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SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
KOLLMORGEN CORPORATION
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(Name of Registrant as Specified in Its Charter)
KOLLMORGEN CORPORATION
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by the registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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<PAGE>
RESERVOIR PLACE
[LOGO]
1601 TRAPELO ROAD
WALTHAM, MA 02154
(781) 890-5655
DECEMBER 29, 1997
Dear Kollmorgen Shareholder:
You are cordially invited to attend a special meeting of shareholders of
Kollmorgen Corporation ("Kollmorgen") to be held on January 28, 1998 at 10:00
a.m. at BankBoston, N.A., 100 Federal Street, Boston, Massachusetts (the
"Special Meeting"). At the Special Meeting, you will be asked to vote on a
proposal to approve the issuance of shares of common stock of Kollmorgen (the
"Kollmorgen Common Stock") to be issued in connection with a proposed business
combination (the "Proposed Combination") between Kollmorgen and Pacific
Scientific Company, a California corporation ("Pacific Scientific").
Kollmorgen has commenced a tender offer for a majority of the outstanding
shares of common stock of Pacific Scientific (the "Pacific Scientific Common
Stock"). If the tender offer is successful, the Proposed Combination would be
effected through a merger of Pacific Scientific with a wholly owned subsidiary
of Kollmorgen (the "Proposed Merger"). In the Proposed Merger, each outstanding
share of Pacific Scientific Common Stock (other than shares owned by Pacific
Scientific or any wholly owned subsidiary of Pacific Scientific and shares owned
by Kollmorgen or any direct or indirect wholly owned subsidiary of Kollmorgen)
will be converted into the right to receive shares of Kollmorgen Common Stock.
Upon consummation of the Proposed Combination, the anticipated beneficial
ownership of current Kollmorgen shareholders in the combined company will be 54%
to 59%, while Pacific Scientific shareholders are expected to beneficially own
41% to 46% of the combined company, as described in the accompanying proxy
statement.
We believe that the Proposed Combination offers compelling strategic and
financial benefits to Kollmorgen and Pacific Scientific shareholders. Kollmorgen
is confident that among the many advantages contributing to the combined
company's ability to achieve these benefits would be: the strategic and
operational fit between Kollmorgen and Pacific Scientific, the ability for the
combined company to become a full-service provider, the anticipated significant
financial opportunities available to the combined company due to synergies and
enhanced scale. The benefits of the Proposed Combination are subject to a
variety of risks and uncertainties which are described in the accompanying proxy
statement under "Risk Factors".
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE PROPOSED COMBINATION IS FAIR
TO KOLLMORGEN AND FAIR TO YOU AND IN YOUR BEST INTERESTS. THE BOARD HAS
UNANIMOUSLY APPROVED THE ISSUANCE OF THE KOLLMORGEN COMMON STOCK TO BE ISSUED IN
THE PROPOSED COMBINATION, AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE
THE ISSUANCE OF THE KOLLMORGEN COMMON STOCK TO BE ISSUED IN THE PROPOSED
COMBINATION.
Because of the significance of the Proposed Combination, your participation
in the Special Meeting, in person or by proxy, is especially important. We hope
you will be able to attend the Special Meeting. However, even if you anticipate
attending in person, we urge you to complete, sign and return the enclosed proxy
card promptly in the enclosed postage-paid envelope to ensure that your shares
of Kollmorgen Common Stock will be represented at the Special Meeting. If you do
attend, you will, of course, be able to vote your shares in person.
Thank you, and we look forward to sharing our vision with you at the Special
Meeting.
/s/ Gideon Argov
Gideon Argov
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
This Proxy Statement is dated December 29, 1997 and
is first being mailed to shareholders on December 29, 1997.
<PAGE>
KOLLMORGEN CORPORATION
1601 TRAPELO ROAD
WALTHAM, MASSACHUSETTS 02154
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
December 29, 1997
To the Shareholders of Kollmorgen Corporation:
A special meeting of shareholders of Kollmorgen Corporation, a New York
corporation ("Kollmorgen"), will be held on January 28, 1998, at 10:00 a.m. at
BankBoston, N.A., 100 Federal Street, Boston, Massachusetts (the "Special
Meeting"), for the following purpose:
To consider and vote upon a proposal to approve the issuance of shares
of common stock of Kollmorgen ("Kollmorgen Common Stock") to be issued in
connection with the proposed business combination between Pacific Scientific
Company, a California corporation ("Pacific Scientific"), and Kollmorgen
(the "Proposed Combination").
Holders of record of Kollmorgen Common Stock at the close of business on
December 26, 1997 (the "Record Date") will be entitled to vote at the Special
Meeting, including any adjournments or postponements thereof. On the Record
Date, there were 10,016,871 shares of Kollmorgen Common Stock outstanding
(excluding treasury shares), each of which is entitled to one vote with respect
to the matter to be voted on at the Special Meeting.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE PROPOSED COMBINATION IS FAIR
TO KOLLMORGEN AND FAIR TO YOU AND IN YOUR BEST INTERESTS. THE BOARD HAS
UNANIMOUSLY APPROVED THE ISSUANCE OF THE KOLLMORGEN COMMON STOCK TO BE ISSUED IN
THE PROPOSED COMBINATION, AND UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE
THE ISSUANCE OF THE KOLLMORGEN COMMON STOCK TO BE ISSUED IN THE PROPOSED
COMBINATION.
The affirmative vote of a majority of the shares of Kollmorgen Common Stock
present and voting at the Special Meeting and entitled to vote on the Record
Date, voting as a single class, is required to approve the issuance of shares of
Kollmorgen Common Stock to be issued in the Proposed Combination. Detailed
information concerning the Proposed Combination is contained in the attached
proxy statement which you are urged to read carefully.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE
COMPLETE, SIGN AND RETURN THE PROXY CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
A SHAREHOLDER WHO EXECUTES A PROXY MAY REVOKE IT AT ANY TIME BEFORE IT IS
EXERCISED BY GIVING WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF KOLLMORGEN,
BY SUBSEQUENT DELIVERY OF ANOTHER VALIDLY EXECUTED PROXY OR BY ATTENDING THE
SPECIAL MEETING AND VOTING IN PERSON.
THE BOARD OF KOLLMORGEN UNANIMOUSLY RECOMMENDS THAT YOU VOTE TO APPROVE THE
ISSUANCE OF SHARES OF KOLLMORGEN COMMON STOCK TO BE ISSUED IN THE PROPOSED
COMBINATION.
By Order of the Board,
/s/ James A. Eder
James A. Eder
VICE PRESIDENT, GENERAL COUNSEL
AND SECRETARY
YOUR VOTE IS IMPORTANT.
PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR PROXY.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
THE SPECIAL MEETING........................................................................................ 1
Date, Time and Place................................................................................... 1
Matter to Be Considered at the Special Meeting......................................................... 2
Record Date; Stock Entitled to Vote; Quorum............................................................ 2
Votes Required; Voting of Proxies...................................................................... 2
Revocability of Proxies................................................................................ 3
Solicitation of Proxies................................................................................ 3
Share Ownership of Management and Certain Shareholders................................................. 3
THE PROPOSED COMBINATION................................................................................... 4
Terms of the Offer and the Proposed Merger............................................................. 4
Background of the Offer and the Proposed Merger........................................................ 6
Issuance of Kollmorgen Common Stock.................................................................... 10
Reasons for the Proposed Combination; Board Recommendation............................................. 11
Risk Factors........................................................................................... 13
Opinion of Financial Advisor........................................................................... 14
Material Federal Income Tax Consequences............................................................... 19
Accounting Treatment................................................................................... 19
Form of the Proposed Merger............................................................................ 20
Regulatory Matters..................................................................................... 20
Appraisal Rights....................................................................................... 22
Certain Litigation..................................................................................... 22
THE COMPANIES.............................................................................................. 22
Kollmorgen............................................................................................. 22
Purchaser.............................................................................................. 22
Pacific Scientific..................................................................................... 22
COMPARATIVE MARKET PRICES AND DIVIDENDS.................................................................... 23
SELECTED FINANCIAL DATA.................................................................................... 24
UNAUDITED PRO FORMA FINANCIAL DATA......................................................................... 29
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.................................................................. 38
BENEFICIAL OWNERSHIP OF KOLLMORGEN COMMON STOCK............................................................ 38
Five Percent Shareholders.............................................................................. 38
Security Ownership of Management....................................................................... 39
EXPERTS.................................................................................................... 40
FUTURE SHAREHOLDER PROPOSALS............................................................................... 40
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................................................ 40
</TABLE>
<PAGE>
THE SPECIAL MEETING
DATE, TIME AND PLACE
A special meeting of shareholders of Kollmorgen Corporation, a New York
corporation ("Kollmorgen"), will be held on January 28, 1998 at 10:00 a.m. at
BankBoston, N.A., 100 Federal Street, Boston, Massachusetts (the "Special
Meeting").
MATTER TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, holders of shares of common stock, par value $2.50
per share, of Kollmorgen ("Kollmorgen Common Stock"), are being asked to approve
the issuance of shares of Kollmorgen Common Stock (the "Share Issuance
Proposal") to be issued in connection with a proposed business combination (the
"Proposed Combination") between Kollmorgen and Pacific Scientific Company, a
California corporation ("Pacific Scientific"). Pursuant to the applicable rules
of the New York Stock Exchange, Inc. (the "NYSE"), on which Kollmorgen Common
Stock is listed, shareholder approval is required for certain issuances of
securities. The Board of Directors of Kollmorgen (the "Board") is seeking your
approval of the Share Issuance Proposal.
THE BOARD HAS DETERMINED THAT THE PROPOSED COMBINATION IS FAIR TO KOLLMORGEN
AND FAIR TO, AND IN THE BEST INTERESTS OF, THE SHAREHOLDERS OF KOLLMORGEN, HAS
UNANIMOUSLY APPROVED THE SHARE ISSUANCE PROPOSAL AND UNANIMOUSLY RECOMMENDS THAT
KOLLMORGEN SHAREHOLDERS VOTE "FOR" THE SHARE ISSUANCE PROPOSAL.
In furtherance of the Proposed Combination, on December 15, 1997, Torque
Corporation, a wholly owned subsidiary of Kollmorgen ("Purchaser"), commenced a
tender offer (the "Offer") for 6,347,241 shares of common stock, par value $1.00
per share, of Pacific Scientific ("Pacific Scientific Common Stock"), including
the associated preferred stock purchase rights (the "Rights" and, together with
the Pacific Scientific Common Stock, the "Pacific Scientific Common Shares"), or
such greater or lesser number of Pacific Scientific Common Shares that, together
with the Pacific Scientific Common Shares owned by Kollmorgen and Purchaser,
would constitute a majority of the outstanding Pacific Scientific Common Shares
on a fully diluted basis, at a price of $20.50 per Pacific Scientific Common
Share, net to the seller in cash. Consummation of the Offer would be followed by
a merger or similar business combination between Pacific Scientific and
Kollmorgen, Purchaser or another direct or indirect subsidiary of Kollmorgen
(the "Proposed Merger"), in which each share of Pacific Scientific Common Stock
then outstanding (other than shares held by Pacific Scientific or any wholly
owned subsidiary of Pacific Scientific and shares owned by Kollmorgen, Purchaser
or any other direct or indirect wholly owned subsidiary of Parent) would be
converted into the right to receive $20.50 of Kollmorgen Common Stock.
The exact number of shares of Kollmorgen Common Stock into which each
Pacific Scientific Common Share will be converted will be determined by an
exchange ratio (the "Exchange Ratio") calculated by dividing $20.50 by the
average, over the 20 consecutive trading days ending five days prior to the
meeting of Pacific Scientific shareholders called for the purpose of voting on
the Proposed Merger, of the daily average of the high and low per share sales
prices of Kollmorgen Common Stock (weighted by sales volume) (the "Average
Kollmorgen Share Price"). In the event that the Average Kollmorgen Share Price
during such period is less than $15.19 or greater than $18.56, the Exchange
Ratio would be fixed at 1.350 shares of Kollmorgen Common Stock or 1.104 shares
of Kollmorgen Common Stock, respectively, per Pacific Scientific Common Share.
According to Pacific Scientific's Quarterly Report on Form 10-Q for the
quarter ended September 26, 1997, there are approximately 12,694,880 shares of
Pacific Scientific Common Stock outstanding, assuming the exercise of the
weighted average number of dilutive options outstanding during that quarter, of
which just less than half (or approximately 6,347,439 shares) will be converted
into shares of Kollmorgen Common Stock in the Proposed Merger. Hence, the total
number of shares of Kollmorgen Common Stock to be issued in the Proposed Merger
will be determined by multiplying the Exchange Ratio by the 6,347,439 shares of
Pacific Scientific Common Stock to be converted. Based on the foregoing, the
anticipated beneficial ownership of current Kollmorgen shareholders in the
combined company will be 54% to 59%, while Pacific Scientific shareholders are
expected to beneficially own 41% to 46% of the
<PAGE>
combined company, depending on the Exchange Ratio. Based on an assumed market
value for Kollmorgen Common Stock of $17.88 per share (the closing price of
Kollmorgen Common Stock on December 26, 1997), Pacific Scientific shareholders
would hold an equity stake of approximately 42% in the combined company. In any
event, the Share Issuance Proposal approves the issuance of a sufficient number
of shares of Kollmorgen Common Stock to complete the Proposed Merger.
Also on December 15, 1997, Kollmorgen commenced the solicitation of consents
from Pacific Scientific's shareholders (the "Consent Solicitation") to call a
special meeting of Pacific Scientific's shareholders to (i) remove from office
the entire Board of Directors of Pacific Scientific (the "Pacific Scientific
Board"), (ii) fill the newly created vacancies on the Pacific Scientific Board
by electing six persons nominated by Kollmorgen (the "Kollmorgen Nominees") to
the Pacific Scientific Board, who are expected to take such actions, subject to
their fiduciary duties under applicable law, as may be necessary to consummate
the Offer and the Proposed Merger and (iii) repeal any and all provisions of the
Pacific Scientific bylaws that have not been duly filed by Pacific Scientific
with the Securities and Exchange Commission (the "Commission") prior to August
11, 1997, including any and all amendments to the Pacific Scientific bylaws
adopted on or after December 15, 1997 (the "Bylaw Repeal Proposal"), and filed
definitive consent solicitation materials and a related registration statement
with the Commission.
In addition, on December 15, 1997, Kollmorgen commenced litigation against
Pacific Scientific and the Pacific Scientific Board in the United States
District Court for the Central District of California seeking, among other
things, an order (i) declaring the failure to redeem the Rights or render the
Rights inapplicable to the Offer and the Proposed Merger or to approve the Offer
and the Proposed Merger for purposes of Article Fifth of Pacific Scientific's
Articles of Incorporation ("Article Fifth") would constitute a breach of the
Pacific Scientific Board's fiduciary duties to Pacific Scientific shareholders
under California law, (ii) invalidating the Rights or compelling the Pacific
Scientific Board to redeem the Rights or render the Rights inapplicable to the
Offer and the Proposed Merger, (iii) compelling the Pacific Scientific Board to
approve the Offer and the Proposed Merger for purposes of Article Fifth and (iv)
enjoining the Pacific Scientific Board from taking any actions to interfere with
the Offer, the Consent Solicitation or the Proposed Merger.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of record of Kollmorgen Common Stock at the close of business
on December 26, 1997 (the "Record Date") are entitled to notice of and to vote
at the Special Meeting. On the Record Date, 10,016,871 shares of Kollmorgen
Common Stock were issued and outstanding and held by approximately 1,900 holders
of record. A majority of the shares of Kollmorgen Common Stock issued and
outstanding and entitled to vote on the Record Date must be represented in
person or by proxy at the Special Meeting in order for a quorum to be present
for purposes of transacting business. In the event that a quorum is not present
at the Special Meeting, it is expected that such meeting will be adjourned or
postponed to solicit additional proxies. Holders of record of Kollmorgen Common
Stock on the Record Date are each entitled to one vote per share on the matter
to be considered at the Special Meeting.
VOTES REQUIRED; VOTING OF PROXIES
The affirmative vote of a majority of the shares of Kollmorgen Common Stock
present and voting at the Special Meeting and entitled to vote on the Record
Date, voting as a single class, is required to approve the Share Issuance
Proposal.
For voting purposes at the Special Meeting, only shares affirmatively voted
in favor of the Share Issuance Proposal (including properly executed proxies not
containing voting instructions -- see below) will be counted as favorable votes
for the Share Issuance Proposal. The abstention from voting will have the same
effect as a vote against approval of the Share Issuance Proposal. The failure to
submit a proxy (or to vote in person) will not count as a vote against approving
the Share Issuance Proposal. In addition,
2
<PAGE>
under the applicable rules of the NYSE, brokers who hold shares in street name
for customers who are the beneficial owners of such shares are prohibited from
giving a proxy to vote such customers' shares in the absence of specific
instructions from such customers ("Broker Non-votes"). However, Broker Non-votes
will not count as votes against approving the Share Issuance Proposal.
Shares represented by all properly executed proxies received in time for the
Special Meeting will be voted at the Special Meeting in the manner specified by
the holders thereof. Properly executed proxies that do not contain voting
instructions will be voted "FOR" approval of the Share Issuance Proposal.
Abstentions may be specified on all proposals. Shares of Kollmorgen Common
Stock represented at the Special Meeting but not voting, including shares of
Kollmorgen Common Stock for which proxies have been received but with respect to
which holders of shares have abstained on any matter, will be treated as present
at the Special Meeting for purposes of determining the presence or absence of a
quorum for the transaction of all business.
The persons named as proxies by a Kollmorgen shareholder may propose and
vote for one or more adjournments of the Special Meeting, including, without
limitation, adjournments to permit further solicitations of proxies in favor of
any proposal; PROVIDED, HOWEVER, that no proxy that is voted against the Share
Issuance Proposal will be voted in favor of any such adjournment or
postponement.
REVOCABILITY OF PROXIES
The grant of a proxy on the enclosed form of proxy does not preclude a
shareholder from voting in person. A shareholder may revoke a proxy at any time
prior to its exercise (i) by filing a duly executed revocation of proxy with the
Secretary of Kollmorgen, (ii) by submitting a duly executed form of proxy
bearing a later date or (iii) by appearing at the Special Meeting and voting in
person at the Special Meeting. Attendance at the Special Meeting will not, in
and of itself, constitute revocation of a proxy.
SOLICITATION OF PROXIES
Kollmorgen will bear the cost of the solicitation of proxies from its
shareholders and the cost of printing this proxy statement (this "Proxy
Statement"). In addition to solicitation by mail, the directors, officers and
employees of Kollmorgen and its subsidiaries may solicit proxies from Kollmorgen
shareholders by telephone, telegram or in person. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries to forward
the solicitation materials to the beneficial owners of stock held of record by
such persons, and Kollmorgen will reimburse such custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses in connection therewith.
Kollmorgen has retained Georgeson & Company Inc. ("Georgeson") for
solicitation and advisory services in connection with each of the Consent
Solicitation, the Offer and the solicitation of proxies in connection with the
Special Meeting, for which Georgeson will receive an aggregate fee of $100,000,
together with reimbursement for its reasonable out-of-pocket expenses and will
be indemnified against certain liabilities and expenses, including certain
liabilities under the federal securities laws.
