenture or the Notes
except as provided in the Indenture. The Trustee may require indemnity
satisfactory to it before it enforces the Indenture or the Notes. Subject to
certain limitations, Holders of a majority in principal amount of the then
outstanding Notes may direct the Trustee in its exercise of any trust or power.
The Trustee may withhold from Holders notice of any continuing default (except a
default in payment of principal or interest) if it determines that withholding
notice is in their interests.
16. Trustee Dealings with Company. The Trustee, in its individual or any
other capacity, may make loans to, accept deposits from, and perform services
for the Company or its Affiliates, and may otherwise deal with the Company or
its Affiliates, as if it were not Trustee.
4
<PAGE>
17. No Recourse Against Others. No director, officer, employee incorporator
or stockholder, of the Company or any Guarantor shall have any liability for any
obligations of the Company or the Guarantors, if any, under the Notes, the
Indenture or the Guarantees, if any, or for a claim based on, in respect of, or
by reason of, such obligations or their creation. Each Holder of Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for the issuance of the Notes.
18. Discharge. The Company's obligations pursuant to the Indenture will be
discharged, except for obligations pursuant to certain sections thereof, subject
to the terms of the Indenture, upon the payment of all the Notes or upon the
irrevocable deposit with the Trustee of United States dollars or U.S. Government
Obligations sufficient to pay when due principal of and interest on the Notes to
maturity or redemption, as the case may be.
19. Authentication. This Note shall not be valid until the Trustee signs
the certificate of authentication on the other side of this Note.
20. Governing Law. THE INDENTURE AND THE NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, AS
APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE COMMONWEALTH OF
MASSACHUSETTS, WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE
PARTIES HERETO AGREES TO SUBMIT TO THE JURISDICTION OF THE COURTS OF THE
COMMONWEALTH OF MASSACHUSETTS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THE INDENTURE OR THE NOTES.
21. Abbreviations. Customary abbreviations may be used in the name of a
Holder or an assignee, such as: TEN COM (= tenants in common), TENANT (= tenants
by the entireties), JT TEN (= joint tenants with right of survivorship and not
as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to
Minors Act).
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to:
High Voltage Engineering Corporation
401 Edgewater Place, Suite 680
Wakefield, Massachusetts 01880
Attention: President
5
<PAGE>
ASSIGNMENT
I or we assign and transfer this Note to:
(Insert assignee's social security or tax I.D. number)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint:
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
Agent to transfer this Note on the books of the Company. The Agent may
substitute another to act for him.
Date:_____________ Your Signature:_______________________
______________________________________
Sign exactly as your name appears on
the other side of this Note)
Signature Guarantee:________________________________________________
6
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have all or any part of this Note purchased by the
Company pursuant to Section 4.10, Section 4.19 or Section 4.22 of the Indenture,
check the appropriate box:
[ ] Section 4.10.
[ ] Section 4.19.
[ ] Section 4.22
If you want to have only part of the Note purchased by the Company pursuant
to Section 4.10, Section 4.19 or Section 4.22 of the Indenture, state the amount
you elect to have purchased:
$____________________________
(multiple of $1,000)
Date:_____________________
Your Signature:_________________________________________
(Sign exactly as your name appears on the
face of this Note)
__________________________
Signature Guaranteed
7
<PAGE>
[Letterhead]
Exhibit 5.1
April 6, 1998
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 $20,000,000 aggregate principal amount of its 10 1/2% Senior Notes
Due 2004 (the "Notes") pursuant to a Registration Statement on Form S-4 (the
"Registration Statement"), to be filed with the Securities Exchange
Commission. The Notes will be issued under the Indenture dated August 8,
1997, as amended on March 19, 1998 (as amended, the "Indenture"), between the
Company and State Street Bank and Trust Company, as Trustee (the "Trustee").
As such counsel, we have reviewed the corporate proceedings of the
Company with respect to the authorization of the issuance of the Notes. 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:
1. The issuance and exchange of the Notes as described in the
Registration Statement have been duly authorized by the Company.
<PAGE>
High Voltage Engineering Corporation
April 6, 1998
Page 2
2. The Notes, when duly issued, and delivered by the Company as
described in the Registration Statement (assuming due authorization and
delivery of the Notes by the Trustee in accordance with the Indenture), will
constitute obligations of the Company.
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>
Exhibit 10.8
HIGH VOLTAGE ENGINEERING CORPORATION
EMPLOYMENT AGREEMENT
AGREEMENT dated February 24, 1998 between High Voltage Engineering
Corporation, a Massachusetts corporation (the "Company"), and Russell L. Shade,
Jr., (the "Executive").
1. Employment. The Company agrees to employ the Executive as Chief
Operating Officer of the Company and member of the Company's Board of Directors.
The Executive agrees, while employed hereunder, to perform his duties faithfully
and to the best of his ability. The Executive shall be employed at the Company's
offices in Massachusetts.
2. Term. The employment of the Executive hereunder shall begin on March 9,
1998 (after termination of the Executive's employment by an unrelated employer)
and shall continue through the occurrence of a Termination Date, as defined in
Section 6 (the "Term").
3. Compensation.
3.1. Base Salary. As compensation for the Executive's services during
the Term, the Company shall pay the Executive an annual Base Salary at the
rate of $250,000 per year, payable with the same frequency as salaries paid
to other senior executive officers. Prior to each April 30 during the Term,
beginning April 30, 1999, the Compensation Committee of the Board of
Directors (the "Committee") shall undertake an evaluation of the services
of the Executive during the fiscal year then ended. The Committee shall
consider the performance of the Executive, his contribution to the success
of the Company and entities under common control with the Company
(collectively, "Affiliates"), and other factors and shall fix an annual
Base Salary to be paid to the Executive during the ensuing fiscal year.
3.2. Incentive Compensation. For each fiscal year, the Committee will
establish an incentive compensation program to have a target of 80% of base
pay at achievement of the program.
For the fiscal year ending April 30, 1999, incentive compensation will
be based on the achievement of a target Plan EBITDA equal to $35.3 million
adjusted on a pro-forma basis for acquisitions, divestitures and other
items not currently incorporated in the
<PAGE>
Business Plan. The Executive shall be entitled to incentive compensation
equal to the following percentage of his Base Salary:
<TABLE>
<CAPTION>
Results as % of Plan EBITDA Base Salary Percentage
- --------------------------- ----------------------
<S> <C>
less than 85% 0
85% 20%
100% 80%
115% or more 100%
</TABLE>
For results as a percentage of Plan EBITDA between 85% and 100%, the
Base Salary Percentage shall be pro-rated to the nearest whole percent on a
straight line basis, and for results as a percentage of Plan EBITDA between
100% and 115%, the Base Salary Percentage shall be pro-rated to the nearest
whole percent on a straight line basis. For the purpose of this Agreement,
EBITDA means operating earnings (excluding certain unusual or nonrecurring
items) before interest, taxes, depreciation and amortization, as set forth
on the Company's financial statement and shall be appropriately adjusted to
reflect acquisitions, divestitures and other extraordinary events.
For fiscal year 2000 and subsequent fiscal years, incentive
compensation will be based on the achievement of a target Plan EBITDA and
other parameters, such as growth rate and cash flow, as determined by the
Committee. Each of these parameters shall be derived from the Company
budget for that year adopted by the Board of Directors and disclosed by the
Company to investment analysts or otherwise used for external purposes.
Within a reasonable period after operating results have been
determined for each fiscal year, the Executive shall be entitled to
incentive compensation provided program targets have been achieved. Payment
of 62.5% of the incentive compensation for any fiscal year shall be made in
cash, subject to applicable employment and withholding taxes, promptly
after calculation, and payment of the remaining 37.5% plus simple interest
at 10% per year shall be made, again subject to applicable taxes, on the
third anniversary of the first payment, but only if the Executive is
employed by the Company and its Affiliates on the date of payment.
3.3. Disability. If the Executive is prevented by disability, for a
period of six consecutive months, from continuing fully to perform his
obligations hereunder, the Executive shall perform his obligations
hereunder to the extent he is able and the Company may reduce his
2
<PAGE>
annual base salary to reflect the extent of the disability; provided that
in no event may such rate, when added to payments received by him under any
disability or qualified retirement or pension plan to which the Company or
an Affiliate contributes or has contributed, be less than one-half of the
annual base salary in effect at the time that such disability commenced. If
there should be a dispute about the Executive's disability, disability
shall be determined by the Board of Directors of the Company based upon a
report from a physician who shall have examined the Executive. If the
Executive claims disability, the Executive agrees to submit to a physical
examination at any reasonable time or times by a qualified physician
designated by the Company and reasonably acceptable to the Executive.
4. Incentive Arrangements.
4.1. Shadow Stock. The Company and the Executive have entered into a
Shadow Stock Agreement dated the date of this Agreement, a copy of which is
attached hereto as Exhibit A.
4.2. Additional Stock Units. Each year during the term of this
Agreement the Executive shall be granted additional Stock Units under
agreements substantially similar to the Shadow Stock Appreciation Agreement
in the form attached as Exhibit B. For the fiscal year ending April 30,
1999, the Stock Units shall represent .4% of the Company's outstanding
common stock. For fiscal year 2000 and each subsequent year, the Stock
Units shall represent the number of Letitia shares calculated by dividing
65% of his Base Salary for that year by the market value of a Letitia share
at the end of the preceding fiscal year.
5. Employee Benefits. The Executive shall participate in all "employee
pension benefit plans" and in all "employee welfare benefit plans" (each as
defined in the Employee Retirement Income Security Act of 1974) maintained by
the Company, on a basis no less advantageous to the Executive than the basis on
which Clifford Press and Laurence S. Levy participate (collectively,
"Benefits"). Without limiting the generality of the foregoing, the Executive
shall be entitled to the following Benefits:
5.1. Medical Insurance. The Executive and the Executive's dependents
shall be covered by medical insurance comparable in scope to the coverage
afforded other High Voltage Engineering Corporation executives on the date
hereof, with only such contribution by the Executive toward the cost of
such insurance as may be required from time to time from other senior
executive employees.
3
<PAGE>
5.2. Expenses. The Company shall reimburse the Executive from time to
time for the reasonable expenses incurred by the Executive in connection
with the performance of his obligations hereunder, subject to compliance
with reasonable documentation procedures.
5.3. Holidays and Vacations. The Executive shall be entitled to legal
holidays and to annual paid vacation of up to six weeks, all in accordance
with the Company's holiday and vacation policy. Additionally, the
Executive, Clifford Press and Laurence Levy will coordinate vacation
schedules on a mutually agreeable basis in order to guarantee the presence
of a senior executive at all times.
