<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8 - K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) JANUARY 30, 1998
GALILEO CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 04-2526583
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
0-11309
(Commission File Number)
GALILEO PARK, P.O. BOX 550, STURBRIDGE, MASSACHUSETTS 01566
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code (508) 347-9191
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
Item 2. ACQUISITION OR DISPOSITION OF ASSETS
On January 30, 1998, the Registrant acquired OFC Corporation ("OFC"), a
New Hampshire corporation, pursuant to the Agreement and Plan of
Merger, dated as of December 30, 1997 (the "Merger Agreement") among
the Registrant, a wholly-owned subsidiary of the Registrant, OFC and
the principal stockholders of OFC. Following the merger, OFC became a
wholly-owned subsidiary of the Registrant.
In exchange for all of the outstanding common stock of OFC, the
Registrant paid approximately $6,000,000 in cash and issued 1,154,258
shares of its common stock. The terms of the transaction resulted from
arms-length negotiations between the Registrant and OFC and are more
fully set forth in the Merger Agreement. Neither the Registrant nor any
of its affiliates had any relationship with OFC prior to the merger.
The cash portion of the transaction was financed partly from the
Registrant's operating funds and partly from a portion of its revolving
credit facility with BankBoston, N.A.
OFC, located in Natick, Massachusetts, designs, manufactures and
markets a broad range of optical components and systems which
incorporate the latest advances in photonic technology and optical
coating. OFC's products include optical filters, optical lens coatings
for medical devices, laser systems, infrared thermal imaging devices
and optical analytical instruments. OFC's operations also include one
of the world's largest and most technically advanced diamond point
turning facilities which manufactures highly-sophisticated optical
components and systems for industrial lasers and semiconductor
instrumentation.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS
a) Financial Statements of Business Acquired
Financial statements of the business acquired are filed as
Exhibit 99.1 hereto.
b) Pro Forma Financial Information
The pro forma financial information required pursuant to
Article 11 of Regulation S-X currently are not available and
will be filed as soon as practicable, but not later than 60
days after the date that this report is due.
c) Exhibits
2.1 Agreement and Plan of Merger dated as of December 30,
1997, among Galileo Corporation, OFC Acquisition
Corporation, OFC Corporation and the Principal
Stockholders of OFC Corporation (filed as Exhibit 2.1
to the Registrant's Form 8-K filed on January 7, 1998
and incorporated herein by reference).
99.1 Financial Statements of OFC Corporation for fiscal
year ended December 31, 1997.
99.2 Press Release dated January 5, 1998 (filed as Exhibit
99.1 to the Registrant's Form 8-K filed on January 7,
1998 and incorporated herein by reference).
99.3 Press Release dated February 2, 1998.
<PAGE> 3
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GALILEO CORPORATION
Date: February 11, 1998 By: /s/ Josef W. Rokus
-------------------------------
Josef W. Rokus
Vice President, Corporate
Development and Secretary
<PAGE> 4
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of December 30, 1997
(filed as Exhibit 2.1 to the Registrant's Form 8-K filed on
January 7, 1998 and incorporated herein by reference).
99.1 Financial Statements of OFC Corporation for year ended
December 31, 1997.
99.2 Press Release dated January 5, 1998 (filed as Exhibit 99.1 to
the Registrant's Form 8-K filed on January 7, 1998 and incorporated
herein by reference).
99.3 Press Release dated February 2, 1998.
</TABLE>
<PAGE> 1
EXHIBIT 99.1
OFC CORPORATION
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1997
TOGETHER WITH
INDEPENDENT AUDITOR'S REPORT
<PAGE> 2
OFC CORPORATION
CONTENTS
DECEMBER 31, 1997 AND 1996
PAGES
-----
INDEPENDENT AUDITOR'S REPORT ........................................... 1
FINANCIAL STATEMENTS:
Balance Sheets ....................................................... 2
Statements of Operations ............................................. 3
Statements of Changes in Stockholders' Equity ........................ 4
Statements of Cash Flows ............................................. 5
Notes to Financial Statements ........................................ 6-13
<PAGE> 3
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of OFC Corporation:
We have audited the accompanying balance sheets of OFC Corporation (a New
Hampshire corporation) as of December 31, 1997 and 1996, and the related
statements of operations, changes in stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of OFC Corporation as of December
31, 1997 and 1996, and the results of its operations and its cash flows for the
years then ended in conformity with generally accepted accounting principles.