SHARE OWNERSHIP OF MANAGEMENT AND CERTAIN SHAREHOLDERS
As of December 9, 1997, directors and officers of Kollmorgen and their
affiliates were owners of an aggregate of approximately 169,907 shares of
Kollmorgen Common Stock (representing approximately 1.7% of the total then
outstanding). Each director and executive officer of Kollmorgen has indicated
his or her present intention to vote, or cause to be voted, the Kollmorgen
Common Stock owned by him for approval of the Share Issuance Proposal. As of
December 9, 1997, directors and officers of Kollmorgen and their affiliates
beneficially owned an aggregate of approximately 801,007 shares of Kollmorgen
Common Stock (representing approximately 7.5% of the total then outstanding).
See "Beneficial Ownership of Kollmorgen Common Stock". Based upon publicly filed
information with the Commission, there is
3
<PAGE>
no indication that directors and officers of Pacific Scientific and their
affiliates were beneficial owners of more than five percent of the Kollmorgen
Common Stock.
The Board is not aware of any matter other than those set forth in this
Proxy Statement which will be brought before the Special Meeting.
THE PROPOSED COMBINATION
TERMS OF THE OFFER AND THE PROPOSED MERGER
Kollmorgen has proposed to enter into the Proposed Combination with Pacific
Scientific, which Kollmorgen believes would offer exceptional benefits to the
shareholders of both Kollmorgen and Pacific Scientific. Because Pacific
Scientific declined to enter into negotiations concerning a business combination
with Kollmorgen, on December 15, 1997, Kollmorgen commenced the Offer and the
Consent Solicitation. The Offer is being made for 6,347,241 Pacific Scientific
Common Shares, or such greater or lesser number of Pacific Scientific Common
Shares that, when added to the number of Pacific Scientific Common Shares owned
by Kollmorgen and Purchaser, will constitute a majority of the Pacific
Scientific Common Shares outstanding on a fully diluted basis, at a price of
$20.50 per Pacific Scientific Common Share, net to the seller in cash. The
purchase price of $20.50 per Pacific Scientific Common Share represents
approximately a 33% premium over Pacific Scientific's closing share price of
$15.44 on the New York Stock Exchange on Friday, December 12, 1997 (the last
full trading day prior to Kollmorgen's announcement of the Proposed
Combination). The Offer is subject to the terms and conditions set forth in
Purchaser's offer to purchase dated December 15, 1997 (the "Offer to Purchase")
and in the related letter of transmittal (the "Letter of Transmittal"). The
aggregate amount of funds required to complete the Offer is expected to be
approximately $230 million, consisting of amounts required to purchase Pacific
Scientific Common Shares in the Offer, to refinance certain existing
indebtedness of Kollmorgen and Pacific Scientific and to pay related fees and
expenses. Because these amounts are calculated based on publicly available
information, the actual amount of funds required to complete the Offer could
differ.
Kollmorgen is seeking to negotiate with Pacific Scientific a definitive
merger agreement providing for the Proposed Combination pursuant to which
Pacific Scientific would, as soon as practicable following consummation of the
Offer, consummate the Proposed Merger. At the effective time of the Proposed
Merger (the "Effective Time"), each share of Pacific Scientific Common Stock
then outstanding (other than shares of Pacific Scientific Common Stock held by
Pacific Scientific or any wholly owned subsidiary of Pacific Scientific and
shares of Pacific Scientific Common Stock owned by Kollmorgen, Purchaser or any
other direct or indirect wholly owned subsidiary of Kollmorgen) will be
converted into the right to receive $20.50 of Kollmorgen Common Stock. The exact
number of shares of Kollmorgen Common Stock into which each share of Pacific
Scientific Common Share will be converted will be determined by the Exchange
Ratio. In the event that the Average Kollmorgen Share Price is less than $15.19
or greater than $18.56, the Exchange Ratio would be fixed at 1.350 shares of
Kollmorgen Common Stock or 1.104 shares of Kollmorgen Common Stock,
respectively, per Pacific Scientific Common Share.
Based upon publicly available information, upon the consummation of the
Proposed Combination, the anticipated beneficial ownership of current Kollmorgen
shareholders in the combined company will be 54% to 59%, while Pacific
Scientific shareholders are expected to beneficially own 41% to 46% of the
combined company, depending on the Exchange Ratio. Based on an assumed market
value for Kollmorgen Common Stock of $17.88 per share (the closing price of
Kollmorgen Common Stock on December 26, 1997), Pacific Scientific shareholders
would hold an equity stake of approximately 42% in the combined company.
4
<PAGE>
The following table illustrates the calculation of the number of shares of
Kollmorgen Common Stock to be issued in the Proposed Merger at various assumed
values for the Average Kollmorgen Share Price.
FOR ILLUSTRATIVE PURPOSES ONLY:
<TABLE>
<CAPTION>
AGGREGATE VALUE OF
HYPOTHETICAL AVERAGE AGGREGATE NUMBER KOLLMORGEN STOCK
KOLLMORGEN SHARE PRICE EXCHANGE RATIO OF SHARES(1)(2) ISSUED(3)
- ----------------------- ----------------- ----------------- -------------------------
<S> <C> <C> <C>
$ 20.25 1.104x 7,007,573 $ 141,903,353.25
19.41 1.104 7,007,573 136,016,991.93
18.56 1.104 7,007,573 130,060,554.88
17.72 1.157 7,343,987 130,135,449.64
16.88(4) 1.215 7,712,138 130,180,889.44
16.03 1.279 8,118,374 130,137,535.22
15.19 1.350 8,569,043 130,163,763.17
14.34 1.350 8,569,043 122,880,076.62
13.50 1.350 8,569,043 115,682,080.50
</TABLE>
- ------------------------
(1) The table assumes that approximately 12,694,880 Pacific Scientific Common
Shares were outstanding on a fully diluted basis as of September 26, 1997,
as reported in Pacific Scientific's Quarterly Report on Form 10-Q for the
quarter ended September 26, 1997. Hence, the number of Pacific Scientific
Common Shares to be converted in the Proposed Merger is assumed for purposes
of the table to be just less than half or 6,347,439. Because the foregoing
is based on publicly available information, the actual number of Pacific
Scientific Common Shares outstanding, and accordingly the actual number of
shares of Kollmorgen Common Stock to be issued, may differ.
(2) Calculated by multiplying the assumed number of Pacific Scientific Common
Shares to be converted in the Proposed Merger (6,347,439) by the Exchange
Ratio.
(3) Calculated by multiplying the Hypothetical Average Kollmorgen Share Price by
the Aggregate Number of Shares to be issued.
(4) Represents the closing price of shares of Kollmorgen Common Stock on the
NYSE on December 12, 1997, the last full trading day prior to Kollmorgen's
announcement of the Offer and the Proposed Merger.
It is Kollmorgen's current intention to integrate each company's motion
control business and to conduct the business of each of Kollmorgen and Pacific
Scientific on a combined basis following consummation of the Proposed
Combination. In connection with the Proposed Combination, Kollmorgen has
reviewed, and will continue to review, on the basis of publicly available
information, various possible business strategies that it might consider in the
event that Kollmorgen acquires control of Pacific Scientific. In addition, if
and to the extent that Kollmorgen acquires control of Pacific Scientific or
otherwise obtains access to the books and records of Pacific Scientific,
Kollmorgen and Purchaser intend to conduct a detailed review of Pacific
Scientific and its assets, financial projections, corporate structure, dividend
policy, capitalization, operations, properties, policies, management and
personnel and consider and determine what, if any, changes would be desirable in
light of the circumstances which then exist, with a view to optimizing Pacific
Scientific's potential in conjunction with Kollmorgen's business. Such
strategies could include, among other things, changes in Pacific Scientific's
business, corporate structure, marketing strategies, capitalization, management
or dividend policy and changes to the Pacific Scientific Articles of
Incorporation or Bylaws.
5
<PAGE>
BACKGROUND OF THE OFFER AND THE PROPOSED MERGER
In the ordinary course of business, Kollmorgen analyzes a broad range of
strategic alternatives, including possible business combinations with other
companies in the motion control business. Kollmorgen was familiar with Pacific
Scientific because of Kollmorgen's knowledge of the industry and has for
approximately the past two years contemplated a possible transaction with
Pacific Scientific or with other industry participants. On August 21, 1996, Mr.
Robert J. Cobuzzi, Kollmorgen's Senior Vice President and Chief Financial
Officer, telephoned Mr. Richard V. Plat, who was at the time Pacific
Scientific's Executive Vice President, Chief Financial Officer and Secretary, to
engage in discussions regarding a possible transaction involving Kollmorgen and
Pacific Scientific. Mr. Plat reacted negatively, suggesting that Pacific
Scientific's common stock was undervalued by the market. Thereafter, as a matter
of course, Kollmorgen continued to evaluate a wide array of strategic options.
In the second quarter of 1997, Kollmorgen intensified its review of a possible
business combination with Pacific Scientific.
After several months of detailed review of the implications of a possible
Kollmorgen-Pacific Scientific combination, on or about July 18, 1997, Mr. Gideon
Argov, Kollmorgen's Chairman, President and Chief Executive Officer, telephoned
Mr. Lester Hill, Pacific Scientific's Chairman, President and Chief Executive
Officer, to suggest that they meet to discuss ways in which the companies might
cooperate and the possibility of combining Kollmorgen and Pacific Scientific.
Mr. Hill agreed and a meeting was arranged for the first week in August 1997.
On August 1, 1997, Mr. Argov met with Mr. Hill in Newport Beach, California.
Mr. Argov discussed the two companies and the motion control industry with Mr.
Hill and proposed a merger of Kollmorgen and Pacific Scientific. The merger
proposed by Mr. Argov would have been structured as a merger of equals
transaction, and Mr. Argov indicated that the key executives of Kollmorgen and
Pacific Scientific would become the senior executives of the combined company.
Mr. Hill indicated that he needed more time to consider Mr. Argov's proposal.
Mr. Argov and Mr. Hill agreed to speak again within the next few weeks.
On or about August 13, 1997, Mr. Argov telephoned Mr. Hill to ask whether
Mr. Hill had considered Mr. Argov's proposal. Mr. Hill responded that he had but
that he needed more time to do so since Pacific Scientific was in the midst of a
strategic planning process that was expected to last into September. Mr. Argov
agreed to call Mr. Hill in early September.
On or about September 15, 1997, Mr. Argov again telephoned Mr. Hill to ask
whether Mr. Hill was ready to discuss a possible business combination. Mr. Hill
again responded that he was not ready to discuss a possible business combination
because of Pacific Scientific's ongoing strategic planning process. Mr. Argov
and Mr. Hill agreed to speak again on October 15 or 16.
On or about October 15, 1997, Mr. Argov attempted to telephone Mr. Hill, but
Mr. Hill did not return Mr. Argov's calls.
On October 21, 1997, Mr. Argov telephoned Mr. Hill and again proposed that
Kollmorgen and Pacific Scientific commence discussions regarding a possible
merger. Mr. Hill responded that he had thought about Mr. Argov's suggestion and
discussed it with the Pacific Scientific Board and had concluded that it would
not be in the best interests of Pacific Scientific.
On October 22, 1997, Mr. Hill telephoned Mr. Argov to offer to sell Pacific
Scientific's Automation Intelligence, Inc. business to Kollmorgen. Mr. Argov
indicated that Kollmorgen would not be interested in acquiring only a small
piece of the Pacific Scientific business.
On December 9, 1997, Mr. Argov telephoned Mr. Hill to inform Mr. Hill that
Mr. Argov was authorized by the Board to make a proposal to acquire Pacific
Scientific for $20.50 per share in cash and stock, and that Mr. Hill should
expect to receive a letter from Mr. Argov making such a proposal. Mr. Argov
reiterated Kollmorgen's belief that a combination of Pacific Scientific and
Kollmorgen offered
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significant benefits to both companies' shareholders and expressed his hope that
Mr. Hill and the Pacific Scientific Board would, once they had undertaken an
informed review of Kollmorgen's proposal, support the proposed combination and
open substantive discussions with Kollmorgen. Mr. Hill promised to telephone Mr.
Argov with a response to the proposal letter on Friday morning, December 12,
1997. Following that telephone call, Mr. Argov sent to Mr. Hill a letter
outlining the contemplated terms of the Proposed Combination.
On December 12, 1997, Mr. Hill failed to telephone Mr. Argov as previously
agreed. Mr. Argov attempted to reach Mr. Hill by telephone without success.
After the close of business on December 12, 1997, Mr. Argov received the
following letter by telecopy:
DEAR MR. ARGOV:
I HAVE RECEIVED YOUR LETTER OF THE 9TH.
I HAVE SHARED IT WITH THE BOARD OF DIRECTORS. WE WILL BE BACK TO YOU
ONCE WE HAVE HAD THE CHANCE TO FULLY CONSIDER THE MATTER.
BEST REGARDS,
LESTER HILL
On December 15, Mr. Argov sent to Mr. Hill the following letter:
DEAR BUCK:
IN AUGUST, YOU AND I MET TO DISCUSS WHAT WE AT KOLLMORGEN BELIEVE
ARE THE COMPELLING MERITS OF A STRATEGIC BUSINESS COMBINATION OF
KOLLMORGEN CORPORATION AND PACIFIC SCIENTIFIC COMPANY. WE EXPLORED A
BROAD RANGE OF TOPICS RELATED TO SUCH A COMBINATION, ALL OF WHICH, MY
COLLEAGUES ON THE BOARD AND SENIOR MANAGEMENT TEAM FIRMLY BELIEVE, LEAD
TO THE CONCLUSION THAT A STRATEGIC MERGER OF OUR TWO COMPANIES OFFERS
SIGNIFICANT BENEFITS TO OUR RESPECTIVE SHAREHOLDERS, CUSTOMERS AND
EMPLOYEES. ON DECEMBER 9, I AGAIN DESCRIBED FOR YOU, BOTH OVER THE PHONE
AND IN MY LETTER OF THAT DATE, WHAT WE AT KOLLMORGEN BELIEVE ARE SOME OF
THE COMPELLING STRATEGIC, OPERATIONAL AND FINANCIAL BENEFITS OF A
BUSINESS COMBINATION OF OUR TWO COMPANIES AND THE EXTRAORDINARY VALUE
THAT COMBINATION COULD REPRESENT FOR OUR RESPECTIVE SHAREHOLDERS.
WE AT KOLLMORGEN WERE THUS QUITE DISAPPOINTED THAT IN AUGUST AND
AGAIN IN DECEMBER YOU REFUSED TO NEGOTIATE OUR PROPOSAL FOR THIS
BUSINESS COMBINATION. ACCORDINGLY, WE HAVE DECIDED TO PRESENT OUR OFFER
DIRECTLY TO THE SHAREHOLDERS OF PACIFIC SCIENTIFIC, AND ARE TODAY
PUBLICLY ANNOUNCING THAT WE ARE COMMENCING A TENDER OFFER TO ACQUIRE
HALF OF PACIFIC SCIENTIFIC'S OUTSTANDING SHARES FOR $20.50 PER SHARE IN
CASH. PURSUANT TO OUR PROPOSAL, FOLLOWING COMPLETION OF THE TENDER
OFFER, KOLLMORGEN AND PACIFIC SCIENTIFIC WILL MERGE, AND EACH REMAINING
SHARE OF PACIFIC SCIENTIFIC STOCK WILL BE EXCHANGED FOR KOLLMORGEN
COMMON STOCK WITH A VALUE OF $20.50 PER SHARE, BASED ON THE AVERAGE
PRICE OF KOLLMORGEN STOCK DURING THE TWENTY TRADING DAYS ENDING FIVE
DAYS PRIOR TO THE MEETING OF PACIFIC SCIENTIFIC SHAREHOLDERS CALLED TO
VOTE ON THE MERGER. THE VALUE OF THE STOCK CONSIDERATION WILL BE
PROTECTED BY A COLLAR.
AMONG THE KEY ASPECTS OF THE TRANSACTION WE PROPOSE ARE THE
FOLLOWING:
- A PREMIUM OF 33%. THE PURCHASE PRICE OF $20.50 PER COMMON SHARE
REPRESENTS APPROXIMATELY A 33% PREMIUM OVER PACIFIC SCIENTIFIC'S
CLOSING SHARE PRICE OF $15.44 ON THE NEW YORK STOCK EXCHANGE ON
FRIDAY, DECEMBER 12, 1997, AND APPROXIMATELY A 37% PREMIUM OVER THE
COMPANY'S CLOSING SHARE PRICE FOR THE PRECEDING 30 TRADING DAYS.
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- IMMEDIATE CASH PAYMENT FOR HALF OF PACIFIC SCIENTIFIC'S CAPITAL
STOCK. HALF OF PACIFIC SCIENTIFIC'S OUTSTANDING SHARES WILL BE
PURCHASED FOR A CASH PAYMENT OF $20.50 PER SHARE IF THE TENDER
OFFER IS SUCCESSFULLY CONSUMMATED.
- CONTINUED PARTICIPATION IN THE FUTURE GROWTH OF THE COMBINED
COMPANY. BECAUSE PACIFIC SCIENTIFIC'S SHAREHOLDERS HAVE THE ABILITY
TO RECEIVE KOLLMORGEN COMMON STOCK IN THE PROPOSED MERGER, THEY
WILL HAVE THE OPPORTUNITY TO PARTICIPATE IN THE FUTURE GROWTH AND
SUCCESS OF THE COMBINED ENTERPRISE. UPON CONSUMMATION OF THE
PROPOSED MERGER, PACIFIC SCIENTIFIC SHAREHOLDERS WILL HOLD AN
EQUITY STAKE OF APPROXIMATELY 43% IN THE COMBINED COMPANY, BASED
UPON AN ASSUMED MARKET VALUE FOR KOLLMORGEN COMMON STOCK OF $16.88
PER SHARE (THE CLOSING PRICE OF KOLLMORGEN COMMON STOCK ON DECEMBER
12, 1997).
- OPERATING AND REVENUE SYNERGIES. BASED ON PUBLIC INFORMATION,
KOLLMORGEN MANAGEMENT BELIEVES THAT THE COMBINED COMPANY CAN
ACHIEVE MORE THAN $15 MILLION OF ANNUAL OPERATING SYNERGIES IN
1999, RISING TO MORE THE $20 MILLION IN 2000 AND INCREASING
THEREAFTER. MANAGEMENT BELIEVES THESE SYNERGIES CAN BE ACHIEVED
PRINCIPALLY FROM COST SAVINGS IN SELLING AND MARKETING EXPENSES AND
CONSOLIDATION OF RESEARCH AND DEVELOPMENT, AND EXPECTS TO REALIZE
ADDITIONAL SYNERGIES FROM CROSS-SELLING OPPORTUNITIES, JOINT
PURCHASING SAVINGS, AND REDUCTION IN CORPORATE EXPENSES.
- AN ACCRETIVE TRANSACTION. KOLLMORGEN IS CONFIDENT THAT THE PROPOSED
COMBINATION WILL BE ACCRETIVE TO EARNINGS PER SHARE IN 1999, THE
FIRST FULL YEAR OF OPERATIONS OF THE COMBINED COMPANY, AND
INCREASINGLY SO THEREAFTER, BASED UPON THE ANTICIPATED SYNERGIES
DESCRIBED ABOVE.
- COMMITTED FINANCING. KOLLMORGEN HAS ENTERED INTO A BINDING
COMMITMENT LETTER WITH SALOMON SMITH BARNEY AND ITS AFFILIATE
SALOMON BROTHERS HOLDING COMPANY INC IN WHICH SALOMON BROTHERS
HOLDING COMPANY INC HAS COMMITTED TO PROVIDE, SUBJECT TO CERTAIN
CONDITIONS, WHAT KOLLMORGEN BELIEVES IS A CONSERVATIVELY FINANCED
SECURED BANK FACILITY TO FULLY FINANCE THE TRANSACTION, INCLUDING
THE REFINANCING OF EXISTING INDEBTEDNESS AND THE PROVISION OF A
WORKING CAPITAL FACILITY FOR THE COMBINED COMPANY.
