<PAGE>
As filed with the Securities and Exchange Commission on April 7, 2000
Registration No. 333-
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-3
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
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IMPCO TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
Delaware 3714 91-1039211
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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16804 Gridley Place
Cerritos, California 90703
(562) 860-6666
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
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Robert M. Stemmler
President and Chief Executive Officer
16804 Gridley Place
Cerritos, California 90703
(562) 860-6666
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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Copies of all communications to be sent to:
Michael J. Connell, Esq. Ellen S. Bancroft, Esq.
Jonathan F. Atzen, Esq. James D. Miller, Esq.
MORRISON & FOERSTER LLP BROBECK, PHLEGER & HARRISON LLP
555 West Fifth Street 38 Technology Drive
Los Angeles, California 90013-1024 Irvine, California 92618-5312
(213) 892-5200 (949) 790-6300
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest reinvestment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Amount Proposed maximum
Title of each class of to be Proposed aggregate Amount of
securities to be registered maximum offering price offering price registration
registered (1)(2) per unit (3) (3) fee (3)
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<S> <C> <C> <C> <C>
Common Stock, par value $.001 .......... 2,875,000 Shares $29.5625 $84,992,187.50 $22,438
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</TABLE>
(1) Includes 375,000 shares which the Underwriters have options to purchase to
cover over-allotments, if any.
(2) Includes 875,000 shares which will be sold by the selling stockholders.
(3) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(c) under the Securities Act of 1933,
as amended, and based upon the average of the high and low sale price of
the Registrant's common stock as reported on the Nasdaq National Market on
April 4, 2000.
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The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 7, 2000
[LOGO OF IMPCO]
2,500,000 Shares
Common Stock
IMPCO Technologies, Inc. is offering 1,625,000 shares of its common stock and
the selling stockholders are selling an additional 875,000 shares of our common
stock. Our common stock is traded on the Nasdaq National Market under the
symbol "IMCO." The last reported sale price of the common stock on the Nasdaq
National Market on April 4, 2000 was $29.594 per share.
--------------
Investing in the common stock involves risks. See "Risk Factors" beginning on
page 7.
--------------
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public Offering Price.............................................. $ $
Underwriting Discounts and Commissions............................. $ $
Proceeds to IMPCO.................................................. $ $
Proceeds to the Selling Stockholders............................... $ $
</TABLE>
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved these securities, or determined if this prospectus
is truthful or complete. Any representation to the contrary is a criminal
offense.
We have granted the underwriters a 30-day option to purchase up to an
additional 375,000 shares of common stock to cover over-allotments.
--------------
Robertson Stephens
CIBC World Markets
FAC/Equities
The date of this Prospectus is , 2000.
<PAGE>
[DESCRIPTION OF ARTWORK]
INSIDE FRONT COVER
A. The inside front cover is a picture of an automobile depicting where
IMPCO's Fuel Storage System and Fuel Delivery System products are implemented
in an automobile. Across the top of the page are the words "FUEL TECHNOLOGY FOR
THE FUTURE System Integration for Fuel Cell Technology."
B. Annotations for graphics:
1. "IMPCO Fuel Storage System"
2. "Fuel Safety Lock-off"
3. "In-Tank Regulator"
4. "Fuel Storage"
5. "IMPCO Electronic Control System"
6. "FUEL CELL STACK"
7. "IMPCO Fuel Lines & Wiring Harness"
8. "Fuel Injectors"
9. "Injector Regulator"
10. "Mass Flow Metering Valve"
11. "IMPCO Fuel Delivery System"
<PAGE>
INSIDE GATEFOLD (two pages)
A. The first page is a picture of a flow chart depicting IMPCO's System
Capabilities in the fuel cell industry. Across the top of the page are the
words "Fuel Cell Industry."
B. Annotations for graphics:
1. "IMPCO System Capabilities"
2. "Air & Vapor Metering"
3. "Transportation"
4. "Fuel Cell Stack"
5. "Hydrogen Storage"
6. "Electronic Controls & Software"
7. "Hydrogen Metering"
8. "Electrons (DC Power)"
9. "Systems Integration"
10. "Material Handling"
11. "Gaseous Fuel Storage (Natural Gas)"
12. "Electronic Controls & Software"
13. "Gaseous Fuel Metering"
14. "Fuel Reformer"
15. "Industrial & Power Generation"
16. "Liquid Fuel Storage Gasoline, Diesel, Ethanol, Methanol"
17. "Electronic Controls & Software"
18. "Liquid Fuel Metering"
<PAGE>
C. The second page is a picture of a flow chart depicting IMPCO's System
Capabilities in the alternative fuel industry. Across the top of the page are
the words "Alternative Fuel Industry."
D. Annotations for graphics:
1. "IMPCO System Capabilities"
2. "Hydrogen (H) Storage"
3. "Electronic Controls & Software"
4. "Hydrogen Metering"
5. "Transportation"
6. "Gaseous fuel storage (Natural Gas)"
7. "Electronic Controls & Software"
8. "Gaseous Fuel Metering"
9. "Internal Combustion Engine"
10. "Systems Integration"
11. "Material Handling"
12. "Liquid fuel Storage Gasoline, Diesel, Ethanol, Methanol"
13. "Electronic Controls & Software"
14. "Liquid Fuel Metering"
15. "Industrial & Power Generation"
<PAGE>
You should rely on the information contained in this prospectus. We have not
authorized anyone to provide you with information different from that contained
in this prospectus. We are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of
this prospectus, regardless of the time of delivery of this prospectus or of
any sale of our common stock. Unless otherwise indicated, the references in
this prospectus to the "Company," "IMPCO," "we," "us," and "our" refer to IMPCO
Technologies, Inc., a Delaware corporation and our subsidiaries.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 7
Forward-Looking Statements............................................... 15
Use of Proceeds.......................................................... 16
Dividend Policy.......................................................... 16
Price Range of Common Stock.............................................. 17
Capitalization........................................................... 18
Selected Consolidated Financial Information.............................. 19
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 33
Management............................................................... 49
Principal and Selling Stockholders....................................... 54
Underwriting............................................................. 56
Legal Matters............................................................ 59
Experts.................................................................. 59
Where You Can Find More Information...................................... 59
Incorporation of Certain Documents by Reference.......................... 59
Index to Consolidated Financial Statements .............................. F-1
</TABLE>
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We have registered the following trademarks in the United States: IMPCO,
BEAM and GARRETSON. This prospectus contains trademarks and trade names of
other companies.
3
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information in this prospectus, including risk factors, regarding our company
and the common stock being sold in this offering.
The Company
We are a leading designer, manufacturer and supplier of fuel storage, fuel
delivery and electronic control systems that allow internal combustion engines
and fuel cells to operate using clean fuels such as hydrogen, propane, natural
gas and methanol. We have designed these systems to optimize efficiency and
performance by electronically sensing and regulating the proper proportion of
fuel and air used by internal combustion engines and fuel cell systems.
According to Freedonia Group, an independent market research firm, global
demand for vehicles using alternative fuels is expected to grow to 170,000
units annually by the year 2002 from 31,900 units sold in 1997. We believe the
alternative fuel market has grown rapidly in response to environmental concerns
over the pollution caused by internal combustion engines, as well as an
economic incentive to use these fuels due to the price differential between
gasoline and alternative fuels such as natural gas and propane. As gasoline
prices rise, it generally becomes more economical to convert an internal
combustion engine to run on propane or natural gas and benefit from lower fuel
costs. In Mexico, for example, the price of gasoline was more than two times
the price of propane in March 2000. Many countries are also beginning to adopt
alternative fuel technologies in order to lessen their dependence on imported
oil. Based on over 40 years of technology development and expertise in
producing cost-effective, safe and durable alternative fuel systems for
internal combustion engines, we believe that we will be positioned to provide
enabling products and technologies for the rapidly emerging fuel cell industry.
Fuel cells are devices that produce electricity through an electrochemical
reaction that requires hydrogen as a primary fuel. The newly emerging fuel cell
industry represents an advancement in fuel technologies to address worldwide
concerns over the environment and long-term supply of liquid fuels. The
National Fuel Cell Research Center based at the University of California,
Irvine estimates the market for fuel cell products will exceed $10 billion by
2010. We believe that we can adapt our fuel storage, fuel delivery and
electronic control systems to address the emerging fuel cell market. We also
believe that our technology and equipment that enable fuel cells to run on
hydrogen represent a natural extension of our current product line.
Our goal is to be the leading provider of fuel storage, fuel delivery and
electronic control systems for fuel cells. We believe that these functions will
represent a critical factor in the commercial viability and market acceptance
of fuel cells. Our enabling technology is targeted to support the
commercialization of the fuel cell being developed by others in the industry.
Regardless of the fuel used in the fuel cell system, we believe the fuel cell
system will require on board storage. We believe our low cost TriShield(TM)
storage tank and advanced fuel delivery and electronic control products are of
special interest to the fuel cell industry because they provide increased fuel
storage at less weight and improved operation through precise and timely fuel
metering.
We anticipate initially targeting the transportation market, by leveraging
off of our existing technologies for alternative fuel systems as well as our
relationships with OEMs such as General Motors. We also plan to target the
fuel, delivery storage and electronic control system requirements of fuel cells
that are developed for other end markets such as the stationary and portable
power generator markets. We believe our continued success in the design,
manufacturing and commercialization of products for the alternative fuel and
fuel cell industries will depend on our substantial financial commitment to
advanced research and product development and our proven ability to develop and
commercialize products in these industries.
We were incorporated in Delaware in October 1985. Our principal executive
offices are located at 16804 Gridley Place, Cerritos, California 90703, and our
telephone number at that address is (562) 860-6666.
4
<PAGE>
The Offering
<TABLE>
<C> <S>
Common Stock offered by IMPCO...................... 1,625,000 shares
Common Stock offered by the Selling Stockholder.... 875,000 shares
Common Stock to be outstanding after the offering.. 10,196,805 shares
Use of proceeds.................................... We plan to use the net
proceeds of this offering
for the repayment of
indebtedness, the
expansion of our
development engineering
capabilities and general
corporate purposes
including research and
development in fuel cell
technologies and working
capital. See "Use of
Proceeds."
Nasdaq National Market symbol...................... IMCO
</TABLE>
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The number of shares of common stock outstanding after the offering is based
upon 8,571,805 shares of common stock outstanding as of March 31, 2000 and
assumes:
. no exercise of the underwriters over-allotment option; and
. no exercise of outstanding options to purchase an aggregate of 1,321,931
shares of our common stock at a weighted average exercise price of $8.72.
Our fiscal year ends on April 30, and our fiscal quarters end on July 31,
October 31 and January 31.
5
<PAGE>
Summary Consolidated Financial Data
(dollars in thousands, except for per share data)
You should read this information together with the discussion in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements, including the notes
thereto. The as adjusted data summarized below reflects the application of the
net proceeds from the sale of 1,625,000 shares of common stock by IMPCO at an
assumed public offering price of $29.594 per share, after deducting the
estimated underwriting discounts and commissions and offering expenses.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended April 30, January 31,
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1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Revenue:
Product sales.......... $43,707 $48,487 $58,437 $62,209 $75,821 $ 50,132 $ 76,759
Contract revenue....... 1,524 3,087 3,392 8,874 11,006 9,930 6,593
Net revenue............. 45,231 51,575 61,828 71,083 86,826 60,063 83,713
Cost and expenses:
Cost of sales.......... 29,125 32,011 37,342 38,174 52,179 33,776 50,750
Research and
development expense... 6,197 7,171 7,725 12,062 11,612 8,560 10,542
Selling, general and
administrative
expense............... 6,370 8,261 11,912 13,729 16,133 11,196 15,573
Operating income........ 3,540 4,132 4,850 7,118 6,903 6,532 6,848
Interest expense........ 292 504 1,100 935 1,170 905 1,138
Gain on sale of
subsidiary............. -- -- -- -- 2,169 2,169 --
Net income(1)(2)........ $ 2,967 $ 4,671 $ 3,225 $ 4,865 $ 6,331 $ 5,891 $ 3,849
Net income applicable to
common stock........... $ 2,420 $ 4,061 $ 2,644 $ 4,270 $ 5,800 $ 5,452 $ 3,849
Net income per
share(2)(3):
Basic.................. $ 0.43 $ 0.72 $ 0.46 $ 0.67 $ 0.80 $ 0.76 $ 0.45
Diluted................ $ 0.39 $ 0.64 $ 0.43 $ 0.60 $ 0.71 $ 0.65 $ 0.43
Number of shares used in
per share
computation(3):
Basic.................. 5,620 5,648 5,722 6,334 7,293 7,178 8,463
Diluted................ 6,272 7,300 6,131 8,155 8,976 9,009 8,948
</TABLE>
<TABLE>
<CAPTION>
January 31, 2000
-------------------
Actual As Adjusted
------- -----------
(unaudited)
<S> <C> <C>
Balance Sheet Data
Cash and cash equivalents................................... $ 3,546 $ 23,605
Total working capital....................................... 47,677 70,953
Total assets................................................ 87,271 107,330
Long-term obligations, less current portion................. 21,650 --
Stockholders' equity........................................ 45,663 90,024
</TABLE>
- --------
(1) Fiscal year 1996 includes an income tax benefit of $1.7 million, due to
the reduction in the valuation allowance for deferred tax assets
(equivalent to $0.30 per basic share and $0.26 per diluted share) and
$318,000 net income from our European subsidiary that was acquired in
October 1995.
(2) Includes gain on sale of 49% interest in IMPCO BV to BERU
Aktiengesellschaft during fiscal year 1999. We recorded a pre-tax gain of
$2.2 million and an after-tax gain of $1.8 million or $0.20 per diluted
share.
(3) During fiscal years 1996 and 1998, shares assumed to be issued upon
conversion of our preferred stock were included in the calculation since
it resulted in a reportable dilution. During fiscal year 1999, all of our
preferred stock was converted to common stock and the diluted earnings per
share was calculated as though the conversion occurred at the beginning of
fiscal year 1999.
6
<PAGE>
RISK FACTORS
Any investment in shares of our common stock involves a high degree of risk.
You should consider carefully the following information about these risks,
together with the other information contained in this prospectus, before you
decide to buy our common stock. If any of the following risks actually occur,
our business, results of operations and financial condition would likely
suffer. In these circumstances, the market price of our common stock could
decline, and you may lose all or part of your investment.
We may never complete the research and development of commercially viable fuel
metering, fuel storage or control products for fuel cell systems.
We do not know when or whether we will successfully complete the research
and development of a commercially viable fuel metering, fuel storage or control
products for the fuel cell market. We have produced and are currently
demonstrating a number of test and evaluation systems and are continuing our
efforts to decrease the costs of our systems' components and subsystems,
improve their overall reliability and efficiency, and ensure their safety.
However, we must complete substantial additional research and development on
our systems before we will have a commercially viable fuel delivery system for
fuel cells. Even if we are able to do so, our efforts will still depend upon
the success of other companies producing commercially viable fuel cells. In
addition, we are not currently manufacturing fuel cell enabling products on a
large scale basis and will need to upgrade existing facilities to do so. In
particular, the manufacturing of our TriShield(TM) composite tank may not be
successful and could have an adverse impact on our growth in fuel cell enabling
technologies.
A mass market for fuel metering, fuel storage and control systems for fuel
cells may never develop or may take longer to develop than we anticipate.
Fuel cell systems represent an emerging technology, and we do not know
whether OEMs will incorporate these technologies into their products or pursue
these technologies on a large scale basis. In particular, if a mass market
fails to develop or develops more slowly than we anticipate for fuel cell
powered automobiles and equipment, we may be unable to recover the expenditures
we will have incurred to develop our fuel systems for fuel cells and may be
unable to achieve profitability in that portion of our business. Many factors
which are out of our control may have a negative effect on the development of a
mass market for our fuel cell products and systems. These factors include:
. the cost competitiveness and size of fuel cell systems;
. the availability, future costs and safety of hydrogen, natural gas or
other potential fuel cell fuels;
. consumer reluctance to adopt alternative fuel products;
. OEM reluctance to replace current technology;
. consumer perceptions of fuel cell systems;
. regulatory requirements; and
. the emergence of newer, breakthrough technologies and products by our
competitors in the fuel cell industry.
Our Automotive OEM divisions revenues are heavily dependent on our relationship
with General Motors and General Motors' commitment to develop the alternative
fuel market.
Nearly all of our revenues for the fiscal year ended April 30, 1999 for our
Automotive OEM division and 28.2% of our total revenues for the same period
related to sales of our products to and contracts with General Motors. Our
Teaming Agreement with General Motors terminates on July 30, 2002 and may be
earlier terminated unilaterally by either us or General Motors upon 30 days
written notice upon certain events including:
. lack of a meeting of the management committee created under the terms of
the Teaming Agreement for 18 consecutive months; or
7
<PAGE>
. a material breach of the Teaming Agreement which remains uncorrected for
20 days following notice.
Additionally, General Motors may terminate the Teaming Agreement in the
event we change our management or ownership control. Our business and results
of operations would be adversely affected in the event General Motors
terminates its relationship with us or ceases to pursue the alternative fuel
market.
Our ability to sell our products to the automotive market is heavily
dependent upon General Motors' worldwide sales and distribution network and
service capabilities. Any change in our relationship with General Motors could
harm our potential earnings by reducing or eliminating a substantial portion of
our sales, whether as a result of market, economic or competitive pressures,
including any decision by General Motors:
. to alter its commitment to our fuel metering, fuel storage and control
technology in favor of other competing technologies;
. to develop alternative fuel systems targeted at different markets than
ours; or
. to focus on different energy product solutions.
We have submitted products for testing and have responded to requests for
proposals from a number of other potential customers. To date, none of these
proposals have resulted in any long-term commitments. Additionally, our
contract provides for a non-exclusive right of first refusal to General Motors
on jointly developed products.
We intend to make significant investments in fuel cell enabling technologies,
which may not result in any corresponding increase in net revenues.
We anticipate that our investment in research and development will
significantly increase as we focus our efforts in developing fuel cell enabling
technologies. As we pursue this business strategy, we expect to incur operating
losses driven by research and development expenditures for at least the next 12
months. In particular, we plan to use a substantial portion of the net proceeds
from this offering to fund this effort. We may not recover this investment.
We may be unable to raise additional capital to complete our product
development and commercialization plans.
We currently anticipate that we will need to raise additional funds to
complete the development and commercialization of our fuel cell enabling
technologies. These funds may not be available on acceptable terms, if at all.
Our product development and commercialization schedule could be delayed if we
are unable to fund our research and development activities or the development
of our manufacturing infrastructure for new products. We expect that the net
proceeds of this offering and all other existing sources of capital will be
sufficient to fund our activities through the end of calendar year 2001. We are
receiving limited proceeds from this offering and will need to raise additional
funds to achieve full commercialization of our fuel storage and delivery
systems for fuel cells. We do not know whether we will be able to secure
additional funding or funding on terms acceptable to us and, if so, we may not
be able to pursue our commercialization plans through the mass market stage.
Our business depends on the growth of the alternative fuel market.
The alternative fuel market has not yet gained broad acceptance and our
future success depends on the expansion of this market. Substantially all of
our revenue for the fiscal year ended April 30, 1999 was derived from sales of
products and enabling technologies for use in the alternative fuel market. In
the United States and certain of our other target markets, alternative fuel
such as natural gas cannot be readily obtained by consumers for motor vehicle
use and only a small percentage of motor vehicles manufactured in 1999 were
equipped to use alternative fuels. We cannot assure you that the market for
gaseous alternative fuel engines will gain broad acceptance or, if this growth
does occur, that it will result in increased sales of our advanced fuel system
products. In addition, we have designed many of our products for alternative
fueled vehicles powered by internal combustion engines or fuel cells, but not
currently for alternative power sources such as electricity or alternate forms
of existing fuels. If the major growth in the alternative fuel market is solely
for existing fuels, our revenues may not increase or may decline.
8
<PAGE>
Users of gaseous alternative fueled or fuel cell powered vehicles may not be
able to obtain fuel conveniently and affordably, which may adversely affect the
demand for our products.
Vehicles and equipment powered by gaseous alternative fuels run primarily on
natural gas or propane. Fuel cells run on hydrogen or reformed fuels containing
hydrogen. Gasoline, the only fuel that is currently readily available in most
of the world, requires the development of additional technologies for its use
with fuel cells. The construction of a system to deliver natural gas, propane
or hydrogen, or a suitable fuel containing hydrogen, requires significant
investment by third parties. We cannot guarantee you that an adequate fuel
distribution infrastructure will be built for mass adoption. We are relying on
third parties, most of whom are heavily committed to the existing gasoline
infrastructure, to build this infrastructure. If these parties build a fuel
distribution infrastructure, the fuel delivered through it, both due to the
cost of the delivery system and the cost of the fuel itself, may have a higher
price than users are willing to pay. If users cannot obtain fuel conveniently
or affordably, a mass market for vehicles and equipment powered by gaseous
alternative fuels or fuel cells is unlikely to develop.
Our ability to successfully attract customers and sell products is also
dependent on the current price disparity between liquid fuels such as petroleum
and gasoline, and gaseous fuels such as propane and natural gases. There can be
no assurance that this price disparity will continue. Should this disparity
narrow or disappear, it could adversely affect the demand of our products.
We currently face and will continue to face significant competition, which
could result in a decrease in our revenues.
We currently compete with companies who manufacture products for current
power technologies to convert engines operating on liquid fuels to gaseous
fuels and for new alternative power technologies, including types of fuel cells
that may not require metering, storage or control products of the type we
design and produce.
As the market for alternative fueled vehicles increases, OEMs may find it
advantageous to develop and produce their own fuel conversion or fuel
management equipment rather than purchasing the equipment from suppliers such
as ourselves. In addition, as the fuel cell market gains greater acceptance, it
is likely that there will be new competitors in our current markets. Should
either of these events occur, the total potential demand for our products could
be adversely affected and cause us to lose existing business.
We face risks associated with our plans to market, distribute and service our
products internationally.
We currently operate in Europe, Australia, Mexico and Japan, and market our
products and technologies in other international markets, including both
industrialized and developing countries. Our international operations are
subject to various risks common to international activities, such as:
. exposure to currency fluctuations;
. the inherent difficulty of staffing and managing potential difficulties
in enforcing contractual obligations and intellectual property rights;
and
. the burden of complying with a wide variety of laws and regulations
including product certification, environmental and import and export
laws.
Any significant increase in the value of the dollar against foreign
currencies where we do business may impact negatively our competitiveness in
international markets.
9
<PAGE>
We also intend to manufacture, market, distribute and service our fuel
delivery systems for fuel cell powered equipment and vehicles internationally.
We have limited experience developing, and no experience manufacturing these
products to comply with the commercial and legal requirements of international
markets. Our success in these markets will depend, in part, on our ability to
secure relationships with foreign OEMs and our ability to manufacture products
that meet foreign regulatory and commercial requirements.
Our business may be subject to product liability claims, which could be
expensive and could result in a diversion of management's attention.
The automotive industry in the past has experienced significant product
liability claims. As a supplier, we face an inherent business risk of exposure
to product liability claims in the event that our products or the equipment
into which our products are incorporated malfunction resulting in personal
liability or death. We may be named in these actions even if there is no
evidence that our systems or components caused the accident. Product liability
claims could result in significant losses as a result of expenses incurred in
defending claims and as a result of damage awards. The sale of systems and
components for the transportation industry entails a high risk of such claims.
In addition, if any of our systems prove to be defective, we may be required to
participate in a recall involving such systems, or due to various industry or
business practices or the need to maintain good customer relationships, we may
voluntarily initiate a recall or make payments related to such claims. We
cannot assure you that our current product liability insurance will be
sufficient to cover all product liability claims, that such claims will not
exceed our insurance coverage limits or that such insurance will continue to be
available on commercially reasonable terms, if at all. Any product liability
claim brought against us could have a material adverse effect on our reputation
and business.
Our business may become subject to future product certification regulations
which may impact our ability to market our products.
We must obtain product certification from governmental agencies such as the
Environmental Protection Agency and the California Air Resources Board to sell
certain of our products in the United States. A primary portion of our future
sales will depend upon sales of fuel management products that are certified to
meet existing and future air quality and energy standards. We cannot assure
that our products will continue to meet these standards. The failure to comply
with these certification requirements could result in the recall of our
products, civil penalties or criminal penalties.
We anticipate that regulatory bodies will establish certification procedures
and will impose regulations on our fuel cell enabling technologies, which may
impact our ability to distribute, install and service these systems. Any new
government regulation of our advanced fuel technologies, whether at the United
States or foreign federal, state or local level, including any regulations
relating to installation and servicing of these systems, may increase our costs
and the price of our systems. As such, these regulations may have a negative
impact on our revenue and profitability, and accordingly, harm our business,
prospects, results of operations or financial condition.
New technologies could render our existing products obsolete.
New developments in technology may negatively affect the development or sale
of some or all of our products or make our products obsolete. We believe that
our future success depends upon our ability to design, develop and market new
or modified fuel delivery, fuel storage and electronic control products for
internal combustion engines and fuel cell systems. Our ability to enhance
existing products in a timely manner and to develop and introduce new products
that incorporate new technologies, conform to increasingly stringent emission
standards and performance requirements, and achieve market acceptance in a
timely manner could negatively impact our competitive position. New product
development or modification is costly, involves significant research,
development, time and expense and may not necessarily result in the successful
commercialization of any new products.
10
<PAGE>
We depend on our intellectual property and our failure to protect that
intellectual property could adversely affect our future growth and success.
We rely on patent, trademark and copyright law, trade secret protection,
confidentiality agreements and, if applicable, inventors rights agreements with
our employees, customers, partners and others to protect our intellectual
property for our alternative fuel and fuel cell enabling technologies. However,
some of our intellectual property is not covered by any patent or patent
application and, despite our precautions, it may be possible for third parties
to obtain and use our intellectual property without authorization.
We currently have over 30 patents outstanding which will expire between
November 2001 and October 2018. We also have two patent applications
outstanding in our fuel cell enabling technology. We do not know whether any of
our pending patent applications will issue or, in the case of patents already
issued or to be issued, that the claims allowed will be sufficiently broad to
protect our technology or processes. Even if all our patent applications are
issued and are sufficiently broad, they may be challenged or invalidated. We
could incur substantial costs in prosecuting or defending patent infringement
suits.
Furthermore, the laws of some foreign countries may not protect intellectual
property rights to the same extent as do the laws of the United States. It may
be difficult for us to enforce certain of our intellectual property rights
against third parties who may have acquired intellectual property rights by
filing unauthorized applications in foreign countries to register the marks
that we use because of their familiarity with our worldwide operations.
We cannot assure you that we have been or will be completely successful in
protecting our proprietary rights. Any infringement on any of our intellectual
rights, especially in our developing fuel cell enabling technologies, could
have an adverse effect on our ability to successfully develop and sell
commercially competitive systems and components.
We are dependent on third party suppliers for the supply of key materials and
components for our products.
We have established relationships with third party suppliers, upon whom we
rely to provide materials and components for our products, particularly the
high strength fiber used in our light weight hydrogen tanks. A supplier's
failure to supply materials or components in a timely manner, or to supply
materials and components that meet our quality, quantity or cost requirements,
or our inability to obtain substitute sources for these materials and
components in a timely manner or on terms acceptable to us, could harm our
ability to manufacture our products or could significantly raise our cost of
producing our products. In particular, a delay in the delivery of high strength
fiber from our current sole suppliers could result in a delay of the production
of our products for up to three months, which could negatively impact our
results of operations and business.
We may have difficulty managing the expansion of our product line to fuel cell
enabling technologies.
We currently anticipate a rapid expansion with respect to the development of
our fuel cell enabling technologies. This expansion will require us to hire
additional employees, increase the size of our current facilities and expand
the scope of our operations, and is likely to place a significant strain on our
management team and other resources. Difficulties in effectively managing the
budgeting, forecasting and other processing control issues presented by this
rapid expansion could harm our business, prospects, results of operations or
financial condition.
Potential fluctuations in our financial results could cause our stock price to
decline.
Our revenues and operating results are subject to annual and quarterly
fluctuations as a result of a variety of factors, including, without
limitation:
. budget cycles and funding arrangements of governmental agencies;
. purchasing cycles of fleet operators;
11
<PAGE>
. the uncertainty of timing of deliveries of vehicles to be equipped;
. the timing of implementation of government regulations promoting
alternative fuel vehicles; and
. general economic factors.
It is possible that in one or more future quarters our operating results may
fall below the expectations of securities analysts and investors. If this
happens, the trading price of our common stock might be materially and
adversely affected.
We could lose or fail to attract the personnel necessary to run our business.
Our success depends in large part on our and our affiliates' ability to
attract and retain key management, engineering, scientific, manufacturing and
operating personnel, particularly Robert M. Stemmler, our President and Chief
Executive Officer, Dale L. Rasmussen, our Senior Vice President and Secretary,
and Syed Hussain, our Vice President of Technology and Automotive OEM division.
As we develop our fuel cell business, we will require more technically skilled
personnel. Recruiting personnel for the industries in which we are positioned
is highly competitive and the failure to attract or retain qualified personnel
could have a material adverse effect on our business.
Our failure to meet OEM specifications may hurt our business.
In 1993, we began to offer complete, integrated alternative fuel systems,
which include tanks, brackets, electronics, software and all other engine
components required to convert a motor vehicle to alternative fuels. Customers
for these systems require that they meet OEM standards. These requirements have
resulted in increased development, manufacturing, warranty and administrative
costs. If these costs increase significantly, our profitability could be
adversely affected. Our inability to meet OEM specifications at all, or on a
timely basis, may hurt our relationships with OEMs.
We may be subject to increased warranty claims.
In response to consumer demand, vehicle manufacturers have been providing
and may continue to provide increasingly longer warranty periods for their
products. As a consequence, these manufacturers require their suppliers, such
as us, to provide correspondingly longer product warranties. As a result, we
could incur substantially greater warranty claims in the future.
We may experience unionized labor disputes at OEM facilities.
As we become more dependent on vehicle conversion programs with OEMs, we
become increasingly dependent on OEM production and the associated labor forces
at OEM sites. Labor unions represent most of the labor force at OEM facilities.
Labor disputes could occur at OEM facilities and could adversely impact our
direct OEM product sales. For example, in 1998, as a result of a strike at one
of our OEM's facilities, we experienced a decline in sales of General Motors
pick-up trucks.
Changes in environmental policies could hurt the market for our products.
The market for alternative fueled vehicles and equipment, and the demand for
our products are, to a significant degree, driven by local, state and federal
regulations in the United States related to air quality and requiring purchase
of motor vehicles and equipment to operate on alternative fuels. Our
international business is also affected by similar foreign governmental
regulations. These laws and regulations may change. Changes in these laws and
regulations could result in transportation or equipment manufacturers
abandoning their interest in alternative fueled and fuel cell powered vehicles.
In addition, a failure by authorities to enforce current domestic and foreign
laws or to adopt further environmental laws could limit demand for our
products.
12
<PAGE>
Although many governments have identified the development of alternative
energy sources, and in particular fuel cells as a significant priority, we
cannot assure you that governments will not change their priorities or that any
change they make would not materially affect our revenues or the development of
our products.
We may be subject to litigation if our stock price is volatile.
The stock market has, from time to time, experienced price and volume
fluctuations. Many factors may cause the market price for our common stock to
decline, perhaps substantially, following this offering, including:
. failure to meet our product development and commercialization milestones;
. demand for our common stock;
. revenues and operating results failing to meet the expectations of
securities analysts or investors in any quarter;
. downward revisions in securities analysts' estimates or changes in
general market conditions;
. technological innovations by competitors or in competing technologies;
. investor perception of our industry or our prospects; or
. general technology or economic or regulatory trends.
In the past, companies that have experienced volatility in the market price
of their stock have been the subject of securities class action litigation. We
may be involved in a securities class action litigation in the future. This
litigation often results in substantial costs and a diversion of management's
attention and resources and could harm our business, prospects, results of
operations or financial condition.
Provisions of Delaware law and of our charter and by-laws may make a takeover
more difficult.
Provisions in our certificate of incorporation and by-laws and in the
Delaware corporate law may make it difficult and expensive for a third party to
pursue a tender offer, change in control or takeover attempt which our
management and Board of Directors oppose. Public stockholders who might desire
to participate in one of these transactions may not have an opportunity to do
so. We also have a staggered Board of Directors, which makes it difficult for
stockholders to change the composition of the Board of Directors in any one
year. These anti-takeover provisions could substantially impede the ability of
public stockholders to benefit from a change in control or to change our
management and Board of Directors.
In June 1999, we entered into a Stockholder Protection Rights Agreement
which provided for a dividend of one right for each outstanding share of our
common stock. Each right entitles the holder to purchase one share of our
common stock at an exercise price of $45.00 per share. Upon the occurrence of
some events, including a person or entity's acquisition of 15% or more of our
common stock, each right will entitle the holder to purchase, at the exercise
price, common stock with a value equal to twice the exercise price, which could
cause substantial dilution. The rights agreement may have the effect of
deterring, delaying or preventing a change in control that might otherwise be
in the best interests of the Company and our stockholders.
Future sales of our common stock could adversely affect our stock price.
Substantial sales of our common stock, including shares issued upon exercise
of our outstanding options in the public market following this offering, or the
perception by the market that these sales could occur, could lower our stock
price or make it difficult for us to raise additional equity capital in the
future. After this offering, we will have 10,196,805 shares of common stock
outstanding. Of these shares, the 2,500,000 shares sold in this offering will
be freely tradeable. Of the remaining 7,696,805 shares, 4,823,080 shares which
are
13
<PAGE>
currently freely tradeable will remain freely tradeable, 2,873,725 shares will
be subject to 135 day lock-up agreements. In addition, up to 1,321,931 shares
issuable upon the exercise of outstanding options may become available for sale
in the public markets. The holders of 1,115,326 shares subject to the 135 day
lock-up agreement have the right to require us to register some or all of those
shares for sale after the expiration of the 135 day period. However, even if
the holders do not require registration, the holders may sell a portion of
their shares under the exemption afforded by Rule 144 promulgated by the
Securities and Exchange Commission following the expiration of the 135 day
period. The 135 day lock-up period may be shortened upon agreement by the
underwriters. We cannot predict if future sales of our common stock, or the
availability of our common stock for sale, will harm the market price for our
common stock or our ability to raise capital by offering equity securities.
14
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference herein contain
forward-looking statements which involve risks and uncertainties. These
forward-looking statements are not historical facts but rather are based on
current expectations, estimates and projections about our industry, our beliefs
and assumptions. We use words such as anticipates, expects, intends, plans,
believes, seeks, estimates and variations of these words and similar
expressions to identify forward-looking statements. These statements are not
guarantees of future performance and are subject to certain risks,
uncertainties and other factors, some of which are beyond our control, are
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements. These risks
and uncertainties include those described in "Risk Factors" and elsewhere in
this prospectus and the documents incorporated by reference herein. You should
not place undue reliance on these forward-looking statements, which reflect our
management's view only as of the date of this prospectus.