/s/ Alexander Aronson Finning
- -------------------------------------
Alexander Aronson Finning
Certified Public Accountants
21 East Main Street
Westborough, Massachusetts 01581
January 20, 1998
<PAGE> 4
OFC CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
REVENUES $13,902,400 $12,601,700
COST OF REVENUES 8,574,300 7,570,200
----------- -----------
Gross profit 5,328,100 5,031,500
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 4,496,500 2,729,400
----------- -----------
Income from operations 831,600 2,302,100
----------- -----------
OTHER INCOME (EXPENSES):
Interest income 40,500 45,300
Interest expense (217,400) (250,200)
Other income 18,200 103,300
Loss on investments (79,500) (313,200)
----------- -----------
Total other income (expenses) (238,200) (414,800)
----------- -----------
Income from operations before state
income tax expense 593,400 1,887,300
STATE INCOME TAX EXPENSE 33,600 67,100
----------- -----------
Net income $ 559,800 $ 1,820,200
=========== ===========
The accompanying notes are an integral part of these statements.
<PAGE> 5
OFC CORPORATION
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
1997 1996
---- ----
CURRENT ASSETS:
Cash and cash equivalents $ 417,100 $ 925,300
Marketable securities 12,400 173,200
Accounts receivable - trade, net of
allowance for doubtful accounts of
$43,200 and $28,600 in 1997 and 1996,
Respectively 2,290,100 1,288,600
Accounts receivable - related parties 151,400 159,800
Accounts receivable - other,
net of reserve of $79,500 in 1997 58,300 -
Inventory 1,220,600 773,900
Prepaid expenses and other 418,700 48,200
Deferred state income tax asset 42,000 39,300
---------- ----------
Total current assets 4,610,600 3,408,300
---------- ----------
FIXED ASSETS, at cost:
Machinery and equipment 7,606,400 7,508,400
Leasehold improvements 1,459,900 1,247,200
Furniture and fixtures 409,200 379,400
Motor vehicles 25,000 25,000
---------- ----------
9,500,500 9,160,000
Less - accumulated depreciation 7,681,600 7,323,000
---------- ----------
Net fixed assets 1,818,900 1,837,000
---------- ----------
OTHER ASSETS:
Investment, net of valuation allowance
of $163,200 in 1996 - -
Construction-in-progress - 126,200
Cash surrender value of officer's life
insurance, net 278,300 265,500
Deposits and other 45,100 21,300
Purchase price in excess of fair value
of assets acquired, net of accumulated
amortization 158,800 164,100
---------- ----------
Total other assets 482,200 577,100
---------- ----------
$6,911,700 $5,822,400
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE> 6
LIABILITIES AND STOCKHOLDERS' EQUITY
1997 1996
---- ----
CURRENT LIABILITIES:
Current portion of long-term debt $ 379,600 $ 371,700
Accounts payable 967,500 426,800
Accrued payroll and other 818,000 638,200
Dividends payable - 612,000
---------- ----------
Total current liabilities 2,165,100 2,048,700
---------- ----------
LONG-TERM DEBT, less current portion 1,681,600 2,061,700
---------- ----------
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value,
10,000,000 shares authorized,
4,874,920 and 4,152,800 shares issued at
December 31, 1997 and 1996, respectively,
and 4,002,916 and 3,280,796 shares
outstanding at December 31, 1997 and 1996,
respectively 48,700 41,500
Capital in excess of par value 1,492,800 118,900
Retained earnings 1,633,000 1,661,100
---------- ----------
3,174,500 1,821,500
Less - treasury stock, at cost (109,500) (109,500)
---------- ----------
Total stockholders' equity 3,065,000 1,712,000
---------- ----------
$6,911,700 $5,822,400
========== ==========
The accompanying notes are an integral part of these statements.