WE CONTINUE TO FIRMLY BELIEVE THAT CONSOLIDATION IN OUR INDUSTRY IS
INEVITABLE, AND THAT NEITHER PACIFIC SCIENTIFIC NOR KOLLMORGEN CAN SIT
BY IDLY WHILE COMPETITORS, MANY OF WHICH ARE MUCH LARGER THAN PACIFIC
SCIENTIFIC AND KOLLMORGEN, CREATE THE INTERNATIONAL NETWORK AND BROAD
PRODUCT OFFERINGS THAT OUR CUSTOMERS DEMAND AND DESERVE. KOLLMORGEN
BELIEVES THAT THIS REALITY, COUPLED WITH THE NATURAL FIT OF OUR TWO
COMPANIES, MAKES A KOLLMORGEN/PACIFIC SCIENTIFIC COMBINATION COMPELLING.
KOLLMORGEN BELIEVES THAT THE COMBINED COMPANY WILL OFFER CUSTOMERS
SUPERIOR PRODUCTS AND SERVICES. AMONG THE MANY ADVANTAGES CONTRIBUTING
TO THE COMBINED COMPANY'S ABILITY TO ACHIEVE THESE GOALS WOULD BE:
- CREATION OF AN INDUSTRY LEADER. A MERGER OF KOLLMORGEN AND PACIFIC
SCIENTIFIC WILL ESTABLISH THE COMBINED ENTERPRISE AS A LEADER IN
HIGH PERFORMANCE ELECTRONIC MOTION CONTROL--ONE OF THE
FASTEST-GROWING SEGMENTS OF THE MOTORS AND CONTROLS BUSINESS. IN A
FRAGMENTED INDUSTRY, THE COMBINED ENTERPRISE WILL BE BETTER
POSITIONED TO COMPREHENSIVELY SERVE THE NEEDS OF CUSTOMERS AND TAKE
ADVANTAGE OF CONSOLIDATION OPPORTUNITIES.
- STRATEGIC AND OPERATIONAL FIT. HIGHLY COMPLEMENTARY MOTION CONTROL
PRODUCT LINES WILL ENABLE THE COMBINED COMPANY TO BECOME A
FULL-SERVICE PROVIDER. THE COMBINED COMPANY WILL BE WELL-POSITIONED
TO CAPITALIZE ON THE COMPLEMENTARY PRODUCT LINES AND DIFFERING
STRENGTHS OF KOLLMORGEN AND PACIFIC SCIENTIFIC ENABLING IT TO OFFER
A BROADER ARRAY OF PRODUCTS AND SUPPORT SERVICES TO AN EXPANDED
CUSTOMER BASE. IN ADDITION, THE COMBINED COMPANY WOULD TAKE
ADVANTAGE OF COST SAVINGS AND EFFICIENCIES RESULTING FROM ECONOMIES
OF SCALE IN RESEARCH AND DEVELOPMENT, MARKETING, PRODUCTION AND
SOURCING.
- ENHANCED CAPABILITY TO TAP FOREIGN MARKETS. THE INCREASED SIZE AND
GLOBAL SCOPE OF THE COMBINED COMPANY WILL ENABLE IT TO MORE
EFFECTIVELY MARKET ITS PRODUCTS TO CUSTOMERS AROUND
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THE WORLD. KOLLMORGEN HAS ALREADY ESTABLISHED A LOCAL PRESENCE IN
GERMANY, FRANCE, ISRAEL, INDIA, CHINA AND ELSEWHERE. THE COMBINED
ENTERPRISE WILL BE WELL-POSITIONED TO BUILD ON THIS FOUNDATION,
PARTICULARLY IN EUROPE AND THE PACIFIC RIM. KOLLMORGEN BELIEVES
THAT THE COMBINED COMPANY WILL BE ABLE TO EXPAND ITS CUSTOMER BASE
AND OFFER INTERNATIONAL ON-SITE PRODUCT SUPPORT TO CUSTOMERS, WHILE
CONDUCTING MORE EFFECTIVE AND COST-EFFICIENT RESEARCH AND
DEVELOPMENT, MARKETING, PRODUCTION AND SOURCING.
- MANAGEMENT TEAM WITH PROVEN TRACK RECORD. KOLLMORGEN'S MANAGEMENT
HAS DELIVERED YEAR OVER YEAR GROWTH IN SALES AND OPERATING INCOME
FROM CONTINUING OPERATIONS FROM 1994 THROUGH 1996, AND WILL DO SO
AGAIN IN 1997. KOLLMORGEN HAS ACHIEVED THIS BY FOCUSING ON ITS CORE
OPERATIONS. KOLLMORGEN ALSO BELIEVES THAT ITS MANAGEMENT HAS
MAXIMIZED ITS RETURNS FROM NON-STRATEGIC OPERATIONS. IN ADDITION,
KOLLMORGEN'S MANAGEMENT HAS CONSIDERABLE EXPERTISE IN MANAGING
DEBT, HAVING REDUCED KOLLMORGEN'S DEBT AND PREFERRED STOCK
OBLIGATIONS BY MORE THAN 40% DURING THE PAST THREE FISCAL YEARS AND
TRANSITIONED FROM FULLY-SECURED TO UNSECURED CREDIT ARRANGEMENTS.
- ENHANCED GROWTH OPPORTUNITIES. KOLLMORGEN BELIEVES THAT THE
COMBINED ENTERPRISE WILL BE WELL-POSITIONED, STRATEGICALLY,
OPERATIONALLY AND FINANCIALLY, TO AGGRESSIVELY PURSUE ATTRACTIVE
OPPORTUNITIES FOR EXTERNAL AND INTERNAL GROWTH. KOLLMORGEN IS
CONFIDENT THAT THE COMBINED COMPANY'S INCREASED SIZE AND SCOPE WILL
ENABLE IT TO BE A LEADER IN THE ACCELERATING CONSOLIDATION OF THE
MOTION CONTROL INDUSTRY, AND RAISE ITS VISIBILITY IN THE BUSINESS
AND FINANCIAL COMMUNITIES.
WE BELIEVE THAT THE PROPOSED COMBINATION IS A BOLD, EXCITING
INITIATIVE FOR PACIFIC SCIENTIFIC, KOLLMORGEN, AND THE SHAREHOLDERS,
CUSTOMERS AND EMPLOYEES OF BOTH COMPANIES. WE ARE FIRMLY COMMITTED TO
PURSUING THIS MATTER AND ARE CONVINCED THAT YOUR SHAREHOLDERS WILL
STRONGLY SUPPORT OUR PROPOSAL. ALTHOUGH IT IS CLEAR TO US THAT YOU HAVE
NOT UP TO NOW GIVEN ADEQUATE CONSIDERATION TO A KOLLMORGEN/PACIFIC
SCIENTIFIC COMBINATION, IT IS OUR SINCERE HOPE THAT YOU WILL TAKE THIS
OPPORTUNITY TO DO SO. YOUR SHAREHOLDERS DESERVE NO LESS THAN YOUR PROMPT
AND FULL CONSIDERATION OF OUR PROPOSAL AND THE OPPORTUNITY TO REALIZE
THE FULL BENEFITS OF THIS PROPOSED COMBINATION. WE ARE CERTAIN THAT ONCE
YOU HAVE UNDERTAKEN AN INFORMED REVIEW OF OUR PROPOSAL, YOU WILL SHARE
IN OUR VISION AND WILL SUPPORT A COMBINATION OF OUR TWO COMPANIES. WE
CONTINUE TO BE INTERESTED IN PROCEEDING WITH THIS TRANSACTION ON A
FRIENDLY AND EXPEDITIOUS BASIS SO THAT YOUR SHAREHOLDERS, AS WELL AS
OURS, CAN BEGIN TO RECEIVE PROMPTLY THE BENEFITS OF OUR OFFER.
IN ORDER TO ENSURE THAT YOUR SHAREHOLDERS ARE PERMITTED TO CHOOSE
FREELY TO ACCEPT OUR OFFER, WE ARE ALSO ANNOUNCING TODAY OUR INTENTION
TO SOLICIT CONSENTS TO CALL A SPECIAL MEETING OF PACIFIC SCIENTIFIC'S
SHAREHOLDERS TO REMOVE THE INCUMBENT MEMBERS OF PACIFIC SCIENTIFIC'S
BOARD OF DIRECTORS AND ELECT OUR NOMINEES TO THE BOARD. SUBJECT TO THEIR
FIDUCIARY DUTIES, IF ELECTED WE EXPECT OUR NOMINEES WOULD AMEND THE
PACIFIC SCIENTIFIC RIGHTS PLAN OR REDEEM THE RIGHTS TO ENABLE THE
CONSUMMATION OF THE PROPOSED TRANSACTION, APPROVE THE PROPOSED
TRANSACTION IF REQUIRED UNDER PACIFIC SCIENTIFIC'S CHARTER, AND TAKE ALL
OTHER ACTIONS NECESSARY TO REMOVE ANY IMPEDIMENTS TO YOUR SHAREHOLDERS'
ABILITY TO ACCEPT OUR OFFER. WE ALSO INTEND TO SUBMIT A PROPOSAL
DESIGNED TO PREVENT THE CURRENT BOARD FROM TAKING ANY ACTIONS TO
FRUSTRATE THE ABILITY OF PACIFIC SCIENTIFIC'S SHAREHOLDERS TO DETERMINE
THE FUTURE OF THEIR COMPANY.
WE ARE ALSO TODAY COMMENCING LITIGATION AGAINST PACIFIC SCIENTIFIC
AND THE PACIFIC SCIENTIFIC BOARD IN THE UNITED STATES DISTRICT COURT FOR
THE CENTRAL DISTRICT OF CALIFORNIA SEEKING TO ASSURE PACIFIC
SCIENTIFIC'S SHAREHOLDERS THE RIGHT TO REPLACE THE PACIFIC SCIENTIFIC
BOARD AND AN OPPORTUNITY TO ACCEPT OUR OFFER AND PROPOSED MERGER.
WE URGE THE PACIFIC SCIENTIFIC BOARD OF DIRECTORS TO FACILITATE THE
PROPOSED TRANSACTION AND REMOVE ALL OBSTACLES TO THE REALIZATION OF
EXCEPTIONAL VALUE BY YOUR SHAREHOLDERS. AS INDICATED ABOVE, OUR
PREFERENCE IS TO PROCEED WITH THE PROPOSED TRANSACTION ON A FRIENDLY
BASIS AND WITH THE SUPPORT OF PACIFIC SCIENTIFIC'S MANAGEMENT AND BOARD
OF DIRECTORS. ACCORDINGLY, WE AND OUR ADVISORS REMAIN
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READY AND WILLING TO MEET WITH YOU AND YOUR ADVISORS AT ANY TIME TO
DISCUSS OUR PROPOSAL AND COMMENCE THE NEGOTIATION OF DEFINITIVE
DOCUMENTATION FOR THE TRANSACTION.
WE LOOK FORWARD TO HEARING FROM YOU.
VERY TRULY YOURS,
GIDEON ARGOV
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
CC: MEMBERS OF THE BOARD OF DIRECTORS
OF PACIFIC SCIENTIFIC COMPANY
Later that same day, Kollmorgen commenced the Offer and the Consent
Solicitation and filed definitive consent solicitation materials and a
related registration statement with the Commission.
Also on December 15, 1997, Kollmorgen commenced litigation against
Pacific Scientific and the Pacific Scientific Board in the United States
District Court for the Central District of California seeking, among
other things, an order (i) declaring the failure to redeem the Rights or
render the Rights inapplicable to the Offer and the Proposed Merger or
to approve the Offer and the Proposed Merger for purposes of Article
Fifth would constitute a breach of the Pacific Scientific Board's
fiduciary duties to Pacific Scientific shareholders under California
law, (ii) invalidating the Rights or compelling the Pacific Scientific
Board to redeem the Rights or render the Rights inapplicable to the
Offer and the Proposed Merger, (iii) compelling the Pacific Scientific
Board to approve the Offer and the Proposed Merger for purposes of
Article Fifth and (iv) enjoining the Pacific Scientific Board from
taking any actions to interfere with the Offer, the Consent Solicitation
or the Proposed Merger.
On December 22, 1997, without having first engaged in discussions
with Kollmorgen regarding the Proposed Combination, Pacific Scientific
filed a Solicitation/Recommendation Statement on Schedule 14D-9 with the
Commission, reporting that the Pacific Scientific Board recommended that
Pacific Scientific shareholders reject the Offer and not tender their
Pacific Scientific Common Shares pursuant to the Offer.
On the same day, Pacific Scientific filed a Preliminary Revocation
Solicitation Statement with the Commission reporting that the Pacific
Scientific Board recommended that Pacific Scientific shareholders not
provide any consents to Kollmorgen pursuant to the Consent Solicitation.
ISSUANCE OF KOLLMORGEN COMMON STOCK
The Share Issuance Proposal will approve the issuance of a
sufficient number of shares of Kollmorgen Common Stock to complete the
Proposed Merger. The exact number of shares of Kollmorgen Common Stock
into which each share of Pacific Scientific Common Share will be
converted will be determined by the Exchange Ratio. In the event that
the Average Kollmorgen Share Price is less than $15.19 or greater than
$18.56, the Exchange Ratio would be fixed at 1.350 shares of Kollmorgen
Common Stock or 1.104 shares of Kollmorgen Common Stock, respectively,
per Pacific Scientific Common Share. According to Pacific Scientific's
Quarterly Report on Form 10-Q for the quarter ended September 26, 1997,
there are 12,694,880 shares of Pacific Scientific Common Stock
outstanding, assuming the exercise of the weighted average number of
dilutive options outstanding during that quarter, of which just less
than half (or approximately
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<PAGE>
6,347,439 shares) will be converted into shares of Kollmorgen Common
Stock in the Proposed Merger. Hence, the total number of shares of
Kollmorgen Common Stock to be issued in the Proposed Merger will be
determined by multiplying the Exchange Ratio by the 6,347,439 shares of
Pacific Scientific Common Stock to be converted. In any event, the Share
Issuance Proposal approves the issuance of a sufficient number of shares
of Kollmorgen Common Stock to complete the Proposed Merger.
REASONS FOR THE PROPOSED COMBINATION; BOARD RECOMMENDATION
At a meeting held on December 8, 1997, the Board, with the
assistance of Kollmorgen's outside financial advisor (Salomon Brothers
Inc, doing business as Salomon Smith Barney ("Salomon Smith Barney"))
and legal advisor (Shearman & Sterling), considered the legal, financial
and other terms of the Proposed Combination. The Board concluded that
the Proposed Combination and the Share Issuance Proposal are in the best
interests of Kollmorgen and its shareholders. At the meeting the Board
authorized management to communicate the terms of the Proposed
Combination to Pacific Scientific and authorized management to proceed
with the Offer and the Consent Solicitation if the response of Pacific
Scientific was not positive. In reaching its decision to recommend the
approval of the Share Issuance Proposal, the Board considered, among
others, the following material factors:
- The prospect of creating a combined company that is a leader in the
high performance electronic motion control industry (one of the
fastest-growing segments of the fragmented motors and controls
business) that would be well-positioned to comprehensively serve
the needs of customers.
- The fact that the highly complementary motion control product lines
of Kollmorgen and Pacific Scientific would enable the combined
company to become a full-service provider offering a broader array
of products and support services to an expanded customer base.
- The fact that, while a significant portion of Pacific Scientific's
businesses would be outside the combined company's core motion
control businesses, after reviewing Pacific Scientific's
businesses, the Board determined that these non-core businesses
were profitable and operationally related to the core business of
Kollmorgen.
- The increased size and global scope of the combined company which
the Board determined will enable the combined company to more
effectively market its products to customers around the world and
expand its customer base and offer international on-site product
support to customers, while conducting more effective and
cost-efficient research and development, marketing, production and
sourcing.
- The results of operations, financial condition, competitive
position and prospects of Kollmorgen and Pacific Scientific, both
on a historical and future basis and as separate and combined
entities, including the determination by Kollmorgen management that
while the Proposed Combination will be dilutive to earnings per
share in 1998, it will be accretive in 1999 (the first full year of
operations of the combined company) and increasingly so thereafter
based upon the anticipated synergies described below.
- The substantial operating and revenue synergies that, based on
public information, Kollmorgen's management believes the combined
company can achieve, which reach more than $15 million of annual
operating synergies in 1999, rising to more than $20 million in
2000 and increasing thereafter. Management believes that
approximately half of these synergies can be achieved from cost
savings in selling and marketing expenses and consolidation of
research and development, and expects to realize the remainder from
cross-selling opportunities, joint purchasing savings and reduction
in corporate expenses.
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- The terms of the binding commitment letter with Salomon Smith
Barney and its affiliate, Salomon Brothers Holding Company Inc, in
which Salomon Brothers Holding Company Inc has committed to
provide, subject to certain conditions, a secured bank facility to
fully finance the transaction. While the Board recognized that the
combined company would have a significant level of indebtedness,
the Board determined that the financing of the transaction was
conservative and would permit the combined company sufficient
liquidity and financial flexibility to meet operational demands.
- The fact that Kollmorgen's management has delivered year over year
growth in sales and operating income from continuing operations
from 1994 through 1996, is projected to do so again in 1997 and has
considerable expertise in managing debt, having reduced
Kollmorgen's debt and preferred stock obligations by more than 40%
during the past three fiscal years and transitioned from
fully-secured to unsecured credit arrangements.
- The written opinion of Kollmorgen's financial advisor, Salomon
Brothers Inc, doing business as Salomon Smith Barney ("Salomon
Smith Barney"), to the effect that, based upon and subject to
certain assumptions, factors and limitations set forth in such
written opinion, as of such date, the consideration to be paid in
the Proposed Combination is fair, from a financial point of view,
to the holders of Kollmorgen Common Stock, and the presentation of
Salomon Smith Barney to the Board in connection therewith (See
"Opinion of Financial Advisor").
- The ongoing litigation in which Pacific Scientific is engaged in
connection with its Solium subsidiary operations, as to which only
limited public information is currently available and as to which
the amount of potential liability is therefore not ascertainable
with any precision of at this time. According to Pacific
Scientific's Quarterly Report on Form 10-Q for the quarter ended
September 26, 1997, Pacific Scientific is a defendant in actions
filed in October 1996 in the United States District Court for the
Central District of California by certain holders of Pacific
Scientific Common Stock and an individual who purchased Pacific
Scientific's 7 3/4% Convertible Subordinated Debentures due 2003. A
motion for class certification has been granted in both complaints.
Pacific Scientific is also a defendant in an action filed in
December 1996 in Orange County Superior Court by prior shareholders
of Met One, Inc., who received shares of Pacific Scientific Common
Stock in connection with Pacific Scientific's acquisition of Met
One, Inc. All the complaints allege that Pacific Scientific made
false and misleading statements regarding Pacific Scientific and
its Solium subsidiary. In addition, the Superior Court action
includes allegations concerning Pacific Scientific's HYT
subsidiary. These actions, in the aggregate, initially requested
damages of approximately $98 million plus legal fees. The Superior
Court action also seeks punitive damages plus rescission of the
sale of Met One, Inc. as remedies. After reviewing the publicly
available information relating to this litigation, the Board
concluded that given the size and financial condition of the
combined company, the outcome of such litigation would not be
likely to have a materially adverse effect on the combined company
and that the benefits of the Proposed Combination outweighed the
potential liabilities.