15
<PAGE>
USE OF PROCEEDS
Our net proceeds from the sale of the 1,625,000 shares of common stock
offered by us, after deducting estimated underwriting discounts and commissions
and estimated expenses payable by us, are estimated to be approximately $44.4
million ($54.8 million if the underwriters' over-allotment option is exercised
in full). We plan to use a portion of these net proceeds to repay indebtedness
under our outstanding revolving lines of credit and term loans. At March 31,
2000, approximately $25 million was outstanding under these obligations at
weighted average interest rate of 7.5% per annum. We anticipate the balance of
these proceeds will be used for the expansion of our development engineering
capabilities and general corporate purposes including research and development
in fuel cell technologies and working capital. We currently have no commitments
or agreements with respect to any material acquisitions. Pending use of the net
proceeds, we plan to invest the net proceeds of this offering in short-term
investment grade securities. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." We will have broad discretion
as to the allocation and use of the net proceeds that we will receive.
DIVIDEND POLICY
We previously paid the holders of our 1993 Series 1 Preferred Stock
cumulative cash dividends. On March 31, 1999, each share of preferred stock was
converted into shares of our common stock. As a result, after March 31, 1999,
we have no shares of preferred stock outstanding and have no obligation to pay
any further dividends on those shares.
We currently intend to retain any earnings for use in developing and growing
our business and do not anticipate paying any cash dividends on our common
stock in the foreseeable future. Any determination to pay dividends in the
future will be at the discretion of our board of directors and will be
dependent on our results of operations, financial condition, contractual
restrictions, restrictions imposed by applicable law and other factors deemed
relevant by the board of directors.
16
<PAGE>
PRICE RANGE OF COMMON STOCK
Our common stock is traded on the Nasdaq National Market under the symbol
"IMCO." The following table sets forth, for the periods indicated, the high and
low sale prices of our common stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
Price Range
of Common
Stock
-------------
High Low
------ ------
<S> <C> <C>
Year Ended April 30, 1998:
First Quarter................................................ $10.00 $ 6.88
Second Quarter............................................... 12.63 9.63
Third Quarter................................................ 12.38 9.25
Fourth Quarter............................................... 13.13 11.25
Year Ended April 30, 1999:
First Quarter................................................ $17.38 $12.50
Second Quarter............................................... 17.50 12.00
Third Quarter................................................ 17.00 12.25
Fourth Quarter............................................... 15.00 8.50
Year Ended April 30, 2000:
First Quarter................................................ $12.75 $ 8.50
Second Quarter............................................... 14.38 9.75
Third Quarter................................................ 30.50 12.44
Fourth Quarter (through April 4, 2000)....................... 52.00 28.88
</TABLE>
On April 4, 2000, the reported last sale price for the common stock as
reported by the Nasdaq National Market was $29.594 per share. As of April 5,
2000, there were 444 stockholders of record of the common stock.
17
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of January 31, 2000,
(i) on an actual basis and (ii) as adjusted to reflect our sale of 1,625,000
shares of common stock offered hereby at an assumed public offering price of
$29.594 per share and our application of the estimated net proceeds therefrom,
after deducting underwriting discounts and commissions and estimated offering
expenses. See "Use of Proceeds." The capitalization information set forth in
the table below is qualified by the more detailed Consolidated Financial
Statements and Notes thereto included elsewhere in this prospectus and should
be read in conjunction with such Consolidated Financial Statements and Notes.
<TABLE>
<CAPTION>
January 31, 2000
--------------------
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Long-term borrowings, less current portion............. $21,084 $ --
------- -------
Stockholders' equity:
Common stock, $.001 par value; 25,000,000 shares
authorized, shares outstanding actual;
8,562,207 shares outstanding as adjusted............ 9 10
Capital in excess of par value......................... 46,294 90,652
Shares held in trust................................... (101) (101)
Retained earnings...................................... 1,451 1,451
Foreign currency translation adjustment................ (1,990) (1,990)
------- -------
Total stockholders' equity........................... 45,663 90,024
------- -------
Total capitalization............................... $66,747 $90,024
======= =======
</TABLE>
This table excludes, as of January 31, 2000:
. 1,350,534 shares of our common stock issuable upon exercise of stock
options outstanding under our stock option plans at a weighted average
exercise price of $8.69 per share.
. 28,892 shares reserved for issuance under our stock option plans.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected financial data for the five years ended April 30,
1999 are derived from our audited consolidated financial statements. The
financial data for the nine month periods ended January 31, 1999 and 2000 are
derived from our unaudited consolidated financial statements. The unaudited
consolidated financial statements include all adjustments, consisting of normal
recurring accruals, which we consider necessary for a fair presentation of the
financial position and the results of operations for these periods. Operating
results for the nine months ended January 31, 2000 are not necessarily
indicative of the results that may be expected for the entire year ending April
30, 2000. This data should be read in conjunction with the consolidated
financial statements, related notes and other financial information included
herein.
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended April 30, January 31,
--------------------------------------- -----------------
1995 1996 1997 1998 1999 1999 2000
------- ------- ------- ------- ------- -------- --------
(UNAUDITED)
(in thousands, except for per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net revenue............. $45,231 $51,575 $61,828 $71,083 $86,826 $ 60,063 $ 83,713
Research and development
expense................ 6,197 7,171 7,725 12,062 11,612 8,560 10,542
Operating income........ 3,540 4,132 4,850 7,118 6,903 6,532 6,848
Interest expense........ 292 504 1,100 935 1,170 905 1,138
Gain on sale of
subsidiary............. -- -- -- -- 2,169 2,169 --
Net income(1)(2)........ $ 2,967 $ 4,671 $ 3,225 $ 4,865 $ 6,331 $ 5,891 $ 3,849
Dividends on preferred
stock.................. 548 610 581 595 531 439 --
Net income applicable to
common stock........... 2,420 4,061 2,644 4,270 5,800 5,452 3,849
Net income per
share(2)(3):
Basic.................. $ 0.43 $ 0.72 $ 0.46 $ 0.67 $ 0.80 $ 0.76 $ 0.45
Diluted................ $ 0.39 $ 0.64 $ 0.43 $ 0.60 $ 0.71 $ 0.65 $ 0.43
Number of shares used in
per share
computation(3)(4):
Basic.................. 5,620 5,648 5,722 6,334 7,293 7,178 8,463
Diluted................ 6,272 7,300 6,131 8,155 8,976 9,009 8,948
Balance Sheet Data:
Total current assets.... $13,626 $24,578 $29,904 $38,817 $52,120 $ 46,941 $ 65,930
Total assets............ 22,109 37,728 47,113 58,178 73,562 67,231 87,271
Total current
liabilities............ 5,111 9,266 11,656 11,417 16,892 13,916 18,253
Long-term obligations... 1,855 8,823 12,721 11,387 13,894 11,435 21,650
Stockholders' equity.... 15,143 19,256 22,063 34,305 41,449 40,615 45,663
</TABLE>
- --------
(1) Fiscal year 1996 includes an income tax benefit of $1.7 million, due to
the reduction in the valuation allowance for deferred tax assets
(equivalent to $0.30 per basic share and $0.26 per diluted share) and
$318,000 net income from our European subsidiary that was acquired in
October 1995.
(2) Includes gain on sale of 49% interest in IMPCO BV to BERU
Aktiengesellschaft during fiscal year 1999. We recorded a pre-tax gain of
$2.2 million and an after-tax gain of $1.8 million or $0.20 per diluted
share.
(3) During fiscal years 1996 and 1998, shares assumed to be issued upon
conversion of our preferred stock were included in the calculation since
it resulted in a reportable dilution. During fiscal year 1999, all of our
preferred stock was converted to common stock and the diluted earnings per
share was calculated as though the conversion occurred at the beginning of
fiscal year 1999.
(4) See Note 1 of Notes to Consolidated Financial Statements included elsewhere
in this prospectus for an explanation of the method used to determine the
number of shares used to compute net income per share.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read this discussion together with the financial statements and
other financial information included in this prospectus.
Overview
We are a global supplier of fuel delivery, storage and electronic control
systems for internal combustion engines and fuel cells. Historically, most of
our revenues have been derived from the sale of these products that enable
traditional internal combustion engines to run on clean burning alternative
fuels such as propane and natural gas instead of gasoline. Our future goal is
to commercialize systems that will provide delivery, storage and electronic
controls for fuel cells.
We classify our business interests into three operating segments: Automotive
OEM division, Gaseous Fuel Products division and International Operations. The
Automotive OEM division generates revenues through the sale of fuel delivery,
storage and electronic control systems to OEMs, primarily General Motors and
the installation of our products into OEM vehicles. The division also generates
contract revenue by providing engineering design and support to the OEMs so
that our fuel system will fit into a variety of their vehicles as they upgrade
their models each year. The Gaseous Fuel Products division sells products
including parts and conversion systems to OEMs and the aftermarket. Our
International Operations in Australia, Europe, Japan and Mexico provide
distribution for our products, predominantly from our Gaseous Fuel Products
division and some product assembly.
We will require significant research and development expenditures over the
next several years in order to commercialize our products for fuel cell
applications. We will also require significant capital expenditures to
construct additional manufacturing and assembly capacity required to support
the production of our products.
We recognize revenue for product sales when products are shipped and title
is transferred. Contract revenues are recorded based on the percentage of
completion method. Corporate expenses represents a sub-category of selling,
general and administrative expense. Corporate expenses consist of general and
administrative expense incurred at the corporate level and includes the
amortization of goodwill and other intangible assets. Intersegment eliminations
are primarily the result of intercompany sales from our Gaseous Fuel Products
division to our International Operations segment. End markets for our products
include the transportation, material handling, and industrial and power
generation industries.
All research and development is expensed as incurred. Research and
development expense includes both customer funded research and development and
company sponsored research and development. Corporate research and development
is a sub-category of research and development expense and represents company
sponsored research and development that is not allocated to any of our
operating segments. Customer funded research and development consists primarily
of expenses associated with contract revenue. These expenses include
applications development costs in the Automotive OEM division funded under
customer contracts.
Acquisitions
A portion of our growth over the past three years, particularly with regard
to our international operations, has resulted from acquisitions in Australia,
Canada, Europe, Japan, Mexico, the United States and the formation of a
European based joint venture. We have accounted for each of these acquisitions
under the purchase method of accounting.
Australia. In July 1996, we acquired certain assets of Ateco Automotive Pty.
Limited, including a 50.0% ownership interest in Gas Parts (NSW) Pty., for a
purchase price of approximately $6.5 million. Ateco is an Australian based
company that provides conversion services to OEMs. Gas Parts is an Australian
based distributor of aftermarket gaseous fuels conversion equipment. In January
1998, we acquired the remaining
20
<PAGE>
50.0% ownership interest in Gas Parts. The consolidated revenues of our
Australian subsidiary, which we refer to as IMPCO Australia, totaled
approximately $7.8 million for ten months of operations in fiscal year 1997,
$6.9 million in fiscal year 1998 and $5.4 million in fiscal year 1999.
Mexico. In December 1997, we purchased certain manufacturing equipment and
inventory of the Algas Carburetion division of PGI International at a purchase
price of approximately $2.4 million. Prior to its acquisition, the Algas
Carburetion division manufactured and sold carburetion equipment for gaseous
fuels. On the same day, we acquired a 90.0% interest in Industrias Mexicanas de
Productos de Combustibles, S. de R.L. de C.V., a Mexico City based distributor
of the Algas Carburetion division products. The purchase price was $961,000. We
combined these interests to form our Mexican subsidiary, Groupo I.M.P.C.O.
Mexicano, S. de R.L. de C.V. Our Mexican subsidiary had revenues of
approximately $823,000 for five months of operations in fiscal year 1998 and
$2.7 million in fiscal year 1999.
Canada. In December 1997, we purchased from the bankruptcy trustee of EDO
Canada, Ltd. certain development, testing, quality control and manufacturing
equipment used for the manufacture of storage tanks for compressed natural gas.
The purchase price was $790,000. Since the acquisition, we have relocated this
equipment to our Irvine, California facility.
Europe. In May 1998, we acquired the remaining 49.0% interest in IMPCO
Technologies, B.V, a European distributor of our products. The purchase price
was $692,000. On January 28, 1999, we sold a 49.0% interest in IMPCO B.V. to
BERU Aktiengesellschaft, an international OEM and aftermarket supplier of
diesel and automotive engine components and systems, for $3.5 million in cash.
We recorded a pre-tax gain of $2.2 million and an after-tax gain of $1.8
million, or $0.20 per diluted share. We operate the new company as IMPCO-BERU
Technologies, B.V. Revenues of this majority owned subsidiary were
approximately $9.2 million in fiscal year 1997, $11.6 million in fiscal year
1998 and $12.9 million in fiscal year 1999.
United States. In December 1998, we acquired certain assets of the Crusader
Engine division of Thermo Power Corporation, a subsidiary of Thermo Power
Electron Corporation, for approximately $3.9 million. The Crusader Engine
division, which is now our Industrial Engine Systems business, provides engine
dressing and related devices for material handling, irrigation and other
industrial engines. Engine dressing involves the acquisition of basic engine
mechanical parts from an OEM and adding fuel handling and other parts to make
the engine fully functional. We are amortizing goodwill of approximately
$662,000 on the straight-line method over 20 years. Tangible net assets
acquired consisted of $2.5 million in inventory and $718,000 in fixed assets.
Our Industrial Engines Systems business had revenues of approximately $3.2
million for the five months of operations in fiscal year 1999.
Japan. In March 1999, we acquired certain assets of the alternative fuels
division of Mikuni Corporation for approximately (Yen)158,629,000 (US $1.3
million). The alternative fuels division, based in Fukuoka, Japan, is a
distributor of alternative fuels products and systems throughout Asia, with a
focus on the Japanese market. Mikuni had distributed our products in Japan
since 1994. We are amortizing goodwill of approximately (Yen)113,016,000 (US
$944,000) on the straight-line method over 20 years. The tangible net assets
acquired consisted of $362,000 in inventory and $19,000 in fixed and other
assets. We operate the new company as Impco-Japan KK. Revenues for the one
month of operation in fiscal year 1999 were approximately $178,000.
21
<PAGE>
Results of Operations
Nine Months Ended January 31, 1999 and 2000
<TABLE>
<CAPTION>
Operating
Revenues Income (Loss)
------------------- ------------------
Nine Months Ended Nine Months Ended
January 31, January 31,
------------------- ------------------
1999 2000 1999 2000
-------- --------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
Automotive OEM Division........... $ 16,857 $ 15,429 $ 1,667 $ (1,531)
Gaseous Fuel Products Division.... 36,292 58,211 10,149 15,676
International Operations.......... 15,882 21,863 782 2,351
Corporate Expenses (1)............ -- -- (3,993) (5,099)
Corporate Research and Development
(1).............................. -- -- (2,097) (4,266)
Intersegment Elimination.......... (8,968) (11,790) 24 (283)
-------- --------- -------- --------
Total........................... $ 60,063 $ 83,713 $ 6,532 $ 6,848
======== ========= ======== ========
</TABLE>
- --------
(1) Represents corporate expenses and company sponsored research and
development not allocated to any of the operating segments. Other research
and development consists primarily of customer funded expenditures in the
Automotive OEM division.
Net revenue increased $23.6 million or 39.4% from $60.1 million for the nine
months ended January 31, 1999 to $83.7 million for the nine months ended
January 31, 2000. This increase was primarily due to strong aftermarket sales
in all end use applications and a 23.1% increase in General Motors product
sales. The following table sets forth our product revenues by application
across all business segments:
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
-----------------
1999 2000
-------- --------
(in thousands)
<S> <C> <C>
Motor vehicle products....................................... $ 20,927 $ 34,892
Forklifts and other material handling equipment.............. 21,491 29,038
Small portable to large stationary engines................... 7,714 12,829
-------- --------
Total product sales........................................ $ 50,132 $ 76,759
======== ========
</TABLE>
Automotive OEM Division. Net revenues decreased $1.4 million or 8.5% from
$6.9 million for the nine months ended January 31, 1999 to $15.4 million for
the nine months ended January 31, 2000.
Product sales for this division increased $1.6 million or 23.1% from $6.9
million for the nine months ended January 31, 1999 to $8.5 million for the nine
months ended January 31, 2000. During the nine months ended January 31, 2000,
product sales represented 2,071 units as compared to 1,787 units during the
same period of the prior year. Product sales consists of General Motors mid-
size automobiles and pick-up trucks equipped with this division's bi-fuel
compressed natural gas fuel system and dedicated liquid propane gas kits under
the Teaming Agreement with General Motors for their medium duty trucks. We
expect product sales to be higher in the future as additional General Motors
platforms and model years are introduced and other automotive OEM platforms are
obtained.
Contract revenue for this division decreased $3.1 million or 30.3% from
$10.0 million for the nine months ended January 31, 1999 to $6.9 million for
the nine months ended January 31, 2000. This decrease was primarily a result of
lower contract levels attributable to our ability to transfer knowledge between
prior model year and current model year contracts and, accordingly, lower
margins on the current year contracts. We anticipate, based on new contracts
negotiated with General Motors and expected levels of contract completion in
fiscal year 2000, that contract revenue in fiscal year 2000 will be lower than
levels experienced during fiscal year 1999. Additionally, profit levels
expected on the contracts during fiscal year 2000 will be substantially lower
than levels realized during fiscal year 1999.
22
<PAGE>
Operating income (losses) in the division decreased $3.2 million or 191.8%
from $1.7 million in the nine months ended 1999 to ($1.5) million for the nine
months ended January 31, 2000. This decrease was a result of lower contract
revenues, primarily from the General Motors program, and associated higher
product application development costs for new products being commercialized.
Product application development expense is primarily for system development and
application engineering of our products under the Teaming Agreement, other
funded contract work with state and federal agencies, and for company funded
product and component application development work to develop business with
other automotive OEMs. For the nine months ended January 31, 2000, expense
directly related to customer funded product application development work was
approximately $4.2 million as compared to $4.9 million in the same period of
the prior fiscal year. We anticipate higher operating losses in this division
in fiscal year 2000, primarily due to lower profits on General Motors contracts
and higher company funded application development work.
Gross margins on General Motors product sales were higher in the first nine
months ended April 30, 2000 as compared to the same period in fiscal year 1999,
primarily due to lower raw material costs and lower per unit overhead costs. We
anticipate higher gross margins on products in future model years, primarily
due to engineering design and lower per unit overhead costs.
Gaseous Fuel Products Division. Net revenues in this division increased
$21.9 million or 60.4% from $36.3 million for the nine months ended January 31,
1999 to $58.2 million for the nine months ended January 31, 2000. This increase
was primarily a result of the December 1998 acquisition of the Industrial
Engine Systems business, an increase in small engine sales and an increase in
product sales to Mexico. The price differential between gasoline and propane as
well as our strengthening relations with Mexican governmental agencies have
positively impacted the demand for the aftermarket automotive conversions in
Mexico. We anticipate that overall revenues generated by the Gaseous Fuel
Products division in fiscal year 2000 will be higher than fiscal year 1999,
primarily due to a full year reporting sales by our Industrial Engine Systems
business, the expanding revenue base from value added system sales, increased
motor vehicles sales in Mexico due to the expected growth of aftermarket
automotive conversions, and increased small engine sales and our marketing
efforts to expand market share.
Operating income in this division increased approximately $5.5 million or
54.5% from $10.1 million for the nine months ended January 31, 1999 to $15.7
million for the nine months ended January 31, 2000 as compared to the same
period in the prior fiscal year. This increase was primarily attributable to
higher revenues and gross profit on the Gaseous Fuel Products division product
sales due to increased volumes. This increase was partially offset by
additional administrative expenses resulting from the Industrial Engine Systems
business acquisition. We anticipate that divisional operating income will be
higher in fiscal year 2000 as a result of higher revenues and gross profit
associated with increased volumes partially offset by increased expenses
relating to a full year reporting of the Industrial Engine Systems business and
expenses relating to marketing efforts. Additionally, we anticipate that
operating margins will be affected by lower gross margins at the Industrial
Engine Systems business as these revenues become a larger segment of the
Gaseous Fuel Products division. However, as the Industrial Engine Systems
business increases, we expect overall gross profit will increase.
International Operations. Net revenues in this division increased by
approximately $6.0 million or 37.7% from $15.9 million for the nine months
ended January 31, 1999 to $21.9 million for the nine months ended January 31,
2000. This increase was primarily a result of the March 1999 acquisition of
IMPCO Japan, which resulted in increased revenues of approximately $2.3 million
in the nine months of fiscal year 2000. During the nine months ended January
31, 2000, this segment also realized increased revenues of $2.6 million from
our Mexico operations. For the nine months ended January 31, 2000, revenues for
our International Operations segment would have increased an additional
$152,000, if not for the strengthening of the U.S. Dollar. A strong U.S. Dollar
negatively impacts the conversion of foreign currency denominated sales. We
anticipate that revenues for this segment during fiscal year 2000 will be
higher than fiscal year 1999 as a result of the acquisition of IMPCO Japan and
higher motor vehicle sales in Mexico. The price differential between gasoline
and propane, as well as our strengthening relations with Mexican governmental
agencies is expected to positively impact the demand for the aftermarket
automotive conversions in Mexico.
23
<PAGE>
Operating income for this division increased $1.6 million or 200.6% from
$782,000 for the nine months ended January 31, 1999 to $2.4 million for the
nine months ended January 31, 2000. This increase was primarily due to the
addition of our Japan operations. We anticipate that operating income levels in
our International Operations segment will be higher in fiscal year 2000 than in
the prior year due to the addition of the Japan operations and higher revenues
from Mexico.
Corporate Expenses. Corporate expenses consists of general and
administrative expenses at the corporate level to support us and our divisions
in areas such as executive management, finance, human resources, management
information systems, legal services and investor relations. Additionally,
amortization of goodwill and other intangible assets is recorded as a corporate
expense. Corporate expenses increased $1.1 million or 27.7% from $4.0 million
for the nine months ended January 31, 1999 to $5.1 million for the nine months
ended January 31, 2000. The increase in corporate expenses was primarily due to
the incremental costs incurred in the creation of our Stockholder Protection
Rights Agreement, legal expenses and amortization of goodwill related to the
Japan and the Crusader acquisitions. We anticipate that corporate expenses
during fiscal year 2000 will be higher than levels experienced during fiscal
year 1999.
Corporate Research and Development. Corporate research and development
provides engineering, design and research and development support to us and our
operating units and develops all new products supporting the operating
divisions' needs. Corporate research and development increased $2.2 million or
103.4% from $2.1 million for the nine months ended January 31, 1999 to $4.3
million for the nine months ended January 31, 2000. This increase is primarily
due to increased efforts relating to the development and commercialization of
fuel metering, storage and fuel systems for fuel cells. We believe our future
success depends on our ability to design, develop and market new products that
interface successfully with new engine electronic technology, and which meet
mandated emission standards. We also believe that there is a significant
opportunity for us to participate in the emerging fuel cell market. With the
emergence of fuel cell technology and the interest being shown by the
automotive industry, we have decided to accelerate and expand both research and
development expenditures for fuel storage, fuel metering and electronic
controls for fuel cell applications. Consequently, we anticipate that corporate
research and development during fiscal year 2000 will be significantly higher
than in fiscal year 1999.
Interest Expense. Interest expense increased $234,000 or 25.8% from $905,000
for the nine months ended January 31, 1999 to $1.1 million for the nine months
ended January 31, 2000. This increase was attributable to additional borrowings
partially offset by lower interest rates on our current credit facility with
Bank of America. We anticipate that interest expense for fiscal year 2000 will
be higher than levels experienced during fiscal year 1999, primarily due to
increased borrowings related to our acquisitions.
Provision For Income Taxes. The estimated effective annual tax rate of 26.0%
for fiscal year 2000 is higher than the previous year due to the exhaustion of
federal net operating loss carryforwards during the previous fiscal year. The
current year tax provision includes presumed utilization of estimated research
and development credits of $859,000. At January 31, 2000, net deferred tax
asset was approximately $3.5 million while the net deferred tax liability was
$566,000. We have determined, based on our history of prior operating earnings
and our expectations for the future, that our operating income will more likely
than not be sufficient to recognize fully the net deferred tax assets and that
the estimated effective annual tax rate in the future years will approximate
the statutory rate.
24
<PAGE>
Years Ended April 30, 1998 and 1999
Net revenues and operating income for our business segments for the fiscal
years ended April 30, 1998 and 1999 are as follows:
<TABLE>
<CAPTION>
Operating
Revenues Income (Loss)
----------------- ----------------
Year Ended Year Ended
April 30, April 30,
----------------- ----------------
1998 1999 1998 1999
------- -------- ------- -------
<S> <C> <C> <C> <C>
(in thousands)
Automotive OEM Division............... $12,328 $ 24,469 $(1,451) $ (27)
Gaseous Fuel Products Division........ 48,277 52,632 14,749 14,284
International Operations.............. 19,304 21,188 1,772 1,504
Corporate Expenses (1)................ -- -- (4,996) (5,516)
Corporate Research and
Development (1)...................... -- -- (2,523) (3,053)
Intersegment Elimination.............. (8,826) (11,463) (433) (289)
------- -------- ------- -------
Total............................... $71,083 $ 86,826 $ 7,118 $ 6,903
======= ======== ======= =======
</TABLE>
- --------
(1) Represents corporate expenses and company sponsored research and
development not allocated to any of the operating segments. Other research
and development consists primarily of customer funded expenditures in the
Automotive OEM division.
Net revenue increased $15.7 million or 22.1% from $71.1 million in fiscal
year 1998 to $86.8 million in fiscal year 1999. The Automotive OEM division
accounted for $12.1 million of this increase, of which $9.7 million resulted
from increased OEM motor vehicle product sales. Contract revenues, primarily
from the General Motors Teaming Agreement, increased $2.4 million. Product
sales from the Gaseous Fuel Products division increased by approximately $4.4
million or 9.0% compared to the prior fiscal year. The following table sets
forth our product revenues by application across all business segments:
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
(in thousands)
Motor vehicle products............................... $ 21,870 $ 32,748
Forklifts and other material handling equipment...... 29,493 31,822
Small portable to large stationary engines........... 10,846 11,251
---------- ----------
Total product sales................................ $ 62,209 $ 75,821
========== ==========
During fiscal year 1998 and 1999, our product revenue was generated in the
following geographic regions:
<CAPTION>
Year Ended April 30,
----------------------
1998 1999
---------- ----------
<S> <C> <C>
United States and Canada............................. 57.2% 60.3%
Pacific Rim.......................................... 13.0% 9.0%
Europe............................................... 18.6% 17.1%
Latin America........................................ 11.1% 13.7%
</TABLE>
Automotive OEM Division. Net revenues in this division increased $12.2
million or 98.5% from $12.3 million in fiscal year 1998 to $24.5 million in
fiscal year 1999. This increase was the result of higher motor vehicle direct
OEM product revenue, which increased to $13.5 million from $3.7 million in
fiscal year 1998. This represents an approximate 264.9% increase in General
Motors product revenue. During fiscal year 1999, the General Motors product
revenue represented 3,300 units consisting of mid-size automobiles and pick-up
trucks equipped with this division's bi-fuel compressed natural gas fuel
system, and dedicated liquid
25
<PAGE>
propane gas kits under a Teaming Agreement with General Motors for their medium
duty trucks. During fiscal year 1998, the General Motors product revenue
represented sales of 1,320 units consisting of General Motors pick-up trucks
equipped with this division's bi-fuel natural gas fuel system and dedicated
liquid propane gas kits under a Teaming Agreement with General Motors for their
medium duty trucks.
Contract revenues for this division increased $2.4 million or 27.9% from
$8.6 million in fiscal year 1998 to $11.0 million in fiscal year 1999. This
increase was primarily attributable to the addition of several vehicle
platforms and additional future model years for existing platforms under the
General Motors development contract and development contracts funded by the
Southern California Air Quality Management District. Contract revenue is
principally recognized by the percentage of completion method. Profits expected
to be realized on contracts are based on our estimates of total contract sales
value and costs at completion. These estimates are reviewed and revised
periodically throughout the lives of the contract.
Operating losses for this division decreased $1.4 million or 98.1% from $1.5
million for fiscal year 1998 to $27,000 in fiscal year 1999. This decrease was
primarily due to higher contract revenues, principally from the General Motors
program, and associated lower product application development costs for new
products being commercialized. Product application development expense is
primarily for system development and application engineering of our products
under the General Motors Teaming Agreement and other customer funded contract
research and development work with the Southern California Air Quality
Management District and other agencies, and for company funded product and
component application development work. Research and development expense
directly related to customer funded product application development work
decreased from $7.4 million in fiscal year 1998 to $6.1 million in fiscal year
1999. These decreases are a result of improved productivity resulting from
knowledge transfer over multiple platforms and application of knowledge to non-
General Motors funded contracts. Research and development expense directly
related to company funded product application development work decreased
approximately $200,000 as compared to fiscal year 1998. This decrease is a
result of efficiencies realized in developing new advanced technology and
products.
The decrease in operating losses as a result of higher contract revenues was
nearly offset by lower gross margins on the General Motors product sales,
compared to the prior fiscal year. During fiscal year 1999, the division
experienced negative material usage variances and increased fixed overhead
costs not covered by production volumes for several new start-up OEM programs.
Gaseous Fuel Products Division. Net revenues for this division increased
$4.3 million or 8.9% from $48.3 million in fiscal year 1998 to $52.6 million
for fiscal year 1999. This increase was primarily a result of the current year
addition of the Industrial Engine Systems business, higher revenues from the
small engine market and higher transfer sales to support the increased sales
levels of the subsidiaries. For fiscal year 1999, the increase in the small
engine market resulted from higher demand for small portable engines generators
as consumers and small business prepared for the Year 2000. These increases
were partially offset by lower revenues from the large stationary engine market
where net revenues decreased from $3.3 million in fiscal year 1998 to $2.3
million in fiscal year 1999. This decrease was primarily a result of reduced
demand for large power generation units used in power replacement and
recreational applications and other heavy duty applications, particularly in
Asia.
Operating income for this division decreased $465,000 or 3.2% from $14.7
million in fiscal year 1998 to $14.3 million in fiscal year 1999. This decrease
was primarily due to higher sales and administrative expenses, primarily from
additional marketing and technical support expenses to support the higher
sales. Additionally, this division's company funded product application
development costs increased from $1.3 million in fiscal year 1998 to $1.5
million in fiscal year 1999. These amounts were partially offset by higher
gross profits as a result of higher sales volumes, although the percent margin
decreased from 38.9% to 37.1% as a result of anticipated lower margins realized
on the system sales from IMPCO Europe. Additionally, customer funded research
and development expense decreased by $263,000 in fiscal year 1999.
26
<PAGE>
International Operations. Net revenues for this segment increased $1.9
million or 9.8% from $19.3 million in fiscal year 1998 to $21.2 million in
fiscal year 1999. International Operations revenues would have increased an
additional $1.1 million if not for the strengthening of the U.S. Dollar. A
strong U.S. Dollar negatively impacts the conversion of foreign currency
denominated sales. During fiscal year 1999, we realized increased revenues of
$1.4 million from our European operations, which primarily sells material
handling components. Additionally, our Mexican operations, acquired in December
1997, reported a full year of revenues of $2.7 million compared to $823,000 in
revenues for the five month period in fiscal year 1998. These increases were
partially offset by a $1.4 million decrease in revenues from our Australian
operations which primarily sells motor vehicle components. Without the
strengthening of the U.S. Dollar, revenues from Australian operations would
have decreased to less than half this amount in fiscal year 1999. We believe
the lower product sales from our Australian operations were a result of a
continued general economic slowdown in Asia, a decrease in component sales to
OEMs and unfavorable price differentials between propane and gasoline caused by
the major disruption of natural gas supply in Australia in 1999, which
increased demand for propane for household use and resulted in increased
propane prices.
Operating income for this segment decreased $268,000 or 15.1% from $1.8
million in fiscal year 1998 to $1.5 million in fiscal year 1999, primarily as a
result of lower product margins. Our gross margin on subsidiary based product
sales decreased from 33.6% in fiscal year 1998 to 31.7% during fiscal year
1999. During fiscal year 1999, our gross margin on subsidiary based product
sales decreased as a result of higher material costs at the Australian and
Mexico subsidiaries due to a strengthening U.S. Dollar against those country's
foreign currencies. This decrease also was due to higher material costs at our
European subsidiary as a result of higher transfer pricing between the United
States parent and the subsidiary.
Corporate Expenses. Corporate expenses increased approximately $520,000 or
10.4% from $5.0 million in fiscal 1998 to $5.5 million in fiscal year 1999,
primarily due to increases in administrative personnel and administrative
salaries and benefits to support our growth and international operations and
additional amortization of goodwill from acquisitions.
Corporate Research and Development. Corporate research and development
expense increased approximately $530,000 or 21.0% from $2.5 million in fiscal
year 1998 to $3.0 million in fiscal year 1999. This increase was the result of
additional research and development efforts on the development of fuel storage
technology and other advanced technologies.
Interest Expense. Interest expense increased $235,000 or 25.1% from $935,000
in fiscal year 1998 to $1.2 million in fiscal year 1999 as compared to the
fiscal year 1998. This increase was primarily attributable to higher borrowings
on our lines of credit as compared to the prior year and as a result of higher
long-term borrowings to fund the Algas Carburetion acquisition in December
1997, the purchase of the remaining 49.0% interest of IMPCO BV in May 1998, the
purchase of our Industrial Engine Systems business in December 1998, and the
purchase of IMPCO Japan in March 1999. The higher interest expense was
partially offset by lower interest rates on our credit facility with Bank of
America and prepayments on certain long-term borrowings from funds received
from the exercise of our common stock purchase warrants during the third
quarter of fiscal year 1998.
Provision for Income Taxes. Our effective income tax rate was 14.7% for
fiscal year 1998 and 19.0% for fiscal year 1999. The provision for income taxes
consists primarily of federal, state and foreign taxes which are computed using
statutory rates. The effective tax rate represents the statutory income tax
rate reduced by the use of net operating loss carryforwards, research and
development tax credits and other items. During fiscal year 1999, the deferred
tax asset increased by $1.0 million or 65.3% to $2.6 million at April 30, 1999
due to research and development credits. For federal income tax purposes, we
use all net operating loss carryforwards at the end of fiscal year 1998.
27
<PAGE>
Years Ended April 30, 1997 and 1998
Revenues and operating income for our business segments for the fiscal
years ended April 30, 1997 and 1998 are as follows:
<TABLE>
<CAPTION>
Operating
Revenues Income (Loss)
---------------- ----------------
Year Ended Year Ended
April 30, April 30,
---------------- ----------------
1997 1998 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
(in thousands)
Automotive OEM Division................ $ 6,154 $12,328 $(1,801) $(1,451)
Gaseous Fuel Products Division......... 43,010 48,277 11,093 14,749
International Operations .............. 17,018 19,304 1,266 1,772
Corporate Expenses (1)................. -- -- (4,315) (4,996)
Corporate Research and
Development (1)....................... -- -- (1,314) (2,523)
Intersegment Elimination............... (4,354) (8,826) (79) (433)
------- ------- ------- -------
Total................................ $61,828 $71,083 $ 4,850 $ 7,118
======= ======= ======= =======
</TABLE>
- --------
(1) Represents corporate expenses and company funded research and development
expense not allocated to any of the operating segments. Other research
and development consists primarily of customer funded expenditures in the
automotive OEM division.