<PAGE> 7
OFC CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
REVENUES $13,902,400 $12,601,700
COST OF REVENUES 8,574,300 7,570,200
----------- -----------
Gross profit 5,328,100 5,031,500
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 4,496,500 2,729,400
----------- -----------
Income from operations 831,600 2,302,100
----------- -----------
OTHER INCOME (EXPENSES):
Interest income 40,500 45,300
Interest expense (217,400) (250,200)
Other income 18,200 103,300
Loss on investments (79,500) (313,200)
----------- -----------
Total other income (expenses) (238,200) (414,800)
----------- -----------
Income from operations before state
income tax expense 593,400 1,887,300
STATE INCOME TAX EXPENSE 33,600 67,100
----------- -----------
Net income $ 559,800 $ 1,820,200
=========== ===========
The accompanying notes are an integral part of these statements.
<PAGE> 8
OFC CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK CAPITAL TREASURY STOCK
NUMBER IN EXCESS RETAINED NOTES NUMBER
OF $.01 PAR OF PAR EARNINGS RECEIVABLE - OF
SHARES VALUE VALUE (DEFICIT) STOCKHOLDERS SHARES COST TOTAL
------ -------- --------- --------- ------------ ------ ---- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 4,091,920 $40,900 $ 111,700 $ 452,900 $(58,400) 872,004 $(109,500) $ 437,600
Issuance of common stock -
stock option plan 60,900 600 7,200 - - - - 7,800
Dividends declared - - - (612,000) - - - (612,000)
Repayment of notes
receivable -
stockholders - - - - 58,400 - - 58,400
Net income - - - 1,820,200 - - - 1,820,200
--------- ------- ---------- ---------- -------- ------- --------- ----------
BALANCE, December 31, 1996 4,152,820 41,500 118,900 1,661,100 - 872,004 (109,500) 1,712,000
Issuance of common stock -
stock option plan 429,100 4,300 50,400 - - - - 54,700
Issuance of common stock -
stock grants 293,000 2,900 1,323,500 - - - - 1,326,400
Dividends declared - - - (587,900) - - - (587,900)
Net income - - - 559,800 - - - 559,800
--------- ------- ---------- ---------- -------- ------- --------- ----------
BALANCE, December 31, 1997 4,874,920 $48,700 $1,492,800 $1,633,000 $ - 872,004 $(109,500) $3,065,000
========= ======= ========== ========== ======== ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE> 9
OFC CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
1997 1996
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 559,800 $ 1,820,200
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 363,900 313,800
Reserve for loss on investment 79,500 163,200
Common stock issued as compensation 1,326,400 -
(Increase) decrease in accounts
receivable (1,001,500) 217,700
(Increase) decrease in accounts
receivable - related parties 8,400 (101,000)
Increase in accounts receivable - other (58,300) -
Increase in inventory (446,700) (99,500)
(Increase) decrease in prepaid expenses
and other (15,400) 6,700
Increase in deferred state
income tax asset (2,700) (29,600)
Increase in cash surrender value of
officer's life insurance, net (12,800) (12,500)
Increase (decrease) in accounts payable 540,700 (525,500)
Increase in accrued payroll and other 179,800 11,800
----------- -----------
Net cash provided by operating
activities 1,521,100 1,765,300
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Construction in progress - (126,200)
Acquisition of fixed assets (214,300) (1,319,100)
Loan to Summit Analyzers, Inc. (159,000) -
Proceeds from loan to Summit Analyzers, Inc. 79,500 -
Purchase of marketable securities - (173,200)
Sale proceeds of marketable securities 160,800 -
Increase in prepaid expenses and other (355,100) -
Increase (decrease) in deposits and other (23,800) 240,900
----------- -----------
Net cash used in investing activities (511,900) (1,377,600)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of notes receivable - stockholder - 58,400
Proceeds of long-term debt - 677,400
Proceeds from exercise of stock options 54,700 7,800
Dividends paid (1,199,900) -
Payments on long-term debt (372,200) (291,100)
----------- -----------
Net cash provided by (used in)
financing activities (1,517,400) 452,500
----------- -----------
NET INCREASE (DECREASE) IN CASH (508,200) 840,200
CASH, beginning of year 925,300 85,100
----------- -----------
CASH, end of year $ 417,100 $ 925,300
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash paid for interest $ 216,000 $ 242,000
=========== ===========
Cash paid for state income taxes $ 52,541 $ 54,243
=========== ===========
NON-CASH FINANCING TRANSACTIONS -
Common stock issued as compensation $ 1,326,400 $ -
=========== ===========
The accompanying notes are an integral part of these statements.
<PAGE> 10
OFC CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS
OFC Corporation (the Company) is primarily engaged in the custom
manufacturing of optical components and assemblies.
SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, cash and cash equivalents
consist of checking accounts and overnight short-term money market
investments.
MARKETABLE SECURITIES
At December 31, 1997 and 1996, these include various investments in common
stocks and mutual funds stated at cost, which approximates the market
value.
INVENTORY
Inventory consists primarily of work-in-process ($928,600) and raw
materials ($292,000), which is stated at the lower of cost (first-in,
first-out) or market. Work in process includes material, labor, and
applicable overhead.
FIXED ASSETS AND DEPRECIATION AND AMORTIZATION
The Company provides for depreciation of fixed assets using the
straight-line method over the following estimated useful lives:
Machinery and equipment 5 - 10 years
Leasehold improvements 10 years
Furniture and fixtures 5 - 7 years
Motor vehicles 3 years
The Company has in use approximately $6,112,000 of fixed assets, which
have been fully depreciated as of December 31, 1997 and 1996.
Depreciation expense included in cost of revenues and selling, general and
administrative expenses was $358,600 and $308,500 for the years ended
December 31, 1997 and 1996, respectively.
The original amount of the purchase price in excess of fair value of
assets acquired of $215,300 is a result of an acquisition by the Company
of a business in 1987. Amortization is recorded on a straight-line basis
over an estimated life of 40 years. As of December 31, 1997 and 1996, the
accumulated amortization was $56,500 and $51,200, respectively.
<PAGE> 11
OFC CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)
SIGNIFICANT ACCOUNTING POLICIES (Continued)
INCOME TAXES
The Company, with the consent of its stockholders, has elected to be taxed
as an S Corporation under the provisions of the Internal Revenue Code
(IRC). Under these provisions, the Company does not pay Federal corporate
income taxes on its taxable income. The Company's items of income, loss,
deductions and credits, are passed through to, and taken into account by,
its stockholders in computing their individual income taxes.
The states in which the Company does business either do not recognize the
S Corporation provisions of the IRC or subject the Company to various
statutory income and excise taxes. State income taxes are provided for at
the applicable state statutory rates.
The significant temporary differences that give rise to deferred state
income tax assets and liabilities consist primarily of the differences in
the book and tax basis of fixed assets and certain accrued expenses, and
differences in the recognition of bad debts and reserves for book and
state income tax purposes.
REVENUES AND CONCENTRATION OF CREDIT
Sales to prime contractors under U.S. Government military contracts and to
U.S. Government agencies aggregated approximately 37% and 41% of total
sales for the years ended December 31, 1997 and 1996, respectively. These
contracts are subject to audit by the appropriate government agencies. In
the opinion of management, the results of such audits, if any, will not
have a material effect on the financial position of the Company as of
December 31, 1997 and 1996, or on its results of operations for the years
then ended.
Approximately $1,038,800 and $395,000 of aggregate outstanding accounts
receivable were due from three customers as of December 31, 1997 and 1996,
respectively.
The Company maintains its cash balances at one institution. The balances
are insured by the Federal Deposit Insurance Corporation up to $100,000.
At various times during the year, the cash balance exceeded the insured
amount. As of December 31, 1997 and 1996, the uninsured portion was
approximately $134,000 and $985,000, respectively.
ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements. Estimates also affect the reported amounts of
revenue and expenses during the reporting period. Actual results could
differ from those estimates.
<PAGE> 12
OFC CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
(2) NOTE PAYABLE TO A BANK AND LINE OF CREDIT
The Company has a line of credit agreement with a bank, under which the
Company can borrow up to $600,000, subject to borrowing base requirements
as defined in the agreement. There were no borrowings on this line of
credit at December 31, 1997 or 1996. The agreement expires in June, 1998.
Borrowings are due on demand, are secured by all assets of the Company and
bear interest at the bank's base lending rate plus 1/2% (8.5% and 8.25% at
December 31, 1997 and 1996, respectively). The agreement contains certain
covenants and requirements concerning financial ratios and other
indebtedness. The Company is in compliance with all such covenants and
requirements as of the date of this report.