- The 50% cash/50% stock structure of the Proposed Combination which
allows shareholders of both Kollmorgen and Pacific Scientific to
share in the future benefits of the combined company.
- The relative trading prices and volumes (as well as prospects for
future growth in value) of both Kollmorgen Common Stock and Pacific
Scientific Common Stock, in particular, the fact that the purchase
price of $20.50 per Pacific Scientific Common Share represents
approximately a 34% premium over Pacific Scientific's closing share
price of $15.25 on the
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NYSE on December 5, 1997, and approximately a 37% premium over the
company's closing share price for the preceding 30 trading days.
- The Board's belief that the combined company's increased size and
scope will give it the "critical mass" necessary to attract
investor interest and enable it to pursue attractive opportunities
for internal and external growth.
The Board concluded, in light of these factors, that the Proposed
Combination is fair to and in the best interests of Kollmorgen and its
shareholders. In light of the variety of factors considered by the
Board, the Board did not find it practicable, and therefore did not
attempt, to assign relative weight to the factors considered.
THE BOARD HAS UNANIMOUSLY APPROVED THE SHARE ISSUANCE PROPOSAL AND
UNANIMOUSLY RECOMMENDS THAT HOLDERS OF KOLLMORGEN COMMON STOCK VOTE TO
APPROVE THE SHARE ISSUANCE PROPOSAL AT THE SPECIAL MEETING.
RISK FACTORS
INTEGRATION OF KOLLMORGEN AND PACIFIC SCIENTIFIC. The success of
the combined company in achieving anticipated synergies and achieving
attractive operating results will depend upon the ability of Kollmorgen
and Pacific Scientific to integrate successfully the operations of the
two companies, which have previously operated independently. There can
be no assurance that the operations will be integrated without
encountering difficulties or that the benefits expected from such
integration will be realized at the anticipated levels or within the
anticipated time periods; such benefits may be higher or lower and may
be realized within a shorter or longer period of time.
The anticipated synergies are expected to result principally from
cost savings in selling and marketing expenses and consolidation of
research and development, as well as from cross-selling opportunities,
joint purchasing savings and reduction in corporate expenses. The
anticipated cost savings and increased revenues have been developed
solely by the management of Kollmorgen and are based on Kollmorgen's
best judgments and knowledge of Pacific Scientific's operations derived
from publicly available information together with Kollmorgen's knowledge
and experience in the motor and motion control industry and awareness of
industry trends. These anticipated synergies are necessarily based upon
several estimates and assumptions that are inherently subject to
significant business, economic and competitive uncertainties and
contingencies, many of which are beyond the control of either Kollmorgen
or Pacific Scientific, and upon assumptions with respect to future
business decisions that are subject to change. Accordingly, after
Kollmorgen is permitted access to Pacific Scientific's non-public
current business plans and operations, Kollmorgen's expectations for
cost savings and potential revenue enhancement might be higher or lower.
OPERATIONAL ISSUES; ABILITY TO MANAGE GROWTH. Kollmorgen's past
acquisitions have consisted primarily of selected operations
acquisitions. While Kollmorgen believes that the integration of Pacific
Scientific's operations into Kollmorgen upon consummation of the
Proposed Combination will not present any significant difficulty and
will proceed efficiently and on a timely basis, the challenges of
combining two businesses the size of Kollmorgen and Pacific Scientific
may result in some unanticipated difficulties that could result in the
diversion of management's attention and other resources for an extended
period of time and could have an adverse effect on the results of
operations of the combined company. In addition, the combined company's
ability to manage future growth will depend upon its ability to monitor
operations, control costs, maintain effective quality controls and
combine the respective company's technical and accounting systems, the
failure of which may result in higher operating expenses.
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INCREASED LEVEL OF INDEBTEDNESS. Kollmorgen anticipates that the
Proposed Combination will be financed through the use of a secured bank
credit facility. The financing of the Proposed Combination will
substantially increase Kollmorgen's current level of indebtedness. In
the event of a downturn in the combined company's industry or the
economy generally, or in the event of a lower than expected performance
in the combined company's operations, this level of indebtedness may
interfere with the successful implementation of the combined company's
strategy, including the successful integration and expansion of its
operations. Kollmorgen expects that if the combined company were to seek
to raise additional debt after the consummation of the Proposed
Combination, any such debt would not receive an investment grade rating.
DILUTION OF SHARES. The issuance of shares of Kollmorgen Common
Stock may, among other things, have a dilutive effect on earnings per
share and on the equity and voting rights of the present holders of
Kollmorgen Common Stock. No holder of shares of any Kollmorgen Common
Stock will have any preemptive or preferential right to acquire or
subscribe for any unissued shares of any class of stock or any
authorized securities convertible into or exchangeable for shares of any
class of stock. In this regard, Kollmorgen believes that the transaction
is likely to be dilutive to earnings per share in 1998, but will be
accretive thereafter.
OPINION OF FINANCIAL ADVISOR
BACKGROUND. Kollmorgen retained Salomon Smith Barney to act as its
financial advisor in connection with the Proposed Combination. On
December 8, 1997, Salomon Smith Barney presented its analyses to the
Board and delivered its written opinion to the Board to the effect that,
based upon and subject to certain assumptions, factors and limitations
set forth in such written opinion, as of such date, the consideration
then proposed to be paid by Kollmorgen in connection with the Proposed
Combination was fair, from a financial point of view, to the holders of
Kollmorgen Common Stock. On December 26, 1997, Salomon Smith Barney
delivered an updated written opinion to the Board, to the same effect as
its December 8 opinion, with respect to the consideration proposed to be
paid by Kollmorgen in connection with the Proposed Combination, which
consideration is described in this Proxy Statement. The text of Salomon
Smith Barney's December 8 opinion is substantially similar to the text
of its December 26 opinion. Unless otherwise specified, references in
this section to Salomon Smith Barney's opinion refer to its December 26
opinion.
THE FULL TEXT OF SALOMON SMITH BARNEY'S OPINION DATED DECEMBER 26,
1997, WHICH SETS FORTH THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED AND
MATTERS CONSIDERED BY SALOMON SMITH BARNEY, IS ATTACHED AS ANNEX I TO
THIS PROXY STATEMENT AND IS INCORPORATED HEREIN BY REFERENCE. SALOMON
SMITH BARNEY'S OPINION DELIVERED TO THE BOARD WAS DIRECTED ONLY TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, TO THE HOLDERS OF KOLLMORGEN
COMMON STOCK OF THE CONSIDERATION PROPOSED TO BE PAID BY KOLLMORGEN IN
CONNECTION WITH THE PROPOSED COMBINATION, AND DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY KOLLMORGEN SHAREHOLDER AS TO HOW SUCH SHAREHOLDER
SHOULD VOTE AT THE SPECIAL MEETING. THE SUMMARY OF THE SALOMON SMITH
BARNEY OPINION SET FORTH HEREIN IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION. KOLLMORGEN SHAREHOLDERS ARE
URGED TO READ THE ENTIRE OPINION CAREFULLY.
In connection with rendering its December 26 opinion, Salomon Smith
Barney reviewed and analyzed, among other things: (i) the Consent
Solicitation Statement/Preliminary Prospectus (the "Preliminary
Prospectus") of Kollmorgen, dated December 15, 1997; (ii) the Offer to
Purchase; (iii) certain publicly available information concerning
Kollmorgen; (iv) certain internal information, primarily financial in
nature, including projections, concerning the business and operations of
Kollmorgen, prepared by Kollmorgen management and furnished to Salomon
Smith Barney by Kollmorgen for the purpose of Salomon Smith Barney's
analysis; (v) certain publicly available information concerning the
trading of, and the trading market for, Kollmorgen Common Stock;
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(vi) certain publicly available information concerning Pacific
Scientific; (vii) certain other information, primarily financial in
nature, including projections, concerning the business and operations of
Pacific Scientific, that was prepared by Kollmorgen management based on
publicly available information concerning Pacific Scientific and the
familiarity of Kollmorgen management with Pacific Scientific's business
and the electrical and safety equipment industry, and furnished to
Salomon Smith Barney by Kollmorgen for the purpose of Salomon Smith
Barney's analysis; (viii) certain publicly available information
concerning the trading of, and the trading market for, Pacific
Scientific Common Stock; (ix) certain publicly available information
with respect to certain other companies that Salomon Smith Barney
believed to be comparable to Pacific Scientific and the trading markets
for certain of such other companies' securities; and (x) certain
publicly available information concerning the nature and terms of
certain other transactions that Salomon Smith Barney considered relevant
to its inquiry. Salomon Smith Barney also met with certain officers and
employees of Kollmorgen to discuss the foregoing as well as other
matters Salomon Smith Barney believed relevant to its inquiry. Salomon
Smith Barney did not have access to any internal or non-public
information, financial or otherwise, concerning the business and
operations of Pacific Scientific; nor did it have access to any officers
or employees of Pacific Scientific. With respect to ongoing litigation
involving Pacific Scientific, Salomon Smith Barney relied solely on
information furnished to it by Kollmorgen. Salomon Smith Barney noted
that it is not a law firm, nor is it an expert with respect to legal
matters, and that it did not make or obtain or assume any responsibility
for making or obtaining any independent evaluations of any potential
liability to Pacific Scientific or Kollmorgen arising out of such
litigation.
In its review and analysis and in arriving at its opinion, Salomon
Smith Barney assumed and relied upon the accuracy and completeness of
all of the financial and other information provided it or publicly
available, and Salomon Smith Barney neither attempted independently to
verify nor assumed responsibility for verifying any of such information.
Salomon Smith Barney did not make or obtain or assume any responsibility
for making or obtaining any independent evaluations or appraisals of any
of the properties or facilities of Kollmorgen or Pacific Scientific.
Salomon Smith Barney assumed that the Proposed Combination will be
consummated on a timely basis and on terms and conditions that do not
differ materially from the terms and conditions contained in the Offer
to Purchase and the Preliminary Prospectus. With respect to projections
concerning Kollmorgen, Salomon Smith Barney assumed that such
projections had been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the management of
Kollmorgen as to the future financial performance of Kollmorgen, and
Salomon Smith Barney expressed no view with respect to such projections
or the assumptions on which they were based. With respect to projections
concerning Pacific Scientific, although Salomon Smith Barney consulted
with Kollmorgen management in the preparation of those projections, for
purposes of its opinion, Salomon Smith Barney assumed that such
projections had been reasonably prepared on bases reflecting the best
judgments of the management of Kollmorgen as to the future financial
performance of Pacific Scientific and that such projections will be
realized, and Salomon Smith Barney expressed no view with respect to
such projections or the assumptions or information on which they were
based.
In conducting its analysis and arriving at its opinion, Salomon
Smith Barney considered such financial and other factors as it deemed
appropriate under the circumstances including, among others, the
following: (i) the historical and current financial position and results
of operations of Kollmorgen and Pacific Scientific; (ii) the business
prospects of Kollmorgen and Pacific Scientific; (iii) the historical and
current market for Kollmorgen Common Stock and Pacific Scientific Common
Stock and for the equity securities of certain other companies that
Salomon Smith Barney believed to be comparable to Kollmorgen and Pacific
Scientific; and (iv) the nature and terms of certain other acquisition
transactions that Salomon Smith Barney believed to be relevant. Salomon
Smith Barney also considered its assessment of general economic, market
and
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financial conditions as well as its experience in connection with
similar transactions and securities valuation generally.
Salomon Smith Barney's opinion necessarily was based upon conditions
as they existed and could be evaluated on the date such opinion was
given and Salomon Smith Barney has assumed no responsibility to update
or revise its opinion based upon circumstances or events occurring after
the date thereof. Salomon Smith Barney's opinion is, in any event,
limited to the fairness, from a financial point of view, to the holders
of Kollmorgen Common Stock of the consideration proposed to be paid by
Kollmorgen in the Proposed Combination and did not address Kollmorgen's
underlying business decision to effect the Proposed Combination or
constitute a recommendation to any holder of Kollmorgen Common Stock as
to how such holder should vote with respect to the matters to be
considered at the Special Meeting. Salomon Smith Barney's opinion does
not constitute an opinion as to the price at which Kollmorgen's stock
will trade upon the public announcement or consummation of the Proposed
Combination.
Set forth below is a brief summary of the material financial
analyses which Salomon Smith Barney provided to the Board at the
December 8, 1997 meeting of the Board, in connection with Salomon Smith
Barney's December 8 opinion and does not purport to be a complete
description of the analyses performed by Salomon Smith Barney. Salomon
Smith Barney did not make any additional presentation to the Board or
perform any additional analyses in connection with its December 26
opinion. As described above, Salomon Smith Barney's opinion and
presentation to the Board was one of several factors taken into
consideration by the Board in making its decision to approve the Share
Issuance Proposal. The following quantitative information, to the extent
it is based on market data, is based on market data as it existed at
December 5, 1997 and is not necessarily indicative of current market
conditions.
SUMMARY OF ANALYSES
PUBLIC COMPARABLES TRADING ANALYSIS. Salomon Smith Barney compared
selected financial data of Pacific Scientific with selected financial
data from publicly traded companies in similar industries that were
considered by Salomon Smith Barney to be comparable in some respect to
Pacific Scientific. The comparison group comprised four companies:
Kollmorgen, Franklin Electric Co., Inc., MagneTek, Inc. and Baldor
Electric Co. (the "Comparable Companies").
Salomon Smith Barney compared the firm value (defined as (x) equity
value under the treasury stock method (share price multiplied by the
number of all fully diluted shares less aggregate option proceeds), plus
(y) straight debt, minority interest, straight preferred stock, all
out-of-the-money convertible instruments, less investments in
unconsolidated affiliates and cash) as multiples of latest twelve months
("LTM") revenues, LTM earnings before interest, taxes, depreciation and
amortization ("EBITDA") and LTM earnings before interest and taxes
("EBIT") for each of the Comparable Companies. Salomon Smith Barney's
analysis indicated multiples of LTM revenues which ranged from a high of
1.6x to a low of 0.7x with a median of 1.1x for the Comparable
Companies. The ratios of firm value to LTM EBITDA indicated multiples
which ranged from a high of 10.6x to a low of 7.3x with a median of 9.7x
for the Comparable Companies. The ratios of firm value to LTM EBIT
indicated multiples which ranged from a high of 14.5x to a low of 10.8x
with a median of 12.3x for the Comparable Companies. Salomon Smith
Barney noted that Pacific Scientific's firm value multiples were 0.9x
LTM revenues, 8.3x LTM EBITDA, and 12.8x LTM EBIT.
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Salomon Smith Barney also considered for each Comparable Company the ratios
of current stock prices to LTM earnings per share ("EPS") and estimated EPS for
the current (1997) and next (1998) fiscal years (based on First Call Corporation
estimates as of December 5, 1997, except with respect to Kollmorgen and Pacific
Scientific which were based on Institutional Broker Estimate Systems' estimates
as of November 20, 1997). The ratios of current stock prices to LTM EPS ranged
from a high of 21.7x to a low of 17.3x with a median of 18.8x for the Comparable
Companies. The ratios of current stock prices to estimated 1997 EPS ranged from
a high of 21.1x to a low of 16.9x with a median of 17.1x for the Comparable
Companies. The ratios of current stock prices to estimated 1998 EPS ranged from
a high of 18.4x to a low of 12.5x with a median of 14.8x for the Comparable
Companies. Salomon Smith Barney noted that Pacific Scientific's stock price
multiples were 16.7x LTM EPS, 15.0x 1997 EPS, and 12.5x 1998 EPS.
From this information, Salomon Smith Barney established (i) various firm
value multiple ranges to LTM revenues, EBITDA and EBIT and (ii) equity value
multiple ranges to LTM EPS, estimated 1997 EPS and estimated 1998 EPS, as
follows: a multiple range of 0.9x to 1.1x LTM revenues, a multiple range of 8.0x
to 10.5x LTM EBITDA, a multiple range of 12.5x to 15.0x LTM EBIT, a multiple
range of 17.0x to 21.0x LTM EPS, a multiple range of 15.0x to 17.5x 1997 EPS,
and a multiple range of 12.5x to 15.5x 1998 EPS. These multiple ranges implied
per share values of Pacific Scientific Common Stock (based on fully diluted
shares outstanding less aggregate option proceeds) of $16.29 to $20.71, $14.98
to $20.79, $15.29 to $19.07, $15.90 to $19.64, $15.60 to $18.20 and $15.63 to
$19.38, respectively.
Based on the foregoing, Salomon Smith Barney determined an implied per share
public trading valuation range of $15.00 to $20.00 for Pacific Scientific Common
Stock. The implied per share trading valuation range was determined based
primarily on LTM multiples (as opposed to forward looking information) because
of the lack of significant analyst coverage concerning Pacific Scientific.
Salomon Smith Barney noted that the price of Pacific Scientific Common Stock of
$15.25 per share at December 5, 1997 was within the implied per share trading
valuation range.
PRECEDENT TRANSACTIONS ANALYSIS. Salomon Smith Barney reviewed six
comparable announced transactions since 1989, of which transactions four were
consummated. Salomon Smith Barney characterized three of the transactions as
more comparable to the Proposed Combination (the "Primary Transactions") and
three of the transactions relatively less comparable to the Proposed Combination
(the "Secondary Transactions") (the Primary Transactions and Secondary
Transactions together are referred to as the "Precedent Transactions"). The
Primary Transactions included Rockwell International Corp.'s acquisition of
Reliance Electric Company in October 1994, Vernitron Corp.'s failed attempt to
acquire Kollmorgen in May 1990, and Vernitron Corp.'s failed attempt to acquire
Kollmorgen in February 1989. The Secondary Transactions included Regal-Beloit
Corp.'s acquisition of Marathon Electric Co. in February 1997, Pacific
Scientific's acquisition of Met One, Inc. in January 1995, and Pacific
Scientific's acquisition of Powertec Industrial Corp. in July 1993. Salomon
Smith Barney noted that the number of useful comparable transactions was limited
for this type of analysis.
For each of the Precedent Transactions, Salomon Smith Barney compared the
firm value of the target company as multiples of LTM revenues, LTM EBITDA and
LTM EBIT. Salomon Smith Barney's analysis of the Precedent Transactions
indicated multiples of LTM revenues which ranged from a high of 1.1x to a low of
0.9x with a median of 1.1x for the Primary Transactions, and which ranged from a
high of 1.8x to a low 0.9x with a median of 1.1x for all the Precedent
Transactions. The ratios of firm value to LTM EBITDA indicated multiples which
ranged from a high of 11.7 to a low of 9.8x with a median of 10.4x for the
Primary Transactions, and which ranged from a high of 13.9x to a low of 9.0x
with a median of 10.1x for all the Precedent Transactions. The ratios of firm
value to LTM EBIT indicated multiples which ranged from a high of 22.5x to a low
of 13.1x with a median of 18.1x for the Primary Transactions, and which ranged
from a high of 22.5x to a low of 11.2x with a median of 14.0x for all the
Precedent Transactions.
Using all the Precedent Transactions, Salomon Smith Barney established (i)
various firm value multiple ranges to LTM revenues and LTM EBITDA and (ii) an
equity value multiple range to LTM EPS, as follows: a multiple range of 0.9x to
1.1x LTM revenues, 9.5x to 11.5x LTM EBITDA, and 19.5x to 25.0x LTM EPS. These
multiple ranges implied per share values of Pacific Scientific Common Stock
(based on
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fully diluted shares less aggregate option proceeds) of $16.29 to $20.71, $18.47
to $23.12, and $18.24 to $23.39, respectively.