Net revenue for fiscal year 1998 increased $9.3 million or 15.0% from $61.8
million for fiscal 1997, as compared to $71.1 million in fiscal year 1998.
Contract revenues, primarily from the General Motors program, represented
approximately $5.5 million of this increase. Product sales for fiscal year
1998 increased by approximately $3.8 million or 6.5%, which was unfavorably
reduced by $2.3 million or 4.0%, as a result of a strong U.S. Dollar as
compared to foreign currencies. The following table sets forth our product
revenues by application across all business segments:
<TABLE>
<CAPTION>
Year Ended April 30,
----------------------
1997 1998
---------- ----------
(in thousands)
<S> <C> <C>
Motor vehicle products............................... $ 23,784 $ 21,870
Forklifts and other material handling equipment...... 23,291 29,493
Small portable to large stationary engines........... 11,362 10,846
---------- ----------
Total product sales................................ $ 58,437 $ 62,209
========== ==========
During fiscal year 1997 and 1998, our product revenue was generated in the
following geographic regions:
<CAPTION>
Year Ended April 30,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
United States and Canada............................. 66.3% 57.3%
Pacific Rim.......................................... 11.3% 13.0%
Europe............................................... 11.8% 18.6%
Latin America........................................ 10.6% 11.1%
</TABLE>
Automotive OEM Division. Net revenues for this division increased $6.1
million or 100.3% from $6.2 million for fiscal year 1997 to $12.3 million for
fiscal 1998. This increase was the result of higher contract revenues,
primarily from the General Motors program, and higher General Motors product
revenues. Contract revenues increased $5.4 million or 161.6% from fiscal year
1998 to fiscal year 1997. This increase was primarily due to the addition of
several gaseous fuel vehicle platforms for development under the contract with
General Motors and to development contracts obtained from various federal and
state agencies.
28
<PAGE>
During fiscal year 1998, revenue attributable to equipping motor vehicles
with this division's systems increased $798,000 or 27.3% as compared to fiscal
year 1997. This revenue represented sales of 440 mid-year 1997 General Motors
pick-up trucks equipped with this division's bi-fuel natural gas fuel system
and sales of 880 dedicated liquid propane gas kits under our Teaming Agreement
with General Motors for their medium duty trucks. During fiscal year 1997, a
portion of the revenue attributable to equipping vehicles for aftermarket fleet
use in fiscal year 1997 resulted from a program with Ford Motor Company in
which this division's bi-fuel propane system was used in the 1996 model year F-
150 and F-250 pick-up trucks. The Ford program was materially completed during
the first quarter of fiscal year 1997 and is now serviced by the Gaseous Fuel
Products division.
Operating losses for this division decreased $350,000 or 19.4% from $1.8
million in fiscal year 1997 to $1.5 million for fiscal year 1998. This decrease
was primarily the result of higher contract revenues, but nearly completely
offset by higher research and development expenses and higher general and
administrative expenses. Customer funded research and development expense
increased from $3.0 million in fiscal year 1997 to $7.4 million in fiscal year
1998. The increase in customer funded research and development was a result of
additional gaseous fuel vehicle platforms for development under the contract
with General Motors and development contracts obtained from various federal and
state agencies. This division's company funded research and development expense
decreased by $1.3 million in fiscal year 1998 or 71.9% as compared to fiscal
year 1997 as a result of efforts placed on the customer funded research and
development work.
Gaseous Fuel Products Division. Net revenues for this division increased
$5.3 million or 12.2% from $43.0 million in fiscal year 1997 to $48.3 million
in fiscal year 1998. This increase was primarily due to higher material
handling related revenues, both domestically and internationally. The increase
in domestic and international revenues was primarily a result of the general
upswing in economic conditions, which increases the demand for forklift related
equipment. Additionally, net revenues from large industrial engines increased
to $3.3 million in fiscal year 1998 as compared to $2.6 million in fiscal year
1997. This increase was primarily a result of higher demand for large power
generation units used in power replacement and recreational applications. Also,
this division generated increased contract revenues in fiscal year 1998 under
the Varity Perkins development contract. These increases in revenues were
partially offset by decreases in revenues from the motor vehicle product and
small portable engine markets. The lower motor vehicle related revenues
resulted from lower product sales for aftermarket conversions in the United
States market due to new regulatory requirements shifting the automotive
conversion market to direct OEM installations. The reduction in small portable
engine revenues was related to new Environmental Protection Agency regulations
affecting the small engine aftermarket.
Operating income increased $3.7 million or 33.0% from $11.1 million in
fiscal year 1997 to $14.8 million in fiscal year 1998. This increase was
primarily realized from higher gross margins as a result of higher sales
volumes and lower material costs. The increase in gross margins was partially
offset by higher research and development expenses in fiscal year 1998.
Customer funded research and development expense increased from $157,000 in
fiscal year 1997 to $263,000 in fiscal year 1998. This division's company
funded research and development expense also increased to $1.3 million in
fiscal year 1998.
International Operations. Net revenues increased $2.3 million or 13.4% from
$17.0 million in fiscal year 1997 to $19.3 million in fiscal year 1998. During
fiscal year 1998, we realized increased revenues of $2.4 million from our
European operations, which primarily sells material handling components.
Without the strengthening U.S. Dollar, revenues from European operations would
have increased $3.9 million for fiscal year 1998. Additionally, our Mexican
operations, acquired in December 1997, added $823,000 in revenues for fiscal
year 1998. These increases in revenue were partially offset by $922,000 in
lower product sales from the Australian operation as a result of a general
economic slowdown and unfavorable price differentials between petroleum and
propane which unfavorably impacted our component sales.
Operating income increased $506,000 or 40.0% from $1.3 million in fiscal
year 1997 to $1.8 million in fiscal year 1998, primarily as a result of our
increased sales by our European operations. The increase in operating income
for the European operations is primarily due to additional gross profit from
higher sales volumes.
29
<PAGE>
Corporate Expenses. Corporate expenses increased $681,000 or 15.8% from $4.3
million in fiscal year 1997 to $5.0 million in fiscal year 1998, primarily due
to legal expenses, incentive compensation and increases in administrative
salaries.
Corporate Research and Development. Corporate research and development
increased $1.2 million or 92.0% from $1.3 million in fiscal year 1997 to $2.5
million in fiscal year 1998, primarily as a result of the start-up of new
projects relating to the development of next generation technologies. We
believe our future success depends on our ability to design, develop and market
new products that interface successfully with new engine electronic technology,
and which meet mandated emission standards and advanced fuel storage
technology.
Interest Expense. Interest expense decreased by approximately $166,000 or
15.1% from $1.1 million in fiscal year 1997 to $935,000 in fiscal year 1998.
This decrease was attributable to lower borrowings on our line of credit as
compared to the prior year and prepayments on long-term borrowings primarily
from funds received from our redemption of our common stock purchase warrants.
Provision for Income Taxes. Our effective income tax rate was 7.0% for
fiscal year 1997 and 14.7% for fiscal year 1998. The provision for income taxes
consist primarily of federal, state and foreign taxes, which are computed using
statutory rates. The effective tax rate represents the statutory income tax
rate reduced by the use of net operating loss carryforwards, research and
development tax credits and other items. During fiscal year 1997, the deferred
tax asset increased by $273,000 to $1.9 million at April 30, 1997. During
fiscal year 1998, the deferred tax asset decreased $373,000 to $1.6 million at
April 30, 1998. For federal income tax purposes, we have used all net operating
loss carryforwards as of the end of fiscal year 1998.
Liquidity and Capital Resources
We use cash generated from our operations and bank financing to fund capital
expenditures and research and development, as well as invest in and operate our
existing operations and new businesses. While these sources of funds have been
sufficient in the past, we currently anticipate that we will require additional
sources of financing in order to capitalize on opportunities that we believe to
exist in the emerging fuel cell market. These additional sources of financing
will include the proceeds of this offering and may include bank borrowings or
public or private offerings of equity or debt securities.
The ratio of current assets to current liabilities was 3.6:1 at January 31,
2000 and 3.1:1 at April 30, 1999. During fiscal year 2000, the total amount of
working capital increased by approximately $12.4 million to $47.7 million at
January 31, 2000. Net cash used in operating activities was $4.8 million for
the nine months ended January 31, 2000 as compared to net cash provided by
operating activities of $3.2 million for the same period in the previous year.
The increase in cash used in operating activities during the current period
resulted primarily from an increase in inventory and an increase in accounts
receivable and accrued expenses. The increase in inventory was primarily due to
inventory build in anticipation of the relocation of a portion of our
Automotive OEM division's manufacturing operations from Irvine, California to
Guaymas, Mexico and increased sales volume across all of our operating
segments. The increase in accounts receivable is primarily due to the increased
billings associated with higher sales levels. At January 31, 2000, accounts
receivable as a percent of net revenue was comparable to the same period in
prior fiscal year.
Net cash used in investing activities for the nine months ended January 31,
2000 was approximately $2.4 million, a decrease of approximately $3.4 million
from the same period in the previous year. This decrease is primarily a result
of the previous year's third quarter acquisition of the Industrial Engine
Systems business for approximately $3.9 million and the previous year's first
quarter purchase of the remaining 49.0% interest in IMPCO BV, which resulted in
a net use of cash of approximately $692,000.
Net cash provided by financing activities for the nine months ended January
31, 2000 was approximately $8.9 million. For the nine months ended January 31,
2000, we increased our borrowing under the operating lines of credit by
approximately $10.4 million, primarily for working capital. During the same
period, we paid approximately $1.9 million on our term loans.
30
<PAGE>
We have a $20.0 million revolving line of credit, $3.0 million revolving
line of credit for IMPCO Mexicano, $6.0 million non-revolving line of credit
for future acquisitions, and $3.0 million non-revolving line of credit for
future capital expenditures with Bank of America. At January 31, 1999,
approximately $13.0 million, $643,000 and $1.7 million were outstanding under
the revolving line of credit, the revolving line of credit for IMPCO Mexicano
and the capital expenditures facility, respectively. Our revolving lines of
credit expire on August 31, 2001. While our acquisition facility and the
capital lease facility expire on August 31, 2000, we have the option to convert
each of them into a term loan payable in five years. In addition, our
subsidiary in the Netherlands has a fl. 3,000,000 (US $1.4 million at February
1996) credit facility with Mees Pierson, a financial institution in the
Netherlands. At January 31, 2000, there was no outstanding balance under this
credit facility. Our subsidiary in Japan has a (Yen)60,000,000 (US $559,000 at
March 1999) revolving term loan facility with the Hong Kong and Shanghai
Banking Corporation Ltd., Osaka Branch. At January 31, 2000, there was an
outstanding loan balance of (Yen)50,000,000 (US $466,000) on this term loan.
Derivative Financial Instruments
We use derivative financial instruments for the purpose of reducing our
exposure to adverse fluctuations in interest and foreign exchange rates. While
these hedging instruments are subject to fluctuations in value, such
fluctuations are generally offset by the value of the underlying exposures
being hedged. We are not a party to leveraged derivatives and do not hold or
issue financial instruments for speculative purposes.
Foreign Currency Management. The results and financial condition of our
international operations are affected by changes in exchange rates between
certain foreign currencies and the U.S. Dollar. Our exposure to fluctuations in
currency exchange rates has increased as a result of the growth of our
international subsidiaries. The functional currency for all of our
international subsidiaries is the local currency of the subsidiary. An increase
in the value of the U.S. Dollar increases the costs incurred by our
subsidiaries because most of our international subsidiaries' inventory
purchases are U.S. Dollar denominated. We monitor this risk and attempt to
minimize the exposure through forward currency contracts and the management of
cash disbursements in local currencies. At January 31, 2000, we had currency
forward contracts protecting US $382,000 in inventory purchases. At January 31,
2000, the fair value of foreign currency forward contracts was approximately US
$14,000. We seek to manage our foreign currency economic risk by minimizing our
U.S. Dollar investment in foreign operations using foreign currency term-loans
to finance the operations of our foreign subsidiaries.
Interest Rate Management. We use interest rate swap agreements with Bank of
America to manage our exposure to interest rate changes and to stabilize the
cost of borrowed funds. When this type of agreement is executed, the swap is
linked to a specific debt instrument. At January 31, 2000, we had approximately
$4.1 million outstanding under fixed interest rate agreements at a weighted-
average fixed interest rate of 7.94%. Absent these fixed rate agreements, the
weighted-average variable rate for this debt at January 31, 2000 would have
been 7.85%. At January 31, 2000, the fair value of interest rate swap
agreements approximated carrying value.
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<PAGE>
Debt Obligations. The following table summarizes our debt obligations at
April 30, 1999. The interest rates represent weighted average rates, with the
period end rate used for the variable rate debt obligations. The fair value of
the debt obligations approximated the recorded value as of April 30, 1999.
<TABLE>
<CAPTION>
Fair
Value
2000 2001 2002 2003 2004 Thereafter Total 4/30/99
----- ---- ----- ----- ----- ---------- ----- -------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long term debt
denominated in
US dollars:
Line of credit.......... $ -- $ 5.4 $ -- $ -- $ -- $ -- $5.4 $5.4
Term loans, including
current portion:
Variable rate......... $ 1.9 $ 1.6 $ 0.8 $ 0.5 -- -- $4.8 $4.8
Average interest
rate................. 6.6% 6.6% 6.7% 6.7% -- -- -- --
Long term debt
denominated in
foreign currencies:
Dutch Guilders
Variable rate......... $ 0.3 $ 0.3 $ 0.3 $ 0.3 $ 0.3 $ 0.2 $1.7 $1.7
Average interest
rate................. 4.3% 4.3% 4.3% 4.3% 4.3% 4.3% -- --
Mexican Peso
Variable rate......... $ -- $ 0.1 $ -- $ -- $ -- $ -- $0.1 $0.1
Average interest
rate................. -- 26.3% -- -- -- -- -- --
Japanese Yen
Variable rate......... $ 0.2 $ 0.3 $0.3 $ 0.3 $ 0.3 $ 0.0 $1.4 $1.4
Average interest
rate................. 1.8% 1.8% 1.8% 1.8% 1.8% -- -- --
Interest rate derivative
financial instruments:
Pay fixed/receive
variable............. $ 1.2 $ 1.0 $ 0.8 $ 0.6 $ 0.0 $0.0 $3.6 $3.6
Average pay rate...... 6.6% 6.6% 6.7% 6.7% -- -- -- --
Average receive rate.. 7.8% 7.8% 7.8% 7.8% -- -- -- --
</TABLE>
Recent Accounting Pronouncements
The Financial Accounting Standards Board has issued SFAS 133 "Accounting for
Derivative Instruments and for Hedging Activities," which is effective for
fiscal years beginning after June 15, 1999. SFAS 133 requires derivatives to be
recorded on the balance sheet at fair value and establishes special accounting
for the following three types of hedges: hedges of changes in the fair value of
assets, liabilities or firm commitments, referred to as fair value hedges,
hedges of the variable cash flows of forecasted transactions such as cash flow
hedges and hedges of foreign currency exposures of net investments in foreign
operations. The accounting treatment and criteria for each of the three types
of hedges is unique. Changes in fair value of derivatives that do not meet the
criteria of one of these three categories of hedges would be included in
income. SFAS 133 was amended by SFAS 137, which delayed its effective date. We
will determine what impact, if any, it will have on our financial position,
results of operations, and cash flows. Currently, we do not anticipate adopting
this standard before May 1, 2001.
The Financial Accounting Standards Board has recently issued Interpretation
No. 44, "Accounting for Certain Transactions Involving Stock Compensation." The
Interpretation addresses implementation practice issues in accounting for
compensation costs under existing rules by prescribed Accounting Principle
Board No. 25. The new rules are applied prospectively to all new awards,
modifications to outstanding awards and changes in grantee status after July 1,
2000, with certain exceptions. We are considering the effects these changes
make and will implement any changes to our plans as deemed appropriate.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or
SAB 101. SAB 101 summarizes certain of the SEC Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. We are currently evaluating the impact of SAB 101. We do not
believe that our evaluation will result in any material change to our revenue
recognition policies.
32
<PAGE>
BUSINESS
Overview
We are a leading designer, manufacturer and supplier of advanced fuel
delivery and storage technology systems and components that allow internal
combustion engines and fuel cell systems to operate in a variety of
transportation, material handling, and industrial and power generation
applications using clean fuels such as hydrogen, propane, natural gas and
methanol. We have designed these systems to maximize efficiency and performance
by electronically sensing and regulating the proper proportion of fuel and air
used by internal combustion engines and fuel cells. Based on over 40 years of
technology development and expertise in producing cost-effective, safe and
durable fuel technology systems for engines, we believe that we will be
positioned to provide enabling products and technologies in the rapidly
emerging fuel cell industry.
Current internal combustion engines have contributed to a worldwide
pollution problem. As a result, a number of automotive, industrial and power
generation manufacturers are developing alternative clean propulsion systems
such as fuel cells. We offer fuel delivery, fuel storage and electronic control
systems to those manufacturers to facilitate the development of these
propulsion systems. Many OEMs are also adapting their internal combustion
engines to use cleaner burning alternative fuels to reduce their harmful
emissions. We offer both conversion products and systems to these OEMs and for
aftermarket conversions.
Since 1986, we have produced more than 2.5 million gaseous fuel systems and
components. We sell these systems and components directly to the user and
through more than 400 distributors and dealers worldwide and through our OEM
customers.
We entered into a Teaming Agreement with General Motors in 1997. Under this
agreement, we have specifically designed fuel conversion products as a cost-
effective solution to address General Motors' demand for alternative fuel
vehicles. We are also developing and adapting our technologies for fuel cell
powered zero emission vehicles for General Motors and other OEMs.
Also in 1997, we opened our Advanced Technology Center in Irvine,
California, a research and development facility with more than 140 scientists,
engineers, professionals, and support staff. The Advanced Technology Center
focuses entirely on the development of clean emission advanced fuel delivery,
storage and electronic control systems, particularly those related to emerging
fuel cell technologies. Since 1994, we have invested more than $49 million on
research and development of gaseous fuel enabling technology for use in fuel
cells and engines. As a result, we believe that we have gained technological
leadership in these enabling products which we have designed to convert
internal combustion engines to alternative cleaner fuels and to fully
participate in the fuel cell market with new state-of-the-art fuel and cost-
effective fuel delivery and fuel storage products.
Alternative Fuel Industry
Alternative fuel technology markets were developed from, and continue to be
propelled by, three independent drivers: economics, environmental concerns and
energy independence. We believe the price differential between propane or
natural gas and gasoline drives the economics of the alternative fuels market.
The price of traditional liquid fuels such as gasoline is typically twice that
of natural gas or propane. By converting an internal combustion engine to run
on propane or natural gas, through the installation of our products, customers
can capitalize on the price differential. Customers are typically able to
recoup the cost of the conversion in six to eighteen months, depending on the
fuel spread. Transportation companies such as taxi companies, transit and
shuttle bus companies, United States government fleets and parcel delivery
companies such as the United States Postal Service and United Parcel Service
are well positioned to take advantage of these economics. We sell our systems
to forklift users who often operate equipment indoors where toxic emissions are
of a concern. Small and large industrial engine users are also often motivated
to capitalize on cost benefits. In all these situations, it is relatively easy
to establish centralized fueling stations. Because the price differential
between these gaseous fuels and gasoline in the United States is less than that
in many foreign countries, the United States market is often more impacted by
environmental concerns.
33
<PAGE>
The negative environmental impact associated with liquid fuels further
increases the demand for systems that use clean-burning fuels. Internal
combustion engines are a major source of air pollution, which has led to
increased government regulation and oversight on vehicle and industrial engine
emissions. Most major international cities are experiencing significant
pollution arising from gasoline and diesel emissions. These cities also have
the largest concentrations of fleet operators and many are taking steps to
reduce emissions by typically converting vehicles from liquid fuel to natural
gas and propane. For example, in Mexico City, one of the largest cities in the
world, the government has taken steps such as alternating the days in which
vehicles with even and odd numbered license plates can be used. However,
vehicles running on propane or natural gas can be operated every day, creating
a significant advantage for corporate and industrial users, such as major
distributors of products within the city limits.
In the United States, such legislative acts as the Comprehensive National
Energy Strategy, the Clean Air Act Amendments of 1990 and the Energy Policy Act
of 1992 in the aggregate provide goals for energy and efficiency and strict
emission standards and promote the development and implementation of
alternative fuels and related technologies. Several states, including
California, Massachusetts, New York and Vermont have also adopted legislation
targeted at reducing harmful vehicle emissions. In addition, over 25 countries
worldwide have enacted air pollution regulations or programs favoring the use
of alternative fuels, including China, India, Mexico and the European Common
Market.
In addition to economics and environmental concerns, energy independence is
a significant driver for the alternative fuel market. Many countries have
significant natural gas reserves and are seeking to use alternative fuels to
reduce their dependence on imported oil. Natural gas is consumed domestically
since it is difficult to transport internationally in a gaseous state and
liquefying natural gas tends to be costly. By converting their domestic
transportation market to natural gas or propane, which is a derivative of
natural gas, countries are able to lessen their demand for gasoline which is
derived from oil.
Fuel Cell Industry
The newly emerging fuel cell industry represents an advancement in fuel
technologies to address the worldwide environmental concerns and long term
security of supply for inexpensive liquid fuels reserves. A fuel cell, by
nature of its operating principles, is efficient and extracts more energy from
a fuel than combustion based technologies. Fuel cells have emerged as a leading
power source for advanced fuel systems that propel motor vehicles and
industrial engines due primarily to the fundamental characteristics of the
electrochemical process: low emissions, reduced noise and high efficiency. The
fuel cell market is anticipated to be a large market characterized by high
levels of growth. Fuel cell manufacturers are targeting the transportation,
stationary and portable markets. While we believe that our gaseous fuel storage
system will eventually be applicable to all three of these markets, we
anticipate initially focussing on the transportation market where we believe we
will be able to leverage off of our other alternative fuel technologies and our
relationships with automotive OEMs such as General Motors.
A fuel cell is an electrochemical device that produces electricity silently
and without combustion. Hydrogen fuel, which can be obtained from hydrocarbons
such as methanol, natural gas or petroleum is then combined with oxygen from
the air in a fuel cell to produce electricity, with useable heat and water as
the only by-products. This process is the reverse of electrolysis by which
water can be split into hydrogen and oxygen by passing an electric current
through water. A key to optimizing the performance of a fuel cell is the proper
metering and delivery of its hydrogen fuel and air to its fuel stacks and the
efficient storage of its fuel to maximize its time of usage. These fuel systems
must be cost-effective, light weight and safe.
To generate usable electric power, a complete fuel cell power system, like a
complete automobile engine or power generator, requires a fuel supply and fuel
metering system. If hydrogen is not the initial fuel for this system, hydrogen
can be obtained from hydrocarbon fuels such as methanol, natural gas or
petroleum using a device called a reformer. A reformer breaks down hydrocarbon
fuels using heat and a catalytic process. Each hydrocarbon based fuel faces
challenges to become a practical fuel for fuel cell powered vehicles. While
34
<PAGE>
methanol is the easiest fuel to reform and requires less complex systems, it is
not widely available in the current fuel distribution infrastructure and is
corrosive. Natural gas can also be reformed, yet it is not widely available in
the current fuel distribution infrastructure. Gasoline is widely available, and
easy to store, but it is difficult to reform and requires very complex systems
that reduce efficiencies and increase the pollutants produced by the fuel
processor. Our technology and products can function in connection with any of
these hydrogen fuel sources. Regardless of the fuel used, we believe that the
fuel cell system will require on board storage, fuel metering and electronic
controls.
Alternative Fuel and Fuel Cell Markets
The markets for transportation, material handling, industrial engine
conversions and fuel cell applications are large and are growing rapidly.
According to Freedonia Group, an independent market research firm, global OEM
alternative vehicle sales are expected to grow to 170,000 units annually by the
year 2002 from 31,900 units in 1997. Propelled by the commercialization of fuel
cell vehicles between the years 2003 and 2005, the National Fuel Cell Research
Center based at the University of California, Irvine, projects that the annual
revenues of the fuel cell industry will exceed $10 billion by 2010.
According to the Industrial Truck Association and the Material Handling
Institute of America, the world wide material handling new lift-truck market
was approximately 430,000 units in 1998 and the number of lift trucks in
service was at least 1.6 million by the end of 1999. We expect that additions
of new lift trucks to the market will continue at or above the current historic
annual rate of 4% to 5% for at least five years. Currently, the Industrial
Truck Association estimates that approximately 15% of all lift-trucks are using
alternative fuels, mostly in indoor applications such as warehousing and food
processing, where indoor air quality is required. California has announced it
will enforce emission regulations applying to forklifts in 2001. The
Environmental Protection Agency will also implement emission regulations
applying to forklifts in 2004.
Ford, DaimlerChrysler, General Motors, Honda, Mazda and Nissan have each
announced their intention to commercialize fuel cells in motor vehicle
applications sometime between the years 2003 and 2005. We intend to participate
in the growth of the fuel cell segment of this industry by focussing primarily
on the fuel cell integration delivery, storage and components in fuel cell and
gaseous fuel applications. However, we have no current plans to manufacture
fuel cells or reformers.
Competitive Advantage
We believe our current and future technological leadership position in the
alternative fuel and fuel cell industries will result from our continued
success in the design, manufacturing and commercialization of advanced fuel
delivery systems and components, our relationships with leading companies in
our targeted transportation, material handling and industrial and power
generation markets, and our substantial financial commitment to research and
development and proven ability to develop and commercialize products in the
emerging fuel cell and alternative fuel industries. We believe our competitive
strengths include:
Industry Leader. We are a leader in the rapidly emerging alternative fuel
industry and a market share leader in the use of non-liquid fuels in internal
combustion engines. Our technology leadership position is derived from the
broad application and integration of our technology and enabling systems into
the expanding advanced fuel technology industry. Our significant investment of
more than $49 million in research and development over the past six years,
coupled with our history and experience in this industry has provided us with a
strong technology base for new product innovation. Our new proprietary fuel
cell enabling technologies are currently patented or patent pending, which
could make it more difficult for new entrants in the industry to develop
directly competing products based on the same or similar technologies.
35
<PAGE>
Advanced Enabling Technologies and Systems for Fuel Cells. Our research in
fuel storage, fuel delivery and electronic system controls have delivered
advanced, low cost technologies, which we believe can be adapted to apply to a
broad range of fuel alternatives. We have also concentrated efforts on
extensive testing and validation of our new advanced fuel technologies which
focus upon safety and durability. In 1995, we began development of products for
fuel cell applications in our target markets. Our new TriShield(TM) all-
composite, light weight and low cost fuel storage tank is of special interest
to the fuel cell industry due to its ability to store hydrogen at high
pressures and at a very attractive weight-to-strength ratio. This tank, in
conjunction with our patented in-tank regulator, is particularly cost-effective
when compared to existing and other traditional tank and regulator
technologies. Sandia National Laboratories is currently evaluating our tanks
for potential hydrogen storage applications. Our new fuel metering disc
injector has also been well received among automotive and fuel cell
manufacturers. Our patent pending technology associated with the injector uses
low leakage and low friction discs to meter the fuel rather than the
conventional plunger technology now used. We believe our new injector, which
utilizes high volume gasoline injector parts, will have broad applications in
fuel cell and alternative fuel systems, with potential in the traditional
liquid fuel market.
Proven Manufacturing Methods. We have over four decades of experience in the
manufacture and development of alternative fuel technologies and products. We
currently maintain manufacturing and production facilities in the United
States, Europe, Mexico and Australia, which produce a broad range of products
and services including components, systems and specialty vehicle assembly. Our
United States, Australian and European facilities have achieved or are in the
process of implementing ISO-9000 or QS-9000 certification. We believe our
manufacturing expertise will enable us to successfully address the fuel cell
industry.
Strong OEM Relationships. We have a Teaming Agreement with General Motors to
supply alternative fuel systems and components for General Motor's vehicles. We
are currently their exclusive provider of natural gas and propane systems and
cooperate with them in sharing non-proprietary technology, test facilities and
procurement resources. We also sell conversion components to General Motors in
international markets. During the fiscal years ended April 30, 1998 and 1999,
sales to General Motors amounted to 17.3% and 27.8% of our revenues,
respectively. In addition, we have longstanding relationships with many
domestic and international OEMs, including BMW, Caterpillar, Clark, Cummins,
Daewoo, Detroit Diesel, Deutz, Ford Australia, Hyster/Yale/Sumitomo, Isuzu,
Komatsu, Linde, MANN, Mazda, Mitsubishi, Nissan, ONAN, Perkins, Scania, Toyota
and Volvo.
In-Depth System Integration Expertise. As more OEMs seek to reduce costs by
outsourcing key tasks and reducing numbers of suppliers, we have increasingly
focused on capturing additional revenue opportunities by expanding our current
systems integration capabilities. In 1996, we created our Automotive OEM
division to serve this customer value-added opportunity. In 1998, through the
Crusader acquisition, we established our Industrial Engine Systems business in
Sterling Heights, Michigan, which provides systems integration of our low-
emission products onto engines that are subsequently sold to industrial OEMs.
We believe that our systems integration expertise, together with our
proprietary and patented technologies, give us a significant advantage in the
emerging fuel cell markets.
Positioned for Global Growth. With eight international facilities and over
300 distributors and dealers outside the United States, we believe that we are
uniquely positioned to capitalize on regional growth opportunities. We believe
that the alternative fuel markets will grow dramatically internationally,
particularly in China, India, Japan, Mexico and Southeast Asia where urban
pollution problems will continue to predominate. We are currently working with
the governments of Mexico and China to develop advanced fuel solutions for
public transportation, government and taxi fleets. Recently, the government of
China selected us and General Motors to undertake a marketing and feasibility
study related to the use of advanced fuels vehicles in China. These vehicles
have been provided to China for evaluation. In Mexico, the government of Mexico
State recently selected us as the preferred vendor for the conversion of over
6,000 taxi and mass transit vehicles, which could reach 70,000 vehicles in the
next five years.
36
<PAGE>
Business Strategy
We believe that the successful execution of the following strategic
objectives will enable us to maintain and expand our leadership position in the
advanced fuel technologies industry.
Capitalize on Our Strong Technology Leadership Position. We are a leading
developer and manufacturer of fuel metering, fuel storage and electronic
control systems for the alternative fuel and fuel cell industries. We believe
that this position results from our current technology advantage and our
investment in research and development in this rapidly emerging industry. Our
investment has and will continue to permit us to develop and supply new
technology and products to our target markets which are transitioning to
gaseous fueled internal combustion engines. We intend to expand the technology
gap between ourselves and our competitors to capture the leading position in
new fuel cell opportunities.
Focus on Fuel Cell Enabling Technologies and Products. Since 1995, we have
invested significantly in research and development of technology and products
that support the use of fuel cell systems. The commercialization of our
technology products has established us as a leader in fuel metering, fuel
storage and electronic controls for fuel cell systems. We plan to continue to
expand our research and product development in fuel metering, fuel delivery and
electronic control systems for fuel cell systems. We plan to develop and expand
sales of fuel cell related products by focusing business development efforts
initially on the transportation industry, and secondarily on the industrial
power generation and material handling markets. We will seek to establish joint
development programs and strategic alliances with the major fuel cell
developers and automobile industry leaders.
Develop and Expand Key Industry Relationships. We believe that OEMs will
drive industry growth. Building on our Teaming Agreement with General Motors,
we plan to develop additional relationships with major OEMs. We also plan to
work with other manufacturers in the fuel cell industry and are currently in
discussions with Delphi, Ballard Power Systems, Inc. and Xcellsis, formerly dbb
Fuel Cell Engines, GmbH, a German company jointly owned by DaimlerChrysler,
Ford and Ballard.
Leverage Technology to Capture Future Fuel Cell Markets. Our technology and
product leadership in the alternative fuels industry in gaseous fuel systems,
fuel storage and electronic control is complementary to the fuel and fuel
storage technology required for fuel cells. We believe our core technologies
have and will continue to be adapted to develop products for the fuel cell
industry.
Expand and Broaden Systems Integration Expertise. We are increasing our
existing capabilities to provide the integration, testing, validation and
manufacturing of our products and systems into the transportation, material
handling and industrial and power generation engine markets. As more OEMs seek
to reduce costs and shorten time to market by outsourcing key tasks and
reducing numbers of suppliers, we are increasingly focused on capturing
additional revenue opportunities by expanding into value-added services such as
systems integration. For example, in 1998, we established an industrial systems
unit in Michigan to provide systems integration for our products onto engines
subsequently to be sold to industrial OEMs which are then ready for
installation into end products. Our Automotive OEM division has integrated our
products into over 6,800 vehicles for General Motors since 1997.
Expand Bases of Operations in High Growth Global Regions. We believe that
significant growth opportunities for our current and future businesses exist
outside the United States and targeted high growth markets such as Latin
America, Asia and Europe through acquisitions and joint ventures, strengthening
of our distributor network and developing key local business and governmental
support and recognition. In particular, we are developing close relationships
with the governments of Mexico and China. We believe that working with local
governments is essential to expanding into international markets and that our
discussions with government officials have helped us to develop regulations in
Mexico and China.
37
<PAGE>
Customers and Strategic Relationships
We market our products and services to OEMs, distributors, sub-distributors
and dealers through an international network of over 400 distributors and
dealers into over 30 countries. Our customers include some of the world's
largest OEMs and engine manufacturers, including BMW, Caterpillar, Clark,
Cummins, Daewoo, Detroit Diesel, Deutz, Ford Australia, Hyster/Yale/Sumitomo,
Isuzu, Komatsu, Linde, MANN, Mazda, Mitsubishi, Nissan, ONAN, Perkins, Scania,
Toyota and Volvo. We are working with a number of these customers to resolve
their fuel metering, fuel storage and electronic control requirements as they
integrate fuel cells into their business strategies.
We entered into a Teaming Agreement with General Motors in 1997, which
encompasses the design, development, manufacture and vehicle integration of our
natural gas and propane fuel systems into their vehicles. In connection with
this relationship, we provide complete fuel system integration services and
validation, including crash, hot and cold weather and high altitude, emission
certification, service plans and procedures and manufacturing. We intend to
establish similar relationships with other leading OEMs. Our Teaming Agreement
with General Motors includes sharing of non-proprietary technology,
corroboration of technical staffs to leverage areas of technical expertise for
mutual benefit, sharing of laboratory and testing facilities, and use of
General Motors procurement network. General Motors has agreed to purchase
gaseous fuel propulsion systems or related components developed under this
agreement from us if:
. General Motors does not produce the components;
. we can supply such components; and
. we are competitive in terms of price, quality and service.