5.4. Relocation. In order to facilitate the relocation of the
Executive from Virginia to Massachusetts, the Company will pay (a) closing
costs for the purchase of a house in Massachusetts, (b) rental costs for
interim accommodations in Massachusetts or reimbursement of interest
incurred on a bridge loan of up to $300,000, or any combination of the two,
for up to six months, (c) real estate commission and closing costs for the
sale of his Virginia house, (d) moving and storage for household effects,
and (e) up to ten round-trip excursion fare tickets between Boston Logan
and Roanoke, Virginia. The Company and the Executive will cooperate to
minimize such expenses with the understanding that, where necessary, the
Company will gross up the Executive's compensation to account for taxes
payable by him with respect to the reasonable relocation expenses paid by
the Company.
5.5. Supplemental Deferred Compensation Agreement. In addition to the
deferred compensation provided by the Company in Section 4.3, the Company
and the Executive will enter into a Supplemental Deferred Compensation
Agreement in the form attached hereto as Exhibit C.
6. Termination Date; Consequences for Compensation and Benefits
6.1. Definition of Termination Date. The first to occur of the
following events shall be the Termination Date:
6.1.1. The date on which the Executive becomes entitled to
receive long-term or short-term disability payments by reason of total
and permanent disability;
4
<PAGE>
6.1.2. The Executive's death;
6.1.3. Voluntary resignation after one of the following events
shall have occurred, which event shall be specified to the Company by
the Executive at the time of resignation: material reduction in the
responsibility, authority, power or duty of the Executive or a
material breach by the Company of any provision of this Agreement,
which breach continues for 30 days following notice by the Executive
to the Company setting forth the nature of the breach ("Resignation
with Reason");
6.1.4. Voluntary resignation not accompanied by a notice of
reason described in Section 6.1.3 ("General Resignation");
6.1.5. Discharge of the Executive by the Company after one of the
following events shall have occurred, which event shall be specified
to the Executive by the Company at the time of discharge: of a
material act by the Executive against the Company involving moral
turpitude, material willful misconduct in the discharge of his duties,
conviction of the Executive or the entry of a plea of guilty or nolo
contendere by the Executive to any crime involving moral turpitude, or
any material breach of any term of this Agreement by the Executive
which is not cured within 30 days after written notice from the Board
of Directors of the Company to the Executive setting forth the nature
of the breach ("Discharge for Cause");
6.1.6. Discharge of the Executive by the Company not accompanied
by a notice of cause described in Section 6.1.5 ("General Discharge").
6.2. Consequences for Compensation and Benefits. If the Termination
Date occurs by reason of disability, death, General Resignation or
Discharge for Cause, the Company shall pay compensation to the Executive
through the Termination Date and shall pay to the Executive all Benefits
accrued through the Termination Date, payable in accordance with the
respective terms of the plans, practices and arrangements under which the
Benefits were accrued. If the Termination Date occurs by reason of General
Discharge or Resignation with Reason, the Company shall pay Base Salary and
Benefits until the first to occur of (a) Receipt of Earned Income, or (b)
the first anniversary of the Termination Date.
5
<PAGE>
Receipt of Earned Income means receipt of salary, wages or
self-employment income, whether from consulting or otherwise, from any
source other than High Voltage Engineering Corporation.
7. Indemnification. The Company shall indemnify the Executive against all
loss, cost, liability and expense arising from the Executive's service to the
Company or any Affiliate, whether as officer, director, employee, fiduciary of
any employee benefit plan or otherwise, upon terms at least as favorable to the
Executive as those provided by the Articles of Organization and By-laws of the
Company on the date hereof.
8. Agreement Not to Compete. The Executive agrees that, while serving as an
Executive of the Company, he will not serve as an employee or director of any
business entity other than the Company and its Affiliates, but may serve as a
director of a reasonable number of not-for-profit corporations and may devote a
reasonable amount of time to charitable and community service. For the period
beginning on the Termination Date and continuing for two years, the Executive
shall not engage, directly or indirectly, in any business competitive with any
businesses of the Company or any Affiliate. The Executive may hold stock or a
limited partnership interest of 5% or less in any publicly-traded entity engaged
in such business without violating this Agreement. Furthermore, the Executive
may serve as an employee of a business, a subsidiary or division of which is
competitive with the business of the Company, without violating this Agreement
so long as the Executive does not either directly or indirectly provide services
to such subsidiary or division.
9. Agreement Not to Solicit or Interfere.
(a) During the Executive's employment by the Company, the Executive will
comply with all policies and rules that may from time to time be established by
the Company, and will not engage directly or indirectly in any business or
enterprise which in any way is competitive or conflicting with the interests or
business of the Company.
(b) During the three-year period after termination of employment by the
Company, regardless of the reason or absence of reason for termination of
employment (such period not to include any period(s) of violation of this
Section 9(b) or period(s) of time required for litigation to enforce its
provisions), the Executive shall not, directly or indirectly: (i) solicit,
service, accept orders from, or otherwise have business contact with any person
or entity who has, within the three-year period immediately prior to such
termination of Executive's employment, been a customer (including, without
limitation, a reseller and/or end user of products) of the Company, if
6
<PAGE>
such contact could directly or indirectly divert business from or adversely
affect the business of the Company; (ii) interfere with the contractual
relations between the Company and any of its employees; or (iii) employ or cause
to be employed in any capacity, or retain or cause to be retained as a
consultant, any person who was employed by the Company at any time during the
one-year period ended on the date of termination of the Executive's employment.
(c) For a period of three years after termination of the Executive's
employment by the Company (such period not to include any period(s) of violation
of this Section 9(c) or period(s) of time required for litigation to enforce its
provisions), the Executive shall not, directly or indirectly, engage in, or
enter into or participate in, at any place within the rest of the United States
any Competitive Business (as defined below), either as an individual for his own
account or as a partner or a joint venturer or as a director, independent
contractor or holder of more than a one-percent equity interest in any other
person, firm, partnership or corporation.
For purposes of this Section 9(c): the term "Competitive Business" shall
mean any business or commercial activity that competes with or is reasonably
likely to compete with or adversely affect any part or area of the Company's
current or proposed business at any time throughout the entire period of the
Executive's employment by the Company.
(d) If at any time any of the provisions of this Section 9 shall be deemed
invalid or unenforceable or are prohibited by the laws of the state or place
where they are to be performed or enforced, by reason of being vague or
unreasonable as to duration or geographic scope or scope of activities
restricted, or for any other reason, such provisions shall be considered
divisible and shall become and be immediately amended to include only such
restrictions and to such extent as shall be deemed to be reasonable and
enforceable by the court or other body having jurisdiction over this Agreement;
and the Company and the Executive agree that the provisions of this Section 9,
as so amended, shall be valid and binding as though any invalid or unenforceable
provision had not been included herein.
10. Confidential Information.
(a) For purposes of this Section 10 and of Sections 8 and 9 above,
"Company" shall include the businesses of the Company and each of its direct and
indirect subsidiaries. The Executive recognizes and acknowledges that during the
course of his employment, he may have exposure to and develop special knowledge
and skills concerning certain of the Company's Confidential Information (as
defined below) vital to the Company's ability to
7
<PAGE>
compete successfully in its business. The Executive further acknowledges that it
is vital to the Company's legitimate business interests that the confidentiality
of such Confidential Information be preserved, and that use or reliance on such
Confidential Information by or on behalf of any other business or commercial
activity in competition with the Company could result in irreparable harm to the
Company. The Executive further acknowledges that the Confidential Information is
a valuable, special and unique asset of the Company's business, and that the
Confidential Information is and shall remain the exclusive property of the
Company and nothing in this Agreement shall be construed as a grant to the
Executive of any rights, title or interest in the Confidential Information.
(b) Without the prior written consent of the Company, the Executive shall
not, at any time either during or subsequent to his employment by the Company,
use any Confidential Information (as defined below) for the benefit of anyone
other than the Company, or disclose any Confidential Information to any person
or party; the Executive may, however, use or disclose Confidential Information
as required by his obligations to the Company or as necessary or desirable (and
for the benefit of the Company) in connection with the Company's business (but
all such permitted uses and disclosures shall be made under circumstances and
conditions reasonably appropriate to preserve the Confidential Information as
the Company's confidential property). In particular, without limiting the
generality of the foregoing, the Executive shall not remove any Confidential
Information, however embodied, from the Company's premises, facilities or place
of business, except as required in the course of employment by the Company.
(c) After the term of the Executive's employment with the Company, the
foregoing restrictions shall not apply to Confidential Information which the
Executive can establish by competent written proof:
(i) was known, other than under binder of secrecy, to the Executive
prior to his employment by the Company; or
(ii) was subsequently obtained by the Executive, other than under
binder of secrecy, from a third party not acquiring the information under
an obligation of confidentiality from the disclosing party.
(d) The term "Confidential Information" includes all information which is
acquired by the Executive from the Company, its other employees, its suppliers
or customers, its agents or consultants, or others, during his employment by the
Company, and which relates to the present or potential businesses and products
of the Company, as well as any other information as
8
<PAGE>
may be designated by the Company as confidential. The term Confidential
Information may relate, for example, to Inventions (as defined below), trade
secrets, computer software, research, development, design, engineering,
manufacturing, purchasing, supplier lists, customer lists, price lists,
accounting, profit margins, marketing or sales volume information or strategic
plans; may include information contained, for example, in drawings, models,
data, specifications, reports, compilations or computer programs; and may be in
the nature of unwritten knowledge or technical or manufacturing know-how; but
shall not in any event include any information which becomes generally known or
available to persons in the business or industry of the Company other than as a
result of acts or omissions attributable to the Executive.
11. Arbitration. In the event that any party hereto has any claim under
this Agreement or the shadow stock agreements or the deferred compensation
agreement referred to herein or any other issues relating to the Executive's
employment by the Company, the party shall promptly notify each other party of
such claim. If within 30 days of the receipt of such notice of claim, the
parties cannot agree on a resolution of such claim, the parties agree to submit
such dispute to binding arbitration to be held in Boston, Massachusetts under
the rules of the American Arbitration Association. Any such arbitration shall be
conducted by three arbitrators, one of whom shall be selected by the Executive,
one of whom shall be selected by the Company and one of whom shall be selected
by the arbitrators so selected. The expenses of any such arbitration shall be
paid by the non-prevailing party, as determined by the final order of the
arbitrators.
12. Specific Enforcement. Notwithstanding the provisions of Section 11, the
parties acknowledge that the Executive's breach of the provisions of Section 8,
9 or 10 of this Agreement will cause irreparable harm to the Company; it is
agreed and acknowledged that the remedy of damages will not be adequate for the
enforcement of such provisions and that such provisions may be enforced by
equitable relief, including injunctive relief or specific performance, which
relief shall be cumulative and in addition to any other relief to which the
Company may be entitled.