Based on the foregoing, Salomon Smith Barney determined an implied per share
precedent transaction valuation range of $18.00 to $23.00 per share of Pacific
Scientific Common Stock. Salomon Smith Barney noted that the price of Pacific
Scientific Common Stock of $15.25 per share at December 5, 1997 was below the
implied per share precedent transaction valuation range and that the acquisition
price of $20.50 per share was within that range.
DISCOUNTED CASH FLOW ANALYSIS. Salomon Smith Barney performa discounted
cash flow analysis of the estimated free cash flows of Pacific Scientific as a
stand-alone entity. In conducting its discounted cash flow analysis, Salomon
Smith Barney assumed discount rates of 10.0% to 12.0% and terminal multiples of
year 2001 EBITDA of 7.5x to 9.5x. This analysis resulted in a range of equity
value per share of Pacific Scientific Common Stock as of December 31, 1997 of
$20.00 to $25.00. Salomon Smith Barney noted that its analysis excluded any
potential effect of Pacific Scientific's ongoing litigation.
CONTRIBUTION ANALYSIS. Salomon Smith Barney calculated the percentage
contribution by Kollmorgen to the pro forma combined entity with respect to
various financial statistics. This analysis showed that Kollmorgen would
contribute 42.5% of LTM revenues, 38.0% of LTM EBITDA, 40.7% of LTM EBIT, 43.7%
of LTM net income, 48.2% of equity value, 39.2% of total assets and 44.4% of
firm value of the pro forma combined entity. By comparison, Kollmorgen
shareholders would hold approximately 57.2% of the equity of the pro forma
combined entity. In performing this analysis, Salomon Smith Barney adjusted
historical results to exclude extraordinary and non-recurring items and used the
per share closing price of Pacific Scientific and Kollmorgen common stock as of
December 5, 1997, which was $15.25 and $16.94, respectively.
EARNINGS ACCRETION/DILUTION ANALYSIS. Salomon Smith Barney calculated the
implied accretion/dilution of Kollmorgen earnings per share based on Kollmorgen
stand-alone earnings per share estimates and the pro forma impact of the
Proposed Combination on such estimates for 1998, 1999 and 2000. As part of its
analyses, Salomon Smith Barney took into account certain synergies assumed by
Kollmorgen management to be realized as a result of the Proposed Combination. In
performing its analysis, Salomon Smith Barney assumed that such synergies would
be 75% to 100% realized and calculated accretion/dilution for each increment of
5 percentage points between 75% and 100%. Based on such estimates and
assumptions, Salomon Smith Barney calculated a range of 19% to 12% earnings
dilution in 1998, 10% to 23% earnings accretion in 1998, and 35% to 54% earnings
accretion in 2000 for Kollmorgen shareholders as a result of the Proposed
Combination. In performing this analysis Salomon Smith Barney assumed that in
connection with the Proposed Combination Kollmorgen would incur $220 million of
bank debt at 8.0% interest per annum, $15 million in transaction fees, a cash
restructuring charge in each of 1998 and 1999 equal to 35% of the assumed
synergies and that Kollmorgen's 8.75% convertible debentures would not be
refinanced.
GENERAL
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Furthermore,
in arriving at its fairness opinion, Salomon Smith Barney did not attribute any
particular weight to any analysis or factor considered by it, but rather made
qualitative judgments as to the significance and relevance of each analysis and
factor. Accordingly, Salomon Smith Barney believes that its analyses must be
considered as a whole and that considering any portions of such analyses and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the opinion.
Salomon Smith Barney did not quantify the effect of each factor upon its
valuation. In its analyses, Salomon Smith Barney made numerous assumptions with
respect to industry performance, general business and economic conditions and
other matters, some of which are beyond the control of Pacific Scientific and
Kollmorgen. Any estimates contained in Salomon Smith Barney's analyses are not
necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. No company or transaction used in the above analyses as a
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comparison is directly comparable to Pacific Scientific or Kollmorgen or the
Proposed Combination. The analyses performed were prepared solely as part of
Salomon Smith Barney's analysis of the fairness, from a financial point of view,
to the holders of Kollmorgen Common Stock of the consideration proposed to be
paid by Kollmorgen in the Proposed Combination, in connection with the delivery
of Salomon Smith Barney's opinion. Such consideration was determined by
Kollmorgen. Because such analyses are inherently subject to uncertainty, none of
Kollmorgen, Salomon Smith Barney or any other person assumes responsibility if
future events do not conform to judgments reflected in the opinion of Salomon
Smith Barney.
ENGAGEMENT OF SALOMON SMITH BARNEY
Salomon Smith Barney was retained by Kollmorgen based on its experience and
expertise as financial advisor in connection with mergers and acquisitions.
Salomon Smith Barney is an internationally recognized investment banking firm
that provides financial services in connection with a wide range of business
transactions. As part of its business, Salomon Smith Barney regularly engages in
the valuation of companies and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive biddings, secondary
distributions of listed and unlisted securities, private placements and for
other purposes.
As compensation for its services in connection with the Proposed
Combination, including services as Dealer Manager in connection with the Offer,
Salomon Smith Barney will receive fees of (i) $350,000 payable by Kollmorgen
following an agreement to effect the Proposed Combination or similar transaction
or a public announcement regarding the Proposed Combination or similar
transaction and (ii) $2,700,000 payable by Kollmorgen upon consummation of the
Proposed Combination or similar transaction. In addition, Salomon Smith Barney
is entitled to reimbursement for the fees and disbursements of Salomon Smith
Barney's counsel and all of Salomon Smith Barney's reasonable travel and other
out-of-pocket expenses, as well as indemnification from certain liabilities.
Kollmorgen has also given Salomon Smith Barney various rights of first refusal
respecting certain related financial transactions as well as the right to 10% of
certain proceeds received by Kollmorgen from the sale of Pacific Scientific
stock in the event the Proposed Combination is not consummated. In addition,
Salomon Smith Barney and its affiliate Salomon Brothers Holding Company Inc have
committed to arrange loans and participate as a lender in Kollmorgen's financing
of the Offer, respectively, for which Salomon Smith Barney and Salomon Brothers
Holding Company Inc will receive customary compensation.
Salomon Smith Barney is a service mark of Smith Barney Inc. Salomon Brothers
Inc and Smith Barney Inc. are affiliated but separately registered
broker/dealers under common control of Salomon Smith Barney Holdings Inc.
Salomon Brothers Inc and Salomon Smith Barney Holdings Inc have been licensed to
use the Salomon Smith Barney service mark.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Under current U.S. federal income tax provisions, shareholders of Kollmorgen
will not be taxed as a result of the issuance of shares of Kollmorgen Common
Stock in connection with the Proposed Combination or as a result of the
completion of the Offer or the consummation of the Proposed Merger. The
consideration to be received in the Offer and the Proposed Merger will be fully
or partially taxable to Pacific Scientific shareholders with the result
depending on whether these transactions qualify as a "reorganization" for U.S.
federal income tax purposes under which the exchange of Pacific Scientific
Common Stock for Kollmorgen Common Stock in the Proposed Merger would not be a
taxable transaction. There can be no assurance at this time that the
requirements for reorganization treatment will be satisfied and neither
Kollmorgen nor Purchaser is under any obligation to undertake to qualify the
Offer and the Proposed Merger as a reorganization. If, as matters develop,
reorganization treatment is not certain, Kollmorgen may change the form of the
Proposed Merger to ensure that the Proposed Merger is not taxable to Pacific
Scientific, Kollmorgen or Purchaser.
ACCOUNTING TREATMENT
The acquisition will be accounted for as a purchase. Under this method of
accounting, assets and liabilities of Pacific Scientific will be adjusted to
their estimated fair values and combined with the
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recorded values of the assets and liabilities of Kollmorgen. Applicable income
tax effects of such adjustments will be included as a component of Kollmorgen's
net deferred tax liability. Kollmorgen has not had access to Pacific
Scientific's records in order to make a determination of the fair value of its
assets and liabilities. For purposes of the pro forma information contained
herein, the fair value of the assets acquired is estimated to be equivalent to
the historical financial statement balances as of the date of acquisition.
Allocation of the purchase price will be reevaluated upon completion of the
acquisition and could result in significant changes to the valuations of assets
(including goodwill) and liabilities.
FORM OF THE PROPOSED MERGER
Subject to the terms and conditions of the Proposed Merger and in accordance
with the California General Corporation Law and the Delaware General Corporation
Law, Pacific Scientific will be merged with and into Purchaser. Purchaser will
be the surviving corporation in the Proposed Merger, and will continue its
corporate existence under Delaware law. Kollmorgen reserves the right to cause
Purchaser to amend the Offer and/or the Proposed Merger (including amending the
number of Pacific Scientific Common Shares to be purchased, the purchase prices
therefor, the proposed merger consideration and the surviving entity in the
Proposed Merger) at any time, including upon entering into a merger agreement
with Pacific Scientific, or to negotiate a merger agreement with Pacific
Scientific in connection with a merger not involving a tender offer pursuant to
which Purchaser would terminate the Offer and the Pacific Scientific Common
Shares would, upon consummation of such merger, be converted into cash and
Kollmorgen Common Stock in such amounts as are negotiated by Kollmorgen and
Pacific Scientific; PROVIDED, HOWEVER, that Kollmorgen has no intention of
reducing the consideration paid to Pacific Scientific shareholders below that
being offered in the Offer and the Proposed Merger.
REGULATORY MATTERS
Based upon its examination of publicly available information with respect to
Pacific Scientific, neither Purchaser nor Kollmorgen is aware of any license or
other regulatory permit that appears to be material to the business of Pacific
Scientific and its subsidiaries, taken as a whole, which might be adversely
affected by the acquisition of Pacific Scientific Common Shares by Purchaser
pursuant to the Offer or, except as set forth below, of any approval or other
action by any domestic (federal or state) or foreign governmental,
administrative or regulatory authority or agency which would be required prior
to the acquisition of Pacific Scientific Common Shares by Purchaser pursuant to
the Offer or consummation of the Proposed Merger. If any such material approval
or other action is required, it is Purchaser's present intention to seek such
approval or action. Kollmorgen and Purchaser do not currently intend, however,
to delay the purchase of Pacific Scientific Common Shares tendered pursuant to
the Offer pending the outcome of any such action or the receipt of any such
approval (subject to Purchaser's right to decline to purchase Pacific Scientific
Common Shares if any of the conditions set forth in Section 14 of the Offer to
Purchase shall have occurred). There can be no assurance that any such approval
or other action, if needed, would be obtained without substantial conditions or
that adverse consequences might not result to the business of Pacific
Scientific, Purchaser or Kollmorgen or that certain parts of the businesses of
Pacific Scientific, Purchaser or Kollmorgen might not have to be disposed of or
held separate or other substantial conditions complied with in order to obtain
such approval or other action or in the event that such approval was not
obtained or such other action was not taken.
ANTITRUST. Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), and the rules that have been promulgated thereunder
by the Federal Trade Commission (the "FTC"), certain acquisition transactions
may not be consummated unless certain information has been furnished to the
Antitrust Division of the United States Department of Justice (the "Antitrust
Division") and the FTC and certain waiting period requirements have been
satisfied. The acquisition of Pacific Scientific Common Shares by Purchaser
pursuant to the Offer are subject to such requirements.
Pursuant to the HSR Act, on December 15, 1997, Kollmorgen filed Premerger
Notification and Report Forms in connection with the purchase of Pacific
Scientific Common Shares pursuant to the Offer with the Antitrust Division and
the FTC. Under the provisions of the HSR Act applicable to the Offer, the
purchase of Pacific Scientific Common Shares pursuant to the Offer may not be
consummated until the
20
<PAGE>
expiration of a 15 calendar day waiting period following the applicable filings
by Kollmorgen. Accordingly, the waiting period under the HSR Act applicable to
the purchase of Pacific Scientific Common Stock pursuant to the Offer will
expire at 11:59 p.m., New York City time, on December 30, 1997, unless such
waiting period is earlier terminated by the FTC and the Antitrust Division or
extended by a request from the Antitrust Division or the FTC for additional
information or documentary material prior to the expiration of the waiting
period. Pursuant to the HSR Act, Kollmorgen has requested early termination of
the waiting period applicable to the Offer.
There can be no assurance, however, that the 15 calendar day HSR Act waiting
period applicable to the Offer will be terminated early. If the Antitrust
Division or the FTC were to request additional information or documentary
material from Kollmorgen with respect to the Offer, the waiting period with
respect to the Offer would expire at 11:59 p.m., New York City time, on the
tenth calendar day after the date of substantial compliance by Kollmorgen with
such request. Thereafter, the consummation of the Offer may only be prevented by
a court order that extends the waiting period or by an injunction. Kollmorgen
will not be permitted to purchase Pacific Scientific Common Shares pursuant to
the Offer or engage in any other transaction that would result in Kollmorgen
having beneficial ownership of $15 million or more of the outstanding voting
securities of Pacific Scientific until expiration of the waiting period
applicable to the Offer. If the acquisition of Pacific Scientific Common Shares
is delayed as a result of a request by the Antitrust Division or the FTC for
additional information or documentary material pursuant to the HSR Act in
connection with the acquisition of Pacific Scientific Common Shares pursuant to
the Offer, the Offer may, but need not, be extended and, in any event, the
purchase of and payment for Pacific Scientific Common Shares will be deferred
until 10 days after the request is substantially complied with by Kollmorgen,
unless the extended period expires on or before the date when the initial 15
calendar day period would otherwise have expired, or unless the waiting period
is terminated sooner by the FTC and the Antitrust Division. Only one extension
of such waiting period pursuant to a request for additional information is
authorized by the HSR Act and the rules promulgated thereunder, except by court
order. The Offer is conditioned upon the waiting period applicable under the HSR
Act to the Offer having expired or been terminated.
The Antitrust Division and the FTC frequently scrutinize the legality under
the antitrust laws of transactions such as the proposed acquisition of Pacific
Scientific Common Shares by Purchaser pursuant to the Offer. At any time before
or after the purchase of Pacific Scientific Common Shares pursuant to the Offer
by Purchaser, the Antitrust Division or the FTC could take such action under the
antitrust laws as they deem necessary or desirable in the public interest,
including seeking to enjoin the purchase of Pacific Scientific Common Shares
pursuant to the Offer or seeking the divestiture of Pacific Scientific Common
Shares purchased by Purchaser or the divestiture of substantial assets of
Kollmorgen, Pacific Scientific or their respective subsidiaries. Private parties
and state attorneys general may also bring legal action under federal or state
antitrust laws under certain circumstances. Based upon an examination of
information available to Kollmorgen relating to the businesses in which
Kollmorgen, Pacific Scientific and their respective subsidiaries are engaged,
Kollmorgen and Purchaser believe that the Offer will not violate the antitrust
laws. Nevertheless, there can be no assurance that a challenge to the Offer on
antitrust grounds will not be made or, if such a challenge is made, as to what
the result would be.
FOREIGN LAWS. According to publicly available information, Pacific
Scientific also owns property and conducts businesses in a number of other
jurisdictions. In connection with the acquisition of the Pacific Scientific
Common Shares pursuant to the Offer, the laws of certain foreign countries and
jurisdictions may require the filing of information with, or the obtaining of
the approval of, governmental authorities in such countries and jurisdictions.
The governments in such countries and jurisdictions might attempt to impose
additional conditions on the Kollmorgen operations conducted in such countries
and jurisdictions as a result of the acquisition of Pacific Scientific Common
Shares pursuant to the Offer or the Proposed Merger.
21
<PAGE>
APPRAISAL RIGHTS
Under the New York Business Corporation Law, holders of Kollmorgen Common
Stock are not entitled to dissenter's rights in connection with the Share
Issuance Proposal or the Proposed Combination.
CERTAIN LITIGATION
On December 15, 1997, Kollmorgen commenced litigation against Pacific
Scientific and the Pacific Scientific Board in the United States District Court
for the Central District of California seeking, among other things, an order (i)
declaring that failure to redeem the Rights or render the Rights inapplicable to
the Offer and the Proposed Merger or to approve the Offer and the Proposed
Merger for purposes of Article Fifth would constitute a breach of the Pacific
Scientific Board's fiduciary duties to Pacific Scientific shareholders under
California law, (ii) invalidating the Rights or compelling the Pacific
Scientific Board to redeem the Rights or render the Rights inapplicable to the
Offer and the Proposed Merger, (iii) compelling the Pacific Scientific Board to
approve the Offer and the Proposed Merger for purposes of Article Fifth and (iv)
enjoining the Pacific Scientific Board from taking any actions to interfere with
the Offer, the Consent Solicitation or the Proposed Merger.
THE COMPANIES
KOLLMORGEN
Kollmorgen believes it is one of the major worldwide manufacturers of high
performance electronic motion control components and systems. Kollmorgen's
products include brushless, permanent magnet motors and associated electronic
servo amplifiers and controllers. Kollmorgen also manufacturers integrated
electromechanical actuators, periscopes, as well as weapons control systems for
ground vehicles and naval vessels. These products and systems are manufactured
by Kollmorgen in the United States, France, Germany, Israel, India, Vietnam and
the People's Republic of China, and are sold around the world by Kollmorgen's
separate sales and marketing organizations for each of the commercial and
industrial and aerospace and defense markets.
Kollmorgen's commercial and industrial products are sold to original
equipment manufacturers of machine tools, robotics, electronic, semi-conductor
and automation equipment, packaging and textile machinery, medical instruments
and equipment, office automation and computer peripherals.
Kollmorgen's aerospace and defense products include components and systems
for secondary flight controls, utility actuators, airborne power conversion
equipment, radar pedestals, weapons directors, periscopes and missiles.
A wholly owned subsidiary of Kollmorgen, Proto-Power Corporation, provides
engineering services to domestic fossil and nuclear electric companies and
independent power producers.
PURCHASER
Purchaser, a wholly owned subsidiary of Kollmorgen, was formed in December
1997 by Kollmorgen solely for the purpose of effecting the Offer and the
Proposed Merger and has not carried on any activities other than in connection
with the Offer and the Proposed Merger.
PACIFIC SCIENTIFIC
According to the Pacific Scientific Annual Report on Form 10-K for the year
ended December 27, 1996 (the "Pacific Scientific 1996 Form 10-K"), Pacific
Scientific manufactures and sells the products of two segments -- electrical
equipment and safety equipment. The electrical equipment segment produces:
electric motors and generators and related motion control devices such as
controllers and drivers; electronic instruments for particle measurement;
electromechanical and electronic controls for use mainly by electric utilities,
including the controls for street and highway lighting and electronic ballasts
for fluorescent lights. The safety equipment segment produces: fire detection
and suppression equipment; personnel safety restraints; mechanical and
electromechanical flight control components; and pyrotechnics. This segment also
provides service for products already delivered to customers. These products are
used mainly in commercial and military aircraft and vehicles, but are also used
in a variety of other commercial and industrial applications.
22
<PAGE>
COMPARATIVE MARKET PRICES AND DIVIDENDS
The Kollmorgen Common Stock and the Pacific Scientific Common Stock are
listed and principally traded on the NYSE under the symbols "KOL" and "PSX",
respectively. The following table sets forth the range of high and low sales
prices for Kollmorgen Common Stock and for Pacific Scientific Common Stock on
the NYSE as reported by the Dow Jones News Service and the amount of cash
dividends paid per share of Pacific Scientific Common Stock, together with the
per share dividends paid by Pacific Scientific during the periods indicated.