The Teaming Agreement also provides for a mutual right of first refusal if
we jointly develop new products under this agreement. As part of this right of
first refusal, we may not solicit sales to any third parties of any gaseous
fuel propulsion system or related components developed under the Teaming
Agreement for a period of two years from the date of General Motors' commercial
introduction. To date, the Teaming Agreement has been applied exclusively to
the installation of gaseous fuel systems and does not cover any joint
development efforts other than those that had been specific to General Motors
application requirements.
Products and Services
Many of our products are based on proprietary and patented technology
focused on fuel storage, fuel flow and fuel management and engine control
management for fuel cell applications and internal combustion engines. We have
designed our products to enable fuel cell and internal combustion propulsion
systems to optimize their operational performance and efficiency using the
alternative fuels.
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<PAGE>
Products. The following chart sets forth the enabling products we currently
sell in connection with the conversion of internal combustion engines to
alternative fuels and for application in fuel cell powered vehicles. All of the
products set forth below have potential fuel cell applications except for our
carburetor products.
Fuel Storage
------------
<TABLE>
<CAPTION>
Products Description
-------- -----------
<C> <S>
TriShield All Composite . Designed for maximum safety, light weight
Storage Tanks and cost-effectiveness
. The TriShield tank exceeds the current
regulatory qualification requirements and
also meets OEM's more stringent requirements
for use in their natural gas fueled vehicles
. Major competitive advantages include
optimized storage efficiency, typically
30% more fuel capacity than comparably
sized aluminum tanks at less cost
. The permeability resistant liner
technology provides optimum hydrogen
storage for fuel cell applications and
reduces the possibility of hydrogen
embrittlement
In-Tank Regulators . Reduces storage tank outlet, eliminating
the need for high pressure fuel lines
running throughout the vehicle
. Increased safety at significant cost
reductions versus competitive products
</TABLE>
Fuel Metering
-------------
<TABLE>
<CAPTION>
Products Description
-------- -----------
<C> <S>
Gaseous Fuel Injectors . Designed specifically for gaseous fuel
delivery to provide superior flow rate and
increased durability over existing plunger
technologies
. Our simple design translates into lower
costs than competing technologies
Disc Injector Pressure . Provides precise control of fuel required
Regulators for injection systems in gaseous fueled
internal combustion engines
Air/Fuel Metering Carburetors . Used in internal combustion engines to
meter fuel and air mixtures for control of
optimum engine performance at the lowest
emissions.
Gas Mass Sensors/Mixture . Measures and controls gaseous fuel flow
Control Valves
Pressure Reduction and Heat . Controls fuel flow under widely varying
Exchange Products engine operating conditions
Fuel Shut-off Products . Mechanically or electronically shuts off
fuel flow to engine when fuel leakage
occurs or when engine is turned off
</TABLE>
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<PAGE>
Electronic Controls and Software
--------------------------------
<TABLE>
<CAPTION>
Product Description
------- -----------
<C> <S>
Electronic Controls and . Used in fuel management systems to permit
Proprietary Software optimum engine and fuel cell operation
</TABLE>
Services. We provide service capabilities in the areas of development,
validation, certification, manufacture and service support. Our customers use
these capabilities to support their programs in the transportation, material
handling and power generation applications. We are using these capabilities in
fuel cell applications.
. Systems Engineering and Powertrain Controls--We combine our proprietary
designs, software and calibration tools to develop, calibrate and
optimize powertrain control systems for sensors, actuators and
controllers specific to our customers' needs and specifications.
. Design and Integration--We integrate fuel systems and subsystems into
program applications using three-dimensional computer aided design. We
use rapid prototyping techniques which accelerate the iterative design
process and result in a more accurate design.
. Validation--To increase the likelihood of high success rates at the
system level, we perform component, subsystem and system validation.
These procedures are held to our own internal requirements, customer-
specific requirements and industry standards. If no suitable procedures
exist, we generate requirements for the customer.
. Certification and Compliance--Our regulatory and certification engineers
are familiar with the latest emissions and safety regulations to ensure
the proper certification and ongoing compliance of our business and
customer products.
. Vehicle Assembly--We develop and manage the assembly process for the
integration of our systems at our facility or our customer facilities.
. Training--We develop comprehensive technical training for customers who
sell and service our products as well as for customers that use our
products.
. Service and Warranty--We have extensive capabilities in developing
service procedures and programs for OEMs. We also provide technical
support over the telephone or go to customer sites to resolve technical
issues.
Research and Development
In 1997, we opened our Advanced Technology Center in Irvine, California,
which is dedicated to the research and development of systems and products that
support the use of gaseous fuels in internal combustion engines and fuel cells.
This center currently employs over 140 employees and has sophisticated, state-
of-the-art research laboratories, emissions control equipment, storage tank
manufacturing and alternative fuel vehicle assembly and testing facilities.
This center supports each of our operating segments by conducting research and
development of advanced fuel storage, fuel delivery and electronic control
systems, and products for motor vehicles, engines, forklifts, stationary
engines and small industrial engines. Each operating segment funds their
application development engineering for the new products to meet their specific
customer and target markets.
The center offers the following technical capabilities:
. Fuel Storage--Composite pressure vessel design and analysis, carbon and
epoxy filament winding and hydraulic, pneumatic, burst and fatigue
testing for internal combustion engines and fuel cell systems.
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. Electronic Control Systems--Specialization in hardware design and
selection, engine modeling, calibration and software design for engine
and emission controls.
. Mechanical Design and Development--Specialization in pneumatic,
kinematics, hydraulic components and systems and advanced materials,
structural, flow and thermal analysis.
. Advanced Catalysts--Catalyst synthesis and processing, catalyst and
emission testing and fabrication of corona and conventional prototype
converters.
. Advanced Products--Injectors, compressors and micro machining, including
pressure sensors and bi-directional mass flow sensors, fuel management,
fuel storage and fuel supplies for fuel cell propulsion systems, mass
flow sensors for natural gas measurement and "smart" sensors using 8-bit
micro-controllers.
. Component and Subsystem Test Facilities--Extended vibrations, shock loads
and accelerations, extreme temperature exposure from -85(degrees)F to
392(degrees)F and thermal shock, cyclic corrosion, extended salt, fog,
humidity and dryness cycling, severe acid and alkali corrosion, flow
simulations and pneumatic leak checks.
We believe this center is a critical component to our ability to maintain
our technological leadership position in alternative fuel enabling systems. We
intend to develop and adapt our current technologies and products for use in
connection with fuel cells including the following advanced products:
Micro-Machined Mass Flow Sensors--We have successfully designed, fabricated
and tested a micro-machined single and bi-directional mass flow sensor for air
and natural gas mass flow measurement and a micro-machined bi-directional mass
flow and concentration sensor. These micro-machined devices may have several
applications for fuel cell systems.
Continuous Flow Control--We are working on a variety of fuel metering
devices for gaseous fuels which feature continuous flow outputs for use in fuel
cell applications.
Water Management--We have internal expertise or are aligned with strategic
partners to provide water vaporization of humidification of gas streams, direct
water vapor transfer from humid to dry streams, de-ionized water compatibility,
water contamination removal, water pumps and the storage and metering of water.
Heat Exchange and Thermal System--We have internal expertise or are aligned
with strategic partners to provide heat transfer components and fluids, HVAC
system and materials science.
Operating Segments
We classify our business into three operating segments: Automotive OEM
division, Gaseous Fuel Products division and International Operations. Each
segment targets specific markets and specific customer bases for our products
and services. The Automotive OEM division targets automotive OEMs. The Gaseous
Fuel Products division and our International Operations target the material
handling, industrial and power generation aftermarkets, and transportation
aftermarkets.
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Automotive OEM Division
The Automotive OEM division was organized in 1996 to develop and manufacture
fuel delivery, fuel storage and electronic control systems for automotive OEM
applications. This division focuses on developing cost-effective and efficient
gaseous fuel systems for OEM urban fleet vehicles such as trucks, taxis and
passenger vehicles. The Automotive OEM division's capabilities include:
. full vehicle engineering and validation;
. powertrain controls and validation;
. advanced manufacturing for engine controls;
. hydrogen and compressed natural gas fuel storage;
. testing procedures to meet different global emission control standards;
and
. fuel control devices and technology for gaseous fuels and other gases for
subsequent use in internal combustion engines, fuels cells and other
applications requiring metering of gases.
Products. The Automotive OEM division's core products include gaseous fuel
storage, fuel metering and electronic fuel and engine management systems for
use in fuel cell systems and internal combustion engines. The Automotive OEM
division continues to improve its current systems and is developing new systems
to meeting increasingly stringent vehicle operational and emission requirements
for subsequent use in natural gas, hydrogen and propane powered engine vehicles
and in fuel cell powered vehicles. The Automotive OEM division is also
developing improved system technologies using injectors, high and low pressure
regulators, on-board diagnostics, high-performance 32-bit and fuel system
engine control modules, fuel lock-offs and related components. The Automotive
OEM division also supplies specially designed, light-weight, high pressure
hydrogen and natural gas storage tanks that we construct using our patent
pending TriShield(TM) technology, computerized controls, regulators and
automatic shut-off equipment. The Automotive OEM division works closely with
automotive OEMs to develop alternative fuel systems for their vehicles.
This division provides a complete range of operations aimed at integrating
cost-effective and efficient alternative fuel delivery, fuel storage and
electronic control systems and components into the manufacturer's vehicles
which the manufacturer intends to sell primarily for fleet use. The Automotive
OEM division accomplishes this vehicle integration of its products by providing
complete systems and installation services that include all of the following:
. vehicle systems and powertrain controls engineering;
. vehicle level integration and packaging;
. vehicle, subsystem and component testing and validation;
. vehicle certification to meet applicable requirements;
. service readiness and after sales support; and
. fuel storage manufacturing.
Strategy. The Automotive OEM division plans to continue to develop and
commercialize new products based upon our technical capabilities in the
integration of systems into motor vehicles for fuel storage, fuel delivery and
electronic control systems. We intend to become a leading global systems
supplier for cost-effective fuel system solutions. Through the Automotive OEM
division, we plan to use our recent technical developments and patents in the
fuel storage and delivery systems for both internal combustion engine and
fuel cell systems to expand our current OEM customer base to other significant
OEMs.
Sales. The worldwide demand for alternative fueled vehicles is making it
feasible for OEM production. The division has become a preferred OEM supplier
to General Motors for gaseous fueled engine vehicles. We principally rely on
the sales force of the OEMs to sell our fuel systems. Under certain
circumstances we also sell our fuel systems directly to the end user. We
continue to fund business development activities to promote our fuel systems in
the United States, Mexico and China.
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Assembly and System Installation. The Automotive OEM division's
manufacturing activities currently consist solely of assembly and system
installation. We assemble the majority of our components at our facility in
Guaymas, Mexico, but outsource the assembly of complex electronic components
and select key suppliers for certain components of developed fuel systems.
Approximately ten suppliers accounted for approximately 50% of raw material
purchases. A major supplier of components on certain programs is our Gaseous
Fuel Products division. Complete systems are installed on vehicles at the OEM
manufacturing facility or at third party equipping sites. The criteria for the
establishment of a site is proximity to vehicle manufacturing and delivery
points.
The Automotive OEM division follows quality processes in accordance with QS-
9000 and is QS-9000 certified. The Automotive OEM division has not experienced
and does not expect to experience any significant difficulty in complying with
environmental regulations applicable to its assembly processes and facilities.
The Automotive OEM division work force at the Irvine and Guaymas facilities are
non-union.
Gaseous Fuel Product Division
The Gaseous Fuel Product division is a leading supplier of engine components
and systems that allow internal combustion engines to operate on clean burning
gaseous fuels, primarily propane and natural gas. The Gaseous Fuel Product
division designs, develops, manufacturers and markets components and systems
for engines ranging from 1 to 4,000 horsepower. Approximately 100 products
account for approximately 70% of this division's revenue. This division
provides gaseous fuel systems and components for forklifts and small industrial
engines. This market is expanding and the Gaseous Fuel Product division is
developing new value-added sales. We believe that the trend will be towards
electronically controlled engine systems and fully dressed gaseous fueled
engines for direct OEM installation.
We direct the Gaseous Fuel Product division distribution network from our
headquarters in Cerritos, California. This division conducts its sales,
application development and technical support to the aftermarket and OEMs in
motor vehicle, material handling, small utility engine and large industrial
engine end uses through our domestic offices and our worldwide distributor
network.
Products. We have designed the Gaseous Fuel Product division's broad product
lines to support all internal combustion engine applications for automotive,
forklifts, small utility engines and large industrial engines using gaseous
fuels. This division sells more than 2,200 different components for
aftermarket, OEM and repair uses including carburetors, converters, engine
control devices and fuel lock-off systems. This division also performs
equipment integration and packaging on vehicles, applications engineering and
development, emissions and performance testing and validation, technical
support and training. The products are marketed worldwide through distributors
and to OEMs under the brand names IMPCO, BEAM and GARRETSON.
Strategy. The Gaseous Fuel Product division's principal strategic goals are
to expand its operations into value-added products and services, continue to
improve quality and manufacturing efficiencies, strengthen its distributor
network and broaden relationships with engine and equipment OEMs in the
material handling and the small and large engine markets. This division plans
to focus on expanding its presence in foreign markets both in the aftermarket
and industrial OEM segments.
Sales. The Gaseous Fuel Product division sells its products to the motor
vehicle aftermarket and the material handling, small utility engine and large
industrial engine OEMs and aftermarket through a worldwide network encompassing
over 400 OEMs, distributors and dealers in over 30 countries. This division
focuses on our two largest markets, material handling OEMs and aftermarket, and
the motor vehicle aftermarket, which on a combined basis accounted for over 70%
of the division's consolidated net sales for fiscal year 1999. Of these two
markets, we believe that the foreign automotive vehicle aftermarket has the
greatest potential for significant growth.
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Manufacturing. We manufacture or assemble all of our Gaseous Fuel Product
division products at our headquarter facilities in Cerritos, California and in
Sterling Heights, Michigan. Current manufacturing operations consist largely of
mechanical assembly with light machining. We rely on outside suppliers for
parts and components and obtain components for products from a variety of
domestic automotive and electronic part suppliers, local diecasters, stamping
operations and machine shops. For the fiscal year ended April 30, 1999, ten
suppliers accounted for approximately 74% of the Gaseous Fuel Product
division's raw material purchases.
Material costs, die cast aluminum parts in particular, represent the major
component of cost of sales. Coordination with suppliers for quality control and
timely shipments is a high priority to maximize inventory management. We use a
computerized material requirement planning system to schedule material flow and
balance the competing demands of timely shipments, productivity and inventory
management. The Gaseous Fuel Product division follows quality processes in
accordance with ISO 9001 and expects to be ISO 9001 certified by the end of
fiscal year 2000. We have not experienced and do not expect to experience any
significant difficulty in complying with environmental regulations applicable
to our manufacturing processes and facilities. The Gaseous Fuel Product
division work force at Cerritos and Sterling Heights is non union.
Distribution. During the fiscal year ended April 30, 1999, sales to
distributors accounted for approximately 67.4% and sales to OEM customers
accounted for approximately 33.6% of sales. This is consistent with fiscal
years ended April 30, 1998 and 1997. Distributors primarily service the
aftermarket conversion business and small volume OEMs, and are generally
specialized and privately owned enterprises. Many domestic distributors have
been our customers for more than 30 years, and most of our export distributors
have been customers for more than 20 years. OEM customers for vehicle and
forklift manufacturers include Clark Material Handling Co., Ford Motor Company,
Generac, Kohler Company, Mitsubishi Caterpillar Forklift America, Inc., NACCO
Material Handling Group, Onan Corporation and Toyota Industrial Equipment Mfg.
Inc. OEM customers for heavy duty industrial equipment manufacturers include
Caterpillar, Inc., Cummins Engine Company and Waukesha Engine.
International Operations
Our International Operations segment consists of our subsidiaries located in
Europe, Australia, Mexico and Japan, which are responsible for sales,
application and market development and technical service. The following
subsidiaries represent the Gaseous Fuel Products division and the Automotive
OEM division products and systems and provide sales support, application
development, and technical support to aftermarket and OEM customers.
Australia
IMPCO Technologies Pty. Ltd., our wholly-owned subsidiary, was founded in
1996 through an acquisition and is headquartered outside Melbourne with offices
in Sydney and Adelaide. This subsidiary serves and develops Australian
alternative fuel markets. IMPCO Australia's major functions are:
. factory distribution of our gaseous fuel components and complete systems;
. market development of OEMs and the aftermarket, with a concentration on
motor vehicle fleets and dealers;
. application and market development work focused on sales development in
for India, China and the Pacific Rim region; and
. technical training, support and development of authorized installation
networks.
Our Australian operations serve as our headquarters for the Pacific Rim
region. Through Australia, we seek to meet the supply, technical and customer
support needs of the aftermarket distributor network, OEMs, fleets, dealers and
general customers throughout this region with reliable, efficient, clean and
economical performing systems. IMPCO Australia performs modular conversion kit
assembly and fuel storage assembly. We believe we are the only company
currently supplying gaseous fuel engine management systems to receive QS-9000
and ISO-9002 accreditation in the industry.
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Strategy. IMPCO Australia plans to establish a strong base of operations in
Australia with automotive OEMs, fleets, dealers and installers for component
and system sales through market and application development efforts.
Additionally, we plan to develop a strong distribution network in Australia,
which will be the major hub for expansion into the Pacific Rim region, while
capitalizing on our strong market position within Australia.
Europe
IMPCO-BERU Technologies B.V. was organized in 1995 and in 1998 became a
joint venture with BERU A.G., a major German automotive supplier. IMPCO Europe
is headquartered in the Netherlands with customer support offices in France,
Germany and the United Kingdom. IMPCO Europe focuses on the market and
application development and sale of our products to the industrial material
handling market, the automotive OEM market and to the aftermarket. IMPCO Europe
provides complete services in areas of systems and powertrain controls
engineering, vehicle packaging, emissions testing, validation and service
readiness.
Strategy. IMPCO Europe's strategy is to develop and expand the high growth
potential markets in Western, Central and Eastern Europe with the full range of
our current and future fuel cell enabling products and services. We believe our
joint venture with BERU A.G. will allow us to gain access to the leading
European OEMs in the automotive and industrial equipment sectors. We plan to
expand our European business by:
. offering more complete systems to our current customer base;
. maintaining our competitive position in the material handling market;
. developing the alternative fuel mass transit and heavy duty engine
markets; and
. expanding market and sales for catalysts.
Japan
IMPCO Technologies Japan, our wholly-owned subsidiary, was founded in March
1999 and is headquartered in Fukuoka, Japan. This subsidiary provides marketing
and customer support for Japanese OEMs and distributors. We strengthened IMPCO
Japan's ability to deliver this support through the acquisition of our Mikuni
distributor in 1999. Mikuni has distributed IMPCO products in Japan since 1994.
IMPCO Japan is closely involved in the development of the Japanese industrial
and motor vehicle alternative fuels market with a focus on lift truck engine
manufacturing OEMs, automotive OEMs, mass-transit and truck applications. Japan
has recently established emissions regulations and an alternative fuel mandate
that we anticipate will promote the use of alternative fuels in motor vehicles
over the next five years. Two major OEMs, Toyota and Honda, have introduced
1999 alternative fuel vehicles for sale. Japanese automotive OEMs are also
involved in the development of fuel cell vehicles.
Strategy. IMPCO Japan's strategy is to support the emerging motor vehicle
alternative fuels and fuel cell markets throughout Japan, Asia, China and the
Pacific Rim regions with component and application development, systems and
engineering services to OEMs, global customer support, a global distribution
network and emissions and testing support. In particular, we seek to increase
its presence in the lift trucks, industrial engines and OEM market segments,
including particularly the automotive aftermarket.
Mexico
Grupo IMPCO Mexicano, our majority owned subsidiary, provides technical and
customer support for the conversion of fleets and dealers in the rapidly
growing Mexican market for conversion to alternative fuels. As a result of the
Algas acquisition in 1998, IMPCO Mexicano links us to a growing marketplace for
our products. In Mexico, alternative fuels cost approximately 50% of the price
of gasoline, and there is a desire to implement effective clean air solutions,
while preserving natural resource independence. This has resulted in a strong
and growing market for alternative fuel vehicles. Under current government
mandates, 200,000 public and private mass transit vehicles must be converted to
clean burning propane, with a potential market value of over $900 million.
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Strategy. IMPCO Mexicano is part of our strategy to strengthen our global
customer support in Mexico, Central and South America. IMPCO Mexicano is
uniquely positioned to grow within the Latin American market by drawing upon
the expertise of our other divisions, while implementing specific regional
activities. IMPCO Mexicano plans to focus on market, application and sales
development for the conversion of private and public fleets to alternative
fuels. Development of key business and governmental support is of primary
importance.
Product Certification
We must obtain emission compliance certification from the Environmental
Protection Agency to sell certain of our products in the United States and from
the California Air Resources Board to sell certain products in California. Each
car, truck, van or engine sold in the United States market must be certified by
the Environmental Protection Agency before it can be introduced into commerce
and its products must meet component, subsystem and system level durability,
emission, refueling and various idle tests. We have also obtained international
emissions compliance certification in Argentina, Australia, Brazil, Canada,
Europe and Mexico.
We strive to meet stringent industry standards set by various regulatory
bodies including the Federal Motor Vehicle Safety Standards of the United
States, the National Highway and Transportation Safety Administration, the
National Fire Protection Association, Underwriters Laboratories, Inc. and the
American Gas Association. While approval is not always required or offered by
these agencies, we believe full compliance and approvals enhance the
acceptability of products in the domestic marketplace. Many foreign countries
also accept these agency approvals as satisfying their "approval for sale"
requirements in their markets.
Competition
We are a leading provider of fuel storage, fuel metering and electronic
control systems for the alternative fuel and fuel cell markets. While we
estimate that there are over 20 OEMs of gaseous fuel delivery systems
worldwide, we believe we have no single global competitor present in any of the
regions and markets where we are active. We believe we are the only company
which provides products and integrated services for all gaseous alternative
fuels, in all global markets for use in all end use applications.
Our key competitors in the gaseous fuel delivery systems, accessory
components and engine conversions markets include Asian, GFI, Koltec, Landi,
Lovato, OMVL, Tartarini and Vialle, which together with us account for a
majority of the world market for alternative fuel products and services. Some
motor vehicle OEMs such as Ford, Honda, Toyota and Volvo have developed their
own systems which currently use our components or could in the future. In
addition, various motor vehicle OEMs, including Ford, Honda, Mazda, Nissan,
Toyota and Volvo have developed fuel systems for their own vehicles, some of
which use our components.
In fuel cell technology, our area of expertise is in fuel storage, fuel and
gas metering and the electronic control of fuel, including air to the fuel cell
or the fuel reformer. Our principal competition in the alternative fuel and
fuel cell markets consists of very small independent companies or universities
supported by government grants. In the fuel cell industry, we do not compete
with fuel cell manufacturers, such as Ballard Power Systems Inc., General
Electric, Plug Power Inc. or United Technologies, whose technical focus is on
fuel cell and fuel reformer technology. Instead, we provide ancillary systems
and enabling technologies that complement the fuel cell stack.
Intellectual Property
We currently rely primarily on patent and trade secret laws to protect our
intellectual property. We currently have over 14 United States patents issued
and over 16 foreign patents issued. The United States patents expire between
October 2004 and March 2017. The foreign patents expire between November 2001
and October 2018. We also currently have one United States patent application
and one foreign patent application. Our pending patent applications may not be
allowed. Even if they are allowed, these patents may not provide us a
competitive advantage. Competitors may successfully challenge the validity and
scope of our patents and trademarks.
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We also rely on a combination of trademark, trade secret and other
intellectual property laws and various contract rights to protect our
proprietary rights. However, we do not believe our intellectual property
provides significant protection from competition. We believe that patent,
copyright, trademark and trade secret protection are less significant and that
our growth and future success will be more dependent on factors such as the
knowledge, ability and experience of our personnel, new product introductions
and continued emphasis on research and development. We believe that
establishing and maintaining strong strategic relationships with valued
customers and OEMs are the most significant factors protecting us from new
competitors.
IMPCO, BEAM and GARRETSON are our United States registered trademarks. These
marks are also registered in other countries throughout the world.
Year 2000
Over the past several years, we have recognized the need to ensure that our
operations would not be adversely impacted by Year 2000 software failures. We
took various initiatives intended to ensure that our computer equipment and
software would function properly with respect to dates in the Year 2000 and
thereafter. We completed an assessment of the Year 2000 issue through
communication with our key customers, suppliers, financial institutions and
others with which we conduct business and a review of our current internal
computer systems to identify potential Year 2000 issues. Additionally, we
developed and implemented plans when required to address system modifications.
We also established a contingency plan to address Year 2000 risk factors
outside of our control. As of the date of this filing, we have not experienced
any material Year 2000 problems with our internal systems or products, nor have
we experienced any material problems with any of our key customers or
suppliers. We believe that the financial impact of updating our systems to
address the Year 2000 issue was not material to our consolidated financial
position, results of operations or cash flows.
Backlog
As of January 31, 2000, our backlog for our products was approximately $19.5
million. We measure backlog for our product sales from the time orders become
irrevocable, which generally occurs 90 days prior to the date of delivery.
Employees
As of March 31, 2000, we employed approximately 581 persons, including, in
the United States, approximately 104 in research and development, 285 in
manufacturing and assembly, 40 in sales and marketing, 47 in management and
finance and 109 internationally. We consider our relations with our employees
to be good.
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Facilities
Our executive offices and our Gaseous Fuel Products division are located in
Cerritos, California. We currently lease additional manufacturing, research and
development (including the Advanced Technology Center) and general office
facilities in the following locations set forth below:
<TABLE>
<CAPTION>
Location Square Footage Lease Expiration
-------------------------- -------------- ----------------
<S> <C> <C>
Irvine, California 110,000 August 2004
Cerritos, California 105,000 May 2004
Sterling Heights, Michigan 78,000 November 2000
Guaymas, Mexico 35,000 August 2000
Rijswijk, Holland 16,000 October 2000
Cheltenham, Australia 15,000 May 2001
Mexico City, Mexico 12,000 April 2002
Seattle, Washington 10,000 December 2000
</TABLE>
We also lease nominal amounts of office space in Japan, Germany, France, the
United Kingdom and Australia.
We believe our facilities are presently adequate for our current core
product manufacturing operations and OEM development programs and production.
We anticipate that we will require additional space as we expand into the
emerging fuel cell enabling technologies market, and believe that we will be
able to obtain suitable space as needed on commercially reasonable terms.
Legal Proceedings
We are a party to several legal actions, but we do not believe that any of
these actions will have a material adverse effect on our business, financial
condition or results of operations.
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MANAGEMENT
Directors and Executive Officers
The names, ages and positions of our directors and executive officers as of
March 31, 2000 are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <S> <C>
Robert M. Stemmler............... 64 Chairman of the Board of Directors, President and
Chief Executive Officer
Dale L. Rasmussen................ 50 Senior Vice President and Secretary
Syed Hussain..................... 47 Vice President of Technology and Automotive OEM
Division
Dennis D. Hartman................ 57 Vice President of the Gaseous Fuel Division
Donald L. Dominic................ 58 Vice President and General Counsel
William B. Olson................. 36 Treasurer and Chief Financial Officer
Norman L. Bryan (1).............. 58 Director
Paul Mlotok (1).................. 55 Director
Christopher G. Mumford (1)(2).... 54 Director
Ulrich Ruetz (2) ................ 60 Director
Edward L. Scarff................. 69 Director
Don J. Simplot (2)............... 64 Director
Douglas W. Toms.................. 69 Director
</TABLE>
- --------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
Robert M. Stemmler has been our President and Chief Executive Officer since
May 1993. He has also been a director since May 1993, and the Chairman of our
Board of Directors since June 1998. From December 1992 until July 1993, Mr.
Stemmler was a full time consultant for IMPCO. He was also the General manager
of IMPCO Technologies, Inc. from 1982 to 1985 and has held various management
and executive positions throughout his career at Celanese Corp (now Hoechst-
Celanese), A.J. Industries and Sargent Fletcher Company. Mr. Stemmler is a
director of Pacific Aerospace & Electronics, Inc., an international
manufacturer of aerospace and electronic components. He holds an MBA degree
from Seton Hall University and a B.S. degree in mechanical engineering from
Washington University.
Dale L. Rasmussen has been our Senior Vice President and Secretary since
June 1989. He joined IMPCO in April 1984 as Vice President of Finance and
Administration and Corporate Secretary. Prior to joining IMPCO, Mr. Rasmussen
was a commercial banker for 12 years at banks that were acquired by Key Bank
and U.S. Bank. Mr. Rasmussen is a director of Pacific Aerospace & Electronics,
Inc., an international manufacturer of aerospace and electronic components. He
received his B.A. degree in Business Administration and Economics from Western
Washington University and is a graduate of the Pacific Coast Banking School.
Syed Hussain has been our Vice President of Technology and Automotive OEM
division since November 1996. Prior to joining IMPCO in 1992, Mr. Hussain
worked for General Motors Saturn, Eaton and Bendix (Allied Signal). He has
over 18 years of automotive experience in engines, emission controls,
powertrain and related electronic and electromechanical devices. Mr. Hussain
holds an MSEE degree from Illinois Institute of Technology in Chicago,
Illinois and a BSEE degree from the University of Engineering and Technology
in Pakistan.
Dennis D. Hartman has been our Vice President and General Manager of IMPCO
Technologies in charge of the Gaseous Fuel Products division since February
1999. From January 1996 until joining IMPCO in April 1997, Mr. Hartman was the
Operating Manager and a director of Columbia River Homes of Astoria, Oregon, a
manufacturer of modular homes. Prior to holding this position, Mr. Hartman was
a Vice President of Nacco
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Material Handling, Inc., a manufacturer of lift trucks and worked for the
Ford Motor Company in Dearborn, Michigan in finance. Mr. Hartman is a graduate
of the University of California, Berkeley. He holds an MBA degree in finance
from that same institution.
Donald L. Dominic has been our Vice President, General Counsel and Director
of Human Resources since February 1999 and is also our Assistant Secretary.
Prior to joining our company in 1994, Mr. Dominic held various management and
technical positions with Honeywell, Hughes and Sargent-Fletcher. Mr. Dominic
holds a BSEE degree from the University of Illinois, a MSEE from West Coast
University, a MBA degree from the University of Southern California, and a JD
degree from the University of La Verne.
William B. Olson has been our Treasurer and Chief Financial Officer since
July 1999. He originally joined IMPCO in 1994 and has held various financial
positions with us, including serving as Corporate Controller. Prior to joining
IMPCO, Mr. Olson was with the public accounting firm of Ernst and Young and its
Kenneth Leventhal Group. Mr. Olson holds a B.S. degree in business and
operations management from Western Illinois University and a MBA degree in
finance and economic policy from the University of Southern California. Mr.
Olson is a Certified Financial Manager and a Certified Management Accountant.
Norman L. Bryan has been a director since November 1993 and is Chair of the
Audit Committee. He has been a consultant since 1995. Mr. Bryan has been
employed as the Senior Vice President of Sales and Marketing of EIT, Inc., an
electric meter manufacturing company, since 1998. Prior to retiring in 1994
from Pacific Gas and Electric Company, he was Vice President, Marketing from
February 1993 until December 1994, and was Vice President, Clean Air Vehicles
from February 1991 to February 1993. Mr. Bryan holds a M.A. degree in business
from Stanford University and B.S.M.E. degree in mechanical engineering from
California State University in San Jose.
Paul Mlotok has been a director since April 1997 and is a member of the
Audit Committee. He has been a Principal of Global Business Network, a
consulting firm specializing in strategy development particularly in the energy
and natural resources industries, since July 1990. From 1989 to 1995, he was a
Principal and analyst at Morgan Stanley & Co. Mr. Mlotok has a B.A. degree in
economics from Cornell University and a Ph.D. degree in economics from Brown
University.
Christopher G. Mumford has been a director since June 1998 and is a member
of the Compensation Committee and Audit Committee. He is a private investor and
was a Managing Director of Questor Partners Fund, L.P., a private investment
partnership, from 1995 through 1997. He has served as a director of Crown
Pacific Partners, L.P. and predecessor entities since 1992, and has served as
an officer or director of other private companies, including Executive Vice
President, Treasurer, Chief Financial Officer and director of Arcata
Corporation 1982-1994, Director of Ryder TRS, Inc. 1996-1997 and director of
Ockham Personal Insurance Holdings PLC (London, England) 1996-1997. Mr. Mumford
holds a B.A. degree in political science and a MBA degree from Stanford
University.
Ulrich Ruetz has been a director since October 1998. He has been the
Chairman and Chief Executive Officer of BERU AG since 1997 and Managing
Director of BERU AG and its predecessors since 1983. BERU AG, headquartered in
Ludwigsburg, Germany, manufactures and markets worldwide cold-start systems for
diesel engines and ignition systems for gasoline engines used in automotive
vehicles and stationary engines. Mr. Ruetz holds a BSc degree in mechanical
engineering from Polytechnikum Friedberg.
Edward L. Scarff has been a director since June 1998 and is Chair of the
Nominating Committee. He is a private investor and has been a Principal of the
General Partner of Questor Partners Fund, L.P., a private investment
partnership, since 1995. He has been a director of The Clorox Company since
1986. He has also been an officer or director of numerous private companies,
including director of Channel Master Holdings since 1997, director of Unicon
International, Ltd. 1991-2000, director of Ryder TRS, Inc. 1996-1997, director
of Ockham Personal Insurance Holdings PLC (London, England) 1996-1997 and
Chairman of Arcata Corporation 1982-1994. Mr. Scarff holds a B.A. degree in
chemical engineering from Michigan College of Mining and Technology.
50
<PAGE>
Don J. Simplot has been a director since May 1978 and is Chair of the
Compensation Committee. He is the President of Simplot Industries, Inc., which
is engaged in agricultural enterprises, and a Director member of the office of
the chair of J.R. Simplot Company, which is also engaged in agricultural
enterprises. Mr. Simplot is a director of Micron Technology, Inc., a designer
and manufacturer of semiconductor memory components primarily used in various
computer applications.
Douglas W. Toms has been a director since October 1980. He served as our
President and Chief Executive Officer from October 1980 to April 1989. From
April 1989 to March 1995, Mr. Toms was a consultant to American Honda Motor
Company, Inc. Since March 1995, Mr. Toms has been self-employed as a contract
engineer. Mr. Toms holds a B.S. degree from Central Michigan University in
accounting/economics and an M.S. degree in traffic engineering from Michigan
State University.
The Board of Directors is divided into three classes, each consisting of
three directors, with the three classes serving staggered three year terms. The
directors are elected for three-year terms. Each director will hold office
until the first meeting of stockholders immediately following expiration of his
term of office and until his successor is qualified and elected.