13. Governing Law. This Agreement shall be deemed a contract made and
performed in the Commonwealth of Massachusetts and shall be governed by the laws
of the Commonwealth of Massachusetts.
14. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement of the parties and may be altered or amended or any provision hereof
waived only by an agreement in writing signed by the party against whom
enforcement of any alteration, amendment, or waiver is
9
<PAGE>
sought. No waiver by any party of any breach of this Agreement shall be
considered as a waiver of any subsequent breach.
15. Binding Obligations. This Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns and the Executive and
his personal representatives.
16. Assignability. Neither this Agreement nor any benefits payable to the
Executive hereunder shall be assigned, pledged, anticipated, or otherwise
alienated by the Executive, or subject to attachment or other legal process by
any creditor of the Executive, and notwithstanding any attempted assignment,
pledge, anticipation, alienation, attachment, or other legal process, any
benefit payable to the Executive hereunder shall be paid only to the Executive
or his estate.
IN WITNESS WHEREOF, the Company, by its officer hereunto duly authorized,
and the Executive have signed and sealed this Agreement as of the date first
written above.
HIGH VOLTAGE ENGINEERING
CORPORATION
By: /s/ Clifford Press
--------------------------
/s/ Russell L. Shade, Jr.
-----------------------------
Russell L. Shade, Jr.
10
<PAGE>
Exhibit A
HIGH VOLTAGE ENGINEERING CORPORATION
SHADOW STOCK AGREEMENT
AGREEMENT dated February 24, 1998 between High Voltage Engineering
Corporation, a Massachusetts corporation, and Russell L. Shade, Jr.
1. Definitions.
"Account" means a bookkeeping account in the name of the Participant to
which Stock Units are credited.
"Affiliate" means an entity under common control with the Company.
"Award Date" means March 9, 1998.
"Board" means the Board of Directors of the Company.
"Company" means High Voltage Engineering Corporation, a Massachusetts
corporation.
"Letitia" means Letitia Corporation, a Delaware corporation.
"Market Value" shall mean the market value of a Letitia share, as
determined by the Board of Directors. If the Participant disagrees with the
Letitia value used by the Company, he may suggest a different value. If the
matter is not resolved, each of the Company and the Participant shall designate
an arbitrator and the two arbitrators so designated shall designate an
appraiser. The appraiser so designated shall determine the value of a Letitia
share held by a person with the fully diluted interest of the Participant. The
party whose suggested value was farther from the finally determined value shall
pay the cost of the appraisal.
"Maturity" of a Stock Unit is the fifth anniversary of the date the Stock
Unit vests pursuant to Section 3.
"Participant" means Russell L. Shade, Jr.
"Share" means a share of common stock of Letitia.
<PAGE>
"Stock Unit" means a bookkeeping entry representing one Share for which the
Participant has a right to receive payment pursuant to this Agreement.
"Vested Stock Unit" means a Stock Unit that has become nonforfeitable
pursuant to Section 3.
2. Award of Stock Units. The Board has awarded to the Participant on the
Award Date 22 Stock Units.
3. Vesting. Stock Units shall vest at the following dates:
<TABLE>
<CAPTION>
Date Vested Stock Units
---- ------------------
<S> <C>
April 30, 1998 3.3
April 30, 1999 5.5
April 30, 2000 5.5
April 30, 2001 5.5
April 30, 2002 2.2
</TABLE>
4. Payment After Maturity. Within 30 days after Maturity of a Stock Unit,
the Company shall pay to the Participant a cash amount equal to Market Value at
the most recent fiscal quarter end and shall cancel the Stock Unit.
5. Payment After Death. If the Participant dies with Stock Units standing
to his Account, the Company will pay to the person designated by the Participant
or, in the absence of designation, to the Participant's estate, within a
reasonable period after death (not to exceed six months), an amount equal to the
number of Stock Units standing to his Account times the Market Value at the most
recent fiscal quarter end preceding the date of payment.
6. Right of Redemption Upon Termination of Employment. If the Participant
terminates employment with the Company and its Affiliates for any reason other
than death, the Participant shall forfeit all Stock Units other than Vested
Stock Units. The Company shall then have the right, exercisable at its option at
any time after the termination of employment, to redeem some or all of the
Vested Stock Units remaining to the Account of the Participant. Redemption shall
be in an amount equal to the number of Stock Units so redeemed times the Market
Value at the fiscal quarter end preceding the date of redemption. To the extent
that the Company fails to exercise its right of redemption, the remaining Stock
2
<PAGE>
Units shall remain subject to the payment provisions set forth in Section 4
above.
7. Unfunded Obligations. The Company's obligations are unfunded, and the
Participant is at all times an unsecured, general creditor of the Company with
no interest in any specific assets of the Company.
8. Employment Taxes. The Company will withhold from any payment made all
amounts required to be withheld as income taxes or FICA taxes under applicable
law.
9. Adjustments in the Event of Certain Transactions. In the event of a
stock dividend, stock split or combination of Shares, recapitalization or other
change in the Company's capitalization, or other distribution with respect to
Shares other than normal cash dividends, the Board will make appropriate
adjustments to the number and kind of Stock Units affected by such change. If at
any time when any of High Voltage Engineering Corporation's 1997 Warrants are
outstanding there occurs a Qualified Subsidiary IPO, as defined in the 1997
Warrants, the Company shall deliver to the Executive shares of the common stock
of the Qualified Subsidiary in substitution for certain of the Stock Units,
determined in accordance with the principles set forth in Section 14 of the 1997
Warrants, particularly paragraph (e) thereof.
10. Other Employee Benefits. The value of Stock Units awarded to the
Participant will not constitute "earnings" or "compensation" with respect to
which any other employee benefits are determined, including without limitation,
benefits under any pension, stock ownership, stock purchase, life insurance,
medical, health, disability or salary continuation plan.
11. Governing Law. This Agreement shall be deemed a contract made and
performed in the Commonwealth of Massachusetts and shall be governed by the laws
of the Commonwealth of Massachusetts. In the event that any party hereto has any
claim hereunder, the party shall promptly notify each other party of such claim.
If within 30 days of the receipt of such notice of claim, the parties cannot
agree on a resolution of such claim, the parties agree to submit such dispute to
binding arbitration to be held in Boston, Massachusetts under the rules of the
American Arbitration Association. Any such arbitration shall be conducted by
three arbitrators, one of whom shall be selected by the Executive, one of whom
shall be selected by the Company and one of whom shall be selected by the
3
<PAGE>
arbitrators so selected. The expenses of any such arbitration shall be paid by
the non-prevailing party, as determined by the final order of the arbitrators
12. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement of the parties and may be altered or amended or any provision hereof
waived only by an agreement in writing signed by the party against whom
enforcement of any alteration, amendment, or waiver is sought. No waiver by any
party of any breach of this Agreement shall be considered as a waiver of any
subsequent breach.
13. Binding Obligations. This Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns and the Participant
and his personal representatives.
IN WITNESS WHEREOF, the Company, by its officer hereunto duly authorized,
and the Employee have signed and sealed this Agreement as of the date first
written above.
HIGH VOLTAGE ENGINEERING
CORPORATION
By:
--------------------
-----------------------
Russell L. Shade, Jr.
4
<PAGE>
Exhibit B
HIGH VOLTAGE ENGINEERING CORPORATION
SHADOW STOCK APPRECIATION AGREEMENT
AGREEMENT dated _____________________ between High Voltage Engineering
Corporation, a Massachusetts corporation, and Russell L. Shade, Jr.
1. Definitions.
"Account" means a bookkeeping account in the name of the Participant to
which Stock Units are credited.
"Affiliate" means an entity under common control with the Company.
"Appreciation Value" means the amount by which Market Value at any date
exceeds Market Value at the Award Date.
"Award Date" means __________________.
"Board" means the Board of Directors of the Company.
"Company" means High Voltage Engineering Corporation, a Massachusetts
corporation.
"Letitia" means Letitia Corporation, a Delaware corporation.
"Market Value" shall mean the market value of a Letitia share, as
determined by the Board of Directors. If the Participant disagrees with the
Letitia value used by the Company, he may suggest a different value. If the
matter is not resolved, each of the Company and the Participant shall designate
an arbitrator and the two arbitrators so designated shall designate an
appraiser. The appraiser so designated shall determine the value of a Letitia
share held by a person with the fully diluted interest of the Participant. The
party whose suggested value was farther from the finally determined value shall
pay the cost of the appraisal.
"Maturity" of a Stock Unit is the later of the fifth anniversary of the
date the Stock Unit vests pursuant to Section 3 or the Participant's termination
of employment for any reason other than death.
<PAGE>
"Participant" means Russell L. Shade, Jr.
"Share" means a share of common stock of Letitia.
"Stock Unit" means a bookkeeping entry representing one Share for which the
Participant has a right to receive payment pursuant to this Agreement.
"Vested Stock Unit" means a Stock Unit that has become nonforfeitable
pursuant to Section 3.
2. Award of Stock Units. The Board has awarded to the Participant on the
Award Date ____ Stock Units.
3. Vesting. Stock Units shall vest at the following dates:
<TABLE>
<CAPTION>
Date Vested Stock Units
---- ------------------
<S> <C>
[3 years after Award Date] [50% of awarded Stock Units]
[5 years after Award Date] [50% of awarded Stock Units]
</TABLE>
4. Payment After Maturity. Within 30 days after Maturity of a Stock Unit,
the Company shall pay to the Participant a cash amount equal to one-quarter
(1/4) of the Appreciation Value at the most recent fiscal quarter end. On each
of the first, second and third anniversaries that payment date, the Company
shall pay to the Participant one-quarter (1/4) of the Appreciation Value
calculated at the most recent fiscal quarter end.
5. Payment After Death. If the Participant dies with Stock Units standing
to his Account, the Company will pay to the person designated by the Participant
or, in the absence of designation, to the Participant's estate, within a
reasonable period after death (not to exceed six months), an amount equal to the
number of Stock Units standing to his Account times the Appreciation Value at
the most recent fiscal quarter end preceding the date of payment.
6. Right of Redemption Upon Termination of Employment. If the Participant
terminates employment with the Company and its Affiliates for any reason other
than death, the Participant shall forfeit all Stock Units other than Vested
Stock Units. The Company shall then have the right, exercisable at its option at
any time after the termination of employment, to redeem some or all of the
Vested Stock Units remaining to the Account of the Participant. Redemption shall
be in an amount equal
2
<PAGE>
to the number of Stock Units so redeemed times the Appreciation Value at the
fiscal quarter end preceding the date of redemption. To the extent that the
Company fails to exercise its right of redemption, the remaining Stock Units
shall remain subject to the payment provisions set forth in Section 4 above.