MARKET PRICE DATA
<TABLE>
<CAPTION>
KOLLMORGEN PACIFIC SCIENTIFIC
COMMON STOCK COMMON STOCK
---------------------------- ----------------------------
(IN $) (IN $)
HIGH LOW DIV HIGH LOW DIV
--------- --------- --- --------- --------- ---
<S> <C> <C> <C> <C> <C> <C>
1997
Fourth Quarter (through December 26)............ 20 3/8 16 3/4 .02 23 15/16 13 1/2 .03
Third Quarter................................... 19 5/16 14 3/4 .02 17 7/8 13 1/4 .03
Second Quarter.................................. 15 5/16 11 5/8 .02 14 5/8 11 1/8 .03
First Quarter................................... 15 1/8 10 7/8 .02 14 11 1/8 .03
1996
Fourth Quarter.................................. 13 3/4 10 1/8 .02 12 3/4 10 1/4 .03
Third Quarter................................... 14 3/4 10 1/2 .02 16 1/2 11 .03
Second Quarter.................................. 15 5/8 11 3/8 .02 22 3/8 15 1/4 .03
First Quarter................................... 13 1/8 9 5/8 .02 24 7/8 18 3/4 .03
1995
Fourth Quarter.................................. 11 1/4 9 .02 27 3/8 19 1/2 .03
Third Quarter................................... 12 8 .02 26 1/2 17 7/8 .03
Second Quarter.................................. 8 7/8 6 1/8 .02 21 3/4 14 1/8 .03
First Quarter................................... 6 7/8 5 5/8 .02 24 1/8 16 1/2 .03
</TABLE>
On December 12, 1997, the last trading day before Kollmorgen publicly
announced its intention to make the Offer and the last trading day prior to the
date of this Proxy Statement, the closing price of Kollmorgen Common Stock was
$16.88. On December 26, 1997, the last trading day prior to the mailing of this
proxy statement, the closing price of Kollmorgen Common Stock was $17.88. Past
price performance is not necessarily indicative of likely future price
performance. Holders of Kollmorgen Common Stock are urged to obtain current
market quotations for shares of Kollmorgen Common Stock.
On December 12, 1997, the last trading day before Kollmorgen announced its
intention to make the Offer and the last trading day prior to the date of this
Proxy Statement, the closing price of Pacific Scientific Common Stock on the
NYSE was $15.44. On December 26, 1997, the last trading day prior to the mailing
of this proxy statement, the closing price of Pacific Scientific Common Stock
was $23.56. Past price performance is not necessarily indicative of likely
future price performance. Holders of Kollmorgen Common Stock are urged to obtain
current market quotations for shares of Pacific Scientific Common Stock.
Kollmorgen has historically paid dividends on Kollmorgen Common Stock and
intends to continue paying regular cash dividends on Kollmorgen Common Stock
prior to and after the consummation of the Proposed Combination. Holders of
shares of Pacific Scientific Common Stock are entitled to receive dividends from
funds legally available therefor when, as and if declared by the Pacific
Scientific Board. Kollmorgen has no information with respect to the Pacific
Scientific Board's present intentions with respect to its policy of paying
quarterly cash dividends.
According to the Pacific Scientific 1996 Form 10-K, as of February 28, 1997,
there were 1,428 holders of record of shares of Pacific Scientific Common Stock.
As of December 26, 1997, there were approximately 1,900 holders of record of
Kollmorgen Common Stock.
23
<PAGE>
SELECTED FINANCIAL DATA
The following table represents the selected historical statement of
operations and balance sheet data of Kollmorgen. The financial data presented
below as of and for each of the years in the period 1992 to 1996 have been
audited by Coopers & Lybrand L.L.P., independent accountants ("Coopers & Lybrand
L.L.P.") and have been derived from Kollmorgen's Annual Reports on Form 10-K for
the years ended December 31, 1996 and 1993. The financial data as of and for the
nine months ended September 30, 1996 and 1997 have been derived from the
unaudited financial statements of Kollmorgen in Kollmorgen's Quarterly Reports
for each of the nine months ended September 30, 1996 and 1997. In the opinion of
management, the unaudited financial statements have been prepared on a basis
consistent with the audited financial statements and contain all adjustments,
consisting only of normal recurring adjustments (except for the charge for
acquired research and development, and the gain on sale of joint venture
interest), necessary to present fairly the information set forth therein. The
operating results for the nine months ended September 30, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. Kollmorgen's selected historical financial data should be
read in conjunction with, and are qualified in their entirety by reference to,
the historical financial statements (and related notes) of Kollmorgen which are
incorporated by reference herein. See "Incorporation of Certain Documents by
Reference."
Kollmorgen reports quarterly and annual earnings results using methods
required by generally accepted accounting principles. Kollmorgen prepares its
financial statements on the basis of a fiscal year beginning on January 1 and
ending on December 31.
24
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF KOLLMORGEN
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30,
(AUDITED) (UNAUDITED)
---------------------------------------------------------- ----------------------
1992 1993 1994 1995 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales............................. $ 194,859 $ 185,538 $ 191,771 $ 228,655 $ 230,424 $ 169,658 $ 163,054
Cost of Sales......................... 129,151 121,286 124,627 152,614 152,928 112,749 113,590
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross Profit.......................... 65,708 64,252 67,144 76,041 77,496 56,909 49,464
---------- ---------- ---------- ---------- ---------- ---------- ----------
Selling and Marketing Expense......... 25,471 24,708 27,753 29,412 27,570 20,601 15,003
General and Administrative Expense.... 23,425 21,973 21,491 22,435 24,348 18,256 17,412
Research and Development Expense...... 10,645 9,338 10,843 13,178 12,143 9,024 7,249
Restructuring and Other Costs......... 10,000 -- -- -- -- -- --
Acquired Research and Development..... -- -- -- -- -- -- 11,391
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before Interest,
Minority Interest and Taxes......... (3,833) 8,233 7,057 11,016 13,435 9,028 (1,591)
Other (Income) Expense................ 5,664 4,329 3,821 3,859 5,045 3,765 2,868
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (Loss) Before Minority Interest
and Income Taxes.................... (9,497) 3,904 3,236 7,157 8,390 5,263 (4,459)
Minority Interest..................... -- -- -- -- 514 418 222
Income Tax Benefit (Provision)........ 772 848 815 -- -- -- (1,978)
Joint Venture:
Equity in Earnings................ -- -- -- -- -- -- 1,430
Gain on Sale of Investment, Net of
Income Taxes.................... -- -- -- -- -- -- 24,321
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss)..................... $ (8,725) $ 4,752 $ 4,051 $ 7,157 $ 8,904 $ 5,681 $ 19,536
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income Available to Common
Shareholders........................ $ (11,055) $ 2,428 $ 1,727 $ 2,509 $ 8,619 $ 5,396 $ 19,536
Earnings (Loss) per Common
Share--Fully Diluted................ $ (1.14) $ 0.25 $ 0.18 $ 0.26 $ 0.86 $ 0.54 $ 1.87
Number of Shares Used in Calculating
Earnings per Share.................. 9,627 9,832 9,642 9,670 10,042 10,082 10,444
BALANCE SHEET DATA:
Total Assets.......................... $ 149,568 $ 134,008 $ 138,201 $ 147,474 $ 141,330 $ 138,965 $ 142,144
Total Debt............................ $ 56,170 $ 53,524 $ 53,991 $ 49,808 $ 65,541 $ 69,194 $ 44,775
Redeemable Preferred Stock(a)......... $ 22,282 $ 22,407 $ 22,532 $ 25,506 $ -- $ -- $ --
Cash Dividends........................ $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.06
Common Stock Outstanding at Par
Value............................... $ 26,861 $ 26,875 $ 26,891 $ 26,904 $ 26,914 $ 26,912 $ 26,919
Total Shareholders' Equity............ $ 8,074 $ 7,585 $ 9,880 $ 11,297 $ 21,779 $ 16,321 $ 41,911
</TABLE>
- ------------------------
(a) The Preferred Stock at December 31, 1995 is presented at its liquidation
value of $22,750 plus the 10% premium of $2,756. (Refer to Kollmorgen's
Annual Report on Form 10-K.)
See accompanying notes
25
<PAGE>
NOTES TO KOLLMORGEN SELECTED HISTORICAL FINANCIAL DATA
(1) Effective December 31, 1996, Kollmorgen combined its Macbeth division
("Macbeth") with the Color Control Systems business of Gretag AG and
received 48% of the shares in the Swiss holding company which controls the
two businesses (the "Joint Venture"). Accordingly, at December 31, 1996, and
through the second quarter of 1997, the Macbeth division was not
consolidated in Kollmorgen's financial statements, but instead Kollmorgen
accounted for its interest in the Joint Venture using the equity method.
Effective June 17, 1997, Kollmorgen agreed, pursuant to a firm underwriting
agreement, to sell approximately 88% of its interest in the Joint Venture as
part of an initial public offering on the Swiss stock exchange. On June 25,
1997, Kollmorgen sold approximately 88% of its interest in the Joint
Venture, receiving approximately $38 million. Subsequently in August, 1997,
Kollmorgen sold the remaining shares to the underwriter, receiving
approximately $4.0 million in cash. Kollmorgen's financial statements
reflect a gain in the second quarter of 1997 of approximately $24 million on
the sale of its shares in the Joint Venture. The gain is net of $2 million
in income taxes and utilization of net operating loss and other tax credit
carryforwards.
Refer to Note 2 of the 1996 financial statements contained in Kollmorgen's
Annual Report on Form 10-K for the year ended December 31, 1996 for
additional information.
(2) Effective April 2, 1997, Kollmorgen agreed to purchase all of the remaining
shares of Servotronix Ltd. ("Servotronix") for cash of $6.4 million and
through the issuance of 257,522 shares of Kollmorgen Common Stock. The
shares not yet purchased are a liability of Kollmorgen in the amount of $1.8
million at September 30, 1997. Accordingly, Kollmorgen has accounted for the
purchase of Servotronix as if 100% of the shares were purchased on April 2,
1997.
(3) Effective June 10, 1997, Kollmorgen entered into a binding agreement to
purchase all of the shares of Fritz A. Seidel Elektro-Automatik GmbH
("Seidel"). Accordingly, Kollmorgen consolidated the balance sheet of Seidel
as of June 30, 1997. Effective in the third quarter of 1997, the results of
operations for Seidel are consolidated in Kollmorgen's financial statements.
(4) In connection with the acquisitions of Servotronix and Seidel, Kollmorgen
has allocated the purchase price to the assets acquired, both tangible and
intangible, and any excess of the purchase price over the assets acquired
has been classified as goodwill. A portion of the purchase price has been
allocated to in-process research and development for products which are not
yet feasible and the value of the in-process research and development of
$10.5 million was expensed as acquired research and development in the
second quarter of 1997. Also included in acquired research and development
was a charge of approximately $0.9 million for technology acquired unrelated
to the Servotronix and Seidel acquisitions.
The following table represents the selected historical statement of
operations and balance sheet data of Pacific Scientific. The financial data
presented below as of and for the fiscal year ended December 25, 1992, have been
derived from the condensed consolidated statements of income, condensed
consolidated balance sheets and other financial data of Pacific Scientific in
Pacific Scientific's 1998 Annual Report to Shareholders. The financial data
presented below as of and for the fiscal year ended December 31, 1993 have been
derived from the audited consolidated financial statements of Pacific Scientific
in Pacific Scientific's Annual Report on Form 10-K for the fiscal year ended
December 29, 1995. The financial data presented below as of and for each of the
fiscal years ended December 30, 1994, December 29, 1995 and December 27, 1996
have been derived from the audited consolidated financial statements of Pacific
Scientific in Pacific Scientific's Annual Report on Form 10-K for the fiscal
year ended December 27, 1996. The balance sheet data as of September 27, 1996
have been derived from the unaudited financial statements of Pacific Scientific
in Pacific Scientific's Quarterly Report on Form 10-Q for the nine months ended
September 27, 1996. The statement of operations data for the nine months ended
September 27,
26
<PAGE>
1996 and the financial data as of and for the nine months ended September 26,
1997 have been derived from the unaudited financial statements of Pacific
Scientific in Pacific Scientific's Quarterly Report on Form 10-Q for the nine
months ended September 26, 1997. The operating results for the nine months ended
September 26, 1997 are not necessarily indicative of the results that may be
expected for the year ending December 26, 1997. Pacific Scientific's selected
historical financial data should be read in conjunction with, and are qualified
in their entirety by reference to, the historical financial statements (and
related notes) of Pacific Scientific which are incorporated by reference herein.
See "Incorporation of Certain Documents by Reference."
Pacific Scientific reports quarterly and annual earnings results using
methods required by generally accepted accounting principles. Pacific Scientific
prepares its financial statements on the basis of a fiscal year beginning the
day following the end of the prior fiscal year and ending on the last Friday in
December.
27
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF PACIFIC SCIENTIFIC
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED(1) ENDED
(AUDITED) (UNAUDITED)
----------------------------------------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
DEC. 25, DEC. 31, DEC. 30, DEC. 29, DEC. 27, SEPT. 27, SEPT. 26,
1992 1993 1994 1995 1996 1996 1997
--------- --------- --------- --------- --------- --------- ---------
STATEMENT OF OPERATIONS DATA:
Net Sales....................................... $ 183,308 $ 206,609 $ 247,683 $ 284,812 $ 294,779 $ 217,114 $ 227,744
Costs and Expenses:
Cost of Sales................................. 124,462 140,463 164,941 186,224 203,074 146,349 154,428
Selling, Marketing, General and
Administrative.............................. 40,072 44,569 51,967 59,519 63,569 45,018 47,397
Research and Development...................... 9,487 9,911 11,793 15,750 15,974 10,955 9,880
Cost of Solium Restructuring and Other
Charges..................................... -- -- -- -- 7,500 -- --
--------- --------- --------- --------- --------- --------- ---------
Operating Income................................ 9,287 11,666 18,982 23,319 4,662 14,792 16,039
Other Income/Expense/Net........................ (887) (525) (2,240) (3,229) (4,362) (2,068) (1,630)
--------- --------- --------- --------- --------- --------- ---------
Income Before Income Taxes...................... 8,400 11,141 16,742 20,090 300 12,724 14,409
Income Taxes.................................... (3,069) (3,858) (6,481) (7,340) (131) (4,975) (5,384)
Loss from Discontinued Operations............... -- -- -- -- -- (8,725) (13,563)
Cumulative Effect of Change in Accounting
Principle..................................... -- 1,060 -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net Income (Loss)............................... $ 5,331 $ 8,343 $ 10,261 $ 12,750 $ 169 $ (976) $ (4,538)
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Net Income (Loss) per Share (Fully Diluted)..... $ 0.45 $ 0.70 $ 0.83 $ 1.01 $ 0.01 $ (0.08) $ (0.36)
BALANCE SHEET DATA(2):
Total Assets.................................... $ 141,614 $ 168,588 $ 180,635 $ 225,018 $ 229,490 $ 227,459 $ 220,800
Long-Term Debt.................................. $ 29,206 $ 44,840 $ 42,936 $ 63,719 $ 83,108 $ 83,379 $ 70,187
Common Stock Outstanding at Par Value........... $ 11,664 $ 11,780 $ 11,922 $ 12,071 $ 12,195 $ 12,171 $ 12,382
Total Stockholders' Equity...................... $ 73,332 $ 81,977 $ 92,773 $ 106,486 $ 106,810 $ 105,707 $ 102,865
</TABLE>
- ------------------------
(1) Statements of Operations for the fiscal years presented do not include the
operating results of Solium as a Discontinued Operation as this information
was not publicly available (refer to Pacific Scientific Current Report on
Form 8-K dated April 21, 1997).
(2) Balance Sheet data at September 27, 1996 and for the fiscal years presented
do not include the Solium business as a Discontinued Operation as this
information was not publicly available.
28
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
KOLLMORGEN
PRO FORMA ADJUSTED HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEIDEL SERVOTRONIX KOLLMORGEN
JANUARY 1, 1997 TO JANUARY 1, 1997 TO PRO FORMA
KOLLMORGEN JUNE 9, 1997 APRIL 1, 1997 PRO FORMA ADJUSTED
HISTORICAL HISTORICAL(A) HISTORICAL(A) ADJUSTMENTS HISTORICAL
----------- ------------------- --------------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................................. $ 163,054 $ 9,591 $ 543 $ 173,188
Cost of Revenues......................... 113,590 6,622 329 120,541
----------- ------ ----- -----------
Gross Margin............................. 49,464 2,969 214 52,647
Operating Expenses:
Sales, Marketing, General and
Administrative..................... 32,131 1,734 95 33,960
Research and Development............. 7,249 334 125 7,708
Acquired Research and Development.... 11,391 -- -- $ (11,391)(b) --
Amortization of Goodwill............. 284 -- -- 242(c) 526
----------- ------ ----- ----------- -----------
Operating Income (Loss).................. (1,591) 901 (6) 11,149 10,453
Other Income (Expense), Net.............. (2,646) (32) 6 816(d) (1,856)
----------- ------ ----- ----------- -----------
Income (Loss) Before Taxes............... (4,237) 869 -- 11,965 8,597
Provision for Income Taxes............... (1,978) -- -- (335)(e) (3,095)
(782)(e)
----------- ------ ----- ----------- -----------
Net Income (Loss) from
Continuing Operations Before Investment
in Joint Venture..................... (6,215) 869 -- 10,848 5,502
Joint Venture:
Equity in Earnings................... 1,430 -- -- (1,430)(d) --
Gain on Sale of Investment, Net of
Taxes.............................. 24,321 -- -- (24,321)(d) --
----------- ------ ----- ----------- -----------
Net Income............................... $ 19,536 $ 869 $ -- $ (14,903) $ 5,502
----------- ------ ----- ----------- -----------
----------- ------ ----- ----------- -----------
Net Income per Share--
Fully Diluted.......................... $ 1.87 -- -- $ 0.53
Weighted Average Number of Common
Shares Outstanding..................... 10,444 -- -- 10,444
</TABLE>
- ------------------------------
Note: The accompanying notes are an integral part of these pro forma adjusted
historical consolidated financial statements.