Director Compensation
Each of our non-employee directors is paid an attendance fee of $1,000 for
each board or committee meeting attended, plus out-of-pocket expenses. In
addition, the chairman of our audit, compensation and nominating committees are
paid an annual fee of $3,000. As of August 1, 1999, a total of 240,000 options
were held by directors under the 1993 Stock Option Plan for Nonemployee
Directors, of which 167,500 remain unexercised and are held by Messrs. Bryan,
Mlotok, Mumford, Ruetz, Scarff, Simplot and Toms. A total of 30,000 options
were available for future grants as of August 1, 1999. Option exercise prices
are the higher of (i) the average market value of the stock for the 15 trading
days following the date of grant and (ii) the market value on the fifteenth
trading day following the date of grant. Options are not assignable and vest
cumulatively at the rate of 25.0% annually, beginning on the first anniversary
date of grant. However, if a director dies, becomes disabled or retires at age
62 or later, then options vest at the rate of 25.0% for each full calendar year
in which the optionee served as one of our directors. Options must be exercised
while serving as a director or within three months following termination as
director, unless termination results from death or disability, in which case
options may be exercised during the one-year period following termination. In
no event may options be exercised more than ten years after date of grant.
51
<PAGE>
Executive Compensation
The following table sets forth all compensation paid or accrued during
fiscal year 1999 to our President and Chief Executive Officer, and each of our
four other most highly compensated officers whose annual compensation exceeded
$100,000 for the period.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
--------------------------- ------------------
Securities All Other
Underlying Compensation
Name and Principal Position Year Salary($)(1) Bonus($) Options/SARs(2)(#) ($)
--------------------------- ---- ------------ -------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
Robert M. Stemmler............. 1999 $239,255 $120,000 476 $33,439(3)
President and Chief 1998 229,673 96,000 200,129 25,631
Executive Officer 1997 197,917 62,600 58,535 31,181
Syed Hussain................... 1999 $159,615 $ 27,000 -- $12,261(4)
Vice President of Technology 1998 134,321 30,500 100,000 13,052
and Automotive OEM Divisions 1997 108,333 27,900 17,000 10,900
Donald L. Dominic.............. 1999 $108,885 $ 33,000 476 $10,452(5)
Vice President 1998 127,507 32,000 40,545 11,347
and General Counsel 1997 125,000 22,500 16,343 12,526
Dennis D. Hartman(7)........... 1999 $120,769 $ 37,000 112 $ 1,575(6)
Vice President of Gaseous Fuel 1998 101,910 26,000 34,000 1,506
Product Division 1997 3,461(7) -- -- --
Thomas M. Costales(8).......... 1999 $129,500 $ 26,000 -- $16,621(9)
Former Treasurer and 1998 118,458 36,000 40,237 19,238
Chief Financial Officer 1997 104,188 30,360 7,048 17,355
</TABLE>
- --------
(1) Includes amounts deferred by executive officers pursuant to the Employee
Savings Plan and Deferred Compensation Plan.
(2) Includes options under Incentive Stock Option Plans.
(3) Includes a group term life insurance premium of $18,494, an automobile
allowance of $12,000 and a matching contribution of $2,945 pursuant to the
Employee Savings Plan.
(4) Includes a group term life insurance premium of $261 and an automobile
allowance of $12,000.
(5) Includes a group term life insurance premium of $675, a matching
contribution of $1,377 pursuant to the Employee Savings Plan and an
automobile allowance of $8,400.
(6) Includes a group term life insurance premium of $675.
(7) Employment commenced April 1997.
(8) Resigned as a corporate officer in July 1999.
(9) Includes a group term life insurance premium of $1,913, a matching
contribution of $2,708 pursuant to the Employee Savings Plan and an
automobile allowance of $12,000.
52
<PAGE>
Option/Grants During Fiscal 1999
The following table describes the options to acquire shares of our common
stock that were granted to our executive officers in fiscal year 1999:
<TABLE>
<CAPTION>
Potential
Realizable
Value at
Assumed Annual
Rates of Stock
Price
Number of % of Total Appreciation
Securities Options/SARs Exercise for Option
Underlying Granted to or Base Term(2)
Options/SARs Employees in Price Expiration ---------------
Name Granted(1) Fiscal Year ($/Sh) Date 5%($) 10%($)
---- ------------ ------------ -------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Stemmler...... 476 * $13.125 01/04/09 $10,176 $16,204
Syed Hussain............ -- -- -- -- -- --
Donald L. Dominic....... 476 * 13.125 01/04/09 10,177 16,204
Dennis D. Hartman....... 112 * 13.125 01/04/09 2,394 3,813
Thomas M. Costales...... 53 * 13.125 01/04/09 1,130 1,804
</TABLE>
- --------
* Less than 1%
(1) Options granted to officers participating in the Deferred Compensation
Plan. We matched 50% of each participant's annual deferred compensation
contribution under the Deferred Compensation Plan and approximately 50% of
our matching contribution is in the form of options under the Incentive
Stock Option Plans. Options are granted at the fair market value of our
Common Stock on the date of grant and vest cumulatively at the rate of 40%
after the first two years following the date of the grant and 20% each year
thereafter so that the employee is 100% vested after five years. However,
if employment terminates due to death or disability, retirement at or after
age 62, or termination without cause, then options vest at the rate of 25%
for each full calendar year of employment. Options may be exercised only
while an optionee is employed by us, or within three months following
termination of employment. If termination results from death or disability,
options may be exercised within one year of the termination date. In no
event may options be exercised more than ten years after date of grant.
(2) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent our estimate or projection of our future common stock prices.
Value of IMPCO Options at Year End
The following table sets forth information concerning exercises of stock
options during fiscal year 1999 and the value of unexercised options held by
each of the individuals named in the summary compensation table at April 30,
1999.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Shares Options Shares Underlying In-the-Money Options at
Acquired on Value at Fiscal Year-End (#) Fiscal Year-End(2)
Exercise Realized ------------------------- -------------------------
Name (#) ($)(1) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert M. Stemmler...... -- $ -- 158,414 240,736 $165,130 $224,595
Donald L. Dominic....... -- -- 7,737 49,627 17,100 53,700
Dennis D. Hartman....... -- -- -- 34,112 -- 8,700
Syed Hussain............ 7,400 47,512 -- 111,400 -- 105,954
Thomas M. Costales...... -- -- 14,819 44,519 3,540 40,110
</TABLE>
- --------
(1) Calculated by determining the difference between the fair market value of
our common stock underlying the options on the date each option was
exercised and the exercise price of the options.
(2) Calculated by determining the difference between the fair market value of
our common stock underlying the options on April 30, 1999 and the exercise
price of the options.
53
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our outstanding common stock as of March 31, 2000 and as adjusted
to reflect this offering by:
. each person who is the beneficial owner of more than 5% of our capital
stock;
. each of our directors;
. each of our named executive officers in the summary compensation table;
. the selling stockholders; and
. all of our named executive officers and directors as a group.
Except as otherwise indicated, all of the shares indicated in the table are
shares of common stock. We have granted the underwriters an option to purchase
up to 375,000 shares of our common stock in this offering to cover over-
allotments, if any.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially
Owned Prior to Offering Number of Owned After Offering
------------------------------- Shares Being -----------------------
Name of Beneficial Owner Number Percent Offered Number Percent
------------------------ -------------- ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C> <C>
Norman L. Bryan.......... 31,000(1) * -- 31,000 *
Thomas M. Costales....... 8,000(2) * -- 8,000
Donald L. Dominic........ 27,943(3) * -- 27,943 *
Dennis D. Hartman........ 16,628(4) * -- 16,628 *
Syed Hussain............. 20,600(5) * -- 20,600 *
Paul Mlotok.............. 10,000(6) * -- 10,000 *
Christopher G. Mumford... 1,995,326(7) 23.3% 875,000 1,120,326 11.0%
Ulrich Ruetz............. 1,235,614(8) 14.4% -- 1,235,614 12.1%
Edward L. Scarff......... 1,995,326(9) 23.3% 875,000 1,120,326 11.0%
Don J. Simplot........... 295,933(10) 3.4% -- 295,933 2.9%
Robert M. Stemmler....... 256,615(11) 2.9% -- 256,615 2.5%
Douglas W. Toms.......... 288,637(12) 3.3% -- 288,637 2.8%
Kern Capital Management,
LLC (13)................ 1,159,500 13.5% -- 1,159,500 11.4%
Fidelity International
Limited (14)............ 429,230 5.0% -- 429,230 4.2%
Questor Partners Fund,
L.P..................... 1,856,969(15) 21.7% 816,375 1,040,594 10.2%
Questor Side-by-Side
Partners, L.P........... 133,357(15) 1.6% 58,625 74,732 *
FMR Corp.(16)............ 429,230 5.0% -- 429,230 4.2%
BERU
Aktiengesellschaft(17).. 1,230,614 14.4% -- 1,230,614 12.1%
All executive officers
and directors as a
group(14 persons)(18)... 4,310,158 47.2% 875,000 3,435,158 31.9%
</TABLE>
- --------
* Less than 1% of the outstanding common stock.
(1) Includes 30,000 shares subject to options under Directors Stock Option
Plan.
(2) Includes 8,000 shares subject to options under Incentive Stock Option
Plan; resigned as an officer in July 1999.
(3) Includes 27,943 shares subject to options under Incentive Stock Option
Plan.
(4) Includes 13,628 shares subject to options under Incentive Stock Option
Plan.
(5) Includes 20,600 shares subject to options under Incentive Stock Option
Plan.
(6) Includes 10,000 shares subject to options under Directors Stock Option
Plan.
(7) Shares voting and investment power with respect to shares beneficially
owned by Questor Partners Fund, L.P. and Questor Side-by- Side Partners,
L.P. (of which Mr. Mumford disclaims beneficial ownership). Includes 5,000
shares subject to options under Directors Stock Option Plan. Mr. Mumford
and Mr. Scarff have indicated their intention to resign as directors prior
to the effective date of the registration statement that contains this
prospectus.
54
<PAGE>
(8) Shares voting and investment power with respect to 1,230,614 shares owned
by BERU AG. Includes 5,000 shares subject to options under Directors Stock
Option Plan.
(9) Shares voting and investment power with respect to shares beneficially
owned by Questor Partners Fund, L.P. and Questor Side-by-Side Partners,
L.P. (of which Mr. Scarff disclaims beneficial ownership). Includes 5,000
shares subject to Directors Stock Option Plan. Mr. Mumford and Mr. Scarff
have indicated their intention to resign as directors prior to the
effective date of the registration statement that contains this
prospectus.
(10) Includes 30,000 shares subject to options under Directors Stock Option
Plan.
(11) Includes 251,496 shares subject to options under Incentive Stock Option
Plan and 1,319 shares held in a self-directed 401(k) plan.
(12) Includes 50,000 shares subject to options under Directors Stock Option
Plan.
(13) The address of Kern Capital Management LLC is 114 West 47th Street, Suite
1926, New York, New York 10036.
(14) The address of Fidelity International Limited is Pembroke Hall, 42
Crowlane, Hamilton, Bermuda.
(15) In March 2000, the two Questor partnerships entered into an agreement
that, without the consent of FleetBoston Robertson Stephens,Inc., the
partnerships will not sell any of their remaining shares before the
expiration of 135 days after the completion of this offering. After the
thirtieth day following the effective date of the registration statement
that contains this prospectus, the Questor partnerships may require us to
register some or all of their remaining shares on a separate registration
statement. Sales under this separate registration statement could begin to
occur after completion of the 135 day period or at a later time, if the
Questor partnerships defer their request to a later date. The address of
Questor Partners Fund, L.P. and Questor Side-by-Side Partners, L.P. is 103
Springer Building, 3411 Silverside Road, Wilmington, Delaware 19810.
(16) The address of FMR Corp. is Pembroke Hall, 42 Crowlane, Hamilton, Bermuda.
(17) The address of BERU Aktiengesellschaft is Moerikestrasce 155, Ludwigsburg,
Germany.
(18) Includes 561,433 shares subject to options under Directors Stock Option
Plan and Incentive Stock Option Plan.
55
<PAGE>
UNDERWRITING
The underwriters named below, acting through their representatives,
FleetBoston Robertson Stephens Inc., CIBC World Markets Corp. and FAC/Equities,
a division of First Albany Corporation, have severally agreed with us, subject
to the terms and conditions of the underwriting agreement, to purchase from us
the number of shares of common stock set forth below opposite their respective
names. The underwriters are committed to purchase and pay for all shares if any
are purchased.
<TABLE>
<CAPTION>
Number of
Shares
---------
Underwriter
- -----------
<S> <C>
FleetBoston Robertson Stephens Inc. ..................................
CIBC World Markets Corp. .............................................
FAC/Equities, a division of First Albany Corporation .................
---------
Total .............................................................. 2,500,000
=========
</TABLE>
The representatives have advised us that the underwriters propose to offer
the shares of common stock to the public at the public offering price set forth
on the cover page of this prospectus and to certain dealers at that price less
a concession of not in excess of $ per share, of which $ may be reallowed
to other dealers. After this offering, the public offering price, concession
and reallowance to dealers may be reduced by the representatives. No such
reduction shall change the amount of proceeds to be received by us as set forth
on the cover page of this prospectus. The common stock is offered by the
underwriters as stated herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part.
The underwriters have advised us that they do not expect sales to
discretionary accounts to exceed five percent of the total number of shares
offered.
Over-Allotment Option
We have granted to the underwriters an option, exercisable during the 30-day
period after the date of this prospectus, to purchase up to 375,000 additional
shares of common stock to cover over-allotments, if any, at the public offering
price less the underwriting discount set forth on the cover page of this
prospectus. If the underwriters exercise their over-allotment option to
purchase any of the additional 375,000 shares of common stock, the underwriters
have severally agreed, subject to certain conditions, to purchase approximately
the same percentage thereof as the number of shares to be purchased by each of
them bears to the total number of shares of common stock offered in this
offering. If purchased, these additional shares will be sold by the
underwriters on the same terms as those on which the shares offered hereby are
being sold. We will be obligated, pursuant to the over-allotment option, to
sell shares to the underwriters to the extent the over-allotment option is
exercised. The underwriters may exercise the over-allotment option only to
cover over-allotments made in connection with the sale of the shares of common
stock offered in this offering.
56
<PAGE>
The following table summarizes the compensation to be paid to the
underwriters by IMPCO:
<TABLE>
<CAPTION>
Total
-------------------
Without With
Per Over- Over-
Share allotment allotment
----- --------- ---------
<S> <C> <C> <C>
Underwriting Discounts and Commissions
payable by IMPCO................................. $ $ $
Underwriting Discounts and Commissions
payable by the selling stockholders.............. $ $ $
</TABLE>
IMPCO estimates expenses payable by us in connection with this offering,
other than the underwriting discounts and commissions referred to above, will
be approximately $850,000.
Indemnity
The underwriting agreement contains covenants of indemnity among the
underwriters, us and the selling stockholders against certain civil
liabilities, including liabilities under the Securities Act, and liabilities
arising from breaches of representations and warranties contained in the
underwriting agreement.
Lock-Up Agreements
Each of our executive officers and directors and certain of our other
stockholders have agreed, subject to specified exceptions, not to offer to
sell, contract to sell, or otherwise sell, dispose of, loan, pledge or grant
any rights with respect to any shares of common stock or any options or
warrants to purchase any shares of common stock, or any securities convertible
into or exchangeable for shares of common stock owned as of the date of this
prospectus or thereafter acquired directly by those holders or with respect to
which they have the power of disposition, without the prior written consent of
FleetBoston Robertson Stephens Inc. This restriction terminates 135 days after
the effective date of this prospectus. However, FleetBoston Robertson Stephens
Inc. may, in its sole discretion and at any time or from time to time before
the termination of the 135-day period, without notice, release all or any
portion of the securities subject to lock-up agreements. There are no existing
agreements between the representatives and any of our stockholders who have
executed a lock-up agreement providing consent to the sale of shares prior to
the expiration of the lock-up period.
In addition, we have agreed that during the lock-up period we will not,
without the prior written consent of FleetBoston Robertson Stephens Inc.,
subject to certain exceptions, consent to the disposition of any shares held by
stockholders subject to lock-up agreements prior to the expiration of the lock-
up period, or issue, sell, contract to sell, or otherwise dispose of, any
shares of common stock, any options or warrants to purchase any shares of
common stock or any securities convertible into, exercisable for or
exchangeable for shares of common stock other than our sale of shares in this
offering, the issuance of our common stock upon the exercise of outstanding
options or warrants, and the issuance of options under existing stock option
and incentive plans provided that those options do not vest prior to the
expiration of the lock-up period.
Listing
The common stock is traded on the Nasdaq National Market under the symbol
"IMCO."
Stabilization
The representatives have advised us that, pursuant to Regulation M under the
Securities Act of 1933, some persons participating in the offering may engage
in transactions, including stabilizing bids, syndicate covering
57
<PAGE>
transactions or the imposition of penalty bids, that may have the effect of
stabilizing or maintaining the market price of the shares of common stock at a
level above that which might otherwise prevail in the open market. A
"stabilizing bid" is a bid for or the purchase of shares of common stock on
behalf of the underwriters for the purpose of fixing or maintaining the price
of the common stock. A "syndicate covering transaction" is the bid for or
purchase of common stock on behalf of the underwriters to reduce a short
position incurred by the underwriters in connection with the offering. A
"penalty bid" is an arrangement permitting the representatives to reclaim the
selling concession otherwise accruing to an underwriter or syndicate member in
connection with the offering if the common stock originally sold by such
underwriter or syndicate member purchased by the representatives in a syndicate
covering transaction and has therefore not been effectively placed by such
underwriter or syndicate member. The representatives have advised us that such
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
Passive Market Making
In connection with this offering and before the commencement of offers or
sales of the common stock, certain underwriters who are qualified market makers
on the Nasdaq National Market may engage in passive market making transactions
in the common stock on the Nasdaq National Market in accordance with Rule 103
of Regulation M under the Exchange Act, during the business day prior to the
pricing of the offering. Passive market makers must comply with applicable
volume and price limitations and must be identified as such. In general, a
passive market maker must display its bid at a price not in excess of the
highest independent bid for such security; if all independent bids are lowered
below the passive market maker's bid, however, such bid must then be lowered
when certain purchase limits are exceeded.
58
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon by
Morrison & Foerster LLP, Los Angeles, California. Certain matters in connection
with this offering will be passed upon for the underwriters by Brobeck, Phleger
& Harrison LLP, Irvine, California.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our consolidated
financial statements and schedule at April 30, 1998 and 1999, and for each of
the three years in the period ended April 30, 1999, as set forth in their
reports. Such reports are included in this prospectus and incorporated by
reference in the related registration statement. We have included our financial
statements in the prospectus and our financial statement schedule is
incorporated by reference in the registration statement in reliance upon Ernst
& Young LLP's reports given on their authority as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed a registrations statement on Form S-3 with the Securities and
Exchange Commission in connection with this offering. In addition, we file
annual, quarterly and current reports, proxy statements and other information
with the Securities and Exchange Commission. You may read and copy the
registration statement and any other documents filed by us at the SEC's Public
Reference Room located at 450 Fifth Street N.W., Washington, D.C., 20549.
Please call the Securities and Exchange Commission at 1-800-SEC-0330 for
further information on the Public Reference Room. Our SEC filings are also
available to the public at the SEC's Internet site at "http://www.sec.gov".
This prospectus is part of the registration statement and does not contain
all of the information included in the registration statement. Whenever a
reference is made in this prospectus to any contract or other document of
IMPCO, the reference may not be complete and you should refer to the exhibits
that are a part of the registration statement for a copy of the contract or
document.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The SEC allows us to incorporate by reference the information we file with
them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
part of this prospectus. Information we later file with the SEC will
automatically update and supersede this information.
We incorporate by reference the documents listed below and any future
filings made with the SEC under Sections 13(a), 13(c), 14 and 15(d) of the
Securities Exchange Act of 1934, as amended, until this offering is completed.
We incorporate by reference the documents listed below.
1. Annual Report on Form 10-K for the fiscal year ended April 30, 1999.
2. Quarterly Reports on Form 10-Q for the quarters ended July 31, 1999,
October 31, 1999 and January 31, 2000.
3. The description of our common stock contained in our Registration
Statement on Form 8-A filed under Section 12 of the Exchange Act with
the SEC.
4. The description of our Stock Purchase Rights contained in our
Registration Statement on Form 8-A filed under Section 12 of the
Exchange Act with the SEC on July 7, 1999.
59
<PAGE>
5. The Current Report on Form 8-K filed under Section 12 of the Exchange
Act with the SEC on July 1, 1999.
6. Definitive Revised Proxy Statement on Schedule 14-A filed with the SEC
on October 4, 1999 and Definitive Proxy Statement on Schedule 14-A filed
with the SEC on August 30, 1999.
You may request a copy of these filings, at no cost, by contacting us at
IMPCO Technologies, Inc., 16804 Gridley Place, Cerritos, California 90703,
(562) 860-6666. We will not, however, send exhibits to these documents, unless
the exhibits are specifically incorporated by reference in the documents.
60
<PAGE>
IMPCO TECHNOLOGIES, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................. F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Income.......................................... F-5
Consolidated Statements of Stockholders' Equity............................ F-6
Consolidated Statements of Cash Flows...................................... F-7
Notes to Consolidated Financial Statements................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
IMPCO Technologies, Inc.
We have audited the accompanying consolidated balance sheets of IMPCO
Technologies, Inc. as of April 30, 1998 and 1999, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the three
years in the period ended April 30, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of IMPCO Technologies, Inc. at April 30, 1998 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended April 30, 1999, in conformity with accounting principles generally
accepted in the United States.
/s/ Ernst & Young LLP
Long Beach, California
June 30, 1999
F-2
<PAGE>
IMPCO TECHNOLOGIES, INC.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
April 30, April 30, January 31,
1998 1999 2000
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash..................................... $ 2,617,869 $ 2,009,208 $ 3,546,409
Accounts receivable...................... 14,528,000 22,209,363 27,140,461
Less allowance for doubtful accounts.... 314,794 535,824 550,980
----------- ----------- -----------
Net accounts receivable................ 14,213,206 21,673,539 26,589,481
Inventories:
Raw materials and parts................ 9,565,310 10,694,453 16,407,880
Work-in-process........................ 1,055,411 1,208,423 987,156
Finished goods......................... 7,308,190 10,804,309 12,806,125
----------- ----------- -----------
Total inventories..................... 17,928,911 22,707,185 30,201,161
Deferred tax assets...................... 2,392,403 3,474,387 3,547,110
Other current assets..................... 1,664,898 2,255,227 2,046,184
----------- ----------- -----------
Total current assets.................... 38,817,287 52,119,546 65,930,345
Equipment and leasehold improvements:
Dies, molds and patterns................. 5,039,892 5,746,955 6,012,162
Machinery and equipment.................. 7,074,004 7,293,593 8,172,807
Office furnishings and equipment......... 4,411,273 6,110,079 7,037,528
Automobiles and trucks................... 557,332 500,057 516,299
Leasehold improvements................... 2,288,022 2,965,366 3,285,924
Land and buildings....................... 267,000 -- --
----------- ----------- -----------
19,637,523 22,616,050 25,024,720
Less accumulated depreciation and
amortization............................ 10,613,052 12,730,976 14,873,927
----------- ----------- -----------
Net equipment and leasehold
improvements.......................... 9,024,471 9,885,074 10,150,793
Intangibles arising from acquisitions...... 13,644,309 15,593,672 15,748,111
Less accumulated amortization............ 3,885,209 4,576,369 5,134,637
----------- ----------- -----------
Net intangibles arising from
acquisitions............................ 9,759,100 11,017,303 10,613,474
Other assets............................... 576,953 540,239 576,643
----------- ----------- -----------
$58,177,811 $73,562,162 $87,271,255
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
IMPCO TECHNOLOGIES, INC.
Consolidated Balance Sheets
(Continued)
<TABLE>
<CAPTION>
April 30, April 30, January 31,
1998 1999 2000
----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable...................... $ 5,606,922 $ 8,294,977 $ 9,383,519
Accrued payroll obligations........... 1,848,425 2,493,402 2,263,589
Income taxes payable.................. 746,587 1,261,009 1,705,037
Other accrued expenses................ 1,065,347 1,356,803 1,684,495
Current maturities of long-term debt
and capital leases................... 2,149,910 3,485,376 3,216,534
----------- ----------- -----------
Total current liabilities............ 11,417,191 16,891,567 18,253,174
Lines of credit......................... 3,047,805 5,551,300 15,834,045
Term loans.............................. 5,619,395 5,411,326 3,581,169
Capital leases.......................... 1,927,166 2,102,173 1,669,126
Deferred tax liabilities................ 792,403 828,852 566,206
Minority interest....................... 1,068,500 1,327,825 1,704,316
Commitments and Contingencies -- -- --
Stockholders' equity:
1993 Series 1 Preferred Stock, $0.01
par value; 1998--5,950 shares
authorized, issued and outstanding
$5,950,000 liquidation value, 1999--
none authorized...................... 5,650,000 -- --
Common stock, $.001 par value,
authorized 25,000,000 shares;
8,562,207 issued and outstanding at
January 31, 2000 (7,091,601 at April
30, 1998) (8,408,481 at April 30,
1999)................................ 7,092 8,408 8,562
Additional paid-in capital relating to
common stock......................... 38,386,357 45,375,995 46,294,497
Shares held in trust.................. (36,759) (68,946) (100,526)
Retained earnings (accumulated
deficit)............................. (8,197,885) (2,397,813) 1,450,757
Foreign currency translation
adjustment........................... (1,503,454) (1,468,525) (1,990,071)
----------- ----------- -----------
Total stockholders' equity........... 34,305,351 41,449,119 45,663,219
----------- ----------- -----------
$58,177,811 $73,562,162 $87,271,255
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
IMPCO TECHNOLOGIES, INC.
Consolidated Statements of Income
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended April 30 January 31
----------------------------------- -----------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Product sales......... $58,436,508 $62,209,310 $75,820,926 $50,132,257 $76,759,293
Contract revenue...... 3,391,528 8,873,554 11,005,528 9,930,840 6,953,371
----------- ----------- ----------- ----------- -----------
Net revenue.......... 61,828,036 71,082,864 86,826,454 60,063,097 83,712,664
Costs and expenses:
Cost of product
sales................ 37,341,704 38,173,943 52,178,542 33,775,854 50,750,187
Research and
development expense.. 7,724,894 12,061,609 11,611,758 8,559,538 10,541,744
Selling, general and
administrative
expense.............. 11,911,572 13,729,352 16,133,080 11,195,594 15,573,212
----------- ----------- ----------- ----------- -----------
Total costs and
expenses............ 56,978,170 63,964,904 79,923,380 53,530,986 76,865,143
Operating income........ 4,849,866 7,117,960 6,903,074 6,532,111 6,847,521
Interest expense........ 1,100,449 934,825 1,169,830 904,568 1,138,239
Gain on sale of 49%
interest in
subsidiary............. -- -- 2,169,405 2,169,405 --
----------- ----------- ----------- ----------- -----------
Income before income
taxes, minority
interest in income of
consolidated
subsidiaries and
dividends.............. 3,749,417 6,183,135 7,902,649 7,796,948 5,709,282
Provision for income
taxes.................. 262,459 907,516 1,501,503 1,898,228 1,484,413
Minority interest in
income of consolidated
subsidiaries........... 261,667 410,554 70,532 7,529 376,299
----------- ----------- ----------- ----------- -----------
Net income before
dividends on preferred
stock.................. 3,225,291 4,865,065 6,330,614 5,891,191 3,848,570
Dividends on preferred
stock.................. 581,365 594,997 530,542 438,812 --
----------- ----------- ----------- ----------- -----------
Net income applicable to
common stock........... $ 2,643,926 $ 4,270,068 $ 5,800,072 $ 5,452,379 $ 3,848,570
=========== =========== =========== =========== ===========
Net income per share:
Basic................. $ 0.46 $ 0.67 $ 0.80 $ 0.76 $ 0.45
=========== =========== =========== =========== ===========
Diluted............... $ 0.43 $ 0.60 $ 0.71 $ 0.65 $ 0.43
=========== =========== =========== =========== ===========
Number of shares used in
per share calculation:
Basic................. 5,722,382 6,333,769 7,293,160 7,178,115 8,462,958
=========== =========== =========== =========== ===========
Diluted............... 6,130,542 8,155,476 8,975,629 9,008,848 8,947,709
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
IMPCO TECHNOLOGIES, INC.
Consolidated Statements Of Stockholders' Equity
<TABLE>
<CAPTION>
Nine Months
Fiscal Year Ended April 30 Ended
------------------------------------- January 31
1997 1998 1999 2000
----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C>
1993 Series 1 Preferred
Stock:
Beginning balance........ $ 5,650,000 $ 5,650,000 $ 5,650,000 --
Preferred stock
conversion.............. -- (5,650,000) --
----------- ----------- ----------- -----------
Ending balance......... 5,650,000 5,650,000 -- --
Common Stock:
Beginning balance........ 5,655 5,815 7,092 8,408
Issuance of common stock
(139,244, 57,796,
192,116 and 153,726
shares, respectively)
resulting from the
exercise of options
pursuant to the stock
option plans............ 139 58 192 154
Issuance of common stock
(1,124,764 shares) under
preferred stock
conversion.............. -- -- 1,124 --
Issuance of common stock
(20,775, 1,219,218, 0
and 0 shares,
respectively) resulting
from the exercise of
warrants................ 21 1,219 -- --
----------- ----------- ----------- -----------
Ending balance......... 5,815 7,092 8,408 8,562
Additional Paid-in Capital:
Beginning balance........ 28,746,994 29,342,121 38,386,357 45,375,995
Issuance of common stock
resulting from the
exercise of options
pursuant to the stock
option plans............ 439,335 194,271 1,433,763 918,502
Issuance of common stock
under preferred stock
conversion.............. -- -- 5,648,875 --
Issuance of common stock
resulting from the
exercise of warrants.... 155,792 8,453,063 -- --
Reduction in current tax
liability related to
stock options........... -- 303,902 -- --
Other.................... -- 93,000 (93,000) --
----------- ----------- ----------- -----------
Ending balance......... 29,342,121 38,386,357 45,375,995 46,294,497
Shares held in trust for
deferred compensation
plan, at cost (1,032,
2,572, 2,395 and 2,614
shares, respectively)..... (8,814) (36,759) (68,946) (100,526)
Retained earnings
(accumulated deficit)
Beginning balance........ (15,111,879) (12,467,953) (8,197,885) (2,397,813)
Net income applicable to
common stock............ 2,643,926 4,270,068 5,800,072 3,848,570
----------- ----------- ----------- -----------
Ending balance......... (12,467,953) (8,197,885) (2,397,813) 1,450,757
Accumulated Other
Comprehensive Income:
Beginning balance........ (34,748) (458,061) (1,503,454) (1,468,525)
Foreign currency
translation adjustment.. (423,313) (1,045,393) 34,929 (521,546)
----------- ----------- ----------- -----------
Ending balance......... (458,061) (1,503,454) (1,468,525) (1,990,071)
----------- ----------- ----------- -----------
Total stockholders'
equity.................... $22,063,108 $34,305,351 $41,449,119 $45,663,219
=========== =========== =========== ===========
Comprehensive Income:
Net income............... $ 2,643,926 $ 4,270,068 $ 5,800,072 $ 3,848,570
Foreign currency
translation adjustment.. (423,313) (1,045,393) 34,929 (521,546)
----------- ----------- ----------- -----------
Comprehensive Income....... $ 2,220,613 $ 3,224,675 $ 5,835,001 $ 3,327,024
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
IMPCO TECHNOLOGIES, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
Year Ended April 30 January 31
------------------------------------- ------------------------
1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 3,225,291 $ 4,865,065 $ 6,330,614 $ 5,891,191 $ 3,848,570
Adjustments to
reconcile net income
to net cash provided
by (used in) operating
activities:
Amortization of
intangibles arising
from acquisition..... 263,998 455,645 691,419 393,826 422,340
Depreciation and other
amortization......... 2,452,594 2,457,679 2,749,704 2,062,704 2,344,951
(Gain) loss on
disposal of assets... -- 30,926 (106,515) (47,028) (320)
Gain on sale of 49%
interest in
subsidiary........... -- -- (2,169,405) (2,169,405) --
Deferred taxes........ (272,856) 372,856 1,045,535 900,000 (335,369)
Increase in accounts
receivable........... (2,750,026) (3,396,372) (7,636,517) (3,207,301) (3,477,012)
Increase in
inventories.......... (385,003) (3,665,033) (2,319,450) (1,953,689) (6,249,549)
Increase (decrease) in
accounts payable..... 58,508 1,178,829 2,941,749 330,395 (433,772)
Increase (decrease) in
accrued expenses..... 799,321 (806,387) (594,045) 701,321 (2,545,268)
Minority interests in
income of
consolidated
subsidiaries......... 261,667 410,554 70,532 7,529 376,299
Other, net............ 54,381 (396,229) (563,867) 313,471 1,295,718
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in) operating
activities............. 3,707,875 1,507,533 439,754 3,223,014 (4,753,412)
Cash flows from
investing activities:
Purchases of equipment
and leasehold
improvements.......... (1,702,477) (3,219,766) (2,797,787) (2,150,774) (2,412,520)
Purchases of
businesses............ (4,729,394) (2,813,197) (5,831,412) (4,097,903) --
Proceeds from sale of
49% interest in
subsidiary............ -- -- 3,500,000 -- --
Proceeds from sales of
equipment............. 74,319 270,001 587,456 475,626 46,546
Other, net............. (28,637) -- -- -- (45,752)
----------- ----------- ----------- ----------- -----------
Net cash used in
investing activities... (6,386,189) (5,762,962) (4,541,743) (5,773,051) (2,411,726)
Cash flow from financing
activities:
Increase (decrease) in
borrowings under lines
of credit............. 2,050,000 (2,407,382) 2,454,928 (443,805) 10,379,330
Payments on notes
payable............... (1,083,615) (328,839) -- -- --
Proceeds from issuance
of notes payable...... 558,685 -- -- -- --
Payments on term
loans................. (1,035,454) (4,074,197) (5,501,361) (3,216,827) (1,877,126)
Proceeds from issuance
of bank term loans.... 3,968,750 3,992,521 6,631,560 5,288,000 --
Payments of capital
lease obligation...... (297,961) (461,023) (934,182) (654,729) (518,137)
Proceeds from issuance
of common stock....... 595,288 8,924,568 1,400,297 1,005,532 887,076
Dividends on preferred
stock................. (581,365) (594,997) (530,542) (438,812) --
----------- ----------- ----------- ----------- -----------
Net cash provided by
financing activities... 4,174,328 5,050,651 3,520,700 1,539,359 8,871,143
Translation adjustment.. (331,259) (153,256) (27,372) (61,390) (168,804)
Net increase (decrease)
in cash................ 1,164,755 641,966 (608,661) (1,072,068) 1,537,201
Cash at beginning of
period................. 811,148 1,975,903 2,617,869 2,617,869 2,009,208
----------- ----------- ----------- ----------- -----------
Cash at end of period... $ 1,975,903 $ 2,617,869 $ 2,009,208 $ 1,545,801 $ 3,546,409
=========== =========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
(a) Basis of presentation and description of the business--The consolidated
financial statements of IMPCO Technologies, Inc. ("IMPCO" or the "Company")
[effective September 15, 1997, AirSensors, Inc. changed its name to IMPCO
Technologies, Inc.] include the accounts of the Company and its majority owned
subsidiary IMPCO-BERU Technologies B.V. ("IMPCO BV") [Effective January 29,
1999, IMPCO Technologies B.V. changed its name to IMPCO-BERU Technologies
B.V.], its majority owned subsidiary Grupo I.M.P.C.O. Mexicano, S. de R.L. de
C.V. ("IMPCO Mexicano") [Effective January 20, 1998, Industrias Mexicanas de
Productos de Combustibles, S. de R.L. de C.V. changed its name to Grupo
I.M.P.C.O. Mexicano, S. de R.L. de C.V.] and its wholly-owned subsidiaries
IMPCO Technologies, Pty. Limited ("IMPCO Pty") and IMPCO Tech Japan K.K.