7. Unfunded Obligations. The Company's obligations are unfunded, and the
Participant is at all times an unsecured, general creditor of the Company with
no interest in any specific assets of the Company.
8. Employment Taxes. The Company will withhold from any payment made all
amounts required to be withheld as income taxes or FICA taxes under applicable
law.
9. Adjustments in the Event of Certain Transactions. In the event of a
stock dividend, stock split or combination of Shares, recapitalization or other
change in the Company's capitalization, or other distribution with respect to
Shares other than normal cash dividends, the Board will make appropriate
adjustments to the number and kind of Stock Units affected by such change. If at
any time when any of High Voltage Engineering Corporation's 1997 Warrants are
outstanding there occurs a Qualified Subsidiary IPO, as defined in the 1997
Warrants, the Company shall cause the relevant Qualified Subsidiary to grant to
the Optionee an option covering its common stock in substitution for certain
Stock Units, determined in accordance with the principles set forth in Section
14 of the 1997 Warrants, particularly paragraph (e) thereof.
10. Other Employee Benefits. The value of Stock Units awarded to the
Participant will not constitute "earnings" or "compensation" with respect to
which any other employee benefits are determined, including without limitation,
benefits under any pension, stock ownership, stock purchase, life insurance,
medical, health, disability or salary continuation plan.
11. Governing Law. This Agreement shall be deemed a contract made and
performed in the Commonwealth of Massachusetts and shall be governed by the laws
of the Commonwealth of Massachusetts. In the event that any party hereto has any
claim hereunder, the party shall promptly notify each other party of such claim.
If within 30 days of the receipt of such notice of claim, the parties cannot
agree on a resolution of such claim, the parties agree to submit such dispute to
binding arbitration to be held in Boston, Massachusetts under the rules of the
American
3
<PAGE>
Arbitration Association. Any such arbitration shall be conducted by three
arbitrators, one of whom shall be selected by the Executive, one of whom shall
be selected by the Company and one of whom shall be selected by the arbitrators
so selected. The expenses of any such arbitration shall be paid by the
non-prevailing party, as determined by the final order of the arbitrators
12. Entire Agreement; Amendment. This Agreement constitutes the entire
agreement of the parties and may be altered or amended or any provision hereof
waived only by an agreement in writing signed by the party against whom
enforcement of any alteration, amendment, or waiver is sought. No waiver by any
party of any breach of this Agreement shall be considered as a waiver of any
subsequent breach.
13. Binding Obligations. This Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns and the Participant
and his personal representatives.
IN WITNESS WHEREOF, the Company, by its officer hereunto duly authorized,
and the Employee have signed and sealed this Agreement as of the date first
written above.
HIGH VOLTAGE ENGINEERING
CORPORATION
By:
--------------------
-----------------------
Russell L. Shade, Jr.
4
<PAGE>
Exhibit C
HIGH VOLTAGE ENGINEERING CORPORATION
SUPPLEMENTAL DEFERRED COMPENSATION AGREEMENT
AGREEMENT dated February 24, 1998, between High Voltage Engineering
Corporation (the "Company") and Russell L. Shade, Jr. (the "Executive").
1. Credits to an Account. The Company shall maintain a separate account for
the benefit of the Executive (the "Account") to which the following credits
shall be made:
1.1. Annual Credit. For each fiscal year on the last day of which the
Executive remains an employee of the Company, beginning with fiscal year
1998, the Company shall credit to the Account the amount of $35,000 within
30 days after the end of the fiscal year.
1.2. Investment of the Account. The Company will enter into a rabbi
trust in the form of Exhibit 1 (the "Trust") for the purpose of investing
the Account. The Trust will be invested by the Trustee thereof. The
Executive may make investment suggestions from time to time, and it shall
be the goal of the Company and the Executive that the Trust assets enjoy
reasonable capital appreciation.
1.3. Contributions by the Executive. Beginning with fiscal year 1999,
the Executive may, at his election, contribute to the Trust during March
such amount as he may designate.
2. Vesting in the Trust. The Executive shall at all times have a vested
interest in the balance of the Account.
3. Distributions. The Company shall distribute the balance of the Account,
plus amount representing the earnings of the Trust, to the Executive as follows
and shall make appropriate debits to the Account to reflect such distributions:
3.1. Distributions Prior to Death. The Company shall distribute to the
Executive the balance of the Account plus earnings in 10 substantially
equal installments, commencing on January 2, 2011.
<PAGE>
3.2. Distributions Upon Death. If the Executive dies before all
payments shall have been made from the Account pursuant to Section 3.1,
payments therefrom shall be made to his beneficiary designated on the form
attached as Exhibit 2. In default of any beneficiary designation by the
Executive, payment shall be made to his spouse or, if no spouse survives
the Executive, to his issue by right of representation or, if no issue
survives him, to his estate.
3.3. Acceleration of Payments. If the Executive terminates employment
with the Company or dies before March 9, 2003, payments pursuant to Section
3.1 or Section 3.2 shall be made within twelve months after termination of
employment or death. At the discretion of the Compensation Committee of the
Board of Directors (the "Committee"), the payments to be made pursuant to
Sections 3.1 and 3.2 may be accelerated in such amounts and at such times
as the Committee determines.
4. Employment Taxes. The Company will withhold from each payment of
distributions all amounts required to be withheld as income taxes or FICA taxes
under applicable law.
5. Nature of Claim for Payments. The Company shall not be required to set
aside or segregate any assets of any kind to meet any of its obligations
hereunder. All obligations of the Company hereunder shall be reflected by book
entries only, and the Executive shall have no rights on account of this
Agreement in or to any specific assets of the Company. Any rights that the
Executive may have on account of this Agreement shall be those of a general,
unsecured creditor of the Company.
6. Employment Rights. Neither this Agreement nor the contribution of any
amount hereunder to the Trust will confer upon the Executive any right to
continued employment with the Company or interfere in any way with the right of
the Company to terminate the Executive's employment or increase or decrease his
compensation at any time.
7. Other Employee Benefits. Credits to the Trust will not constitute
"earnings" or "compensation" with respect to which any other employee benefits
are determined, including without limitation benefits under any pension or life
insurance plan.
8. Rights Non-Assignable. Neither the Executive nor any beneficiary shall
have any right to assign or otherwise alienate the right
2
<PAGE>
to receive payments hereunder, in whole or in part, which payments are expressly
agreed to be non-assignable and non-transferable, whether voluntarily or
involuntarily.
9. Governing Law; Arbitration. This Agreement shall be deemed a contract
made and performed in the Commonwealth of Massachusetts and shall be governed by
the laws of the Commonwealth of Massachusetts. In the event that any party
hereto has any claim hereunder, the party shall promptly notify each other party
of such claim. If within 30 days of the receipt of such notice of claim, the
parties cannot agree on a resolution of such claim, the parties agree to submit
such dispute to binding arbitration to be held in Boston, Massachusetts under
the rules of the American Arbitration Association. Any such arbitration shall be
conducted by three arbitrators, one of whom shall be selected by the Executive,
one of whom shall be selected by the Company and one of whom shall be selected
by the arbitrators so selected. The expenses of any such arbitration shall be
paid by the non-prevailing party, as determined by the final order of the
arbitrators.
10. Successors. This Agreement shall be binding upon and shall inure to the
benefit of the Company, its successors and assigns, and the Executive, his
personal representative and next-of-kin.
IN WITNESS WHEREOF, the Company, by its officer hereunto duly authorized,
and the Executive have signed and sealed this Agreement as of the date first
written above.
HIGH VOLTAGE ENGINEERING
CORPORATION
By:
--------------------------
--------------------------
3
<PAGE>
Exhibit 11
HIGH VOLTAGE ENGINEERING CORPORATION
STATEMENT OF COMPUTATION OF EARNINGS PER SHARE
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
---------------------------------------- --------------------------------
April 29, April 27, April 26, January 25, January 24,
1995 1996 1997 1997 1998
----------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Income (loss) from continuing operations
before discontinued operations and
extraordinary item $ 169 $ (463) $ (2,497) $ 400 $ (14,558)
Discontinued operations, net of income 276 1,498 -- -- --
taxes
Extraordinary item, net of income -- (422) (259) (259) (7,861)
taxes
Net income (loss) applicable to common 30 167 (3,235) (215) (24,651)
stockholders
Net income (loss) per common share:
Continuing operations (246.00) (909.00) (2,976.00) 44.00 (15,975.26)
Discontinued operations 276.00 1,498.00 -- -- --
Extraordinary item -- (422.00) (259.00) (259.00) (7,479.54)
Net income (loss) applicable to common
stockholders 30.00 167.00 (3,235.00) (215.00) (23,454.80)
Net income (loss) per common share assuming
dilution:
Continuing operations (246.00) (909.00) (2,299.21) 2,075.24 (12,331.39)
Discontinued operations 276.00 1,498.00 -- -- --
Extraordinary item -- (422.00) (226.60) (226.60) (6,545.38)
Net income (loss) applicable to common
stockholders 30.00 167.00 (2,525.81) 1,848.64 (18,876.77)
Weighted average common stock outstanding 1,000 1,000 1,000 1,000 1,051
Weighted average common stock and dilutive
equivalents outstanding 1,000 1,000 1,143 1,143 1,201
</TABLE>
The earnings from continuing operations before discontinued operations,
extraordinary item and the net loss applicable to the common stockholders,
for the purpose of calculating earnings per share, is net of preferred stock
dividends of $415, $446, $479, $356 and $2,057 for Fiscal 1995, Fiscal 1996,
Fiscal 1997 and the nine months ended January 25, 1997 and January 24, 1998,
respectively. The earnings from continuing operations before discontinued
operations and extraordinary item and the net loss applicable to the common
stockholders, for the purpose of calculating earnings per share, is net of
the accretion of redeemable preferred stock of $175 for the nine months ended
January 24, 1998.