29
<PAGE>
KOLLMORGEN
PRO FORMA ADJUSTED HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
KOLLMORGEN'S KOLLMORGEN
MACBETH FRENCH PRO FORMA
KOLLMORGEN SEIDEL SERVOTRONIX DIVISION INSTRUMENT PRO FORMA ADJUSTED
HISTORICAL HISTORICAL(A) HISTORICAL(A) HISTORICAL(F) GROUP(G) ADJUSTMENTS HISTORICAL
----------- ------------ ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................. $ 230,424 $ 19,179 $ 2,566 $ (32,104) $ (932) $ 219,133
Cost of Revenues.......... 152,928 13,346 1,307 (15,819) (848) 150,914
----------- ------------ ------ ------------- ----------- -----------
Gross Margin.............. 77,496 5,833 1,259 (16,285) (84) 68,219
Operating Expenses:
Sales, Marketing,
General and
Administrative........ 51,918 4,107 365 (10,027) (822) 45,541
Research and
Development........... 12,143 822 813 (2,744) (364) 10,670
Amortization of
Goodwill.............. -- -- -- -- -- $ 701(c) 701
----------- ------------ ------ ------------- ----------- ----------- -----------
Operating Income (Loss)... 13,435 904 81 (3,514) 1,102 (701) 11,307
Other Income (Expense),
Net..................... (4,531) (133) (81) 120 -- 1,593(d) (3,032)
----------- ------------ ------ ------------- ----------- ----------- -----------
Income (Loss) Before
Taxes................... 8,904 771 -- (3,394) 1,102 892 8,275
Provision for Income
Taxes................... -- -- -- -- -- (478)(e) (2,317)
(1,839)(e)
----------- ------------ ------ ------------- ----------- ----------- -----------
Net Income (Loss)......... 8,904 771 -- (3,394) 1,102 (1,425) 5,958
Preferred Dividends....... (285) -- -- -- -- (285)
----------- ------------ ------ ------------- ----------- ----------- -----------
Income Available to Common
Shareholders............ $ 8,619 $ 771 $ -- $ (3,394) $ 1,102 $ (1,425) $ 5,673
----------- ------------ ------ ------------- ----------- ----------- -----------
----------- ------------ ------ ------------- ----------- ----------- -----------
Net Income per Share--
Fully Diluted........... $ 0.86 -- -- -- -- $ 0.56
Weighted Average Number of
Common Shares
Outstanding............. 10,042 -- -- -- -- 10,042
</TABLE>
- ------------------------
Note: The accompanying notes are an integral part of these pro forma adjusted
historical consolidated financial statements.
30
<PAGE>
KOLLMORGEN
NOTES TO PRO FORMA ADJUSTED HISTORICAL CONSOLIDATED
STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
A. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS
On April 2, 1997, Kollmorgen acquired Servotronix, a developer and
manufacturer of motion control technology that is headquartered in Israel. On
June 10, 1997, Kollmorgen acquired Seidel, a developer and manufacturer of
motion control technology that is headquartered in Germany. Both acquisitions
were accounted for as purchases and together, resulted in an in-process research
and development charge of $11,391 in 1997.
The pro forma adjusted historical consolidated statements of operations set
forth the results of operations for the nine-month period ended September 30,
1997 and the year ended December 31, 1996, as if the acquisitions by Kollmorgen
of Seidel and Servotronix, and the disposal of Macbeth had occurred at January
1, 1996.
The pro forma adjusted historical consolidated statements of operations are
intended for information purposes and are not necessarily indicative of actual
results had the transactions occurred as of the dates indicated above, nor do
they purport to indicate the future results of operations.
These pro forma adjusted historical consolidated statements of operations
should be read in conjunction with the financial statements and notes thereto
included in Kollmorgen's Annual Report on Form 10-K for the year ended December
31, 1996, Kollmorgen's Current Report on Form 8-K filed January 31, 1997 and
Kollmorgen's Form 10-Q for the nine-month period ended September 30, 1997. The
pro forma adjusted historical consolidated statements of operations do not give
effect to any potential cost savings and synergies that could result from the
Servotronix and Seidel acquisitions.
B. PRO FORMA ADJUSTMENTS TO PRO FORMA ADJUSTED HISTORICAL CONSOLIDATED
STATEMENTS OF OPERATIONS
(a) These columns represent the unaudited historical results of operations
of Seidel and Servotronix for the period prior to Kollmorgen's acquisition. Upon
acquisition these operations became part of Kollmorgen's historical financial
statements.
(b) This adjustment eliminates the charge for acquired in-process research
and development costs recognized principally upon the acquisition of Seidel and
Servotronix. Since these amounts are not continuing expenditures of Kollmorgen,
they are deducted from the historical consolidated statement of operations to
arrive at the Kollmorgen pro forma adjusted historical financial statements.
(c) These adjustments reflect the goodwill amortization for the periods,
assuming both acquisitions occurred at January 1, 1996. This goodwill resulting
from the acquisitions of Seidel and Servotronix of $10,509 which reflects the
aggregate excess purchase price over the fair value of net assets acquired and
in-process research and development. Goodwill attributable to these acquisitions
is being amortized over 15 years. For purposes of allocating the acquisition
costs among the various assets acquired, the carrying value of the acquired
assets approximated their fair value, with all the excess of such acquisition
costs being attributed to in-process acquired research and development and
goodwill. It is Kollmorgen's intention to continue to evaluate the acquired
assets and, as a result, the allocation of the acquisition costs among the
tangible and intangible assets acquired may change. All material intercorporate
transactions were eliminated.
(d) Effective December 31, 1996, Kollmorgen contributed its Macbeth business
to a joint venture for a 48% interest. The investment was accounted for under
the equity method. In the second quarter of 1997,
31
<PAGE>
Kollmorgen sold its interest in the joint venture for a gain of $24,321, which
has been eliminated as a pro forma adjustment. The $1,430 adjustment represents
the elimination of Kollmorgen's proportionate earnings of the joint venture from
the beginning of the period through the time of the sale. Kollmorgen used a
portion of the proceeds from the sale of its interest in the joint venture to
repay the outstanding balance of the $25 million term loan. Accordingly,
interest expense related to this debt of $816 and $1,593, has been excluded from
these pro forma statements of operations for the nine months ended September 30,
1997 and the nine months ended December 31, 1996, respectively.
(e) These adjustments represent (i) the estimated income tax effect of the
pro forma adjustments at the blended statutory rates of 36% and 28% for 1997 and
1996, respectively, and (ii) an increase in income tax provision that would have
resulted from the full utilization of net operating loss carryforwards had the
gain on sale of investment in Macbeth occurred at January 1, 1996.
(f) This column represents the historical results of operations of Macbeth
for the period prior to December 31, 1996, the effective date of Kollmorgen's
contribution of that business to a joint venture at which point those operations
were accounted for on the equity method of Kollmorgen's historical financial
statements.
(g) In March 1996, Kollmorgen sold a portion of its instrumentation business
located in France for its book value. This column represents the elimination of
the results of this business for 1996.
32
<PAGE>
KOLLMORGEN
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
KOLLMORGEN
PRO FORMA PACIFIC
ADJUSTED SCIENTIFIC PRO FORMA
HISTORICAL HISTORICAL(A) ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues.............................................. $ 173,188 $ 227,744 $ 400,932
Cost of Revenues...................................... 120,541 154,428 274,969
----------- --------------- -----------
Gross Margin.......................................... 52,647 73,316 125,963
Operating Expenses:
Sales, Marketing, General and Administrative........ 33,960 47,397 81,357
Research and Development............................ 7,708 9,880 17,588
Amortization of Goodwill............................ 526 -- $ 8,537(b) 9,063
----------- --------------- ----------- -----------
Operating Income...................................... 10,453 16,039 (8,537) 17,955
Other Income (Expense), Net........................... (1,856) (1,630) (8,838)(c) (12,967)
(643)(c)
----------- --------------- ----------- -----------
Income Before Taxes................................... 8,597 14,409 (18,018) 4,988
Provision for Income Taxes............................ (3,095) (5,384) 3,792(d) (4,686)
----------- --------------- ----------- -----------
Net Income from Continuing Operations................. $ 5,502 $ 9,025 $ (14,226) $ 302
----------- --------------- ----------- -----------
----------- --------------- ----------- -----------
Net Income per Share from Continuing Operations --
Fully Diluted....................................... $ 0.53 $ 0.73 $ 0.02
Weighted Average Number of Common Shares
Outstanding......................................... 10,444 12,443 (12,443)(e) 18,226
7,782(e)
</TABLE>
- ------------------------
Note: The accompanying notes are an integral part of these pro forma combined
condensed consolidated financial statements.
33
<PAGE>
KOLLMORGEN
PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
KOLLMORGEN
PRO FORMA PACIFIC
ADJUSTED SCIENTIFIC PRO FORMA
HISTORICAL HISTORICAL(F) ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues................................................. $ 219,133 $ 294,779 $ 513,912
Cost of Revenues......................................... 150,914 203,074 353,988
----------- --------------- -----------
Gross Margin............................................. 68,219 91,705 159,924
Operating Expenses:
Sales, Marketing, General and Administrative........... 45,541 63,569 109,110
Research and Development............................... 10,670 15,974 26,644
Cost of Solium Restructuring and Other................. -- 7,500 7,500
Amortization of Goodwill............................... 701 -- 11,383(b) 12,084
----------- --------------- ----------- -----------
Operating Income......................................... 11,307 4,662 (11,383) 4,586
Other Income (Expense), Net.............................. (3,032) (4,362) (11,785)(c) (20,036)
(857)(c)
----------- --------------- ----------- -----------
Income (Loss) Before Taxes............................... 8,275 300 (24,025) (15,450)
Benefit (Provision) for Income Taxes..................... (2,317) (131) 5,057(d) 2,609
----------- --------------- ----------- -----------
Net Income (Loss)........................................ 5,958 169 (18,968) (12,841)
Preferred Dividends...................................... (285) -- -- (285)
----------- --------------- ----------- -----------
Income Available to Common Shareholders.................. 5,673 169 (18,968) (13,126)
----------- --------------- -----------
----------- --------------- ----------- -----------
-----------
Net Income (Loss) per Share -- Fully Diluted............. $ 0.56 $ 0.01 $ (0.74)
Weighted Average Number of Common Shares Outstanding..... 10,042 12,457 (12,457)(e) 17,824
7,782(e)
</TABLE>
- ------------------------
Note: The accompanying notes are an integral part of these pro forma combined
condensed consolidated financial statements.
34
<PAGE>
KOLLMORGEN
PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1997
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
PACIFIC PRO FORMA
KOLLMORGEN SCIENTIFIC ADJUSTMENTS PRO FORMA
----------- --------------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents............................ $ 17,881 $ 3,174 $ 21,055
Accounts Receivable, Net............................. 41,367 51,078 92,445
Inventories.......................................... 25,486 54,611 80,097
Deferred Income Taxes................................ 9,986 9,986
Other Current Assets................................. 6,385 6,946 13,331
----------- --------------- -----------
Total Current Assets................................. 91,119 125,795 216,914
Property and Equipment, Net............................ 26,006 49,411 75,417
Note Receivable........................................ -- 8,700 8,700
Investment in Joint Venture............................ 14,483 -- 14,483
Other Assets, Net...................................... 10,536 36,894 $ 6,000(c) 53,430
Goodwill, Net.......................................... -- -- 170,744(g) 170,744
----------- --------------- ----------- -----------
Total Assets........................................... $ 142,144 $ 220,800 $ 176,744 $ 539,688
----------- --------------- ----------- -----------
----------- --------------- ----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable and Accrued Liabilities............. $ 49,759 $ 22,874 $ 72,633
Other Current Liabilities............................ 13,153 13,908 27,061
Reserve for Discontinued Solium Operation............ -- 4,593 4,593
----------- --------------- -----------
Total Current Liabilities............................ 62,912 41,375 104,287
Long-Term Obligations.................................. 37,249 76,560 $ 147,309(c) 261,118
Minority Interest...................................... 72 -- -- 72
----------- --------------- ----------- -----------
Total Liabilities...................................... 100,233 117,935 147,309 365,477
Stockholders' Equity................................... 41,911 102,865 132,300(h) 174,211
(102,865)(h)
----------- --------------- ----------- -----------
Total Liabilities and Stockholders' Equity............. $ 142,144 $ 220,800 $ 176,744 $ 539,688
----------- --------------- ----------- -----------
----------- --------------- ----------- -----------
</TABLE>
- ------------------------
Note: The accompanying notes are an integral part of these pro forma combined
condensed consolidated financial statements.
35
<PAGE>
KOLLMORGEN
NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
A. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS
The pro forma combined condensed consolidated financial statements are
prepared assuming that Kollmorgen has merged with Pacific Scientific, a
manufacturer of high-performance rotating electrical equipment, including
motors, generators and alternators. The Proposed Combination will be effected
through the exchange of approximately 7,782,000 shares of common stock of
Kollmorgen and cash of $132,309, resulting in a total estimated purchase price,
including other costs of approximately $15,000, of approximately $279,609. The
shares of Kollmorgen common stock are assumed to be issued at a value of $17.00
per share, which reflects the closing price of the Company's common stock as of
December 10, 1997. This share price differs from the December 12, 1997 share
price of $16.88 referred to elsewhere in this Proxy Statement. Application in
these pro forma statements of the $16.88 per share value would not materially
impact the pro forma values presented herein. The ultimate number of shares
issued to acquire Pacific Scientific will be in the range of approximately
7,007,880 to 8,569,043 shares, dependent upon the 20-day average closing price
of Kollmorgen Common Stock five days prior to closing. Kollmorgen has ascribed
no value to Pacific Scientific's preferred stock purchase rights which will be
acquired in the Proposed Combination. A change in the number of shares issued
upon final consummation of the proposed transaction from the amounts assumed
above would effect the pro forma net income per share for the periods presented.
The transaction will be accounted for as a purchase.
The pro forma combined condensed consolidated balance sheet includes the
financial statements of Kollmorgen and Pacific Scientific at September 30, 1997,
as if the Proposed Combination had occurred on that date.
The pro forma combined condensed consolidated statements of operations set
forth the results of operations for the nine-month period ended September 30,
1997 and the year ended December 31, 1996, as if the Proposed Combination had
occurred at January 1, 1996.
The pro forma combined condensed consolidated financial statements are
intended for information purposes and are not necessarily indicative of actual
results had the Proposed Combination occurred as of the dates indicated above,
nor do they purport to indicate the future consolidated financial position or
future results of operations of the combined entity. Pacific Scientific's
historical financial data was derived from Pacific Scientific's Annual Report on
Form 10-K for the year ended December 27, 1996, and Pacific Scientific's Form
10-Q for the nine-month period ended September 26, 1997. For Kollmorgen's pro
forma adjusted historical financial data, see "Pro Forma Adjusted Historical
Consolidated Statement of Operations" for the nine months ended September 30,
1997 and the year ended December 31, 1996 presented elsewhere herein. These
combined condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto included in
Kollmorgen's Annual Report on Form 10-K for the year ended December 31, 1996,
Kollmorgen's Form 10-Q for the nine-month period ended September 30, 1997,
Pacific Scientific's Annual Report on Form 10-K for the year ended December 27,
1997 and Pacific Scientific's Form 10-Q for the nine-month period ended
September 26, 1997.
B. PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
(a) Pacific Scientific's statement of operations as presented on Form 10-Q
for the nine months ended September 26, 1997, reflects a Loss from Discontinued
Operations of $13,563, Net Loss of $4,358, Loss per share on Discontinued
Operations of $1.09 and Net Loss per share of $0.36. This pro forma statement
reflects only results from continuing operations.
36
<PAGE>
(b) These pro forma adjustments reflect the amortization of goodwill assumed
to be generated in the Proposed Combination over the estimated useful life of
fifteen years on a straight-line basis. The ultimate allocation of the purchase
price to the net assets acquired, goodwill, other intangible assets, liabilities
assumed and incomplete technology is subject to final determination of their
respective fair values. A determination of the fair value of incomplete
technology, if any, is subject to a detailed analysis of the tangible and
intangible assets related to in-process research and development on new products
of Pacific Scientific. The value assigned to in-process research and development
could result in a material charge to operations at consummation of the
transaction and a corresponding reduction in the amounts to be amortized. There
were no intercorporate transactions that required elimination.
(c) The pro forma combined condensed consolidated balance sheet reflects
Kollmorgen's securing a credit facility consisting of a $175,000 term loan and a
$125,000 revolving credit facility (the "Loan") as if the issuance occurred on
September 30, 1997. The term loan is payable over seven years. The Loan accrues
interest at a rate of LIBOR plus 2%. At the date of the Proposed Combination,
this interest rate is estimated to be 8%. The pro forma combined condensed
consolidated statements of operations include the interest expense associated
with the Loan as if the issuance occurred at January 1, 1996 of $8,838 and
$11,785 for the nine months ended September 30, 1997 and the year ended December
31, 1996, respectively. Under applicable pro forma rules, interest income
associated with the proceeds from the Loan, which may partially offset the
interest expense, is not included in the pro forma statements of operations.
Estimated debt issuance costs of $6,000 for credit facility commitment fees have
been included in other long-term assets and are being amortized over the term of
the Loan. Amortization of debt issuance costs on the Loan for the nine months
ended September 30, 1997 and the year ended December 31, 1996 are estimated to
be $643 and $857, respectively.
(d) This adjustment represents the estimated income tax effect of the pro
forma adjustments using a combined U.S. federal and state statutory rate of 40%
for both 1996 and the first nine months in 1997.
(e) The pro forma adjustments reflect the exchange of Pacific Scientific's
weighted average number of common shares outstanding of 12,443,000 and
12,457,000, for the nine months ended September 30, 1997 and the year ended
December 31, 1996, respectively, and the issuance of Kollmorgen's common shares
to be exchanged in the Proposed Combination of 7,782,000 assuming an exchange
ratio of 1.2 shares of Kollmorgen Common Stock for one share of Pacific
Scientific Common Stock for those shares outstanding as of September 26, 1997
not exchanged for cash.
(f) The Pacific Scientific historical financial statements for 1996 included
in these pro forma combined condensed consolidated financial statements include
the results of operations of Pacific Scientific's Solium business, which was
discontinued in 1997. Had the pro forma financial statements been adjusted to
exclude the Solium business, net sales would have decreased by $2,416, and
pre-tax income would have increased by $14,541.
(g) The pro forma adjustment reflects the excess purchase price over the
fair value of net assets assumed to be acquired of $170,744. Estimated
transaction related costs of $9,000 for investment banker fees, accounting and
legal fees, and other various deal costs have been included in the determination
of goodwill. For purposes of these pro forma financial statements, the fair
value of the assets acquired is estimated to be equivalent to the historical
financial statement balance as of the date of acquisition. The ultimate
allocation of the purchase price to the net assets acquired, goodwill, other
intangible assets, liabilities assumed and a charge for incomplete technology is
subject to final determination of their respective fair values.
(h) The pro forma combined condensed consolidated balance sheet reflects an
increase for the value of 7,782 common shares at $17.00 per share assumed to be
issued by Kollmorgen in the Proposed Merger to Pacific Scientific shareholders
of $132,300, and an elimination of the net equity of Pacific Scientific of
$102,865.
37
<PAGE>
BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires Kollmorgen's directors, executive officers and persons
who beneficially own more than 10 percent of Kollmorgen's stock to file certain
reports with the Commission and the NYSE concerning their beneficial ownership
of Kollmorgen's equity securities. Applicable Commission regulations also
require such persons to furnish Kollmorgen with copies of all such reports.
Based solely on a review of the copies of such reports furnished to Kollmorgen
as of the date of this Proxy Statement, or written representations that no
reports were required, Kollmorgen believes that, during 1997, all filing
requirements applicable to its directors, officers and greater than 10 percent
shareholders were satisfied, except that Mr. Argov and Mr. Henkel were untimely
in the filing of one Form 4 each under the Exchange Act disclosing an
acquisition of non-qualified stock options in Kollmorgen Common Stock.
BENEFICIAL OWNERSHIP OF KOLLMORGEN COMMON STOCK
FIVE PERCENT SHAREHOLDERS
The following table sets forth certain information, as of December 9, 1997,
with respect to all persons known to Kollmorgen to be the beneficial owners of
more than 5% of any class of shares of the capital stock of Kollmorgen.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENTAGE
OF BENEFICIAL OWNER TITLE OF CLASS OWNERSHIP OF CLASS
- ----------------------------------------------------------- ----------------- ------------------ -----------
<S> <C> <C> <C>
The "Gabelli Group" consisting of: Common Stock 2,131,273(1) 21%
Gamco Investors, Inc.
Gabelli Funds, Inc.