("IMPCO Japan"). All significant intercompany accounts and transactions have
been eliminated in consolidation.
The Company is a designer, manufacturer and supplier of fuel storage, fuel
delivery and electronic control systems that allow internal combustion engines
and fuel cells to operate using clean fuels such as hydrogen, propane, natural
gas and methanol.
(b) Interim Financial Information--The interim financial information at
January 31, 2000 and for the nine months ended January 31, 2000 and 1999 is
unaudited. In the opinion of management, the interim information has been
prepared on the same basis as the annual financial statements and includes all
adjustments (consisting only of normal recurring adjustments) that the Company
considers necessary for a fair presentation of its financial position at such
date and its operating results and cash flows for those periods. Results for
the interim periods are not necessarily indicative of the results to be
expected for the entire year, or any future period.
(c) Inventories--Inventories are valued at the lower of cost or market. Cost
is determined by the first-in, first-out (FIFO) method while market is
determined by replacement cost for raw materials and parts and net realizable
value for work-in-process and finished goods.
(d) Property, plant and equipment--Property, plant and equipment are stated
on the basis of historical cost. Depreciation of equipment is provided using
the straight-line method over the assets' estimated useful lives, ranging from
three to seven years. Amortization of leasehold improvements, and equipment
financed by the Company's capital lease facility or capital expenditure
facility, is provided using the straight-line method over the shorter of the
assets' estimated useful lives or the lease terms.
(e) Intangibles arising from acquisitions--Intangibles arising from
acquisitions, primarily goodwill, are recorded based on the excess of the cost
of the acquisition over amounts assigned to tangible assets and liabilities.
Intangible assets arising from acquisitions are amortized using the straight-
line method over their estimated lives of twenty years.
(f) Warranty costs--Estimated future warranty obligations related to certain
products are provided by charges to operations in the period in which the
related revenue is recognized. Estimates are based, in part, on historical
experience.
(g) Research and development costs--Research and development costs are
charged to expense as incurred. Equipment used in research and development with
alternative future uses is capitalized.
(h) Contract revenue recognition--Contract revenue for customer funded
research and development is principally recognized by the percentage of
completion method. Amounts expected to be realized on contracts are based on
the Company's estimates of total contract value and costs at completion. These
estimates are reviewed and revised periodically throughout the lives of the
contracts.
F-8
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(i) Minority interests in subsidiaries--In October 1995, IMPCO purchased 51%
of IMPCO BV. In May 1998, IMPCO purchased the remaining 49% of IMPCO BV.
Subsequently, in January 1999, IMPCO sold a 49% share of IMPCO BV. In July
1996, IMPCO acquired IMPCO Pty, which included a 50% share in a subsidiary
("Gas Parts, NSW"). In January 1998, IMPCO Pty acquired the remaining 50% of
Gas Parts, NSW. In January 1999, IMPCO Pty acquired 51% of IMPCO SA. In
December 1997, IMPCO acquired a 90% interest in IMPCO Mexicano. Minority
interests represents the minority stockholder's proportionate share of equity
in the IMPCO BV, Gas Parts, NSW, IMPCO SA and IMPCO Mexicano subsidiaries. The
balance sheet amounts in minority interest at April 30, 1999 and January 31,
2000 represent 49% of the equity held by the single minority stockholder in
IMPCO BV, 10% of the equity held by the single minority stockholder in IMPCO
Mexicano and 49% of the equity held by the single minority stockholder in IMPCO
SA.
(j) Net income per share--Basic income per share is computed by dividing net
income applicable to common stock by the weighted average shares of common
stock outstanding during the period. Diluted earnings per share is computed
based on the weighted average number of shares of common stock outstanding, all
common stock equivalents, and if dilutive, shares issued upon conversion of
preferred stock.
(k) Stock based compensation--In October 1995, the Financial Accounting
Standards Board issued SFAS No. 123 "Accounting of Stock Based Compensation,"
which established accounting and reporting standards for stock based employee
compensation plans effective after fiscal year 1996. SFAS 123 encourages
entities to adopt the fair value based method of accounting; however it also
allows an entity to continue to measure compensation cost using the intrinsic
value based method prescribed by Accounting Principles Board No. 25. Such
entities who elect to remain on the "intrinsic value based" method must make
certain pro forma disclosures as if the new fair value method had been applied.
At this time, the Company has not adopted the recognition provision of SFAS
123, but has provided pro forma disclosures (see note 7).
(l) Impairment of long-lived assets and long-lived assets to be disposed
of--Impairment losses are recorded on long-lived assets used in operations when
an indicator of impairment (significant decrease in market value of an asset,
significant change in extent or manner in which the asset is used or
significant physical change to the asset) is present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount. The Company has not experienced any significant changes in the
business climate or in the use of assets that would require the Company to
write down the value of the assets recorded in the balance sheet.
(m) Use of estimates--The preparation of financial statements in conformity
with generally accepted accounting principles requires that management make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities as of the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
(n) Reclassifications--Certain prior year amounts have been reclassified to
conform to current presentations.
(o) Foreign currency translation--Assets and liabilities of the Company's
foreign subsidiaries are generally translated at current exchange rates, and
related revenues and expenses are translated at average exchange rates in
effect during the period. Resulting translation adjustments are recorded as a
foreign currency component of other comprehensive income in stockholders'
equity.
Transaction gains and losses that arise from exchange rate fluctuations on
transactions denominated in a currency other than the functional currency,
except those transactions that operate as a hedge of an identifiable
F-9
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
foreign currency commitment, are included in the results of operations as
incurred.
(p) Financial instruments--The Company's financial instruments recorded on
the balance sheet include short-term bank debt and long-term bank debt. At
April 30, 1999 and January 31, 2000, off balance sheet derivative financial
instruments included foreign currency forward contracts and interest rate swap
agreements (see note 4).
The Company enters into foreign currency forward contracts to hedge
indentifiable foreign currency commitments. Foreign currency contracts reduce
the Company's exposure to unfavorable fluctuations in foreign currencies versus
the U.S. dollar. Realized gains and losses on these contracts are included in
the measurement of the related foreign currency transaction.
Interest rate swap agreements are used by the Company to manage interest
rate risk on its floating rate debt portfolio. Each interest rate swap is
matched as a hedge against a specific debt instrument and has the same notional
amount and tenor as the related debt instrument principle.
Accounting Pronouncements
The Financial Accounting Standards Board has issued certain Statements of
Financial Accounting Standards (SFAS) which are applicable to the Company. SFAS
130, "Reporting Comprehensive Income," which was effective for fiscal years
beginning after December 15, 1997; SFAS 131, "Disclosures About Segments of an
Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997; and, SFAS 133, "Accounting for Derivative
Instruments and for Hedging Activities," which is effective for fiscal years
beginning after June 15, 1999.
SFAS 130 requires that all items required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The changes in cumulative translation adjustments, reported through
stockholders' equity, is currently the Company's only component of
comprehensive income. The Company adopted this standard in fiscal year 1999.
SFAS 131 requires a public enterprise to report financial and descriptive
information about its reportable operating segments based upon the manner in
which management organizes segments within the enterprise for making operating
decisions and assessing performances. The Company adopted this standard in
fiscal year 1999 (see Note 10).
SFAS 133 requires derivatives to be recorded on the balance sheet at fair
value and establishes special accounting for the following three types of
hedges: hedges of changes in the fair value of assets, liabilities or firm
commitments (referred to as fair value hedges); hedges of the variable cash
flows of forecasted transactions (cash flow hedges); and hedges of foreign
currency exposures of net investments in foreign operations. The accounting
treatment and criteria for each of the three types of hedges is unique. Changes
in fair value of derivatives that do not meet the criteria of one of these
three categories of hedges would be included in income. SFAS 133 was amended by
SFAS 137, which delayed its effective date. The Company has not determined what
impact, if any, it will have on its financial position, results of operations
and cash flows. Currently, the Company does not anticipate adopting this
standard before May 1, 2001.
F-10
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Financial Accounting Standards Board has also recently issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation." The Interpretation addresses implementation practice issues in
accounting for compensation costs under existing rules prescribed by Accounting
Principles Board No. 25. The new rules are applied prospectively to all new
awards, modifications to outstanding awards and changes in grantee status after
July 1, 2000, with certain exceptions. The Company is considering the effects
these changes make and will implement any changes to their plans as deemed
appropriate.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements," or
SAB 101. SAB 101 summarizes certain of the SEC Staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company is currently evaluating the impact of SAB 101. The
Company does not believe that their evaluation will result in any material
change to their revenue recognition policies.
2. Acquisitions
Ateco Automotive Pty. Ltd. On July 1, 1996, the Company acquired certain
operating assets of Ateco Automotive Pty. Ltd. ("Ateco") for approximately
US$6,500,000. Ateco, an Australian private company, has distributed IMPCO's
gaseous fuel carburetion systems and related devices for use with internal
combustion engines since 1969 through its Gas Division near Melbourne,
Australia.
In order to effectuate the transaction, IMPCO established a wholly-owned
subsidiary in Australia, IMPCO Technologies Pty. Limited ("IMPCO Pty"). The
acquisition of Ateco has been accounted for under the purchase method of
accounting and the acquired operations have been included in the consolidated
financial statements since the date of acquisition. The assets acquired by
IMPCO Pty primarily consist of accounts receivable, inventories, equipment, a
note, business goodwill, distribution rights in Australia, and a 50% interest
in Ateco's sub-distributor, Gas Parts, NSW.
The purchase price was financed through approximately $4,000,000 of term
loans provided by Bank of America NT&SA and its Sydney Australia Branch. The
term loans are both three-year loans with a five-year amortization schedule and
interest at market rates. In addition, accounts receivable due to IMPCO by
Ateco, totaling approximately $1,852,000, were offset against the purchase
price. The balance of the purchase price was paid with proceeds from IMPCO's
then existing line of credit with Bank of America NT&SA. The Company recognized
approximately $3,601,000 of intangible assets arising from acquisitions, which
is being amortized over 20 years.
IMPCO Technologies B.V. On October 31, 1995, the Company acquired 51% of the
outstanding stock of Media, a private company in the Netherlands, from
Centradas B.V., a private company in the Netherlands, for cash in the amount of
fl.3,187,500 (US$2,023,000). IMPCO BV has distributed IMPCO's gaseous fuel
carburetion systems and related devices for use in internal combustion engines
since 1972. IMPCO BV services the European marketplace from its headquarters in
the Netherlands and through its subsidiaries in Germany, France and the United
Kingdom.
This acquisition was financed through a term loan provided by Bank of
America NT&SA which is being repaid over a five-year period with interest at
market rates [See Note 3]. The acquisition of IMPCO BV has been accounted for
under the purchase method of accounting and has been included in the
consolidated financial statements since the date of acquisition. The Company
recognized $2,100,000 of intangible assets arising from the acquisition which
is being amortized on the straight-line method over 20 years.
On May 1, 1998 the Company purchased the remaining 49% of IMPCO BV from Depa
Holding B.V. for fl.1,400,000 (US$692,521). As a condition precedent to the
purchase of the outstanding shares, IMPCO BV retired the debt outstanding to
Depa Holding B.V. with the proceeds from the term loan granted by Bank of
America NT&SA (See Note 3).
F-11
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
On January 28, 1999, the Company sold this 49% interest in IMPCO BV to BERU
Aktiengesellschaft, an international OEM and aftermarket supplier of diesel and
automotive engine components and systems, for $3,500,000 in cash. The Company
recorded a pre-tax gain of $2,169,000 and an after-tax gain of $1,757,000, or
$0.20 per share on a diluted basis.
Algas Carburetion. On December 5, 1997, the Company purchased certain
manufacturing equipment and inventory of the Algas Carburetion Division of PGI
International. The purchase price of US$2,400,000 was paid in cash. On the same
day, the Company acquired a 90% interest in Industrias Mexicanas de Productos
de Combustibles, S. de R.L. de C.V. The purchase price of $961,000 was paid in
cash. Immediately prior to the Company's acquisition of a 90% ownership
interest in Grupo I.M.P.C.O. Mexicano, Grupo I.M.P.C.O. Mexicano acquired
certain operating assets of the carburetion division of Algas Mexicana, de R.L.
de C.V. These acquisitions were financed by term loans of approximately $3.3
million provided by Bank of America NT&SA.
Edo Canada, Ltd. On December 12, 1997, the Company purchased from the
bankruptcy trustee of EDO Canada, Ltd. certain development, testing, quality
control and manufacturing equipment used for the manufacture of storage tanks
for compressed natural gas. The purchase price of US$790,000 was paid in cash
and was primarily financed through Bank of America's BA Capital Leasing.
Gas Parts (NSW) Pty. Ltd. On January 31, 1998, the Company's wholly-owned
subsidiary, IMPCO Pty, acquired the remaining 50% ownership interest in Gas
Parts for A$225,000 (US$148,500) in cash. This acquisition was accounted for
using the purchase method of accounting for step-acquisitions. Excess purchase
price over fair market value of the underlying assets was allocated to
goodwill.
Crusader Engine Division. On December 4, 1998, the Company acquired certain
operating assets of the Crusader Engine division of Thermo Power Corporation, a
subsidiary of Thermo Power Electron Corporation, for approximately $3,880,000.
The Crusader Engine division provides engine dressing and related devices for
material handling engines. The Company funded $3,190,000 of the purchase price
using the Bank of America NT&SA acquisition facility and $710,000 using the
Bank of America NT&SA capital lease facility. These assets currently comprise
the Company's Industrial Engine Systems business. This acquisition was
accounted for under the purchase method of accounting and has been included in
the consolidated financial statements since the date of acquisition. Goodwill
of approximately $662,000 was recognized with tangible net assets acquired
consisting of $2,500,000 in inventory and $718,000 in fixed assets.
Mikuni Corporation. In March 1999, the Company purchased a dormant company
in Japan for US$126,000 in order to establish IMPCO Tech Japan K.K. (IMPCO
Japan). On March 31, 1999, IMPCO Japan, purchased certain manufacturing
equipment and inventory of the Fukuoka Division of Mikuni Corporation. The
purchase price of US$1,325,000 was paid in cash. The acquisition was financed
through a yen-denominated term loan provided by the Hong Kong and Shanghai
Banking Corporation, Osaka Branch, which is being repaid over a five-year
period with interest at market rates [See Note 3]. This acquisition was
accounted for under the purchase method of accounting and has been included in
the consolidated financial statements since the date of acquisition. Goodwill
of approximately $944,000 was recognized with tangible net assets acquired
consisting of $362,000 in inventory and $19,000 in fixed and other assets.
The unaudited pro forma financial information reflects the consolidated
results of operation of the Company as if the aforementioned fiscal year 1999
acquisitions had taken place at the beginning of the
F-12
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
respective periods. The pro forma information includes adjustments for the
interest expense that would have been incurred to finance the acquisitions,
additional depreciation based on the fair value of the property, plant and
equipment acquired and the amortization of intangibles arising from the
transactions. The pro forma information is not necessarily indicative of the
results of operations as they would have been had the transactions been
effected on the assumed dates.
<TABLE>
<CAPTION>
Fiscal Years Nine Months
Ending April 30 Ended
--------------- January 31
1998 1999 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Revenue............................................. $84,742 $93,646 $66,467
Net earnings........................................ 4,178 5,865 5,581
Earnings per share--Basic........................... $ 0.66 $ 0.81 $ 0.78
Earnings per share--Diluted......................... $ 0.59 $ 0.72 $ 0.66
</TABLE>
3. Debt Payable
The Company's debt payable at April 30,1999 and January 31, 2000 is
summarized as follows:
<TABLE>
<CAPTION>
April 30 January 31
1999 2000
----------- -----------
(Unaudited)
<S> <C> <C>
(a) Bank of America NT&SA
Revolving line of credit.......................... $ 5,360,000 $13,000,000
Mexican peso line of credit....................... 107,000 643,000
Term loan for acquisition of Media................ 615,000 308,000
Term loan for acquisition of ALGAS................ 2,475,000 1,980,000
Term loan for acquisition of IMPCO BV............. 554,000 485,000
IMPCO BV term loan................................ 1,714,000 1,202,000
Term loans for future acquisitions................ 1,231,000 752,000
Capital lease and expenditure facilities.......... 2,928,000 4,090,000
(b) Term Loan--Depa Holding B.V. ..................... -- --
(c) Credit facility--Mees Pierson..................... -- --
(d) The Hong Kong and Shanghai Banking Corporation
Ltd.
Term loan for acquisition of Mikuni............... 1,341,000 1,267,000
Line of credit.................................... 84,000 466,000
Other................................................. 141,000 108,000
----------- -----------
16,550,000 24,301,000
Less current portion.................................. 3,485,000 3,217,000
----------- -----------
$13,065,000 $21,084,000
=========== ===========
</TABLE>
(a) Bank of America NT&SA
At April 30, 1999, IMPCO's credit facility with Bank of America NT&SA (Bank)
included a $12 million revolving line of credit, a $6,000,000 term loan
facility for possible future acquisitions, a $6,525,000 capital lease facility
and a standby letter of credit to expire August 31, 2000. The credit facility
provided a Mexican peso line of credit equivalent to $1,000,000 for IMPCO
Mexicano and was included as part of the revolving line of credit. The standby
letter of credit was used to guarantee the credit facilities granted by the
Hong Kong and Shanghai Banking Corporation Ltd., Osaka Branch (refer to (d)
below).
F-13
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Also as of April 30, 1999, IMPCO BV has a credit facility with Bank of
America NT&SA through its Amsterdam branch. The facility includes a term loan
for $2,100,000 or an equivalent amount in freely convertible foreign
currencies.
On September 13, 1999, IMPCO amended its credit facility with Bank of
America NT&SA by increasing the revolving line of credit to $20 million and
extending the term for a twelve month period ending August 31, 2001. The
amended credit facility also added a $6,000,000 non-revolving line of credit
(due August 31, 2000) for possible future acquisitions, a $3,000,000 non-
revolving line of credit for future capital expenditures (due August 31, 2000)
and a Mexican peso line of credit equivalent to $3,000,000 (due August 31,
2001) for IMPCO Mexicano. Those portions of the credit facility that are due
August 31, 2000 have an option to convert each of them to a term loan payable
in five years. The Company intends to exercise this option.
Including the revolving line of credit, the capital expenditures facilities,
the capital lease facility, the standby letter of credit and the acquisition
facilities, the total Bank of America NT&SA credit facility was approximately
$27,444,000 at April 30, 1999 and $39,091,000 at January 31, 2000. Details
about each of the components of the Company's credit facility at April 30, 1999
and January 31, 2000 follows. Term loans obtained for prior acquisitions are
also described.
Revolving Line of Credit. The $12 million revolving line of credit at April
30, 1999 bore interest, payable monthly, at a fluctuating per annum rate equal
to the Bank's reference rate minus one-half of one percentage point (7.25% on
April 30, 1999). The Company could elect to have all or portions of the line
bear interest at an alternative interest rate established by the Bank (offshore
rate). The offshore rate was 6.16% on April 30, 1999. Of the $5,360,000
outstanding line of credit balance at April 30, 1999, 860,000 was subject to
the reference rate and $4,500,000 was subject to the offshore rate.
For U.S. borrowings under the Mexican portion of the revolving credit line
at April 30, 1999, interest, payable monthly, was at a fluctuating per annum
rate equal to the Bank's reference rate or the London Interbank Offering Rate
(LIBOR) plus 1.75% (6.6525% at April 30, 1999). For Mexican borrowings, under
the revolving line of credit at April 30, 1999, interest, payable monthly, was
at a fluctuating per annum rate equal to the Bank of America Mexico (BAMSA)
cost of funds plus 1.50% or the TIIE plus 1.50% (23.59% at April 30, 1999). The
TIIE is the Interbank Interest Equilibrium Rate calculated by the Bank of
Mexico for the most recent period of twenty-eight (28) days prior to
commencement of the interest period. The Company may prepay the facility, in
full or in part, upon two-business days notice, subject to break funding costs,
if any. The minimum prepayment was US$250,000. At April 30, 1999, the total
outstanding line of credit balance of $107,000 was subject to the BAMSA cost of
funds rate of 26.25%.
The amended revolving line of credit bears interest, payable monthly, at a
fluctuating rate per annum equal to the Bank's reference rate minus one-half to
one-quarter of one percentage point, depending on certain financial ratios, as
defined. Alternatively, the Company may elect to have all or portions of the
line based on an offshore rate, which may also vary depending on certain
financial ratios, as defined. At January 31, 2000, the outstanding line of
credit balance was $13,000,000 of which $1,000,000 was subject to the Bank's
reference rate less .50%, or 8.00%. Additionally, $7,000,000 and $5,000,000
were subject to the offshore rate of 7.43% and 7.11%, respectively. The Mexican
peso line of credit at January 31, 2000 totaled $643,000 and was subject to a
rate based on the BAMSA cost of funds of 22.00% (See description of rate
above).
It is management's intent to renew the amount of its present long-term
obligation under the revolving line of credit for an uninterrupted period
extending beyond one year from the balance sheet date.
The amended facility may be used for financing commercial letters of credit
with a maximum maturity of 180 days and standby letters of credit with a
maximum maturity of five years not to extend beyond August 30, 2002. The amount
of letters of credit outstanding at any one time may not exceed $1,000,000 for
commercial
F-14
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
letters of credit and $750,000 for standby letters of credit. The maximum
amount available at any one time on the revolving line of credit and the
commercial letters of credit is $20,000,000. At January 31, 2000, a standby
letter of credit totaling $375,000 was outstanding. At April 30, 1999, a
standby letter of credit under the previous credit facility totaling $375,000
was outstanding.
Term Loan for Acquisition of Media. This term loan bears interest, payable
on a monthly basis, at the Bank's reference rate. The Company may elect to have
all or portions of the term loan bear interest at an alternative interest rate
agreed upon by the Bank and IMPCO for periods of not less than 30 days nor more
than one year. The alternative interest rate is based on the offshore rate plus
1.50%. Each alternative rate portion must be for an amount not less than
$500,000 and may not include any portion of principal that is scheduled to be
repaid before the last day of the applicable interest period. On October 20,
1997, the Company entered into a 34 month interest rate swap agreement with
Bank of America NT&SA ending August 31, 2000, that fixes the interest rate on
the facility at 7.90%. At April 30, 1999, the total outstanding balance was
$615,000. At January 31, 2000, the total outstanding balance was approximately
$308,000.
Term Loan for the Acquisition of ALGAS. This term loan bears interest,
payable on a monthly basis, at the Bank's reference rate. The Company may elect
to have all or portions of the term loan bear interest at an alternative
interest rate agreed upon by the Bank and IMPCO for periods of not less than 30
days nor more than one year. The alternative interest rate is based on the
offshore rate plus 1.75%. Each alternative rate portion must be for an amount
not less than $500,000 and may not include any portion of principal that is
scheduled to be repaid before the last day of the applicable interest period.
On February 3, 1998, the Company entered into a 58-month interest rate swap
agreement with the Bank ending December 5, 2002 that fixes the interest rate on
the facility at 7.74%. At April 30, 1999, the total outstanding balance was,
$2,475,000. At January 31, 2000, the total outstanding balance was $1,980,000.
Term Loan for the Acquisition of IMPCO BV. This term loan bears interest,
payable on a monthly basis, at the Bank's reference rate. The Company may elect
to have all or portions of the term loan bear interest at an alternative
interest rate agreed upon by the Bank and IMPCO for periods of not less than 30
days nor more than one year. The alternative interest rate is based on the
offshore rate plus 1.75%. Each alternative rate portion must be for an amount
not less than $500,000 and may not include any portion of principal that is
scheduled to be repaid before the last day of the applicable interest period.
On May 29, 1998, the Company entered into a 59-month interest rate swap
agreement with the Bank ending April 15, 2003 that fixes the interest rate on
the facility at 7.80%. At April 30, 1999, the total outstanding balance was
$554,000. At January 31, 2000, the total outstanding balance was $485,000.
IMPCO BV Term Loan. On April 29, 1998 IMPCO BV entered into a credit
facility with Bank of America NT&SA through its Amsterdam branch. The facility
includes a term loan for $2,100,000 or an equivalent amount in freely
convertible foreign currencies. On May 1, 1998 IMPCO BV borrowed fl.4,200,000
to refinance the existing term loan with Depa Holdings as a condition precedent
to the sale of the minority shares in IMPCO BV. This term loan bears interest,
payable on a monthly basis, at the Euro Interbank Offered Rate for the
corresponding period of the advance, plus 1.50%. The Company will repay
principal in 20 successive quarterly installments. The first 19 installments
will be equal to fl.210,000 with the last installment equal to the remaining
balance. The term loan may be prepaid, with payments applied in inverse order
of maturity, in whole or in part, at any time. At April 30, 1999, the
outstanding balance of fl.3,570,000 (US$1,714,000) bore an interest rate of
4.27%. At January 31, 2000, the outstanding balance of fl.2,730,000
(US$1,202,000) bore an interest rate of 5.00%.
Term Loans for Future Acquisition(s). At April 30, 1999 the term loan
facility bore interest, payable on a monthly basis, at the Bank's reference
rate. The Company could elect to have all or portions of the term loan bear
interest at an alternative interest rate agreed upon by the Bank and IMPCO for
periods of not less than 30
F-15
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
days nor more than one year. The alternative interest rate was based on the
offshore rate plus 1.50%. Each alternative rate portion was for an amount not
less than $500,000 and may not include any portion of principal that is
scheduled to be repaid before the last day of the applicable interest period.
The Company is repaying principal in 20 successive quarterly installments,
starting on the last day of the third month after funding. The first 19
installments are equal to 1/19 of the original principal amount with the last
installment equal to the remaining balance. The term loan may be prepaid, with
payments applied in inverse order of maturity, in whole or in part, at any
time.
On December 4, 1998 the Company used $3,190,000 of the then existing
$6,000,000 term loan for the acquisition of Crusader Engines. On February 12,
1999 the Company made a partial prepayment on this loan in the amount of
$1,800,000. At April 30, 1999, the outstanding balance of $1,231,000 was
subject to the offshore rate of 6.52%. At January 31, 2000 the outstanding
balance was $752,000, subject to a fixed interest rate of 7.61%.
In accordance with the amended credit facility on September 13, 1999, the
Company obtained a new $6,000,000 non-revolving line of credit for possible
future acquisitions due August 31, 2000. This line of credit bears interest at
the Bank's reference rate or an optional offshore rate. There were no amounts
outstanding under this loan at January 31, 2000.
Capital Lease and Expenditure Facilities. The capital lease facility at
April 30, 1999 was available in incremental draws of $50,000 or more to finance
acquisitions of equipment such as machinery, dies, molds, office furniture, and
motor vehicles. At April 30, 1999, approximately $2,928,000 was outstanding
under the capital lease facility. Each draw is being repaid in twenty
consecutive quarterly installments. Each draw bears interest at either a
variable rate or fixed rate of interest. The fixed rate of interest was the
U.S. Treasury note bond-equivalent yield per annum corresponding to the number
of months remaining on the draw, plus 2.40 percentage points. The variable rate
of interest was equal to Bank's London Branch 3-month LIBOR rate plus 2.00
percentage points. At April 30, 1999, all draws were subject to the variable
rate of interest. The short-term portion of the capital lease facility is
included in current maturities of short-term debt on the Company's balance
sheet. On May 29, 1998, the Company entered into a 59-month interest rate swap
agreement with Bank of America NT&SA ending April 15, 2003 that fixes the
interest rate on $2,578,000 of the facility at 8.50% for fundings 1 through 18,
8.20% for fundings 19 through 24 and 8.05% for funding 25 through 29. At
January 31, 2000 no further borrowings were available under this capital lease
facility in accordance with the amended credit facility.
If the Company exercises an early termination option before the scheduled
expiration date of a capital lease, a termination charge will be assessed. The
termination charge is a sliding percentage (not to exceed 3%) of the balance on
the lease at time of termination.
At January 31, 2000, approximately $2,365,000 was outstanding under this
facility, of which approximately $480,000 was fixed at 8.50% and approximately
$862,000 was fixed at 8.20%. The remaining balance of approximately $1,023,000
was subject to the variable rate of interest based on Bank of America's London
Branch 3-month LIBOR rate plus 2.15 percentage points (8.08% as of January 31,
2000).
The amended credit facility provides for a $3,000,000 non-revolving capital
expenditure line of credit due August 31, 2000. This line of credit bears
interest at the Bank's reference rate or an optional offshore rate. At January
31, 2000, the outstanding balance was $1,725,000 bearing interest at 7.37%.
Standby Letter of Credit. In order to secure yen denominated credit
facilities for IMPCO Japan, the Company was required to post a standby letter
of credit for the total available credit facility granted by the Hong Kong and
Shanghai Banking Corporation Ltd., Osaka Branch. The original amount of the
facility is (Yen)220,000,000 (US$1,833,000) and will decrease quarterly as
payments are made on the underlying outstanding
F-16
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
debt. The cost of the facility is 1.00% per annum of the amount outstanding. On
April 30, 1999, the amount outstanding under the standby letter of credit was
$1,844,000. On January 31, 2000, the amount outstanding under the standby
letter of credit was $1,825,000.
Loan Covenants And Collateral. The Bank's credit facility contains certain
restrictions and financial covenants, including liquidity, tangible net worth
and cash flow coverage thresholds, as well as limitations on other
indebtedness, and is secured by substantially all of the Company's assets. At
April 30, 1999 and January 31, 2000, the Company was in compliance with all
covenants.
(b) Term Loan--Depa Holding B.V.
On May 1, 1998, as a condition precedent to the sale of the minority shares
held by Depa Holding B.V., IMPCO BV retired this facility from the proceeds of
the term loan facility granted by Bank of America NT&SA.
(c) Credit Facility--Mees Pierson
In February 1996, IMPCO BV secured a fl. 3,000,000 (US$1,440,300) revocable
credit facility with Mees Pierson, a financial institution in the Netherlands.
The interest rate is determined weekly based on a weighted average of several
money market indices. IMPCO BV's borrowings under this facility may not exceed
the combined total of a specified amount of its accounts receivable (70% of
book value) and inventory (50% of book value). At April 30, 1999, the interest
rate was 5.25% and there was no outstanding balance on the credit facility. At
January 31, 2000, there was no outstanding balance.
(d) The Hong Kong and Shanghai Banking Corporation Ltd.
Term Loan for the Acquisition of Mikuni. On March 29, 1999, IMPCO Japan
secured a (Yen)160,000,000 (US$1,490,000) term loan facility with the Hong Kong
and Shanghai Banking Corporation Ltd., Osaka Branch. This term loan bears
interest, payable on a quarterly basis, at the Euroyen London Interbank Offer
Rate plus 1.60%. The Company may elect to lock the interest rate on the loan
for periods of not less than 30 days nor more than 6 months. At April 30, 1999,
the outstanding loan balance of (Yen)160,000,000 (US$1,341,000) bore an
interest rate of 1.794%. At January 31, 2000, the outstanding loan balance of
(Yen)136,000,000 (US$1,267,000) bore an interest rate of 1.905%.
Line of Credit. On March 29, 1999, IMPCO Japan secured a (Yen)60,000,000
(US$559,000) revolving term loan facility with the Hong Kong and Shanghai
Banking Corporation Ltd., Osaka Branch. This term loan bears interest, payable
on a quarterly basis, at the Euroyen London Interbank Offer Rate plus 1.60%.
The Company may elect to lock the interest rate on the loan for periods of not
less than 30 days nor more than 6 months. At April 30, 1999, the outstanding
loan balance of (Yen)10,000,000 (US$84,000) bore an interest rate of 1.794%. At
January 31, 2000, the outstanding loan balance of (Yen)50,000,000 (US$466,000)
bore an interest rate of 1.902%.
Annual maturities of long-term debt, excluding capital leases (see Note 6)
for the five years subsequent to May 1, 1999 are as follows: 2000-$2,400,000;
2001-$7,700,000; 2002-$1,300,000; 2003-$1,200,000; 2004-$500,000; and
thereafter-$300,000.
4. Derivative Financial Instruments and Fair Value of Financial Instruments
The Company uses derivative financial instruments for the purpose of
reducing its exposure to adverse fluctuations in interest and foreign exchange
rates. While these hedging instruments are subject to fluctuations in value,
such fluctuations are generally offset by the value of the underlying exposures
being hedged. The Company is not a party to leveraged derivatives and does not
hold or issue financial instruments for speculative purposes.
F-17
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign Currency Management. The results and financial condition of the
Company's international operations are affected by changes in exchange rates
between certain foreign currencies and the U.S. Dollar. The Company's exposure
to fluctuations in currency exchange rates has increased as a result of the
growth of its international subsidiaries. The functional currency for all of
the Company's international subsidiaries is the local currency of the
subsidiary. An increase in the value of the U.S. Dollar increases costs
incurred by the subsidiaries because most of its international subsidiaries'
inventory purchases are U.S. Dollar denominated. The Company monitors this risk
and attempts to minimize the exposure through forward currency contracts and
the management of cash disbursements in local currencies. The Company uses
forward currency contracts, which typically expire within one year, to hedge
payments of identifiable foreign currency commitments by its international
subsidiaries. Realized gains and losses on these contracts are included in the
measurement of the related foreign currency. At April 30, 1999 and January 31,
2000, the Company had forward currency contracts approximately US$2,400,000 and
US$382,000, respectively. At April 30, 1999 and January 31, 2000, the fair
value of forward currency contracts was approximately ($99,000) and $14,000,
respectively.
The Company seeks to manage its foreign currency economic risk by minimizing
its U.S. Dollar investment in foreign operations using foreign currency term
loans and lines of credit to finance the operations of its foreign
subsidiaries.
Interest Rate Management. The Company uses interest rate swap agreements
with Bank of America NT&SA to manage its exposure to interest rate changes and
stabilize the cost of borrowed funds. When an agreement is executed, the
interest rate swap is matched as a hedge to a specific debt instrument and has
the same notional amount and tenor as the related debt instrument principal.
Since the interest rate instruments effectively hedge the underlying interest
rate exposure, the net cash amounts paid or received on the agreements are
accrued and recognized as an adjustment to interest expense. At April 30, 1999,
the Company had $5,555,000 secured under fixed interest rate agreements at a
weighted-average fixed interest rate of 7.97%. Absent these fixed rate
agreements, the weighted-average variable rate for this debt at April 30, 1999
would have been 6.84%. Fair value of these instruments is based on estimated
current settlement cost. At April 30, 1999, the fair value of interest rate
swap agreements was approximately ($59,000). At January 31, 2000, the amount
was not material.