(3) LONG-TERM DEBT
Long-term debt consists of the following:
1997 1996
---- ----
Note payable to a bank, due in eighty-
four monthly principal installments of
$14,500, plus interest at 3/4% above
the bank's base lending rate (8.5% and
8.25% at December 31, 1997 and 1996,
respectively). All outstanding
principal (approximately $782,000) is
due February, 2003. The note is
secured by all assets of the Company $1,679,900 $1,854,500
Note payable to a bank, due in sixty
monthly principal installments of
$3,050 through April, 2001, plus
interest at 10.25% for the first year,
and at 1.5% above the bank's base
lending rate (8.5% and 8.25% at
December 31, 1997 and 1996,
respectively) thereafter. The note
is secured by all assets of the
Company and is guaranteed by the
majority stockholder 122,000 158,600
Note payable to a bank, due in thirty-
six monthly principal installments of
$8,334 through April, 1999, plus
interest at 10.25% for the first year
and at 1.5% above the bank's base
lending rate (8.5% and 8.25% at
December 31, 1997 and 1996,
respectively) thereafter. The note
is secured by all assets of the
Company and is guaranteed by the
majority stockholder 133,400 233,300
<PAGE> 13
OFC CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
(3) LONG-TERM DEBT (Continued)
Note payable to former landlord, due in
quarterly payments of $20,000 from
March, 1995, through December, 1998,
and quarterly payments of $30,000 in
March and June, 1999. Payments are
non-interest bearing and have been
discounted at the rate of 12% (see
Note 4 on page 10)
125,900 187,000
---------- ----------
2,061,200 2,433,400
Less - current portion 379,600 371,700
---------- ----------
$1,681,600 $2,061,700
========== ==========
Remaining maturities of long-term debt as of December 31, 1997, are as
follows:
1998 $379,600
1999 $302,000
2000 $211,200
2001 $186,800
2002 $174,600
2003 $807,000
The Company and a realty trust (the Trust) are related through common
ownership interests (see Note 4). The President and majority stockholder
of the Company is the sole beneficiary of the Trust. The Trust is the sole
obligor for two loans in the principal amount aggregating $1,018,000 and
$1,031,000, at December 31, 1997 and 1996, respectively. These notes are
guaranteed by the Company's President.
(4) LEASE AGREEMENTS
RELATED PARTY LEASE AGREEMENTS
The Company leases a Massachusetts facility from the Trust described in
Note 3, under an operating lease which expires September, 2006. During
1996, the Trust purchased another building in Massachusetts for lease to
the Company. This lease is effective January, 1997, and expires December,
2006. During 1996, the Company started renovations to this building which
is included in construction in process at December 31, 1996. The combined
annual rent of $234,000, is payable in equal monthly installments, and is
subject to an annual adjustment to reflect changes in the fair rental
value of the facilities. The Company is responsible for certain insurance,
utilities and other operating costs.
As of December 31, 1997 and 1996, the Trust owed the Company $86,900 and
$103,400, respectively, for costs paid on behalf of the Trust, which are
included in accounts receivable - related parties in the accompanying
balance sheets.
<PAGE> 14
OFC CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
(4) LEASE AGREEMENTS (Continued)
OTHER LEASE AGREEMENTS
FACILITIES
The Company leased a facility in New Hampshire under an operating lease
expiring in July, 1997. During 1996, the Company leased additional space
under the same operating lease. During 1997, the lease was extended
through March, 2003. Annual base rent was approximately $124,400. Each of
the remaining lease years ending through July, 2000, are subject to a 3%
increase. The remaining three years through March, 2003, are fixed at the
then current amount. The Company is responsible for all operating costs
and real estate taxes. Rent expense for the years ended December 31, 1997
and 1996, was $136,400 and $126,400, respectively.
The Company leased a facility in California. In 1993, the California
division was liquidated and the Company abandoned the California facility.
In 1994, the Company entered into an agreement with the California
landlord for the remaining obligation of the lease under the terms of the
note payable described in Note 3 on page 9. Because the agreement is
non-interest bearing, the obligation has been discounted at the rate of
12%. The discounted value of the note payable at the time of the agreement
was $309,900. When all of the payments are made, the Company will have no
further obligation to the California landlord. If the Company defaults on
any payment, $600,000 will immediately become due, less any payments
previously made under the agreement. The remaining balance will bear
interest at the rate of 10% annually from the date of default until
payment.