<PAGE>
Exhibit 21.1
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
JURISDICTION OF DIRECT ("D")
COMPANY NAME AND ADDRESS (1) D/B/A ORGANIZATION /INDIRECT ("I")
<S> <C> <C> <C>
Anderson Interconnect, Inc. Massachusetts D
13 Pratts Junction Road
Sterling, MA 01564-0579
Halmar Robicon Group, Inc. Robicon Pennsylvania D
500 Hunt Valley Drive
New Kensington, PA 15068
Datcon Instrument Company Pennsylvania D
1811 Rohrerstown Road
Lancaster, PA 17601
Physical Electronics, Inc. Delaware D
6509 Flying Cloud Drive
Eden Prairie, MN 55344
HVE Acquisition Corp. Illinois I
401 Edgewater Drive
Suite 680
Wakefield, MA 01880-6210
HIVEC Holdings, Inc. Delaware D
401 Edgewater Drive
Suite 680
Wakefield, MA 01880-6210
HVEC, Inc. California D
401 Edgewater Drive
Suite 680
Wakefield, MA 01880-6210
HIVEC B.V. Anderson The Netherlands I
Amersterdamseweg 63 Ireland,
3812 RR Amersfoort HIVEC
P.O. Box 99, 3800 AB Ireland
Amersfoort
The Netherlands
</TABLE>
(1) High Voltage Engineering Corporation is located at 401 Edgwater Place,
Suite 680, Wakefield, MA 01880-6210. It does business under the names High
Voltage Engineering Corporation and Natvar. High Voltage Engineering
Corporation is organized under the laws of Massachusetts.
<PAGE>
COMPANY NAME AND JURISDICTION OF DIRECT ("D")
ADDRESS D/B/A ORGANIZATION /INDIRECT ("I")
High Voltage Engineering Europa B.V. The Netherlands I
Amersterdamseweg 63
3812 RR Amersfoort
P.O. Box 99, 3800AB
Amersfoort
The Netherlands
Stewart Warner Instrument Corporation Illinois I
200 E. Howard Avenue
Des Plaines, IL 60018
TTS Mexican Holding Company, Inc.
200 E. Howard Avenue
Des Plains, IL 60018 Illinois I
Stewart Warner Instruments (Barbados), Inc. Barbados I
200 E. Howard Avenue
Des Plaines, IL 60018
Instrumentos Stewart Warner de Mexico Mexico I
S.A. de C.V.
1917 Neptuno Col.. Satelite.
Ciudad, Juarez
Chihuahua, Mexico C.P. 3254
Aproma, A.G. The Netherlands I
Amersterdamseweg 63
3812 RR Amersfoort
P.O. Box 99, 3800AB
Amersfoort
The Netherlands
Crisrolo S.L. Spain I
c/ Valencia 229
Barcelona, Spain
Industrias Jorda, S.L. Spain I
c/ Progreso 32
Rubi, Barcelona
Spain
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated June 18, 1997 (except for notes N and P as to
which the dates are March 19, 1998 and April 15, 1998, respectively)
accompanying the consolidated financial statements of High Voltage
Engineering Corporation and Subsidiaries contained in the Form S-4
Registration Statement. We consent to the use of the aforementioned report in
the Form S-4 Registration Statement, and to the use of our name as it appears
under the caption "Experts".
/s/ GRANT THORNTON LLP
GRANT THORNTON LLP
Boston, Massachusetts
May 1, 1998
<PAGE>
Exhibit 23.3
------------
Independent Auditors' Consent
The Board of Directors
Physical Electronics, Inc.
We consent to the inclusion of our report dated August 20, 1997 in the
Registration Statement on Form S-4 of High Voltage Engineering Corporation
with respect to the consolidated balance sheets of PHI Acquisition Holdings,
Inc. and subsidiaries as of June 28, 1996 and June 27, 1997, and the
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
KPMG Peat Marwick LLP
Minneapolis, Minnesota
April 30, 1998
<PAGE>
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of High Voltage
Engineering Corporation on Form S-4 of our report dated March 13, 1998
related to the financial statements of Stewart Warner Instrument Corporation
and Subsidiary for the years ended April 30, 1996 and 1997 and for the
nine-month period ended January 31, 1998, appearing in the Prospectus, which
is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
San Antonio, Texas
April 16, 1998
The consolidated financial statements as of and for the years ended April 30,
1996 and 1997 and as of and for the nine-month period ended January 31, 1998,
included in this prospectus have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their report appearing herein, and have
been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
<PAGE>
Exhibit 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
_________
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2)
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Maureen Scannell Bateman, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
HIGH VOLTAGE ENGINEERING CORPORATION
(Exact name of obligor as specified in its charter)
MASSACHUSETTS (04-2035796)
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
401 EDGEWATER PLACE - SUITE 680
WAKEFIELD, MA 01880
(Address of principal executive offices) (Zip Code)
10.5% SENIOR NOTES
(Title of indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to which
it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington, D.C.,
Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its parent, State
Street Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
1. A copy of the articles of association of the trustee as now in effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as
Exhibit 1 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of Massachusetts
that no certificate of authority for the trustee to commence business
was necessary or issued is on file with the Securities and Exchange
Commission as Exhibit 2 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
3. A copy of the authorization of the trustee to exercise corporate trust
powers, if such authorization is not contained in the documents specified
in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise corporate trust
powers is on file with the Securities and Exchange Commission as
Exhibit 3 to Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is incorporated
herein by reference thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on file
with the Securities and Exchange Commission as Exhibit 4 to the
Statement of Eligibility and Qualification of Trustee (Form T-1) filed
with the Registration Statement of Eastern Edison Company (File No.
33-37823) and is incorporated herein by reference thereto.
1
<PAGE>
5. A copy of each indenture referred to in Item 4. if the obligor is in
default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act is
annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Boston and The
Commonwealth of Massachusetts, on the 8th of April, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Chi Ma
--------------------------------------
NAME Chi Ma
TITLE Assistant Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by High Voltage
Engineering Corporation. of its 10.5% Senior Notes Due 2004, we hereby consent
that reports of examination by Federal, State, Territorial or District
authorities may be furnished by such authorities to the Securities and Exchange
Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Chi Ma
-------------------------------------
NAME Chi Ma
TITLE Assistant Vice President
Dated: April 8, 1998
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business December 31, 1997,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act and in accordance
with a call made by the Commissioner of Banks under General Laws, Chapter 172,
Section 22(a).
<TABLE>
<CAPTION>
Thousands of
Dollars
<S> <C>
ASSETS
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin ........ 2,220,829
Interest-bearing balances.................................. 10,076,045
Securities................................................... 10,373,821
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary........................ 5,124,310
Loans and lease financing receivables:
Loans and leases, net of unearned income ..... 6,270,348
Allowance for loan and lease losses .......... 82,820
Allocated transfer risk reserve................ 0
Loans and leases, net of unearned income and allowances ..... 6,187,528
Assets held in trading accounts................................ 1,241,555
Premises and fixed assets...................................... 410,029
Other real estate owned....................................... 100
Investments in unconsolidated subsidiaries..................... 38,831
Customers' liability to this bank on acceptances outstanding .. 44,962
Intangible assets.............................................. 224,049
Other assets................................................... 1,507,650
-------------
Total assets................................................... 37,449,709
-------------
-------------
LIABILITIES
Deposits:
In domestic offices....................................... 10,115,205
Noninterest-bearing.................... 7,739,136
Interest-bearing....................... 2,376,069
In foreign offices and Edge subsidiary.................... 14,791,134
Noninterest-bearing.................... 71,889
Interest-bearing....................... 14,719,245
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary.......................... 7,603,920
Demand notes issued to the U.S. Treasury and Trading
Liabilities.................................................... 194,059
Trading liabilities............................................ 1,036,905
Other borrowed money........................................... 459,252
Subordinated notes and debentures.............................. 0
Bank's liability on acceptances executed and outstanding....... 44,962
Other liabilities.............................................. 972,782
Total liabilities.............................................. 35,218,219
-------------
-------------
</TABLE>
4
<PAGE>
<TABLE>
<S> <C>
EQUITY CAPITAL
Perpetual preferred stock and related surplus.................. 0
Common stock................................................... 29,931
Surplus........................................................ 444,620
Undivided profits and capital reserves/Net unrealized
holding gains(losses)........................................ 1,763,076
Cumulative foreign currency translation adjustments............ (6,137)
Total equity capital........................................... 2,231,490
-------------
Total liabilities and equity capital........................... 37,449,709
-------------
-------------
</TABLE>
5
<PAGE>
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
6
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
HIGH VOLTAGE ENGINEERING CORPORATION
OFFER TO EXCHANGE ITS
10 1/2% SENIOR NOTES DUE 2004
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
10 1/2% SENIOR NOTES DUE 2004,
ORIGINALLY ISSUED ON MARCH 19, 1998,
PURSUANT TO THE PROSPECTUS
DATED, APRIL [ ], 1998
- --------------------------------------------------------------------------------
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 NEW NOTES (AS DEFINED HEREIN), UNLESS EXTENDED (THE "EXPIRATION
DATE"). NEW NOTES TENDERED IN THE EXCHANGE OFFER MAY BE WITHDRAWN AT ANY
TIME PRIOR TO THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
DELIVER TO THE EXCHANGE AGENT:
State Street Bank and Trust Company
Corporate Trust Department, 4th Floor
Two International Place
Boston, Massachusetts 02110
BY FACSIMILE:
(617) 664-5290
CONFIRM BY TELEPHONE:
(617) 664-5587
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.
The undersigned hereby acknowledges receipt and review of the Prospectus
dated April [ ], 1998 (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 up to $20,000,000 in principal amount of its 10 1/2% Senior
Notes due 2004 (the "Exchange Notes"), which have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant to a
Registration Statement of which the Prospectus is a part, for a like principal
amount of its issued and outstanding 10 1/2% Senior Notes due 2004 (the "New
Notes"). Capitalized terms used but not defined herein have the respective
meaning given to them in the Prospectus.
<PAGE>
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 to which the Exchange Offer is extended. The
Company shall notify the Holders of the New Notes of any extension by oral or
written notice prior to 9:00 A.M., Boston time, on the next business day after
the previously scheduled Expiration Date.
This Letter of Transmittal is to be used by a Holder of New Notes either if
original New Notes are to be forwarded herewith or if delivery of New Notes, if
available, is to be made by book-entry transfer to the account maintained by the
Exchange Agent at The Depository Trust Company (the "Book-Entry Transfer
Facility") pursuant to the procedures set forth in the Prospectus under the
caption "The Exchange Offer -- Procedures for Tendering New Notes." Holders of
New Notes whose New Notes are not immediately available, or who are unable to
deliver their New Notes and all other documents required by this Letter of
Transmittal to the Exchange Agent on or prior to the Expiration Date, or who are
unable to complete the procedure for book-entry transfer on a timely basis, must
tender their New Notes according to the guaranteed delivery procedures set forth
in the Prospectus under the caption "The Exchange Offer -- Procedures for
Tendering New Notes." See Instruction 1. Delivery of documents to the Book-Entry
Transfer Facility does not constitute delivery to the Exchange Agent.