Fair Value of Financial Instruments. Because of the short maturity, short-
term bank debt approximates fair value. The fair value of the Company's long-
term debt is estimated using discounted cash flows based on the Company's
incremental borrowing rates for similar types of borrowings. At April 30, 1999,
the fair value of the Company's long-term debt approximated carrying value.
5. Income Taxes
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
Fiscal years ended April 30
------------------------------
1997 1998 1999
--------- -------- ----------
<S> <C> <C> <C>
Current:
Federal........................................ $ 79,065 $ 90,759 $1,949,698
State.......................................... 23,828 36,314 106,665
Foreign........................................ 432,422 208,556 412,399
--------- -------- ----------
535,315 335,629 2,468,762
Deferred:
Federal........................................ (272,856) 571,887 (967,259)
--------- -------- ----------
Total provision for income taxes................ $ 262,459 $907,516 $1,501,503
========= ======== ==========
</TABLE>
F-18
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
1998, and 1999, the current provision for state taxes was reduced by using
approximately $246,000, $375,000 and $516,000, respectively, of investment
and/or research tax credits.
For interim periods, the provision for income taxes is based upon the
estimated annual income tax rate for the full fiscal year, including
consideration of the research credits.
During the fourth quarter of fiscal year 1997, the Company reevaluated the
valuation allowance for its deferred tax assets. Based on this reevaluation,
which considered among other items, projections as to future taxable income,
the Company determined that the valuation allowance should be reduced by
$1,559,000, principally due to the presumed future use of federal net operating
loss carryforwards. This reduction in the valuation allowance is reflected in
the deferred tax benefit for fiscal year 1997. During fiscal year 1998, the
Company determined that no valuation allowance was required and therefore
reduced the valuation allowance by $510,000. Management has determined, based
on the Company's history of prior operating earnings and its expectations of
future earnings, that operating income of the Company will more likely than not
be sufficient to recognize fully these net deferred tax assets and that the
estimated effective annual rate in the future years will approximate the
statutory rate.
During the third quarter of fiscal year 1999, the Company realized a foreign
tax credit of approximately $595,200 from the 49% sale of its IMPCO BV
subsidiary.
A reconciliation of income taxes computed at the federal statutory income
tax rate to income taxes reported in the consolidated statements of income is
as follows:
<TABLE>
<CAPTION>
Fiscal years ended
April 30
---------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Federal statutory income tax rate....................... 34.0 % 34.0 % 34.0 %
Permanent differences................................... 4.0 3.0 2.0
Benefit of net operating loss carryforwards............. (38.0) (13.8) (.7)
Foreign tax credit from sale of IMPCO BV................ -- -- (7.6)
Federal alternative minimum tax......................... 2.1 -- --
State tax, net.......................................... .6 .4 3.5
Foreign tax, net........................................ 4.3 .1 .2
R & D credit............................................ -- (9.0) (12.4)
----- ----- -----
Effective tax rate...................................... 7.0 % 14.7 % 19.0 %
===== ===== =====
</TABLE>
The components of the Company's deferred tax liabilities and assets is as
follows:
<TABLE>
<CAPTION>
Years ended April 30
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation.......................... $ (955,000) $(1,077,000)
Other............................................... (81,000) (107,000)
----------- -----------
(1,036,000) (1,184,000)
=========== ===========
Deferred tax assets:
Tax credit carryforwards............................ 2,024,000 2,602,000
Inventory reserves.................................. 173,000 453,000
Other provisions for estimated expenses............. 439,000 774,000
----------- -----------
$ 2,636,000 $ 3,829,000
=========== ===========
</TABLE>
F-19
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The components of the Company's deferred tax liabilities and assets is as
follows:
<TABLE>
<CAPTION>
Years ended April 30
------------------------
1998 1999
----------- -----------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation.......................... $ (955,000) $(1,077,000)
Other............................................... (81,000) (107,000)
----------- -----------
(1,036,000) (1,184,000)
=========== ===========
Deferred tax assets:
Tax credit carryforwards............................ 2,024,000 2,602,000
Inventory reserves.................................. 173,000 453,000
Other provisions for estimated expenses............. 439,000 774,000
----------- -----------
$ 2,636,000 $ 3,829,000
=========== ===========
</TABLE>
At April 30, 1999, the Company had a general business tax credit
carryforward available for federal income tax purposes of approximately
$2,248,000 which, if not utilized, will expire by fiscal year 2013.
Additionally, the Company had an alternative minimum tax credit carryforward
available for federal income tax purposes of approximately $355,000, which does
not expire for tax reporting purposes.
6. Commitments and Contingencies
(a) Leases
The Company has certain non-cancelable operating leases for facilities and
equipment, and non-cancelable capital leases for machinery, equipment and motor
vehicles. Future minimum lease commitments under non-cancelable leases at April
30, 1999 are as follows:
<TABLE>
<CAPTION>
Lease Obligations
---------------------
Fiscal years ending April 30, Capital Operating
- ----------------------------- ---------- ----------
<S> <C> <C>
2000..................................................... $1,220,160 $1,563,910
2001..................................................... 908,185 1,220,538
2002..................................................... 745,399 1,100,557
2003..................................................... 613,819 1,028,241
2004..................................................... 225,377 1,004,587
Thereafter............................................... -- 184,956
---------- ----------
Total minimum lease payments............................. 3,712,940 $6,102,789
==========
Less imputed interest.................................... 643,339
----------
Present value of future minimum lease payments........... 3,069,601
Less current portion..................................... 967,428
----------
Long-term capital lease obligation....................... $2,102,173
==========
</TABLE>
Total rental expense under the operating leases for fiscal years ended April
30, 1997, 1998, 1999 and for the nine months ended January 31, 2000 was
approximately $903,000, $1,127,000, $1,281,000, and $1,324,000, respectively.
The Company currently leases facilities in Cerritos, California; Irvine,
California; Seattle, Washington; Sterling Height, Michigan; Rijswijk, Holland;
Langgons, Germany; Genas Cedex, France; Cheltenham, Australia; De Mexico,
Mexico; and Fukuoka, Japan. These leases are non-cancelable and certain leases
have renewal options.
F-20
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company used a $3,000,000 capital lease facility to finance acquisitions
of equipment such as machinery, dies, molds and patterns, office furniture and
fixtures and motor vehicles. At April 30, 1998 and 1999, and January 31, 2000,
approximately $2,625,000, $2,946,000 and $2,365,000 was outstanding under the
capital lease facility, respectively. At April 30, 1998, the gross and net
assets acquired under the capital lease facility was approximately $3,854,000
and $2,131,000, respectively. At April 30, 1999, the gross and net assets
acquired under the capital lease facility was approximately $5,224,000 and
$2,565,000, respectively.
(b) Contingencies
The Company is currently subject to certain legal proceedings and claims
arising in the ordinary course of business. Based on discussions with legal
counsel, management does not believe that the outcome of any of these matters
will have a materially adverse effect on the Company's consolidated financial
statements.
(c) Investment and Tax Savings Plan
The Company's Investment and Tax Savings Plan (the "Plan") is a defined
contribution plan, which is qualified under Internal Revenue Service Code
Section 401(k). The Plan is subject to the provisions of the Employee
Retirement Income Security Act of 1974. All employees who are at least age
twenty-one or older are eligible to participate in the Plan on the first day of
any calendar month following one year of service with the Company. Employees of
the Company who elect to participate in the Plan may contribute into the Plan
not less than 1% nor more than 15% of compensation. The Company's matching
contributions are discretionary and match elective salary deferrals up to 1.8%
of compensation. Approximately 46% of eligible employees were enrolled in the
401(k) plan at April 30, 1999. Employer contributions approximated $95,000,
$98,000 and $122,000 for fiscal years ended 1997, 1998 and 1999, and $363,000
for the nine months ended January 31, 2000.
7. Stockholders' Equity
(a) 1993 Series 1 Preferred Stock
The holders of the Company's 1993 Series 1 Preferred Stock ("Preferred
Stock") were entitled to receive annual cumulative dividends of up to $105 per
share and not less than $80 per share ($100 per share at April 30, 1999). The
dividend rate, which was adjusted on the first day of each calendar quarter,
was based on the Seafirst Bank prime rate of interest plus 1.5 % (assuming a
deemed principal value of $1,000 per share).
Commencing March 31, 1999, the Company had the right to convert the
Preferred Stock into common stock if the average market price for the common
stock for the immediately preceding 30 trading days equals or exceeds the
conversion price then in effect and the Company pays all accrued dividends. On
March 31, 1999, in accordance with its conversion right, the Company converted
5,950 shares of Preferred Stock into 1,124,764 shares of common stock and paid
all accrued dividends. The Preferred Stock was convertible into common stock by
dividing the conversion price at March 31, 1999 into its liquidation value of
$1,000 for each share being converted, which resulted in a conversion price of
$5.29 per share.
F-21
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(b) Stock options
The Company has five stock option plans that provide for the issuance of
options to key employees and directors of the Company at the fair market value
at the time of grant. Options under the plans generally vest in 4 or 5 years
and are generally exercisable while the individual is an employee or a
director, or ordinarily within one month following termination of employment.
In no event may options be exercised more than ten years after date of grant.
<TABLE>
<CAPTION>
Number Of Weighted Average
Shares Exercise Price
--------- ----------------
<S> <C> <C>
Outstanding at April 30, 1996..................... 841,303 $ 7.59
Options granted.................................. 238,118 $ 6.84
Options exercised................................ (139,244) $ 3.16
Options forfeited................................ (17,367) $ 8.60
--------- ------
Outstanding at April 30, 1997..................... 922,810 $ 7.82
Options granted.................................. 475,556 $ 7.86
Options exercised................................ (57,795) $ 3.36
Options forfeited................................ (32,485) $ 6.80
--------- ------
Outstanding at April 30, 1998..................... 1,308,086 $ 8.06
Options granted.................................. 406,688 $ 9.25
Options exercised................................ (192,116) $ 7.46
Options forfeited................................ (20,000) $12.27
--------- ------
Outstanding at April 30, 1999..................... 1,502,658 $ 8.40
Granted (unaudited).............................. 104,974 10.46
Exercised (unaudited)............................ (153,726) 7.18
Forfeited (unaudited)............................ (103,372) 8.49
--------- ------
Options outstanding at January 31, 2000
(unaudited)...................................... 1,350,534 8.69
========= ======
Shares exercisable at April 30, 1997.............. 501,727 $ 8.00
========= ======
Shares exercisable at April 30, 1998.............. 544,232 $ 8.63
========= ======
Shares exercisable at April 30, 1999.............. 489,517 $ 8.85
========= ======
Shares exercisable at January 31, 2000
(unaudited)...................................... 678,234 $ 8.63
========= ======
</TABLE>
F-22
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Summarized information about stock options outstanding and exercisable at
April 30, 1999 is as follows:
<TABLE>
<CAPTION>
Outstanding Exercisable
------------------------- -----------------
Number Average Average Number Average
Exercise Price Range of Shares Life Price of Shares Price
-------------------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
$0.00 to $1.625..................... 20,606 2.5 $ 0.06 20,606 $ 0.06
$3.25 to $4.875..................... 10,000 2.5 $ 3.89 10,000 $ 3.89
$4.875 to $6.50..................... 192,948 6.4 $ 6.03 99,081 $ 5.83
$6.50 to $8.125..................... 814,126 7.0 $ 7.63 26,626 $ 7.57
$8.125 to $9.75..................... 154,234 6.9 $ 8.63 113,204 $ 8.65
$9.75 to $11.375.................... 81,556 4.9 $11.11 80,000 $11.11
$11.375 to $13.00................... 167,000 5.3 $11.77 140,000 $11.73
$13.00 to $14.625................... 2,188 8.5 $13.13 -- --
$14.625 to $16.25................... 60,000 9.5 $16.25 -- --
--------- -------
1,502,658 489,517
========= =======
</TABLE>
At April 30, 1999, there were 30,494 shares available for future grant.
The Company has elected to account for its employee stock options under
Accounting Principles Board Opinion 25, "Accounting for Stock Issued to
Employees" (APB 25) and related Interpretations in accounting for employee
stock options. No compensation expense is recorded under APB 25 because the
exercise price of the Company's employee common stock options equals the
market price of the underlying common stock on the grant date.
SFAS 123 requires "as adjusted" information regarding net income and net
income per share to be disclosed for new options granted after fiscal year
1996. The fair value of these options was determined at the date of grant
using the Black-Scholes option pricing model with the following weighted-
average assumptions:
<TABLE>
<CAPTION>
Year Ended
April 30
-------------------
1997 1998 1999
----- ----- -----
<S> <C> <C> <C>
Expected dividend yield............................... 0.0% 0.0% 0.0%
Calculated volatility................................. 0.486 0.534 0.584
Risk-free interest rate............................... 3% 3% 3%
Expected life of the option in years.................. 8.70 9.09 8.82
</TABLE>
The estimated fair value of the options is amortized to expense over the
options' vesting period for "as adjusted" disclosures. The net income per
share "as adjusted" for the effects of SFAS 123 is not indicative of the
effects on reported net income/loss for future years. The Company's reported
"as adjusted" information at April 30 is as follows: (in thousands, except per
share amounts)
<TABLE>
<CAPTION>
Year Ended April 30
--------------------
1997 1998 1999
------ ------ ------
<S> <C> <C> <C>
Net income........................................... $2,644 $4,270 $5,800
As adjusted.......................................... $2,467 $3,628 $5,645
Net income per share as reported--basic.............. $ 0.46 $ 0.67 $ 0.80
Net income per share as adjusted--basic.............. $ 0.43 $ 0.57 $ 0.77
Net income per share as reported--dilutive........... $ 0.43 $ 0.60 $ 0.71
Net income per share as adjusted--dilutive........... $ 0.40 $ 0.52 $ 0.69
</TABLE>
F-23
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
8. Earnings Per Share
The following table sets forth the computation of basic and diluted earnings
per share:
<TABLE>
<CAPTION>
Nine Months Ended
Fiscal Year Ended April 30 January 31
---------------------------------- ----------------------
1997 1998 1999 1999 2000
---------- ---------- ---------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Numerator:
Net income............ $3,486,958 $5,275,619 $6,401,146 $5,898,720 $4,224,869
Preferred stock
dividends............ (581,365) (594,997) (530,542) (438,812) --
Minority interest..... (261,667) (410,554) (70,532) (7,529) (376,299)
---------- ---------- ---------- ---------- ----------
Numerator for basic
earnings per
share--income
available to common
stockholders......... 2,643,926 4,270,068 5,800,072 5,452,379 3,848,570
Effect of dilutive
securities:
Preferred stock
dividends........... -- 594,997 530,542 438,812 --
---------- ---------- ---------- ---------- ----------
Numerator for diluted
earnings per share--
income available to
common stockholders
after assumed
conversions.......... $2,643,926 $4,865,065 $6,330,614 $5,891,191 $3,848,570
Denominator:
Denominator for basic
earnings per share--
weighted-average
shares............... 5,722,382 6,333,769 7,293,160 7,178,115 8,462,958
Effect of dilutive
securities:
Employee stock
options.............. 117,738 450,315 650,151 699,807 484,751
Warrants.............. 290,422 246,628 -- 6,162 --
Convertible preferred
stock(1)............. -- 1,124,764 1,032,318 1,124,764 --
---------- ---------- ---------- ---------- ----------
Dilutive potential
common shares.......... 408,160 1,821,707 1,682,469 1,830,733 484,751
Denominator for
diluted earnings per
share--adjusted
weighted-average
shares and assumed
conversions.......... 6,130,542 8,155,476 8,975,629 9,008,848 8,947,709
---------- ---------- ---------- ---------- ----------
Basic earnings per
share................ $ 0.46 $ 0.67 $ 0.80 $ 0.76 $ 0.45
---------- ---------- ---------- ---------- ----------
Diluted earnings per
share................ $ 0.43 $ 0.60 $ 0.71 $ 0.65 $ 0.43
========== ========== ========== ========== ==========
</TABLE>
- --------
(1) On March 31, 1999, all outstanding preferred stock was converted to common
stock and the diluted Earnings Per Share is calculated as though the
conversion occurred at the beginning of the fiscal year. The basic earnings
per share is calculated with weighted average shares based on the
conversion at March 31, 1999. The convertible preferred shares is equal to
the full conversion (1,124,764 shares) less the weighted average shares
outstanding for the month of April 1999 (92,446 shares).
For additional disclosures regarding the employee stock options, see Note 7.
Options to purchase 60,000 shares of common stock at $16.25 were outstanding
during fiscal year 1999 and options to purchase 260,000 shares of common stock
at prices ranging from $10.88 to $11.78 were outstanding during fiscal year
1998 but were not included in the computation of diluted earnings per share
because the options' exercise price was greater than the average market price
of the common shares and, therefore, the effect would be anti-dilutive.
F-24
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Revenues
During fiscal year 1998, the IMPCO BV, IMPCO Pty and IMPCO Mexicano
subsidiaries accounted for approximately 16%, 10% and 1% of total consolidated
revenues, respectively, and contract revenue accounted for approximately 12% of
consolidated revenues. During fiscal year 1999, the IMPCO BV, IMPCO Pty, Grupo
IMPCO Mexicano and IMPCO Japan subsidiaries accounted for approximately 15%,
6%, 3% and less than 1% of total consolidated revenues, respectively, and
contract revenue accounted for approximately 13% of consolidated revenues. For
the nine months ended January 31, 2000, the IMPCO BV, IMPCO Pty, Grupo IMPCO
Mexicano and IMPCO Japan subsidiaries accounted for approximately 12%, 5%, 6%
and less than 3% of total consolidated revenues, respectively, and contract
revenue accounted for approximately 8% of consolidated revenues. During fiscal
year 1998 and 1999, and for the nine months ended January 31, 2000, General
Motors Corporation, and customers associated with the General Motors program,
accounted for approximately 15%, 28% and 18%, respectively, of consolidated
revenues. During fiscal year 1997, no single unaffiliated customer exceeded 10%
of consolidated revenues.
The Company routinely sells products to a broad base of domestic and
international customers, which includes distributors and original equipment
manufacturers. Based on the nature of these customers, credit is generally
granted without collateral being required. Management does not anticipate that
a significant credit risk exists as a result of these customer relationships.
10. Business Segment And Geographic Information
Business Segments. The Company currently operates in three operating
segments: Automotive OEM division, Gaseous Fuel Products division and
International Operations. The Automotive OEM division generates revenues
through the sale of fuel metering, storage and electronic control systems to
original equipment manufacturers (OEMs) and the installation of our products
into OEM vehicles. The division also generates contract revenue by providing
engineering design and support to the OEMs so that our fuel system will fit
into a variety of their vehicles as they upgrade their models each year. The
Gaseous Fuel Products division sells products including parts and conversion
systems to OEMs and the aftermarket. The Company's International Operations in
Australia, Europe, Japan and Mexico provide distribution for the Company's
products, predominantly from its Gaseous Fuel Products division and some
product assembly.
Corporate expenses consist of general and administrative expenses at the
corporate level and includes the amortization of goodwill and other intangible
assets. Intersegment eliminations are primarily the result of intercompany
sales from our Gaseous Fuel Products division to our International Operations.
All research and development is expensed as incurred. Research and
development expense includes both customer funded research and development and
company sponsored research and development. Customer funded research and
development consists primarily of expenses associated with contract revenue.
These expenses include applications development costs in the Automotive OEM
division funded under customer contracts.
The Company evaluates performance based on profit or loss from operations
before interest and income taxes. The accounting policies of the reportable
segments are the same as those described in the Summary of Significant
Accounting Policies.
F-25
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Financial Information by Business Segment. Financial information by business
segment for continuing operations follows:
<TABLE>
<CAPTION>
Fiscal Year Ended Nine Months Ended
April 30 January 31
-------------------------- -------------------
Revenues (in thousands) 1997 1998 1999 1999 2000
- ----------------------- ------- ------- -------- -------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Automotive OEM Division...... $ 6,154 $12,328 $ 24,469 $ 16,857 $ 15,429
Gaseous Fuels Products
Division.................... 43,010 48,277 52,632 36,292 58,211
International Operations..... 17,018 19,304 21,188 15,882 21,863
Intersegment Elimination..... (4,354) (8,826) (11,463) (8,968) (11,790)
------- ------- -------- -------- ---------
Total...................... $61,828 $71,083 $ 86,826 $ 60,063 $ 83,713
======= ======= ======== ======== =========
<CAPTION>
Fiscal Year Ended Nine Months Ended
April 30 January 31
-------------------------- -------------------
Operating Income
(in thousands) 1997 1998 1999 1999 2000
- ---------------- ------- ------- -------- -------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Automotive OEM Division...... $(1,801) $(1,451) $ (27) $ 1,667 $ (1,531)
Gaseous Fuels Products
Division.................... 11,093 14,749 14,284 10,149 15,676
International Operations..... 1,266 1,772 1,504 782 2,351
Corporate Expenses........... (4,315) (4,996) (5,516) (3,993) (5,099)
Corporate Research &
Development................. (1,314) (2,523) (3,053) (2,097) (4,266)
Intersegment Elimination..... (79) (433) (289) 24 (283)
------- ------- -------- -------- ---------
Total...................... $ 4,850 $ 7,118 $ 6,903 $ 6,532 $ 6,848
======= ======= ======== ======== =========
<CAPTION>
Fiscal Year Ended Nine Months Ended
April 30 January 31
-------------------------- -------------------
Identifiable Assets
(in thousands) 1997 1998 1999 1999 2000
- ------------------- ------- ------- -------- -------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Automotive OEM Division...... $ 5,150 $ 9,679 $ 18,024 $ 15,467 $ 21,204
Gaseous Fuels Products
Division.................... 13,641 18,681 27,663 24,305 31,943
International Operations..... 13,637 16,214 9,579 6,694 13,339
Corporate Expenses .......... 14,685 13,604 18,296 20,765 20,786
------- ------- -------- -------- ---------
Total...................... $47,113 $58,178 $ 73,562 $ 67,231 $ 87,272
======= ======= ======== ======== =========
<CAPTION>
Fiscal Year Ended Nine Months Ended
April 30 January 31
-------------------------- -------------------
Capital Expenditures
(in thousands) 1997 1998 1999 1999 2000
- -------------------- ------- ------- -------- -------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Automotive OEM Division...... $ 504 $ 2,304 $ 1,163 $ 127 $ 1,179
Gaseous Fuels Products
Division.................... 521 528 1,067 260 823
International Operations..... 520 134 228 9 329
Corporate Expenses........... 157 254 340 352 81
------- ------- -------- -------- ---------
Total...................... $ 1,702 $ 3,220 $ 2,798 $ 748 $ 2,412
======= ======= ======== ======== =========
<CAPTION>
Fiscal Year Ended Nine Months Ended
April 30 January 31
-------------------------- -------------------
Depreciation and Amortization
(in thousands) 1997 1998 1999 1999 2000
- ----------------------------- ------- ------- -------- -------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Automotive OEM Division...... $ 743 $ 816 $ 890 $ 233 $ 900
Gaseous Fuels Products
Division.................... 1,053 1,155 1,261 319 938
International Operations..... 394 395 659 144 396
Corporate Expenses........... 527 547 631 152 533
------- ------- -------- -------- ---------
Total...................... $ 2,717 $ 2,913 $ 3,441 $ 848 $ 2,767
======= ======= ======== ======== =========
</TABLE>
F-26
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Product Revenues by Application. The Company's product revenues by
application across all business segments follows (in thousands):
<TABLE>
<CAPTION>
Nine
Months Ended
Fiscal Year Ended April 30 January 31
----------------------------- ---------------
1997 1998 1999 1999 2000
--------- --------- --------- ------- -------
April 30, April 30, April 30, (Unaudited)
<S> <C> <C> <C> <C> <C>
Motor vehicle products.......... $23,784 $21,870 $32,748 $20,927 $34,892
Forklifts and other material
handling equipment............. 23,291 29,493 31,822 21,491 29,038
Small portable to large
stationary engines............. 11,362 10,846 11,251 7,714 12,829
------- ------- ------- ------- -------
Total product sales........... $58,437 $62,209 $75,821 $50,132 $76,759
======= ======= ======= ======= =======
</TABLE>
Geographic Information. The Company's geographic information for revenues to
unaffiliated customers and long-lived assets is shown below. The basis for
determining revenues is the geographic point of shipment. Long-lived assets
represent long-term tangible assets and are physically located in the region as
indicated.
<TABLE>
<CAPTION>
Nine
Fiscal Year Ended Months Ended
April 30 January 31
----------------------- ---------------
Revenues to Unaffiliated Customers (in
thousands) 1997 1998 1999 1999 2000
- -------------------------------------- ------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
United States......................... $44,809 $51,779 $65,638 $44,421 $61,850
Europe................................ 9,203 11,588 12,941 9,679 10,334
Australia............................. 7,816 6,893 5,398 4,124 4,578
Mexico................................ -- 823 2,671 1,839 4,648
Japan................................. -- -- 178 -- 2,303
------- ------- ------- ------- -------
Total............................... $61,828 $71,083 $86,826 $60,063 $83,713
======= ======= ======= ======= =======
<CAPTION>
Nine Months
Fiscal Year Ended Ended
April 30 January 31
----------------------- ---------------
Long-Lived Assets (in thousands) 1997 1998 1999 1999 2000
- -------------------------------- ------- ------- ------- ------- -------
(Unaudited)
<S> <C> <C> <C> <C> <C>
United States......................... $ 6,363 $ 8,355 $ 9,230 $18,522 $18,867
Europe................................ 493 394 309 367 263
Australia............................. 364 248 282 255 207
Mexico................................ -- 27 47 33 326
Japan................................. -- -- 17 -- 15
------- ------- ------- ------- -------
Total............................... $ 7,220 $ 9,024 $ 9,885 $19,177 $19,678
======= ======= ======= ======= =======
</TABLE>
11. Contract Revenue
In August 1995, the Company extended its original 1993 two-year fixed-price
contract with General Motors Corporation ("GM") to develop, manufacture and
install compressed natural gas engine management systems ("CNG systems"). Under
the terms of the contract, the Company is engineering, testing and validating
CNG systems for certain 1998, 1999, 2000 and 2001 model year car and truck
platforms in compliance with GM's specifications.
Revenues for development efforts are principally recognized by the
percentage of completion method and principally related to contracts with GM.
During fiscal year 1997, 1998 and 1999 and for the nine months ended January
31, 2000, GM and other contract revenues comprised 5% 12%, 13% and 8% of the
Company's total revenues, respectively.
F-27
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Purchases
During fiscal years 1997, 1998, 1999, and for the nine months ended January
31, 2000, purchases from one vendor constituted approximately 17%, 18%, 7% and
8% of consolidated net inventory purchases, respectively. In fiscal year 1999
and for the nine months ended January 31, 2000, 10 suppliers accounted for
approximately 32% and 22%, respectively, of consolidated net inventory
purchases.
13. Supplementary Cash Flow Information
For fiscal years 1997, 1998, 1999 and for the nine months ended January 31,
2000, the Company incurred capital lease obligations of approximately $835,000,
$1,296,000, $1,264,000 and $105,000, respectively.
Interest and taxes paid for fiscal year 1997, 1998, 1999 and for the nine
months ended January 31, 2000 are as follows:
<TABLE>
<CAPTION>
Fiscal year ended April 30
------------------------------ January 31,
1997 1998 1999 2000
---------- -------- ---------- -----------
(unaudited)
<S> <C> <C> <C> <C>
Interest paid........................ $1,062,000 $940,000 $1,221,000 $1,134,000
Taxes paid........................... 755,000 191,000 3,042,000 1,690,000
</TABLE>
14. Quarterly Results Of Operations (Unaudited)
A summary of the unaudited quarterly results of operations follows (in
thousands, except per share amounts):
Fiscal year 1998
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Product sales................................ $14,151 $15,730 $14,835 $17,493
Contract revenue............................. 2,138 2,432 2,158 2,146
Net revenue.................................. 16,289 18,162 16,993 19,639
Cost of product sales........................ 8,819 9,756 8,657 10,942
Gross profit on product sales ............... 5,332 5,974 6,178 6,551
Research and development expense............. 2,743 2,947 3,359 3,013
Net income................................... 692 991 1,197 1,391
Net income per share:
Basic...................................... $ 0.12 $ 0.17 $ 0.18 $ 0.20
Diluted.................................... $ 0.11 $ 0.15 $ 0.16 $ 0.18
Fiscal year 1999
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C> <C> <C> <C>
Product sales................................ $17,187 $16,902 $16,044 $25,688
Contract revenue............................. 2,686 3,420 3,824 1,075
Net revenue.................................. 19,873 20,322 19,868 26,763
Cost of product sales........................ 10,915 11,927 10,933 18,403
Gross profit on product sales ............... 6,272 4,975 5,111 7,285
Research and development expense............. 2,700 3,082 2,777 3,052
Net income................................... 1,484 893 3,075 348
Net income per share:
Basic...................................... $ 0.21 $ 0.12 $ 0.43 $ 0.05
Diluted.................................... $ 0.18 $ 0.11 $ 0.36 $ 0.05
</TABLE>
F-28
<PAGE>
IMPCO TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Fiscal year 2000
<TABLE>
<CAPTION>
First Second Third
Quarter Quarter Quarter
------- ------- -------
<S> <C> <C> <C>
Product sales........................................ $27,058 $24,870 $24,832
Contract revenue..................................... 1,362 2,487 3,104
Net revenue.......................................... 28,420 27,357 27,936
Cost of product sales................................ 17,815 15,846 17,090
Gross profit on product sales........................ 9,243 9,024 7,742
Research and development expense..................... 3,015 3,618 3,909
Net income........................................... 1,554 1,503 792
Net income per share:
Basic.............................................. $ 0.18 $ 0.18 $ 0.09
Diluted............................................ $ 0.18 $ 0.17 $ 0.09
</TABLE>
15. Other Matters
In April 1997, the Company sold air pollution control devices to its
subsidiary, IMPCO BV, a Netherlands corporation. This subsidiary then sold the
goods to Sagace Holland B.V., another Netherlands corporation, which reexported
the goods to Iran, contrary to U.S. licenses authorizing the initial export of
the goods from the United States. The sales involved approximately 150 units of
emission control equipment used on forklifts or similar vehicles that operate
on compressed natural gas with a value of approximately $350,000. These events
were voluntarily reported by the Company to the Office of Export Enforcement,
U.S. Department of Commerce, and the Office of Foreign Assets Control, U.S.
Department of the Treasury, in August 1997.
Subsequent to reporting the foregoing events, the Company learned that in
April 1997, the Company sold similar air pollution control devices with a value
of approximately $100,000 to a distributor. The distributor then reexported
these goods to Iran, again contrary to U.S. export licenses. These events were
also voluntarily disclosed by the Company to the same Federal agencies in 1998.
During the fiscal quarter ended January 31, 2000, the Company reached a
settlement agreement with the Office of Foreign Assets Control, Department of
Treasury, concerning the violation of certain U.S. Government export
regulations. Under the terms of the settlement agreement, the Company made a
cash payment of $11,000 as payment in full resolving all matters.
16. Subsequent Event (Unaudited)
On June 30, 1999, the Company's Board of Director's adopted a Stockholder
Protection Rights Agreement and declared a dividend of one right on each
outstanding share of IMPCO common stock. Each right entitles the holder to
purchase one share of common stock. The dividend was paid on July 26, 1999 to
stockholders of record on July 12, 1999.
F-29
<PAGE>
[LOGO OF IMPCO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 14. Other Expenses of Issuance and Distribution
The following is an itemized list of the estimated expenses to be incurred
in connection with the offering of the securities being offered hereunder other
than underwriting discounts and commissions.
<TABLE>
<CAPTION>
Amount
to be
Paid
--------
<S> <C>
Registration fee................................................... $ 22,438
NASD filing fee.................................................... 9,000
Printing and Engraving expenses....................................
Legal fees and expenses............................................
Blue Sky qualification fees and expenses...........................
Accounting fees and expenses.......................................
Transfer Agent and registrar fees..................................
Miscellaneous......................................................
--------
Total............................................................ $850,000
========
</TABLE>
Item 15. Indemnification of Directors and Officers
Section 145 of the DGCL contains detailed provisions on indemnification of
directors and officers against expenses, judgments, fines and amounts paid in
settlement, actually and reasonably incurred in connection with legal
proceedings. Section 102(a)(7) of the DGCL permits a provision in the
certificate of incorporation of each corporation organized thereunder, such as
the Company, eliminating or limiting, with certain exceptions, the personal
liability of a director of the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director. The Certificate of
Incorporation of the Company eliminates the liability of each of its directors
to its stockholders or the Company for monetary damages for breach of fiduciary
duty to the full extent provided by the Delaware General Corporation Law (the
"DGCL"), as such law exists or may hereafter be amended.
Indemnification applies to any threatened, pending or completed action, suit
or proceeding, whether, civil, criminal, administrative or investigative.
Indemnification may include all expenses (including attorneys' fees, judgments,
fines, ERISA excise taxes and amounts paid in settlement) reasonably incurred
by the indemnified person.
Item 16. Exhibits
See Exhibit Index.
Item 17. Undertakings
We hereby undertake that:
(1) For purposes of determining any liability under the Securities Act of
1933, as amended (the "Securities Act"), each filing of our annual report
pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of
1934 (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934) that
is incorporated by reference to this Registration Statement shall be deemed to
be a new registration statement relating to the securities offered therein, and
the
II-1
<PAGE>
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(2) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to our directors, officers and controlling persons
pursuant to the Delaware General Corporation Code, our Certificate of
Incorporation or the Bylaws, indemnification agreements entered into between us
and our officers and directors, the Underwriting Agreement and all prior
underwriting agreements, or otherwise, we have been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against
public policy as expressed in the Securities Act, and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by us of expenses incurred or paid by a
director, officer or controlling person in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered
hereunder, we will, unless in the opinion of our counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by us is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue;
(3) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by us pursuant to Rule 424(b)(1) or (4) or 497(h) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective; and
(4) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Cerritos,
County of Los Angeles, State of California, on April 7, 2000.
IMPCO Technologies, Inc.