EQUIPMENT
In 1992, the Company entered into a seven-year operating lease with a
finance corporation for certain equipment with a value of approximately
$755,000. The monthly lease payments under this agreement are
approximately $10,800, through July, 1996, then decrease to $10,100
through September, 1999. The Company has the option to purchase the
equipment at fair market value at the end of the fifth year of the lease
term.
In 1997, the Company received a lease commitment from a finance company
for an eight-year operating lease for certain equipment with a value of
approximately $2,600,600. A May 1998, closing date is anticipated. The
Company will purchase, construct and install the equipment. As stages are
completed, the finance company purchases the equipment from and leases it
to, the Company. The total equipment purchases through December 31, 1997,
was approximately $1,500,000, of which $339,600 was not purchased by the
finance company as of December 31, 1997. This amount is included in
prepaid expenses and other in the accompanying balance sheet.
Until the final closing, the Company pays the finance company interim rent
based on Fleet Bank's prime interest rate. The Company paid $28,000 during
the year ended December 31, 1997. The expected lease payments upon
completion of the equipment acquisition, are approximately $35,000 per
month, including executory costs of $2,600, through May, 2006. The Company
may terminate the lease and acquire the equipment at month 84 for 20.70%
of the original cost. Otherwise, the Company has the option to acquire the
equipment at the end of the lease term at the then fair market value.
<PAGE> 15
OFC CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
(4) LEASE AGREEMENTS (Continued)
OTHER LEASE AGREEMENTS (continued)
OTHER
In 1995, the Company entered into two operating leases for computer
hardware and software which expire April, 2000. The leases require
aggregate monthly payments of $1,525. Lease expense related to these
leases was $18,300 per year for the years ended December 31, 1997 and
1996, respectively.
Future minimum lease payments under all operating lease agreements,
including the lease commitment with a finance corporation described on
page 10, over the next five years are as follows:
1998 $778,300
1999 $888,700
2000 $786,000
2001 $780,000
2002 $780,000
SUMMIT ANALYZERS, INC.
The Company had additional operating leases in 1995 for equipment. A
portion of these leases relating to equipment with a value of $168,000 was
sublet to Summit Analyzers, Inc. (Summit), a company related through
common shareholders.
In 1996, the Company terminated the operating leases and purchased the
equipment and continued to lease the equipment to Summit. On October 25,
1996, the Company transferred the equipment and canceled the outstanding
amounts due from Summit in exchange for an approximate ten percent
ownership interest in Summit. This investment was recorded at the book
value of the equipment transferred and the outstanding balance of the
amounts due aggregating $163,200. A valuation allowance was recorded for
the entire amount and recorded as loss on investments at December 31,
1996, due to the uncertainty of realization.
In 1997, the Company advanced Summit $159,000 in the form of promissory
notes. The Company exchanged its ownership interest in Summit and its
notes receivable with an unrelated party in consideration of new note
agreements aggregating $159,000 with the unrelated party. During 1997, the
unrelated party paid the Company $79,500 against these notes. The
remaining notes accrue interest at 5% and are due July, 1998. The Company
has fully reserved the notes at December 31, 1997, due to the uncertainty
of realization. The notes are included in accounts receivable-other in the
accompanying balance sheet.
(5) PROFIT SHARING PLAN
The Company has a profit sharing plan in accordance with Internal Revenue
Code Section 401(k). Each eligible participant, as defined, may contribute
up to 15% of salary per year. Until January, 1996, the Company contributed
an amount equal to 15% of the employee's contribution up to six percent of
their salary. The Company's contribution was raised to 20% as of January
1, 1996. The Company contributed approximately $20,900 and $15,800 for the
years ended December 31, 1997 and 1996, respectively.
<PAGE> 16
OFC CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
(6) LIFE INSURANCE
The Company is the owner and beneficiary of life insurance policies,
having a total face value of $500,000, on the life of the President of the
Company who is also the majority stockholder. The Company also
participates in a split dollar life insurance policy, with a face value of
$500,000, under which the Company owns the cash surrender value and the
President designates the beneficiary. As of December 31, 1997 and 1996,
total net cash surrender value of these policies was $278,300 and
$265,500, respectively, net of policy loans of $145,800 and $108,500,
respectively. The Company has assigned the beneficial interest of $500,000
of life insurance proceeds and net cash surrender value of $147,900 to the
first bank described in Note 3.