The term "Holder" with respect to the Exchange Offer means any person in
whose name New Notes are registered on the books of the Company or any other
person who has obtained a properly completed bond power from the registered
Holder. The undersigned has completed, executed and delivered this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Exchange Offer. Holders who wish to tender their New Notes must complete
this Letter of Transmittal in its entirety.
The undersigned has checked the appropriate boxes below and signed this
Letter of Transmittal to indicate the action the undersigned desires to take
with respect to the Exchange Offer.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL AND THE PROSPECTUS CAREFULLY
BEFORE CHECKING ANY BOX BELOW.
THE INSTRUCTIONS INCLUDED WITH THIS LETTER OF TRANSMITTAL MUST BE FOLLOWED.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THE PROSPECTUS
AND THIS LETTER OF TRANSMITTAL MAY BE DIRECTED TO THE EXCHANGE AGENT.
List below the New Notes to which this Letter of Transmittal relates. If the
space below is inadequate, list the registered numbers and principal amounts on
a separate signed schedule and affix the list to this Letter of Transmittal.
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
DESCRIPTION OF NEW NOTES TENDERED
-------------------------------------------------------------------------------------------
AGGREGATE
NAME(S) AND ADDRESS(ES) TENDERED
OF REGISTERED HOLDER(S), PRINCIPAL PRINCIPAL
EXACTLY AS NAME(S) AMOUNT AMOUNT
APPEAR(S) ON NEW NOTES REGISTERED REPRESENTED BY TENDERED
(PLEASE FILL IN, IF BLANK) NUMBER(S)* NOTE(S) TOTAL**
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
* Need not be completed by book-entry Holders.
** Unless otherwise indicated, any tendering Holder of New Notes will be deemed
to have tendered the entire aggregate principal amount represented by such
New Notes.
/ / CHECK HERE IF TENDERED NEW NOTES ARE ENCLOSED HEREWITH.
/ / CHECK HERE IF TENDERED NEW NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING (FOR USE BY ELIGIBLE
INSTITUTIONS ONLY):
Name of Tendering Institution: _____________________________________________
Account Number: ____________________________________________________________
Transaction Code Number: ___________________________________________________
/ / CHECK HERE IF TENDERED NEW NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY ENCLOSED HEREWITH AND COMPLETE THE FOLLOWING (FOR USE
BY ELIGIBLE INSTITUTIONS ONLY):
Name(s) of Registered Holder(s) of New Notes: ______________________________
Date of Execution of Notice of Guaranteed Delivery: ________________________
Window Ticket Number (if available): _______________________________________
Name of Eligible Institution that Guaranteed Delivery: _____________________
Account Number (if delivered by book-entry transfer): ______________________
/ / CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name: ______________________________________________________________________
Address: ___________________________________________________________________
If the undersigned is not a broker-dealer, the undersigned represents that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes. If the undersigned is a broker-dealer that will receive Exchange
Notes for its own account in exchange for New Notes, it acknowledges that the
New Notes were acquired as a result of market-making activities or other trading
activities and that it will deliver a prospectus in connection with any resale
of such Exchange Notes; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
LADIES AND GENTLEMEN:
Subject to the terms and conditions of the Exchange Offer, the undersigned
hereby tenders to the Company for exchange the principal amount of New Notes
indicated above. Subject to and effective upon the acceptance for exchange of
the principal amount of New Notes tendered in accordance with this Letter of
Transmittal, the undersigned hereby exchanges, assigns and transfers to the
Company all right, title and interest in and to the New Notes tendered for
exchange hereby. The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent, the agent and attorney-in-fact of the undersigned (with full
knowledge that the Exchange Agent also acts as the agent of the Company in
connection with the Exchange Offer) with respect to the tendered New Notes with
full power of substitution to (i) deliver such New Notes, or transfer ownership
of such New Notes on the account books maintained by the Book-Entry Transfer
Facility, to the Company and deliver all accompanying evidences of transfer and
authenticity, and (ii) present such New Notes for transfer on the books of the
Company and receive all benefits and otherwise exercise all rights of beneficial
ownership of such New Notes, all in accordance with the terms of the Exchange
Offer. The power of attorney granted in this paragraph shall be deemed to be
irrevocable and coupled with an interest.
<PAGE>
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, exchange, assign and transfer the New Notes
tendered hereby and to acquire the Exchange Notes issuable upon the exchange of
such tendered New Notes, and that the Company will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim, when the same are accepted
for exchange by the Company.
The undersigned acknowledges that this Exchange Offer is being made in
reliance upon interpretations contained in no-action letters issued to third
parties by the staff of the Securities and Exchange Commission (the
"Commission") that the Exchange Notes issued in exchange for the New Notes
pursuant to the Exchange Offer may be offered for resale, resold and otherwise
transferred by Holders thereof (other than any such Holder that is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such Holders' business and such Holders are not
engaging in and do not intend to engage in a distribution of the Exchange Notes
and have no arrangement or understanding with any person to participate in a
distribution of such Exchange Notes. The undersigned hereby further represents
to the Company that (i) any Exchange Notes acquired in exchange for New Notes
tendered hereby are being acquired in the ordinary course of business of the
person receiving such Exchange Notes, whether or not the undersigned, (ii)
neither the undersigned nor any such other person is engaging in or intends to
engage in a distribution of the Exchange Notes, (iii) neither the undersigned
nor any such other person has an arrangement or understanding with any person to
participate in the distribution of such Exchange Notes, and (iv) neither the
Holder nor any such other person is an "affiliate," as defined in Rule 405 under
the Securities Act, of the Company or, if it is an affiliate, it will comply
with the registration and prospectus delivery requirements of the Securities Act
to the extent applicable.
If the undersigned or the person receiving the Exchange Notes is a
broker-dealer that is receiving Exchange Notes for its own account in exchange
for New Notes that were acquired as a result of market-making activities or
other trading activities, the undersigned acknowledges that it or such other
person will deliver a prospectus in connection with any resale of such Exchange
Notes; however, by so acknowledging and by delivering a prospectus, the
undersigned will not be deemed to admit that the undersigned or such other
person is an "underwriter" within the meaning of the Securities Act. The
undersigned acknowledges that if the undersigned is participating in the
Exchange Offer for the purpose of distributing the Exchange Notes (i) the
undersigned cannot rely on the position of the staff of the Commission in
certain no-action letters and, in the absence of an exemption therefrom, must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction of the Exchange
Notes, in which case the registration statement must contain the selling
security Holder information required by Item 507 or Item 508, as applicable, of
Regulation S-K of the Commission, and (ii) failure to comply with such
requirements in such instance could result in the undersigned incurring
liability under the Securities Act for which the undersigned is not indemnified
by the Company.
If the undersigned or the person receiving the Exchange Notes is an
"affiliate" (as defined in Rule 405 under the Securities Act), the undersigned
represents to the Company that the undersigned understands and acknowledges that
the Exchange Notes may not be offered for resale, resold or otherwise
transferred by the undersigned or such other person without registration under
the Securities Act or an exemption therefrom.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Exchange Agent or the Company to be necessary or
desirable to complete the exchange, assignment and transfer of the New Notes
tendered hereby, including the transfer of such New Notes on the account books
maintained by the Book-Entry Transfer Facility.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted for exchange validly tendered New Notes when, as and if the Company
gives oral or written notice thereof to the Exchange Agent. Any tendered New
Notes that are not accepted for exchange pursuant to the Exchange Offer for any
reason will be returned, without expense, to the undersigned at the address
shown below or
<PAGE>
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 New Notes pursuant to the procedures described under the caption "The
Exchange Offer -- Procedures for Tendering New Notes" in the Prospectus and in
the instructions hereto will constitute a binding agreement between the
undersigned and the Company upon the terms and subject to the conditions of the
Exchange Offer.
Unless otherwise indicated under "Special Issuance Instructions," please
issue the Exchange Notes issued in exchange for the New Notes accepted for
exchange and return any New Notes not tendered or not exchanged, in the name(s)
of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please mail or deliver the Exchange Notes issued in
exchange for the New Notes accepted for exchange and any New Notes 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 Exchange Notes issued in exchange for the New Notes
accepted for exchange in the name(s) of, and return any New Notes not tendered
or not exchanged to, the person(s) so indicated. The undersigned recognizes that
the Company has no obligation pursuant to the "Special Issuance Instructions"
and "Special Delivery Instructions" to transfer any New Notes from the name of
the registered Holder(s) thereof if the Company does not accept for exchange any
of the New Notes so tendered for exchange.
PLEASE SIGN HERE WHETHER OR NOT NEW NOTES ARE BEING
PHYSICALLY TENDERED HEREBY (COMPLETE ACCOMPANYING
SUBSTITUTE FORM W-9)
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
x --------------------------------------------------- -------------------------
Date
x --------------------------------------------------- -------------------------
Date
Area Code and Telephone Number: ------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
The above lines must be signed by the registered Holder(s) of New Notes as
name(s) appear(s) on the New Notes or on a security position listing, or by
person(s) authorized to become registered Holder(s) by a properly completed bond
power from the registered Holder(s), a copy of which must be transmitted with
this Letter of Transmittal. If New Notes to which this Letter of Transmittal
relate are held of record by two or more joint Holders, then all such Holders
must sign this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, then such person must
(i) set forth his or her full title below and
<PAGE>
(ii) unless waived by the Company, submit evidence satisfactory to the Company
of such person's authority so to act. See Instruction 5 regarding the completion
of this Letter of Transmittal, printed below.
- --------------------------------------------------------------------------------
Name(s) ____________________________________________________________________
_____________________________________
(Please Type or Print)
_____________________________________
(Please Type or Print)
Capacity____________________________________________________________________
Address: ___________________________________________________________________
_____________________________________
_____________________________________
(Include Zip Code)
- --------------------------------------------------------------------------------
MEDALLION SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 5)
- --------------------------------------------------------------------------------
Certain signatures must be Guaranteed by an Eligible Institution.
Signature(s) Guaranteed by an Eligible Institution: ________________________
(Authorized Signature)
____________________________________________________________________________
(Title)
____________________________________________________________________________
(Name of Firm)
____________________________________________________________________________
(Address, Include Zip Code)
____________________________________________________________________________
(Area Code and Telephone Number)
Dated: ________________________________________________________________, 199
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY (i) if New Notes in a principal amount not
tendered, or Exchange Notes issued in exchange for New Notes accepted for
exchange, are to be issued in the name of someone other than the
undersigned, or (ii) if New Notes 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 Exchange Notes and/or New Notes to:
Name(s): ___________________________________________________________________
(PLEASE TYPE OR PRINT)
__________________________________________________________________________
(PLEASE TYPE OR PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
(COMPLETE SUBSTITUTE FORM W-9)
/ / Credit unexchanged New Notes delivered by book-entry transfer to the
Book-Entry Transfer Facility set forth below:
____________________________________________________________________________
(BOOK-ENTRY TRANSFER FACILITY ACCOUNT NUMBER,
IF APPLICABLE)
- ------------------------------------------------------
- ------------------------------------------------------
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5 AND 6)
To be completed ONLY if New Notes in a principal amount not tendered, or
Exchange Notes issued in exchange for New Notes accepted for exchange, are
to be mailed or delivered to someone other than the undersigned, or to the
undersigned at an address other than that shown below the undersigned's
signature.