Gabelli Performance Partnership
Gabelli International Limited
Gabelli Securities, Inc.
Gabelli & Company, Inc.
Mario J. Gabelli
c/o The Gabelli Group, Inc.
One Corporate Center
Rye, NY 10580
Alpine Associates Common Stock 501,100(2) 5%
100 Union Avenue
Cresskill, NJ 07626
</TABLE>
- ------------------------
(1) According to a Schedule 13D (Amendment No. 25) dated September 2, 1997, the
Gabelli Group reported that the number of shares of Kollmorgen Common Stock
beneficially owned by the Gabelli Group includes shares of Kollmorgen Common
Stock receivable by the Gabelli Group if they were to convert all of
Kollmorgen's 8 3/4% Convertible Subordinated Debentures Due 2009 (the
"Debentures") beneficially owned by them. According to the Gabelli Group's
Schedule 13D, as amended, each member of the Gabelli Group has the sole
power to vote or direct the vote and sole power to dispose or to direct the
disposition of the Kollmorgen Common Stock or Debentures reported for it,
either for its own benefit or for the benefit of its investment clients or
its partners, as the case may be, except as specifically set forth on such
Schedule 13D.
38
<PAGE>
(2) According to a Schedule 13D dated May 22, 1996, Alpine Associates, a limited
partnership, reported that it beneficially owns 501,100 shares of Kollmorgen
Common Stock. It is also reported that it has the sole power to vote and
dispose of such shares of Kollmorgen Common Stock.
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of December 9, 1997, the shares of
Kollmorgen Common Stock (the only class outstanding) beneficially owned by each
nominee, director and executive officer, and all nominees, directors and
executive officers of Kollmorgen as a group:
<TABLE>
<CAPTION>
SHARE OF PERCENTAGE
NAME OF BENEFICIAL OWNER TITLE OWNERSHIP OF CLASS
- -------------------------------------------- ------------------------------------ ----------- -----------
<S> <C> <C> <C>
Gideon Argov(1)............................. President and Chief Executive
Officer, Director 306,000 3.06%
Robert J. Cobuzzi(1)........................ Senior Vice President, Treasurer and
Chief Financial Officer 133,500 1.13%
Daniel F. Desmond(1)........................ Vice President 26,000 *
James A. Eder(1)............................ Vice President, Secretary and
General Counsel 52,433 *
Jerald G. Fishman(2)........................ Director 11,716 *
Herbert L. Henkel........................... Director 3,730 *
Keith D. Jones(1)........................... Controller and Chief Accounting
Officer 5,700 *
James H. Kasschau(2)........................ Director 42,717 *
J. Douglas Maxwell, Jr.(2).................. Director 61,092 *
Robert N. Parker(2)......................... Director 15,176 *
Mark E. Petty(1)............................ Vice President 55,000 *
Geoffrey S. Rehnert(2)...................... Director 23,696 *
George P. Stephan(2)........................ Director 64,247 *
All directors and executive officers of
Kollmorgen, as a group.................... 801,007( (2) 8.00%
</TABLE>
- ------------------------
(1) Reflects the number of shares that could be purchased by the exercise of
options available as of December 9, 1997, or within 60 days thereafter under
Kollmorgen's stock option plans. Accordingly, these numbers are inclusive of
(i) 285,000 shares of Kollmorgen Common Stock which Mr. Argov has the right
to acquire under the Kollmorgen 1991 Long Term Incentive Plan ("LTIP"); (ii)
128,000 shares of Kollmorgen Common Stock which Mr. Cobuzzi has the right to
acquire under the LTIP and Kollmorgen 1982 Stock Option Plan ("1982 Plan");
(iii) 26,000 shares of Kollmorgen Common Stock which Mr. Desmond has the
right to acquire under the LTIP; (iv) 52,000 shares of Kollmorgen Common
Stock which Mr. Eder has the right to acquire under the 1982 Plan and the
LTIP; (v) 4,600 shares of Kollmorgen Common Stock which Mr. Jones has the
right to acquire under the LTIP; and (vi) 55,000 shares of Kollmorgen Common
Stock which Mr. Petty has the right to acquire under the LTIP.
(2) Inclusive of 9,500, 16,500, 16,500, 11,500, 12,500 and 14,000 shares of
Kollmorgen Common Stock which Messrs. Fishman, Kasschau, Maxwell, Parker,
Rehnert and Stephan, respectively, have the present right to acquire upon
the exercise of non-qualified stock options granted under the Director Stock
Ownership Plan.
* Less than 1%.
39
<PAGE>
EXPERTS
The consolidated financial statements of Kollmorgen incorporated by
reference in Kollmorgen's 1996 Form 10-K have been audited by Coopers & Lybrand
L.L.P., as set forth in their reports thereon and incorporated herein by
reference. Such consolidated financial statements have been incorporated herein
by reference in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing. Representatives of Coopers & Lybrand
L.L.P. will be present at the Special Meeting and will be given an opportunity
to make a statement if they desire to do so. They will be available to respond
to questions of shareholders.
FUTURE SHAREHOLDER PROPOSALS
In accordance with the rules of the Commission, shareholder proposals
intended to be presented at the 1998 annual meeting of Kollmorgen shareholders
were to have been received by the Secretary of Kollmorgen no later than December
8, 1997 for inclusion in the proxy materials for such meeting. Proposals
intended to be presented at the 1999 annual meeting of Kollmorgen shareholders
must be received by the Secretary of Kollmorgen no later than December 14, 1998
for inclusion in the proxy materials for such meeting.
Pursuant to the Amended and Restated Bylaws of Kollmorgen adopted by the
Board on December 8, 1997, a shareholder intending to propose business to be
brought before an annual or special meeting of Kollmorgen shareholders must give
written notice to the Secretary of Kollmorgen, such notice to be received at the
principal executive offices of Kollmorgen not more than 120 days nor less than
90 days before such meeting.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Commission allows Kollmorgen to "incorporate by reference" information
into this Proxy Statement, which means that Kollmorgen can disclose important
information to you by referring you to another document filed separately with
the Commission. The information incorporated by reference is deemed to be part
of this Proxy Statement, except for any information superseded by information in
this Proxy Statement. This Proxy Statement incorporates by reference the
documents set forth below that Kollmorgen and Pacific Scientific have previously
filed with the Commission. These documents contain important information about
Kollmorgen and Pacific Scientific and their finances.
<TABLE>
<CAPTION>
KOLLMORGEN COMMISSION FILINGS
(FILE NO. 1-5562) PERIOD
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Annual Report on Form 10-K Fiscal year ended December 31, 1996
Annual Report on Form 10-K/A Fiscal year ended December 31, 1996
Quarterly Report on Form 10-Q Quarterly period ended March 31, 1997
Quarterly Report on Form 10-Q Quarterly period ended June 30, 1997
Quarterly Report on Form 10-Q Quarterly period ended September 30, 1997
Proxy Statement Dated April 4, 1997
Current Reports on Form 8-K Dated December 15, 1997, August 18, 1997, January 31,
1997 and January 27, 1997
The Description of Kollmorgen Common Stock contained in Filed on September 25, 1967
the Registration Statement on Form S-1 (No. 2-27327)
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
KOLLMORGEN COMMISSION FILINGS
(FILE NO. 1-5562) PERIOD
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Registration Statement on Form 8-A Filed on March 14, 1978 (and any amendment or report
filed thereafter for the purpose of updating the
description of Kollmorgen Common Stock)
</TABLE>
<TABLE>
<CAPTION>
PACIFIC SCIENTIFIC COMMISSION FILINGS
(FILE NO. 1-7744) PERIOD
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Annual Report on Form 10-K Fiscal year ended December 27, 1996
Quarterly Report on Form 10-Q Quarterly period ended March 28, 1997
Quarterly Report on Form 10-Q Quarterly period ended June 27, 1997
Quarterly Report on Form 10-Q Quarterly period ended September 26, 1997
Proxy Statement Dated March 14, 1997
Current Report on Form 8-K Dated April 9, 1997
</TABLE>
All documents and reports filed by Kollmorgen or Pacific Scientific with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this Proxy Statement and prior to the date the Offer is
terminated or the vote on the Proposed Merger is completed shall be deemed to be
incorporated by reference in this Proxy Statement and to be a part hereof from
the dates of filing of such documents or reports. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Proxy to the extent
that a statement contained herein or in any other subsequently filed document
that also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
TO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER OF KOLLMORGEN COMMON STOCK, TO WHOM THIS PROXY STATEMENT IS
DELIVERED, ON WRITTEN OR ORAL REQUEST, TO KOLLMORGEN CORPORATION, 1601 TRAPELO
ROAD, WALTHAM, MASSACHUSETTS 02154, ATTENTION: SECRETARY, OR BY TELEPHONE AT
(781) 890-5655.
By Order of the Board of Directors,
[SIGNATURE]
James A. Eder
SECRETARY
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ANNEX I
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December 26, 1997
Board of Directors
Kollmorgen Corporation
Reservoir Place
1601 Trapelo Road
Waltham, Massachusetts 02154
Members of the Board:
You have requested our opinion as to the fairness, from a financial point
of view, to the holders of shares of the common stock of Kollmorgen
Corporation (the "Company"), of the consideration proposed to be paid by the
Company in connection with the proposed acquisition (the "Proposed
Acquisition") by the Company of Pacific Scientific Company ("PSC") pursuant
to the Offer (as defined below) and the Proposed Merger (as defined below).
As more specifically set forth in the Consent Solicitation
Statement/Preliminary Prospectus (the "Preliminary Prospectus") of the
Company, dated December 15, 1997, and the Offer to Purchase (the "Offer to
Purchase") of Torque Corporation ("Purchaser"), a wholly-owned subsidiary of
the Company, dated December 15, 1997, on December 15, 1997, Purchaser
commenced a tender offer (the "Offer") for a majority of the shares of the
issued and outstanding common stock, $1.00 par value, of PSC (the "PSC Common
Stock"), including the associated preferred stock purchase rights (the
"Rights," and together with shares of PSC Common Stock, the "PSC Shares")
issued pursuant to the Shareholder Protection Agreement, dated as of November
7, 1988, as amended, between PSC and Manufacturers Hanover Trust Company, at
a price of $20.50 per PSC Share, net to the seller in cash. In conjunction
with the Offer, the Company will seek to negotiate a merger agreement with
PSC pursuant to which PSC would, as soon as practicable following the
consummation of the Offer, consummate a merger or similar business
combination with the Company, Purchaser or another direct or indirect
wholly-owned subsidiary of the Company (the "Proposed Merger"). At the
effective time of the Proposed Merger, each PSC Share then outstanding (other
than PSC Shares held by PSC or any wholly-owned subsidiary of PSC and other
than PSC Shares held by the Company, Purchaser or any other direct or
indirect subsidiary of the Company would be converted into the right to
receive shares of common stock, $2.50 par value, of the Company (the "Company
Common Stock"), with a market value of "20.50 per share, on terms and subject
to the limitations described below. The exact number of shares of Company
Common Stock into which each PSC Share will be converted (the "Exchange
Ratio") will be determined by dividing $20.50 by the average, over the 20
consecutive trading days ending 5 days prior to the meeting of the holders of
PSC Shares called for the purpose of voting on the Proposed Merger, of the
daily sales volume weighted average of the high and low per share sales price
of Company Common Stock. In the
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event that such average during such period is less than $15.19 or greater
than $18.56, the Exchange Ratio will be fixed at 1.350 shares of Company
Common Stock or 1.104 shares of Company Common Stock, respectively, per PSC
Share.
In connection with rendering our opinion, we have review and analyzed,
among other things, the following: (i)the Preliminary Prospectus; (ii) the
Offer to Purchase; (iii)certain publicly available information concerning the
Company, including the Annual Reports on Form 10-K of the Company for each of
the years in the three year period ended December 31, 1996 and the Quarterly
Reports on Form 10-Q of the Company for the quarters ended March 31, June 30
and September 30, 1997, respectively; (iv) certain internal information,
primarily financial in nature, including projections, concerning the business
and operations of the Company, prepared by the Company's management and
furnished to us by the Company for purposes of our analysis; (v) certain
publicly available information concerning the trading of, and the trading
market for, Company Common Stock; (vi) certain publicly available information
concerning PSC, including the Annual Reports on Form 10-K of PSC for each of
the years in the three year period ended December 27, 1996 and Quarterly
Reports on Form 10-Q of PSC for the quarters ended March 28, June 27 and
September 26, 1997, respectively; (vii) certain other information, primarily
financial in nature, including projections, concerning the business and
operations of PSC, that was prepared by the Company's management with PSC's
business and the electrical and safety equipment industry, and furnished to
us by the Company for purposes of our analysis; (viii) certain publicly
available information concerning the trading of, and the trading market for,
PSC Common Stock; (ix) certain publicly available information with respect to
certain other companies that we believe to be comparable to the Company or
PSC and the trading markets for certain of such other companies' securities;
and (x) certain publicly available information concerning the nature and
terms of certain other transactions that we consider relevant to our inquiry.
We also have considered such other information, financial studies, analyses,
investigations and financial, economic and market criteria that we deemed
relevant. We have also met with certain officers and employees of the Company
to discuss the foregoing as well as other matters relevant to our inquiry. We
note that we have not had access to any internal or non-public information,
financial or otherwise, concerning the business and operations of PSC; nor
have we relied solely on information furnished to us by the Company. As you
are aware, we are not lawyers, nor are we experts with respect to legal
matters, and we have not made or obtained or assumed any responsibility for
making or obtaining any independent evaluations of any potential liability to
PSC or the Company arising out of such litigation.
In our review and analysis and in arriving at our opinion, we have
assumed and relied upon the accuracy and completeness of all of the financial
and other information provided us or publicly available and have neither
attempted independently to verify nor assumed responsibility for verifying
any of such information. We have not made or obtained or assumed any
responsibility for making or obtaining any independent evaluations or
appraisals of any of the properties or facilities of the Company or PSC. We
have assumed that the Offer and Proposed Merger will be consummated on a
timely basis and on terms and conditions that do not differ materially from
the terms and conditions contained in the Offer to Purchase and Preliminary
Prospectus. With respect to projections concerning the Company (including
projections intended to reflect the effects of the Proposed Acquisition), we
have assumed that they have been reasonably prepared on bases reflecting the
best currently available estimates and judgments of the management of the
Company as to the future financial performance of the Company (with and
without giving effect to the Proposed Acquisition), and we express no view
with respect to
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such projections or the assumptions on which they were based. With respect to
the projections concerning PSC, although we consulted with the Company's
management in the preparation of those projections, for purposes of this
opinion we have assumed that they have been reasonably prepared on bases
reflecting the best judgments of the management of the company as to the
future financial performance of PSC and we have assumed that such projections
will be realized, and we express no view with respect to such projections or
the assumptions or information on which they were based.
In conducting our analysis and arriving at our opinion as expressed
herein, we have considered such financial and other factors as we have deemed
appropriate under the circumstances including, among others, the following:
(I) the historical and current financial position and results of operations
of the Company and PSC; (ii) the business prospects of the Company and PSC;
(iii) the historical and current market for Company Common Stock and PSC
Common Stock and for the equity securities of certain other companies that we
believe to be comparable to the Company and PSC; and (iv) the nature and
terms of certain other acquisition transactions that we believe to be
relevant. We also have taken into account our assessment of general economic,
market and financial conditions as well as our experience in connection with
similar transactions and securities valuation generally. Our opinion
necessarily is based upon conditions as they exist and can be evaluated on
the date hereof and we assume no responsibility to update or revise our
opinion based upon circumstances or events occurring after the date hereof.
Our opinion is, in any event, limited to the fairness, from a financial point
of view, to the holders of Company Common Stock, of the consideration to be
paid by the Company in the Proposed Acquisition and does not address the
Company's underlying business decision to effect the Proposed Acquisition or
constitute a recommendation to any holder of Company Common Stock as to how
such holder should vote with respect to the issuance of Company Common Stock
in connection with the Proposed Merger. Nor does this opinion constitute an
opinion as to the price at which the Company's stock will trade upon the
public announcement or the consummation of the Proposed Acquisition.
As you are aware, Salomon Brothers Inc. doing business as Salomon Smith
Barney ("Salomon Smith Barney") is acting as financial advisor to the Company
in connection with the Proposed Acquisition and will act as Dealer Manager in
connection with the Offer, and will receive a fee for such services, a
substantial portion of which is contingent upon consummation of the Proposed
Acquisition. In addition, Salomon Smith Barney and its affiliate, Salomon
Brothers Holding Company Inc., are expected to arrange loans and participate
as a lender, respectively, in connection with the company's financing of the
Offer, for which Salomon Smith Barney and Salomon Brothers Holding Company
Inc. will receive customary fees. In the ordinary course of business, Salomon
Smith Barney may actively trade the securities of the Company and PSC for its
own account and for the accounts of customers and, accordingly, may at any
time hold a long or short position in such securities. In addition, we
previously have rendered certain investment banking and financial advisory
services to the Company.
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Based upon and subject to the foregoing, it is our opinion that, as of
the date hereof, the consideration to be paid by Company in connection with
the Proposed Acquisition is fair, from a financial point of view, to the
holders of the Company Common Stock.
Very truly yours,
/s/SALOMON SMITH BARNEY
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KOLLMORGEN CORPORATION
Proxy Solicited on Behalf of the Board of Directors of
Kollmorgen Corporation for the Special Meeting, January 28, 1998
The undersigned hereby constitutes and appoints GIDEON ARGOV, ROBERT J.
COBUZZI, JAMES A. EDER, and each or any of them, with full power to act with or
without the others and with full power of substitution, as his or her true and
lawful agents and proxies ("Proxies") to represent the undersigned at the
Special Meeting of Shareholders of Kollmorgen Corporation to be held at Bank
Boston, N.A., 100 Federal Street, Boston, Massachusetts, at 10:00 a.m. on
January 28, 1998, and at any adjournments or postponements thereof, and
authorizes said Proxies to vote all shares of Kollmorgen shown on the other side
of this card with all the powers the undersigned would possess if personally
present thereat.
You are encouraged to specify your choice by marking the appropriate box,
SEE REVERSE SIDE, but you need not mark any box if you wish to vote to approve
the Share Issuance Proposal. The Proxies cannot vote your shares unless you sign
and return this card.
CONTINUED AND TO BE SIGNED ON REVERSE SIDE
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Please mark votes
/X/ as in this example.
APPROVAL OF THE SHARE ISSUANCE PROPOSAL (AS DESCRIBED IN THE ACCOMPANYING
PROXY STATEMENT)
FOR / / AGAINST / / ABSTAIN / /
/ / MARK HERE FOR ADDRESS
CHANGE AND NOTE AT LEFT.
/ / MARK HERE IF YOU PLAN TO
ATTEND THE MEETING.
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED IN THE MANNER DIRECTED HEREIN
AND AUTHORIZES THE PROXIES TO TAKE ACTION IN THEIR DISCRETION UPON OTHER MATTERS
THAT MAY PROPERLY COME BEFORE THE SPECIAL MEETING. IF NO DIRECTION IS MADE, THIS
PROXY WILL BE VOTED FOR THE APPROVAL OF THE SHARE ISSUANCE PROPOSAL.
Please sign exactly as your name
appears herein. When signing as
attorney, administrator, executor,
guardian or trustee, please give
your full title as such. If a
corporation, please sign by
president or other authorized
officer and indicate title. If
shares are registered in the names
of joint tenants or trustees, each
tenant or trustee is required to
sign.
Signature: ____ Date: _________
Signature: ____ Date: _________