(7) STOCK PURCHASE AGREEMENTS
During 1991, the Company entered into stock purchase agreements whereby
two officers of the Company purchased 120,000 and 40,000 shares of the
Company's common stock for $62,600 and $20,850, payable in three and five
equal annual installments with interest at 6.81% and 8.74%, respectively.
As of December 31, 1997, both officers made the required payments under
the above agreements.
Upon the death, disability, or termination of any of the above
stockholders, the Company must buy back the stock at a price in accordance
with the provisions of the agreement.
(8) STOCK OPTION PLAN AND GRANTS
During 1995, the Company granted certain key employees 500,000 options
pursuant to its 1995 Stock Option Plan. Options that have been granted and
are outstanding expire ten years from the date of grant and become
exercisable at rates tied to the profitability of the Company and/or its
divisions (with the exception of 98,000 options in 1996 which became
exercisable one year from the date of grant). The following is a summary
of the activity in the Company's stock option plan:
Option
Plan
Shares
------
Outstanding, December 31, 1995 480,000
Granted 10,000
Exercised (60,900)
--------
Outstanding, December 31, 1996 429,100
Granted -
Exercised (429,100)
--------
Outstanding, December 31, 1997 -
--------
<PAGE> 17
OFC CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(Continued)
(8) STOCK OPTION PLAN AND GRANTS (Continued)
All options granted under the plan have an exercise price of $.1275 per
share. No compensation expense was recorded in the accompanying financial
statements as the exercise price equals the estimated fair value of the
Company's stock on the grant date. Options issued under the plan are not
transferrable except through the estate of a deceased optionee. Such
options expire six months following the death of the optionee.
If the optionee terminates employment with the Company because of
disability, the issued options will expire six months from the date of the
termination. Should the optionee terminate employment for any other
reason, the options issued expire sixty days following the date of the
termination.
The Company maintains the right of first refusal to purchase shares issued
under the plan in the event that an optionee, who has purchased shares
under the plan, entertains an offer for sale from a third party. The
Company also maintains the right of repurchase with respect to all shares
issued under the plan if the optionee terminates employment with the
Company for any reason. Such shares would be repurchased at fair market
value.
On December 31, 1997, the Company granted 293,000 shares of common stock
to certain employees and directors. The shares had an aggregate estimated
fair value of $1,326,400 at the time of grant. These grants are reported
as compensation, common stock and capital in excess of par value in the
accompanying financial statements.
(9) NOTES RECEIVABLE
In 1996, the Company loaned $150,000 to an unrelated corporation in the
form of forty-five day notes that bear interest at 10% per annum.
Principal and interest are convertible at the Company's option into stock
ownership. As of December 31, 1996, the Company has written off the entire
note balance of $150,000 as loss on investments.
(10) SUBSEQUENT EVENTS
On December 30, 1997, the shareholders of the Company signed an agreement
to sell for cash and common stock of the acquirer, all of the Company's
outstanding common stock and any options to purchase any such stock. A
January, 1998, closing date is anticipated.
In January, 1998, the Company signed a lease agreement for additional
facility space for the Keene, NH facility. The lease is for a five year
term with an option to extend for another five years. The approximate
annual lease payment will be as follows:
Year 1 $30,000
Year 2 $32,400
Years 3 - 5 $42,000
<PAGE> 1
EXHIBIT 99.3
Investor Relations - Gregory Riedel (508) 347-4222
GALILEO COMPLETES ACQUISITION OF OFC CORPORATION
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STURBRIDGE, MA, FEBRUARY 2, 1998 - Galileo Corporation (NASDAQ National Market:
GAEO) announced today that it has completed the previously announced acquisition
of OFC Corporation, a privately held company based in Natick, Massachusetts, by
acquiring all of the outstanding shares of OFC for approximately $6 million in
cash and 1.15 million shares of Galileo common stock.
OFC designs, manufactures and markets a broad range of optical components and
systems which incorporate the latest advances in photonic technology and optical
coating. OFC's products include optical filters, optical lens coatings for
medical devices, laser systems, infrared thermal imaging devices and optical
analytical instruments. OFC's operations also include one of the world's largest
and most technically advanced diamond point turning facilities, which
manufactures highly sophisticated optical components and systems for industrial
lasers and semiconductor instrumentation.
Detailed information about Galileo and OFC can be found on the Internet at the
web sites www.galileocorp.com and www.ofccorp.com.