Mail or deliver Exchange Notes and/or New Notes to:
Name: ______________________________________________________________________
(PLEASE TYPE OR PRINT)
Address: ___________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
__________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
- -----------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NEW NOTES OR BOOK-ENTRY
CONFIRMATIONS. All physically delivered New Notes or any confirmation of a
book-entry transfer to the Exchange Agent's account at the Book-Entry Transfer
Facility of New Notes tendered by book-entry transfer (a "Book-Entry
Confirmation"), as well as a properly completed and duly executed copy of this
Letter of Transmittal or facsimile hereof, and any other documents required by
this Letter of Transmittal, must be received by the Exchange Agent at its
address set forth herein prior to 5:00 p.m., Boston time, on the Expiration
Date. The method of delivery of the tendered New Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the Holder and, except as otherwise provided below, the
delivery will be deemed made only when actually received or confirmed by the
Exchange Agent. Instead of delivery by mail, it is recommended that the Holder
use an overnight or hand delivery service. In all cases, sufficient time should
be allowed to assure delivery to the Exchange Agent before the Expiration Date.
No Letter of Transmittal or New Notes should be sent to the Company.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their New
Notes and (a) whose New Notes are not immediately available, or (b) who cannot
deliver their New Notes, this Letter of Transmittal or any other documents
required hereby to the Exchange Agent prior to the Expiration Date or (c) who
are unable to complete the procedure for book-entry transfer on a timely basis,
must tender their New Notes according to the guaranteed delivery procedures set
forth in the Prospectus. Pursuant to such procedures: (i) such tender must be
made by or through a firm which is a member of a registered national securities
exchange or of the National Association of Securities Dealers, Inc. or a
commercial bank or a trust company having an office or correspondent in the
United States (an "Eligible Institution"); (ii) prior to the Expiration Date,
the Exchange Agent must have received from the Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name and address of the
Holder of the New Notes, the certificate number(s) of such New Notes and the
principal amount of New Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within THREE (3) Nasdaq trading days after the
Expiration Date, this Letter of Transmittal (or facsimile hereof) together with
the New Notes (or a Book-Entry Confirmation) in proper form for transfer, must
be received by the Exchange Agent within THREE (3) Nasdaq trading days after the
Expiration Date; and (iii) the certificates for all physically tendered shares
of New Notes, in proper form for transfer, or Book-Entry Confirmation, as the
case may be, and all other documents required by this Letter are received by the
Exchange Agent within THREE (3) Nasdaq trading days after the date of execution
of the Notice of Guaranteed Delivery.
Any Holder of New Notes who wishes to tender New Notes pursuant to the
guaranteed delivery procedures described above must ensure that the Exchange
Agent receives the Notice of Guaranteed Delivery prior to 5:00 p.m., Boston
time, on the Expiration Date. Upon request of the Exchange Agent, a Notice of
Guaranteed Delivery will be sent to Holders who wish to tender their New Notes
according to the guaranteed delivery procedures set forth above.
See "Exchange Offer -- Procedures for Tendering New Notes" section of the
Prospectus.
3. TENDER BY HOLDER. Only a Holder of New Notes may tender such New Notes
in the Exchange Offer. Any beneficial Holder of New Notes who is not the
registered Holder and who wishes to tender should arrange with the registered
Holder to execute and deliver this Letter of Transmittal on his behalf or must,
prior to completing and executing this Letter of Transmittal and delivering his
New Notes, either make appropriate arrangements to register ownership of the New
Notes in such Holder's name or obtain an endorsement by an Eligible Institution,
or accompany this Letter of Transmittal with a written instrument 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.
4. PARTIAL TENDERS. If less than the entire principal amount of any New
Notes is tendered, the tendering Holder should fill in the principal amount
tendered in the third column of the box entitled "Description of New Notes
Tendered" above. The entire principal amount of New Notes delivered to the
<PAGE>
Exchange Agent will be deemed to have been tendered unless otherwise indicated.
If the entire principal amount of all New Notes is not tendered, then New Notes
for the principal amount of New Notes not tendered and Exchange Notes issued in
exchange for any New Notes accepted will be sent to the Holder at his or her
registered address, unless a different address is provided in the appropriate
box on this Letter of Transmittal, promptly after the New Notes are accepted for
exchange.
5. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
MEDALLION GUARANTEE OF SIGNATURES. If this Letter of Transmittal (or facsimile
hereof) is signed by the record Holder(s) of the New Notes tendered hereby, the
signature must correspond with the name(s) as written on the face of the New
Notes without alteration, enlargement or any change whatsoever. If this Letter
of Transmittal is signed by a participant in the Book-Entry Transfer Facility,
the signature must correspond with the name as it appears on the security
position listing as the Holder of the New Notes.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered Holder or Holders of New Notes listed and tendered hereby and the
Exchange Notes issued in exchange therefor is to be issued (or any untendered
principal amount of New Notes is to be reissued) to the registered Holder, the
said Holder need not and should not endorse any tendered New Notes, nor provide
a separate bond power. In any other case, such Holder must either properly
endorse the New Notes tendered or transmit a properly completed separate bond
power with this Letter of Transmittal, with the signatures on the endorsement or
bond power guaranteed by an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a person
other than the registered Holder or Holders of any New Notes listed, such New
Notes must be endorsed or accompanied by appropriate bond powers, in each case
signed as the name of the registered Holder or Holders appears on the New Notes.
If this Letter of Transmittal (or facsimile hereof) or any New Notes or bond
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, evidence satisfactory to the Company of their
authority so to act must be submitted with this Letter of Transmittal.
Endorsements on New Notes or signatures on bond powers required by this
Instruction 5 must be guaranteed by an Eligible Institution.
No signature guarantee is required if (i) this Letter of Transmittal is
signed by the registered Holder(s) of the New Notes tendered herewith (or by a
participant in the Book-Entry Transfer Facility whose name appears on a security
position listing as the owner of the tendered New Notes) and the issuance of
Exchange Notes (and any New Notes not tendered or not accepted) are to be issued
directly to such registered holder(s) (or, if signed by a participant in the
Book-Entry Transfer Facility, any Exchange Notes or New Notes not tendered or
not accepted are to be deposited to such participant's account at such
Book-Entry Transfer Facility) and neither the box entitled "Special Delivery
Instructions" nor the box entitled "Special Registration Instructions" has been
completed, or (ii) such New Notes are tendered for the account of an Eligible
Institution. In all other cases, all signatures on this Letter of Transmittal
must be guaranteed by an Eligible Institution.
6. SPECIAL REGISTRATION AND DELIVERY INSTRUCTIONS. Tendering Holders should
indicate, in the applicable box or boxes, the name and address (or account at
the Book-Entry Transfer Facility) to which Exchange Notes or substitute New
Notes for principal amounts not tendered or not accepted for exchange are to be
issued or sent, if different from the name and address of the person signing
this Letter of Transmittal. In the case of issuance in a different name, the
taxpayer identification or social security number of the person named must also
be indicated.
7. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the exchange of New Notes pursuant to the Exchange Offer. If,
however, Exchange Notes or New Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be registered or issued
in the name of, any person other than the registered Holder of the New Notes
tendered hereby, or if
<PAGE>
tendered New Notes are registered in the name of any person other than the
person signing this Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of New Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with this Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE NEW NOTES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. TAX IDENTIFICATION NUMBER. Federal income tax law required that a Holder
of any New Notes which are accepted for exchange must provide the Company (as
payor) with its correct taxpayer identification number ("TIN"), which, in the
case of a Holder who is an individual 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.
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.
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 New Notes will be
determined by the Company, in its sole discretion, which determination will be
final and binding. The Company reserves the right to reject any and all New
Notes not validly tendered or any New Notes, the Company's acceptance of which
would, in the opinion of the Company or its counsel, be unlawful. The Company
also reserves the right to waive any conditions of the Exchange Offer or defects
or irregularities in tenders of New Notes as to any ineligibility of any Holder
who seeks to tender New Notes in the Exchange Offer. The interpretation of the
terms and conditions of the Exchange Offer (includes this Letter of Transmittal
and the instructions hereto) by the Company shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of New Notes 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 New Notes, but shall not incur any
liability for failure to give such notification.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to waive,
in whole or part, any of the conditions to the Exchange Offer set forth in the
Prospectus.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular or
contingent tender of New Notes on transmittal of this Letter of Transmittal will
be accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED NEW NOTES. Any Holder whose New
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address indicated above for further instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Requests for assistance or
for additional copies of the Prospectus or this Letter of Transmittal may be
directed to the Exchange Agent at the address or telephone number set forth on
the cover page of this Letter of Transmittal. Holders may also contact their
broker, dealer, commercial bank, trust company or other nominee for assistance
concerning the Exchange Offer.
<PAGE>
14. ACCEPTANCE OF TENDERED NEW NOTES AND ISSUANCE OF EXCHANGE NOTES; RETURN
OF NEW NOTES. Subject to the terms and conditions of the Exchange Offer, the
Company will accept for exchange all validly tendered New Notes as soon as
practicable after the Exchange Date and will issue Exchange Notes therefor as
soon as practicable thereafter. For purposes of the Exchange Offer, the Company
shall be deemed to have accepted tendered New Notes when, as and if the Company
has given written and oral notice thereof to the Exchange Agent. If any tendered
New Notes are not exchanged pursuant to the Exchange Offer for any reason, such
unexchanged New Notes will be returned, without expense, to the undersigned at
the address shown above (or credited to the undersigned's account at the
Book-Entry Transfer Facility designated above) or at a different address as may
be indicated under the box entitled "Special Delivery Instructions."
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the limited
withdrawal rights set forth in the Prospectus under the caption "Exchange offer
- -- Withdrawal Rights."
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE HEREOF
(TOGETHER WITH THE NEW NOTES) WHICH MUST BE DELIVERED BY BOOK-ENTRY TRANSFER OR
IN ORIGINAL HARD COPY FROM) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
(TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 5))
PAYOR'S NAME: HIGH VOLTAGE ENGINEERING CORPORATION
<TABLE>
<C> <S> <C>
-------------------------------------------------------------------------------------------
SUBSTITUTE Part I--Taxpayer Social Security Number
FORM W-9 Identification No.-For
All Accounts
------------------------------------------------------------------
Department of the Treasury Part II--For Payees Exempt from Backup Withholding
Internal Revenue Service
------------------------------------------------------------------
Enter your taxpayer identification number in the appropriate box.
For most individuals and sole proprietors, this is your Social
Payer's Request for Taxpayer Security number. For other entities, it is your Employer
Identification No. Identification Number.
--------------------------------------------------------------------------------------------------
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------------- 1998
-------------------------------------------------------------------------------------------
</TABLE>
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 EXCHANGE NOTES.
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF 10 1/2% SENIOR NOTES DUE 2004
IN EXCHANGE FOR
10 1/2% SENIOR NOTES DUE 2004
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 10% Senior Notes due 2004 (the
"New Notes") to the Exchange Agent pursuant to the guaranteed delivery
procedures described in "Exchange Offer -- Procedures for Tendering New Notes"
of the Company's Prospectus, dated April [ ], 1998 (the "Prospectus") and
in Instruction 2 to the related Letter of Transmittal. Any holder who wishes to
tender New Notes pursuant to such guaranteed delivery procedures must ensure
that the Exchange Agent receives this Notice of Guaranteed Delivery prior to the
Expiration Date (as defined below) of the Exchange Offer. Capitalized terms used
but not defined here have the meanings ascribed to them in the Prospectus or the
Letter of Transmittal.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., BOSTON TIME, ON [ ], 1998,
UNLESS EXTENDED (THE "EXPIRATION DATE"). NEW NOTES TENDERED IN THE EXCHANGE
OFFER MAY BE WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
STATE STREET BANK AND TRUST COMPANY
CORPORATE TRUST DEPARTMENT, 4TH FLOOR
TWO INTERNATIONAL PLACE
BOSTON, MA 02110
BY FACSIMILE:
(617) 664-5290
CONFIRM BY TELEPHONE:
(617) 664-5587
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.
1
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
New Notes 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
<TABLE>
<S> <C>
Names of Registered Holder(s): Address(es):
Signature(s): Date:
Area Code and Telephone No(s).
</TABLE>
Aggregate Principal Amount Represented
by New Notes:
Principal Amount of New Notes:
Certificate number(s) (if known) of New Notes
tendered:
This Notice of Guaranteed Delivery must be signed by the holder(s) exactly
as their name(s) appear(s) on certificates for New Notes or on a security
position listing as the owner of New Notes, or by person(s) authorized to become
holder(s) by endorsements and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer 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):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
<PAGE>
CAPACITY:
- --------------------------------------------------------------------------------
ADDRESS(ES):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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 New Notes tendered hereby in proper form
for transfer (or confirmation of the book-entry transfer of such New Notes into
the Exchange Agent's account at the Book-Entry Transfer Facility described in
the Prospectus under the caption "The Exchange Offer -- Procedures for Tendering
New Notes" 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.
<TABLE>
<S> <C>
Name of Firm: Authorized Signature
Address: Name:
(Include Zip Code) Title:
Area Code and Telephone Number:
Date: , 1997
</TABLE>
DO NOT SEND NEW NOTES WITH THIS FORM. ACTUAL SURRENDER OF NEW NOTES MUST BE MADE
PURSUANT TO, AND BE ACCOMPANIED BY, A PROPERLY COMPLETED AND DULY EXECUTED
LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS.
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.
3
<PAGE>
2. SIGNATURES ON THIS NOTICE OF GUARANTEED DELIVERY. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the New Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the New Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant of
the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the New Notes, the signature must correspond with the
name shown on the security position listing as the owner of the New Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any New Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s) appears
on the New Notes or signed as the name of the participant shown on the
Book-Entry Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance and request for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
4
<PAGE>
Exhibit 99.3
EXCHANGE AGENCY AGREEMENT
April [___], 1998
State Street Bank and Trust Company
Corporate Trust Department
Two International Place
Boston, MA 02110
Ladies and Gentlemen:
On August 8, 1997, High Voltage Engineering Corporation, a Massachusetts
corporation (the "Company"), issued $135,000,000 in aggregate principal amount
of its 10 1/2% Senior Notes due 2004 (the "Original Notes"), pursuant to certain
exemptions from the registration requirements under the Securities Act of 1933,
as amended (the "Securities Act"). On January 16, 1998, the Company issued
$135,000,000 in aggregate principal amount of its 10 1/2% Senior Notes due 2004
(the "Existing Notes"), with terms substantially identical to the Original
Notes, pursuant to a registration statement under the Securities Act, in
exchange for a like amount of the Original Notes. The Original Notes and
Existing Notes are governed by an Indenture, dated as of August 8, 1997, as
amended on March 19, 1998, between the Company, as Issuer, and State Street
Bank and Trust Company ("SSB"), as Trustee.
On March 19, 1998, the Company issued $20,000,000 in aggregate principal
amount of its 10 1/2% Senior Notes due 2004 (the "New Notes"), pursuant to an
exemption from the registration requirements under the Securities Act. The
Company intends to file a registration statement under the Securities Act with
respect to $20,000,000 in aggregate principal amount of its 10 1/2% Senior Notes
due 2004 (the "Exchange Notes") and, in connection therewith, to make an offer
(the "Exchange Offer") to exchange up to $20,000,000 in aggregate principal
amount of the Exchange Notes for a like amount of the New Notes. The terms and
conditions of the Exchange Offer as currently contemplated are set forth in a
prospectus, dated April [__], 1998 (the "Prospectus"), distributed to all
holders of the New Notes.
The Company hereby appoints SSB to act as exchange agent (the "Exchange
Agent") in connection with the Exchange Offer. References hereinafter to "you"
shall refer to SSB, as Exchange Agent hereunder.
The Exchange Offer is expected to be commenced by the Company on or about
the date of Prospectus. The Letter of Transmittal accompanying the Prospectus
is to be used by the holders of the New Notes to accept the Exchange Offer, and
<PAGE>
contains instructions with respect to the delivery of certificates representing
the New Notes tendered.
In the event any holder of the New Notes is tendering by book-entry
transfer to the Existing Agent's account at The Depository Trust Company
("DTC"), such holders may tender through the DTC Automated Tender Offer Program
("ATOP"). DTC participants will transmit their acceptance of the Exchange Offer
to DTC, which will verify the acceptance and execute a book-entry delivery to
your account at DTC. DTC will then send an "Agent's Message" to you for its
acceptance.
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
written notice to you before 5:00 P.M., Boston 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 original New
Notes and any other documents delivered or mailed to you by or for holders of
the New Notes 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 New Notes 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 New Notes 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 Chief Financial Officer, Treasurer,
any Assistant Treasurer, the Chief Executive Officer, the President, any Vice
President, the Clerk, or any Assistant 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
2
<PAGE>
authorized to waive any irregularities in connection with any tender of New
Notes pursuant to the Exchange Offer.
4. Tenders of New Notes 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 New Notes," and New Notes shall be considered
properly tendered to you only when tendered in accordance with the procedures
set forth therein. Notwithstanding the provisions of this paragraph 4, New
Notes 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 New Notes received
subsequent to the Expiration Date and accept its instructions with respect to
disposition of such New Notes.
6. You shall accept tenders:
(a) in cases where the New Notes 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 New Notes
provided that customary transfer requirements, including payment of any
applicable transfer taxes, have been satisfied.
You shall accept partial tenders of New Notes where so indicated and as
permitted in the Letter of Transmittal and deliver Notes representing the
principal amount tendered to the transfer agent or split-up and return any
untendered principal amount to the holder (or such person as may be designated
in the Letter of Transmittal) as promptly as practicable.
7. The Company will exchange New Notes duly tendered for Exchange Notes
on the terms and subject to the conditions set forth in the Prospectus and the
Letter of Transmittal. Delivery of New Notes will be made on behalf of the
Company at the rate of one dollar of principal amount of Exchange Notes for each
one dollar of principal amount of New Notes tendered as soon as practicable
after notice (such notice if given orally, to be confirmed in writing) of
acceptance of said principal amount of New Notes by the Company, provided,
however, that in all cases, New Notes tendered pursuant to the Exchange Offer
will be exchanged only after timely receipt by you of the original New Notes
representing such principal amount,
3
<PAGE>
a properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantees and any other required
documents.
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, New Notes 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 New Notes 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 New Notes 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 part of the New Notes 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 New Notes (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 New Notes, unaccepted New Notes
or Exchange Notes 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:
(a) shall have no 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 New Notes represented thereby deposited with you pursuant to
the
4
<PAGE>
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 New Notes pursuant to the
Exchange Offer as to the wisdom of making such tender or as to the market
value or decline or appreciation in market value of any New Notes.
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 or 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
5
<PAGE>
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 total principal amount of New Notes
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 from 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 principal amount of New Notes
tendered, the aggregate principal amount of New Notes 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.
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
6
<PAGE>
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 New Notes 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 New Notes; provided, however, that the Company shall not be liable
for indemnification or otherwise for any loss, liability, cost or expense to the
extent 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 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. The Company hereby agrees to assume any and all obligations imposed
now or hereafter by any applicable tax law with respect to your duties hereunder
(other than income tax obligations in respect of income earned by you). The
Company hereby undertakes to instruct you in writing with respect to any
responsibility you may have for withholding and other taxes, assessments or
other governmental charges, certifications and governmental reporting in
connection with your duties under this Agreement. The Company hereby agrees to
indemnify and hold you harmless from any liability on account of taxes,
assessments for late payment or other governmental charges or any other loss,
costs or expenses (including reasonable legal fees and expenses) that may be
assessed against you as a result of your duties hereunder, including without
limitation any liability for the withholding or deduction or the failure to
withhold or deduct taxes, and any liability for failure to obtain proper
certifications or to properly report to governmental authorities.
22. The Company shall reimburse you for the amount of any and all transfer
taxes payable in respect of the exchange of New Notes; 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.
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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.
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: 781-224-1001
Telecopier: 781-224-1011
Attention: Chief Financial Officer
If to the Exchange Agent:
State Street Bank and Trust Company
Corporate Trust Division
Two International Place
Boston, MA 02110
Phone: 617 664-5587
Telecopier: 617 664-5290
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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.
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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: Joseph W. McHugh, Jr.
Title: Chief Financial Officer
Accepted as of the date first above written.
STATE STREET BANK AND TRUST COMPANY
By:
------------------------------
Name:
Title:
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Schedule I
FEE SCHEDULE
Pursuant to Paragraph eighteen of the Exchange Agency Agreement, the fee
for the Exchange Agent is $_____ plus out-of-pocket expenses.
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