/s/ Robert M. Stemmler
By: _________________________________
President and Chief Executive
Officer
POWER OF ATTORNEY
The undersigned hereby constitutes and appoints Robert M. Stemmler and
William B. Olson, and each of them, as his true and lawful attorneys-in-fact
and agents, jointly and severally, with full power of substitution and
resubstitution, for and in his stead, in any and all capacities, to sign on his
behalf this Registration Statement on Form S-3 in connection with the offering
of common stock by IMPCO Technologies, Inc. and to execute any amendments
thereto (including post-effective amendments) or certificates that may be
required in connection with this Registration Statement, and to file the same,
with all exhibits thereto, and all other documents in connection therewith,
with the Securities and Exchange Commission and granting unto said attorneys-
in-fact and agents, and each of them, jointly and severally, the full power and
authority to do and perform each and every act and thing necessary or advisable
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorneys-in-fact and agents, or any of them,
jointly or severally, or their or his substitute or substitutes, may lawfully
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-3 to be signed on its
behalf by the undersigned, each thereunto duly authorized, in the City of
Cerritos, County of Los Angeles, State of California, as of April 7, 2000.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Robert M. Stemmler Chief Executive Officer April 7, 2000
______________________________________ and Chairman of the
Robert M. Stemmler Board (Principal
Executive Officer)
/s/ William B. Olson Chief Financial Officer April 7, 2000
______________________________________ and Treasurer
William B. Olson (Principal
Financial Officer)
/s/ Janet Harmier Corporate Controller April 7, 2000
______________________________________
Janet Harmier
/s/ Norman L. Bryan Director April 7, 2000
______________________________________
Norman L. Bryan
/s/ Paul Mlotok Director April 7, 2000
______________________________________
Paul Mlotok
/s/ Christopher G. Mumford Director April 7, 2000
______________________________________
Christopher G. Mumford
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Ulrich Ruetz Director April 7, 2000
____________________________________
Ulrich Ruetz
/s/ Edward L. Scarff Director April 7, 2000
______________________________________
Edward L. Scarff
/s/ Don J. Simplot Director April 7, 2000
______________________________________
Don J. Simplot
/s/ Douglas W. Toms Director April 7, 2000
______________________________________
Douglas W. Toms
</TABLE>
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Exhibit Description
------- -------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Deed of Sale of Business by and among IMPCO Technologies Pty. Limited,
as buyer, and Ateco Automotive Pty Limited, as seller, dated as of
July 1, 1996. (1)
2.2 Deed of Release by and among IMPCO Technologies, Inc. and Ateco
Automotive Pty. Limited dated as of July 1, 1996. (1)
2.3 Shareholders Agreement for Gas Parts (NSW) Pty Limited by and among
IMPCO Technologies Pty. Limited, Gas Parts Pty Limited and Gas Parts
(NSW) Pty. Limited, dated as of July 4, 1996. (1)
4.1 Stockholders' Protection Rights Agreement dated as of June 30, 1999
between IMPCO Technologies, Inc. and ChaseMellon Stockholder
Services, L.L.C., as Rights Agreement. (2)
5.1* Opinion of Morrison & Foerster LLP.
10.1 IMPCO and GM Teaming Agreement, dated July 30, 1997 by the Company and
General Motors Corporation
10.2 Agreement dated as of April 5, 2000 among Questor Partners Fund, L.P.,
Questor Side-by-Side Partners L.P. and IMPCO Technologies, Inc.
23.1 Consent of Ernst & Young LLP.
23.2* Consent of Morrison & Foerster LLP (included as part of its opinion
filed as Exhibit 5.1).
24.1 Power of Attorney (see page II-3).
27.1 Financial Data Schedule
</TABLE>
- --------
(1)Incorporated by reference Form 8-K/A dated July 1, 1996, and filed as
Exhibit Numbers (2.5) through (2.9) thereunder.
(2)Incorporated by reference from Form 8-K dated June 30, 1999 and filed as
Exhibit (4) thereunder.
* To be filed by amendment.
II-5
<PAGE>
EXHIBIT 10.1
IMPCO AND GM TEAMING AGREEMENT
THIS AGREEMENT is entered as of the 30th day of July, 1997, by and between
IMPCO, Inc. ("IMPCO"), a Delaware corporation with offices at 16804 Gridley
Place, Cerritos, CA 90701, and General Motors Corporation, VDTO - Research &
Development ("GM"), a Delaware corporation with offices at 30500 Mound Road,
Warren, Michigan, USA 48090-9055.
PURPOSE
-------
The Purpose of this Teaming Agreement is to set forth the terms and
conditions under which the Parties agree to work together in a strategic
alliance, leveraging complementary background, experience and technology, in
order to enhance their respective core competencies and jointly speed further
development of car and truck gaseous fuel propulsion systems for internal
combustion engines ("gaseous fuel propulsion systems") and related components.
The agreed relationship includes (i) business processes for identification of
gaseous fuel propulsion systems and related components on which cooperative
effort, possibly including sharing of staff and resources, is to be directed,
(ii) relative roles and responsibilities, (iii) business terms of general
applicability to purchase and sale between the Parties of gaseous fuel
propulsion systems and related components, and (iv) arrangements for aftersale
support of GM production vehicles utilizing gaseous fuel propulsion systems and
related components by GM independent authorized dealers. This Teaming Agreement
further sets forth alternatives for production and application of components
developed hereunder.
With this Agreement, the Parties seek to share a process for successful
development and implementation of gaseous fuel propulsion systems and related
1
<PAGE>
components which are state-of-the-art technology; satisfactory to customers and
regulators; able to meet world class quality, reliability, maintainability and
durability; and cost efficient and commercially viable throughout their life
cycle, including after-sale support.
NOW, THEREFOR, for and in consideration of the promises and the mutual
covenant herein contained, IMPCO and GM hereby set forth their agreement as
follows:
I. DEFINITIONS
The following terms, as used herein, shall have the following meanings,
whether used in the singular or plural (some terms are defined within a section
in which they are used):
"Affiliate" means another company, corporation, or partnership in which a
Party directly or indirectly owns at least 50 percent of the outstanding capital
stock or other equity interest, and, in the case of IMPCO, another corporation
which owns more than 50 percent of the capital stock of that Party.
"Agreement" means this Teaming Agreement, including all Exhibits identified
herein.
"Background Patents" means all patents, regardless of country or origin or
issue, which are owned or controlled by a Party, that cover an invention
directly related to the Purpose of this Teaming Agreement and which were not
conceived or first reduced to practice in the course of the work performed
pursuant to this Teaming Agreement; provided, however, that in the case of GM
any such patents of its Delphi and Delco Electronics organizations are excluded
for purposes of this Agreement.
2
<PAGE>
"Background Technology" means technical information owned or controlled by
a Party and directly related to the Purpose of this Teaming Agreement and which
was not conceived or first reduced to practice in the course of the work
performed pursuant to this Teaming Agreement; provided, however, that in the
case of GM any such technology of its Delphi and Delco Electronics organizations
are excluded for purposes of this Agreement.
"Gaseous Fuel" means CNG, LNG and LPG suitable for vehicular applications
contemplated by this Agreement.
"Gaseous Fuel Propulsion System" means a car or truck gaseous fuel
propulsion system for internal combustion engines.
"Including" means including but not limited to.
"Management Committee" means the committee of IMPCO and GM employees
described in Section 2.1.
"Party" when used in the singular means IMPCO or GM, and when used in the
plural means IMPCO and GM.
"Program Manager" means the individual(s) identified in Section 2.2.
"Proprietary Information" means documents and other tangible items
disclosed by a Party which are directly related to the Purpose of this Teaming
Agreement.
"Program Technology" means technical information conceived or first reduced
to practice in the course of the work performed pursuant to this Teaming
Agreement by employees or agents of the Parties which directly relates to its
Purpose.
"Program Patent" refers to all patents, regardless of country of origin or
issue, that cover an invention directly related to the Purpose of this Teaming
Agreement and which
3
<PAGE>
were conceived or first reduced to practice in the course of the work performed
pursuant to this Teaming Agreement by employees or agents of the Parties.
II. FORMATION OF TEAMING ARRANGEMENT
2.1 Agreement To Team; Management Committee
---------------------------------------
Work under this Agreement shall be coordinated between IMPCO and GM by a
Management Committee, made up of three representatives from each Party. Initial
members of the Management Committee are identified in Exhibit 1. Either Party
may change its members assigned to the Management Committee by providing written
notice to the other, provided that (i) no person shall be a member of the
Management Committee who is not an employee of the Party appointing such person
unless the other Party consents thereto, and (ii) each Party shall exercise
reasonable effort to maintain continuity in its assignments. Unless otherwise
agreed by the Parties, the Management Committee shall include at lease one
engineering representative and one procurement representative from each Party.
Responsibilities of the Management Committee includes identifying projects
appropriate for this Teaming Agreement, and reviewing the progress of ongoing
projects compared to each respective project business plan. The Management
Committee shall approve a business plan and statement of work for each project
hereunder, including identification of which Party is to initiate and carry out
the project, budget and cash needs responsibilities, and allocation of plant,
personnel and other non-cash resources. The Management Committee shall also be
responsible for resolution of any conflicts between the Parties relative to
projects hereunder, and shall follow and benchmark field performance of gaseous
fuel propulsion systems and related components thereof.
4
<PAGE>
The Management Committee shall meet periodically, but at least once every
three months. Meetings shall be called and coordinated by the respective Program
Managers, who shall jointly prepare an agenda in advance of each meeting. A
quorum for a Management Committee meeting shall consist of two members from each
Party; decisions of the Management Committee shall be by unanimous consent of
members present.
The Management Committee shall keep minutes of its meetings and the actions
taken by it; such minutes shall be prepared by the Secretary and reviewed by the
Counterpart Secretary of the other Party before distribution. In the initial
year, GM shall appoint the Secretary from its employees on the Management
Committee, and IMPCO shall appoint the Counterpart Secretary from its employees
on the Management Committee. Thereafter, the positions of Secretary and
Counterpart Secretary shall switch to the other Party annually, unless otherwise
agreed by the Management Committee. Members of the Management Committee may
conduct meetings by telephone if both Parties consent; in person meetings shall
rotate through different sites the Management Committee deems relevant to its
business.
2.2 Program Managers
----------------
Each Party shall appoint a Program Manager, who may or may not be a member
of the Management Committee. Such Program Managers shall be the primary
interface on a day to day basis between the Parties. The Program Managers shall
report on their activities to the Management Committee at its meetings, and
prepare the agenda for Management Committee meetings.
5
<PAGE>
Initial Program Managers are identified in Exhibit 1; either Party may
change its person assigned as Program Manager by providing written notice to the
other, provided that no person shall be a Program Manager who is not an employee
of the Party appointing such person unless the other Party consents thereto.
Separate program managers may be identified for selected projects, as directed
by the Management Committee or provided in contracts for such projects.
2.3 Limitations of Authority
------------------------
Nothing contained in this Agreement, and no action taken or recommended by
the Management committee or the Program Managers, shall be deemed to (I) make
any Party hereto (or any of such Party's employees, agents or representatives)
an employee, agent or representative of the other Party, (ii) confer on any
Party any expressed or implied right, power or authority to enter into any
contract, express or implied, or to incur any obligation or liability on behalf
of the other Party, or (iv) require any Party to take any action which is
contrary to any contract, regulatory or other applicable legal requirement or
standard.
III.
3.1 Supplier Right of First Refusal
-------------------------------
IMPCO and GM each agrees to buy from the other any production quantities of
gaseous fuel propulsion systems or related components developed hereunder which
the buyer may require, provided (I) such components are not to be produced by
the buyer, an Affiliate of the buyer, or under any contract commitment which
predates this Agreement, (ii) the seller has demonstrated ability to supply such
components, and (iii) the seller is competitive as to price (including contract
terms), quality and service. If, in the
6
<PAGE>
reasonable opinion of the buyer, one or more such components otherwise meeting
requirements of the immediately preceding sentence is found to not be
competitive in price, quality or service, the buyer, to the extent it is free to
do so, will advise the seller in writing of the area(s) in which another
supplier is more competitive. If, within 5 business days of such notice, the
seller does not agree to sell such component(s) with comparable price, quality
and service, then the buyer may purchase such component(s) from such other
supplier.
In any instance in which GM contracts with IMPCO to supply any gaseous fuel
propulsion system or related component developed under this Agreement, IMPCO
will not, for a period of two years from the date of GM's commercial
introduction, solicit sales thereof to third parties. If a potential third party
buyer should approach a Party hereto for supply of gaseous fuel propulsion
systems or components utilizing technology developed hereunder during such two
year period, the Party approached shall bring the inquiry to the Management
Committee for review and consideration as appropriate. Among the alternatives
which could be considered in appropriate circumstances is formation of a joint
venture between the Parties to meet third party customer requirements, or
payment of a reasonable royalty by one Party to the other.
3.2 Purchase Orders; Shared Resources
---------------------------------
Any Agreement by one Party to buy, and the other to produce and sell to
such buyer, one or more gaseous fuel propulsion systems or related components
developed hereunder, shall be concluded by way of a purchase order based on such
buyer's then current terms and conditions applicable generally to supply of
goods used in its core businesses, unless otherwise agreed to in a written
amendment to such purchase order or
7
<PAGE>
other written contract document. A copy of those terms and conditions, including
both the pre-printed terms and additional terms applicable to long term purchase
arrangements, appear in Exhibit 2.
In the event GM should place a vehicle program with IMPCO for installation
of a gaseous fuel propulsion system or related components, such placement shall
fall under applicable provisions of GM's second stage manufacturing policy and
the contract provisions consistent with that policy.
Consistent with this Agreement and Management Committee direction, the
Parties will work together to develop and share sourcing strategy and
procurement for any joint programs. Pricing for gaseous fuel propulsion systems
and related components between the Parties shall reflect an appropriate
differential from that to third parties reasonably reflective of the joint
efforts hereunder.
3.3 Development Programs
--------------------
The Parties will work together to facilitate pre-production consideration
of design for manufacturability and other considerations for efficiency. Each of
the Parties will use its best efforts to work together to develop and improve
car and truck gaseous fuel propulsion systems and related components hereunder.
Except as specifically agreed in advance in writing, each Party shall be
responsible for its own costs associated with such cooperation.
IV. INTELLECTUAL PROPERTY; RECORDS
4.1 Obligations; Procedures
-----------------------
(A) Document Control Coordinators
8
<PAGE>
(1) Each Party shall designate an individual who shall constitute the
sole person authorized to receive Proprietary Information for that Party.
(2) A Party may replace its Document Control Coordinator at any time,
without limitation or restriction, by giving written notice to the other
Party. The initial Document Control Coordinators are identified in
Exhibit A.
(B) Handling of Proprietary Information
(1) During the term of and pursuant to this Agreement, the Parties, to
the extent of their right and willingness to do so in specific cases, may
exchange Proprietary Information relating to the Purpose of the Agreement.
(2) A Party receiving such Proprietary Information agrees to take
reasonable efforts to avoid disclosure thereof to third parties for the
term of this Agreement plus two years thereafter. Reasonable efforts shall
mean efforts which are equivalent to those which the receiving Party uses
to protect its own Proprietary Information of a similar nature, related to
the Program.
(3) In order to be deemed Proprietary Information subject to the
requirements of the above paragraph 4.1(B)(2) the information must:
(i) be identified as such with a conspicuous marking which
identifies the owning Party and refers to this Teaming Agreement by title
and Effective Date; and
(ii) be transferred to the receiving Party exclusively through
its Document Control Coordinator.
9
<PAGE>
(4) The obligations with respect to Proprietary Information as set
forth in this Agreement are not applicable to any such disclosed
information if the content:
(i) was in, or thereafter becomes available to, the public domain
without breach of this Agreement by the receiving Party;
(ii) was known to the receiving Party at the time of disclosure;
(iii) is independently developed by the receiving Party without
the use of the Proprietary Information;
(iv) becomes known to the receiving Party from a source other
than the disclosing Party without breach of this Agreement by the receiving
Party, provided that to the best of the receiving Party's knowledge such
source is not in breach of a confidentiality agreement with, or in breach
of another legal obligation of confidentiality to, the disclosing Party or
another party with respect to such Proprietary Information;
(v) was, or thereafter is, disclosed by the disclosing Party to a
third party without similar restrictions on disclosure;
(vi) is disclosed with the written approval of the disclosing
Party;
(vii) is disclosed inadvertently or without authorization despite
the exercise of reasonable care, as defined herein, provided that upon
discovery of such disclosure, the receiving Party shall notify the
disclosing Party and endeavor to prevent further such disclosures; or
10
<PAGE>
(viii) is required to be disclosed pursuant to governmental or
judicial process. In such a case, the receiving Party shall provide prompt
written notice, to the extent legally permissible, to the disclosing Party
so that the disclosing Party may seek a protective order or take other
appropriate action, and the receiving Party shall furnish only that portion
of Proprietary Information which is required.
4.2 Nothing in this Agreement shall be interpreted as precluding an employee of
one of the Parties to this Agreement from making use of his or her general
knowledge in conjunction with other projects being performed on behalf of his or
her employer, even if such knowledge has been furthered by him or her having had
access to the Proprietary Information exchanged under this Agreement.
4.3 Proprietary Information disclosed by a Party shall remain the property of
that Party and shall be returned, at the request of that Party, upon completion
of the activity in furtherance of the Purpose of this Agreement or, upon earlier
request of the disclosing Party.
4.4 Other than the restrictions set forth herein relating to Proprietary
Information, all other information transmitted between the Parties shall be free
of any restrictions other than patent rights of the Parties.
4.5 Intellectual Property Rights
----------------------------
(A) Inventions
(1) All Program Inventions made solely by employees of one Party in
the performance of this Teaming Agreement shall be the sole property of
that Party. The Party shall disclose such Program Inventions to the other
Party.
11
<PAGE>
(2) All Program Inventions made jointly by employees of both Parties
in the performance of this Teaming Agreement shall be jointly owned by the
Parties.
(B) License Grant - Program Patents and Program Technology
(1) IMPCO grants to GM and its Affiliates, a paid-up, non-exclusive,
non-transferable, world-wide, royalty-free license to make, have made, use,
sell, offer to sell and import under all Program Patents and Program
Technology owned by IMPCO.
(2) GM grants to IMPCO and its Affiliates, a paid-up, non-exclusive,
non-transferable, world-wide, royalty-free license to make, have made, use,
sell, offer to sell and import under all Program Patents and Program
Technology owned by GM.
(C) License Grant - Background Patents and Background Technology
(1) IMPCO grants to GM and its Affiliates, a paid-up, non-exclusive,
non-transferable, royalty-free license under its Background Patents and
Background Technology required for GM to use any Program Patents or Program
Technology to the extent licensed.
(2) GM grants to IMPCO and its Affiliates a paid-up, non-exclusive,
non-transferable, royalty-free license under its Background Patents and
Background Technology required for IMPCO to use any Program Patents or
Program Technology to the extent licensed.
4.6 Each Party shall retain the right to engage in independent research and
development, alone or with others, on any matter, including any aspect of car
and truck
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gaseous fuel propulsion systems and related components. A Party which has
undertaken or desires to undertake an independent research and development
project shall not be obligated by reason of this Teaming Agreement to (i)
disclose to the other Party the fact that such independent research and
development has been or is being undertaken, the nature of the project or the
results thereof, or (ii) permit the other Party to participate in such project.
However, IMPCO agrees to bring to the Management committee any new technology
relative to gaseous fuel propulsion systems or related components it may
independently develop or obtain and to give GM a reasonable opportunity to
implement such technology on a non-exclusive or temporary exclusive basis, at
GM's choice recognizing reasonable terms may vary between an exclusive and non-
exclusive contract.
4.7 Except to license rights under the Background Patents and Background
Technology to the extent necessary for a Party to fully use and exploit Program
Patents and Program Technology as provided for above, nothing in this Agreement
shall be deemed to constitute a waiver of existing or future proprietary rights
that a Party may otherwise possess.
4.8 Records
-------
(A) Each Party shall maintain complete and detailed records, developed by
or for work under this Teaming Agreement, together with findings and conclusions
relating thereto, which records and findings shall be open to the inspection of
the other Party. Such records shall be maintained by each Party, in the
ordinary course of its business for a period of not less than two years.
(B) During maintenance of any such records the Party in possession of such
records shall permit access to the information by the other Party, when
necessary, for
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(i) compliance matters, (ii) litigation matters, (iii) service matters, or (iv)
other similar matters. If requested, the Parties shall make personnel available
at requested locations to consult or testify regarding such records. The Party
requesting such assistance shall reimburse the other Party for reasonable travel
and other expenses (excluding wages and benefits except to the extent that in
any one matter the total time of the personnel exceeds five days) incurred by a
Party in furnishing its personnel at any location requested, other than such
personnel's normal work locations.
V.
5.1 Term
----
This Teaming Agreement shall remain in effect for five years from the date
first written above. It may be terminated any time earlier, or extended longer,
by mutual written consent of the Parties. Termination of this Agreement for any
reason shall not in and of itself terminate any purchase order or other contract
then outstanding for gaseous fuel propulsion systems or related components, the
terms of which are independent of this Agreement.
5.2 Termination
-----------
This Agreement may, upon 30 days written notice, be terminated unilaterally
by either Party in the event that (i) no purchase order or other contract for
gaseous fuel propulsion systems or related components is issued by one Party to
the other by December 31, 1999, (ii) the Management Committee does not meet for
18 consecutive months, (iii) the other Party materially breaches this Agreement
and fails to correct such breach during the first 20 days of such 30 day notice
period, or (iv) the other Party becomes insolvent, files a voluntary petition in
bankruptcy, suffers appointment of a
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receiver or trustee, or executes an assignment for the benefit of creditors,
provided that any such petition, appointment, or assignment is not vacated or
nullified within 15 days of such event. Moreover, this Agreement may be
terminated unilaterally by GM in the event management or ownership control of
IMPCO shall change.
5.3 Survival
--------
Upon expiration or termination of this Agreement, provisions reasonably
expected to continue in place shall survive, including the provisions of Article
IV.
VI.
6.1 Notices
-------
All notices hereunder shall be in writing and shall be personally
delivered, or sent by postage prepaid registered mail, or transmitted by
facsimile and immediately confirmed by postage prepaid first class mail and
addressed as follows:
If GM: General Motors Corporation
VDTO-Research & Development
30500 Mound Road
Mail Stop 480-106-141
Warren, MI 48090-9055
Attention: Program Manager - Alternative Fuels
Fax No.: (810) 986-9359
If IMPCO: IMPCO, Inc.
16804 Gridley Place
Cerritos, CA 90701
Attention: Vice-President, TD & NV
Fax No: (562) 860-5216
or to such other address as the Party may hereafter designate by like notice.
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6.2 Assignment
----------
Neither Party may assign or delegate this Agreement or any of its
obligations under this Agreement, or subcontract any of its obligations under
this Agreement, without prior written consent of the other, which consent shall
not be unreasonably withheld.
6.3 Waiver
------
Any delay, failure, or omission of either Party at any time to perform as
hereunder required shall in no way affect the other Party's right to require
such performance at any time thereafter. The failure of either Party to
exercise any of its rights provided under this Agreement shall not constitute a
waiver of such rights. Any waiver by either Party of any breach of any term,
provision, or covenant of this Agreement shall not constitute a waiver of any
subsequent breach of the same or other term of this Agreement.
6.4 Independent Contractors
-----------------------
IMPCO and GM are independent contracting Parties and nothing in this
Agreement shall make either Party the agent or legal representative of the other
for any purpose whatsoever, nor does this Agreement grant either Party any
authority to assume or create any obligation on behalf of or in the name of the
other.
6.5. Applicable Law
--------------
This Agreement is to be construed according to the laws of Michigan, USA.
6.6 Amendment
---------
This Agreement may not be amended, changed, or modified in any manner other
than by an instrument in writing signed by duly authorized representatives of
the Parties hereto.
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6.7 Audit
-----
With respect to any work under this Agreement for which one Party agrees in
advance to pay the other, but which is not included in a firm fixed price, the
Party performing such work shall provide the other, upon reasonable request and
during normal business hours, access to all relevant records for the purpose of
auditing charges and/or allocations related to this Agreement. The Party
performing such work shall segregate its records in such manner as to facilitate
a complete audit, and agrees that such audit may be used as the basis for
settlement of such charges under this Agreement. The Party performing such work
shall preserve its records for at least two years after final payment by the
other for the work under audit.
VII. PRODUCT LIABILITY; THIRD-PARTY CLAIMS
-------------------------------------
7.1 Prompt Notice
-------------
Should any claim be made against either GM or IMPCO alleging that personal
injury or property damage to a nonparty to this Agreement was caused by an
alleged defect in a car or truck gaseous fuel propulsion system or related
assemblies developed hereunder, regardless of whether such claim is based upon
strict liability, negligence or warranty, IMPCO and GM will provide to the other
Party prompt notice of such claims and every formal claim document received by
either of them relating to such claim.
7.2 Cooperation
-----------
With respect to any such claim which may relate to the car or truck gaseous
fuel propulsion system or related assemblies hereunder, IMPCO and GM agree to
communicate and cooperate with each other and, if necessary, any appropriate
insurance carrier, to the extent possible in the defense of the claim. IMPCO
and GM will make
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available to each other the services of knowledgeable personnel and information
necessary to the defense of the claim. During the pendency of any lawsuit
involving such a claim, IMPCO and GM will not take any adverse action, including
third-party claims, or cross-claims against each other.
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed,
in duplicate, by their duly authorized representatives.
GENERAL MOTORS CORPORATION IMPCO INDUSTRIES, INC.
By: By:
---------------------------------- ---------------------------------
Title: Title:
------------------------------- ------------------------------
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<PAGE>
EXHIBIT 1
Management Committee, Program Manager and Document Control Coordinator
From GM: Management Committee
--------------------------------------------
--------------------------------------------
--------------------------------------------
Initial Secretary:
--------------------------------------------
Program Manager:
--------------------------------------------
Document Control:
--------------------------------------------
From IMPCO: Management Committee:
--------------------------------------------
--------------------------------------------
--------------------------------------------
Initial Secretary:
--------------------------------------------
Program Manager:
--------------------------------------------
19
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Document Control:
--------------------------------------------
20
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Exhibit 2
Standard Purchasing Terms
GM: Attach here May 1986 Terms and Conditions, plus Additional Purchase
Order Provisions -- Lifetime Contracts.
IMPCO: Attach here: any standard product terms for similar goods in
similar quantities.
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<PAGE>
PURCHASE ORDER TERMS AND CONDITIONS
1. ACCEPTANCE: Seller has read and understands this order and agrees that
Seller's written acceptance or commencement of any work or service under this
order shall constitutes Seller's acceptance of these terms and conditions only.
All terms and conditions proposed by Seller which are different from or in
addition to this order are unacceptable to Buyer, are expressly rejected by
Buyer, and shall not become a part of this order. Any modifications to this
order shall be made in accordance with Paragraph 31.
2. SHIPPING, BILLING AND FLSA CERTIFICATION: Seller agrees: (a) to properly
pack, mark and ship goods in accordance with the requirements of Buyer and
involved carriers in a manner to secure lowest transportation cost; (b) to route
shipments in accordance with instructions from Buyer's Traffic Department; (c)
to make no charge for handling, packaging, storage, transportation or drayage of
goods unless otherwise stated in this order; (d) to provide with each shipment
packing slips with Buyer's order number marked thereon; (e) to properly mark
each package with this order number, the factory, plant and dock number, and
where multiple packages comprise a single shipment, to consecutively number
each package; and (f) to promptly forward the original bill of lading or other
shipping receipt for each shipment in accordance with Buyer's instructions.
Seller will include on bills of lading or other shipping receipts correct
classification identification of the goods shipped in accordance with Buyer's
instructions and carrier's requirements. The marks on each package and
identification of the goods on packing slips, bills of lading and invoices
shall be sufficient to enable Buyer to easily identify the goods purchased.
Seller further agrees: (a) to promptly render after delivery of goods or
performance of services, correct and complete invoices to Buyer; and (b) to
accept payment by check or, at Buyer's discretion, other cash equivalent
(including electronic transfer of funds). Seller's invoices must include a
certification that all goods were produced in compliance with the applicable
requirements of sections 6, 7, and 12 of the Fair Labor Standards Act, as
amended, and of regulations and orders of the United States Department of Labor
issued in connection therewith. The payment date is set forth on the face side
of this order, or if not stated, shall be on the 25th day of the month following
Buyer's receipt of a proper invoice (except as may otherwise be agreed upon by
Buyer and Seller in connection with a program providing for electronic funds
transfer). Time for payment shall not begin until correct and complete invoices
are received, and Seller's cash discount privileges to buyer shall be extended
until such time as payment is due. Buyer may withhold payment pending receipt of
evidence, in such form and detail as Buyer may direct, of the absence of the
absence of any liens, encumbrances and claims on the goods or services under
this order.
3. DELIVERY SCHEDULES: Deliveries shall be made both in quantities and at
times specified in Buyer's schedules. Buyer shall not be required to make
payment for goods delivered to Buyer which are in excess of quantities specified
in Buyer's delivery schedules. Buyer may change the rate of scheduled shipments
or direct temporary suspension of scheduled shipments, neither of which shall
entitle Seller to a modification of the price for goods or services covered by
this order. For orders of goods where quantities and/or delivery schedules are
not specified. Seller shall deliver goods in such quantities and times as Buyer
may direct in subsequent releases.
4. PREMIUM SHIPMENTS: If Seller's acts or omissions result in Seller's failure
to meet Buyer's delivery requirements and Buyer requires a more expeditious
method of transportation for the goods than the transportation method originally
specified by Buyer, Seller shall, at Buyer's option, (i) promptly reimburse
Buyer the difference in cost between the more expeditious method and the
original method, (ii) allow Buyer to reduce its payment of Seller's invoices by
such difference, or (iii) ship the goods as expeditiously as possible at
Seller's expense and invoice Buyer for the amount which Buyer would have paid
for normal shipment.
5. CHANGES: Buyer reserves the right at any time to direct changes, or cause
Seller to make changes, to drawings and specification of the goods or to
otherwise change the scope of the work covered by this order, including work
with respect to such matters as inspection, testing or quality control, and
Seller agrees to promptly make such changes; any difference in price or time for
performance resulting from such changes shall be equitably adjusted by Buyer
after receipt of documentation in such form and detail as Buyer may direct. Any
changes to this order shall be made in accordance with Paragraph 31.
6 INSPECTION: Seller agrees that Buyer shall have the right to enter Seller's
facility at reasonable times to inspect the facility, goods, materials and any
property of Buyer covered by this order. Buyer's inspection of the goods,
whether during manufacture, prior to delivery or within a reasonable time after
delivery, shall not constitute acceptance of any work-in-process or finished
goods.
7. NONCONFORMING GOODS: To the extent Buyer rejects goods as nonconforming, the
quantities under this order will automatically be reduced unless Buyer otherwise
notifies Seller. Seller will not replace quantities so reduced without a new
order or schedule from Buyer. Nonconforming goods will be held by Buyer for
disposition in accordance with Seller's instructions at Seller's risk. Seller's
failure to provide written instructions within ten (10) days, or such shorter
period as may be commercially reasonable under the circumstances, after notice
of nonconformity shall entitle Buyer, at Buyer's option, to charge Seller for
storage and handling, or to dispose of the goods, without liability to Seller.
Payment for nonconforming goods shall not constitute an acceptance thereof,
limit or impair Buyer's right to assert any legal or equitable remedy, or
relieve Seller's responsibility for latent defects.
8. FORCE MAJEURE: Any delay or failure of either party to perform its
obligations hereunder shall be excused if, and to the extent that it is caused
by an event or occurrence beyond the reasonable control of the party and without
its fault or negligence, such as, by way of example and not by way of
limitation, acts of God, actions by any governmental authority (whether valid or
invalid), fires, floods, windstorms, explosions, riots, natural disasters, wars,
sabotage, labor problems (including lockouts, strikes and slowdowns), inability
to obtain power, material, labor, equipment or transportation, or court
injunction or order; provided that written notice of such delay (including the
anticipated duration of the delay) shall be given by the affected party to the
other party within ten (10) days. During the period of such delay or failure to
perform by Seller. Buyer, at its option, may purchase goods from other sources
and reduce its schedules to Seller by such quantities, without liability to
Seller, or have Seller provide the goods from other sources in quantities and at
times requested by Buyer and at the price set forth in this order. If requested
by the Buyer, Seller shall, within, ten (10) days of such request, provide
adequate assurances that the delay shall not exceed thirty (30) days. If the
delay lasts more than thirty (30) days or Seller does not provide adequate
assurance that the delay will cease within thirty (30) days, Buyer may
immediately cancel the order without liability.
<PAGE>
9. WARRANTY: Seller expressly warrants that all goods or services covered by
this order will conform to the specifications, drawings, samples, or
descriptions furnished to or by Buyer, and will be merchantable, of good
material and workmanship and free from defect. In addition, Seller acknowledges
that Seller knows of Buyer's intended use and expressly warrants that all goods
covered by this order which have been selected, designed, manufactured, or
assembled by Seller, based upon Buyer's stated use, will be fit and sufficient
for the particular purposes intended by Buyer.
10. INGREDIENTS DISCLOSURE AND SPECIAL WARNINGS AND INSTRUCTIONS: If requested
by Buyer, Seller shall promptly furnish to Buyer in such form and detail as
Buyer may direct: (a) a list of all ingredients in the goods purchased
hereunder: (b) the amount of one or more ingredients; and (c) information
concerning any changes in or additions to such ingredients. Prior to and with
the shipment of the goods purchased hereunder, Seller agrees to furnish to Buyer
sufficient warning and notice in writing (including appropriate labels on goods,
containers and packing) of any hazardous material which is an ingredient or a
part of any of the goods, together with such special handling instructions as
may be necessary to advise carriers. Buyer and their respective employees of how
to exercise that measure of care and precaution which will best prevent bodily
injury or property damage in the handling, transportation, processing, use, or
disposal of the goods, containers and packing shipped to Buyer.
11. INSOLVENCY: Buyer may immediately cancel this order without liability to
Seller in the event of the happening of any of the following or any other
comparable event: (a) insolvency of the Seller; (b) filing of a voluntary
petition in bankruptcy by Seller; (c) filing of any involuntary petition in
bankruptcy against Seller; (d) appointment of a receiver or trustee for Seller;
(e) or execution of an assignment for the benefit of creditors by Seller,
provided that such petition, appointment, or assignment is not vacated or
nullified within fifteen (15) days of such event.
12. CANCELLATION FOR BREACH: Buyer reserves the right to cancel all or any part
of this order, without liability to Seller, if Seller: (a) repudiates or
breaches any of the terms of this order, including Seller's warranties;
(b) fails to perform services or deliver goods as specified by Buyer; or
(c) fails to make progress so as to endanger timely and proper completion of
services or delivery of goods; and does not correct such failure or breach
within ten (10) days (or such shorter period of time if commercially reasonable
under the circumstances) after receipt of written notice from Buyer specifying
such failure or breach.
13. TERMINATION: In addition to any other rights of Buyer to cancel or
terminate this order, Buyer may at its option immediately terminate all or any
part of this order, at any time and for any reason, by giving written notice to
Seller. Upon such termination, Buyer shall pay to Seller the following amounts
without duplication: (a) the order price for all goods or services which have
been completed in accordance with this order and not previously paid for; and
(b) the actual costs of work-in-process and raw materials incurred by Seller in
furnishing the goods or services under this order to the extent such costs are
reasonable in amount and are properly allocable or apportionable under generally
accepted accounting principles to the terminated portion of this order; less,
however, the reasonable value or cost (whichever is higher) of any goods or
materials used or sold by Seller with Buyer's written consent, and the cost of
any damaged or destroyed goods or material. Buyer will make no payments for
finished goods, work-in-process or raw materials fabricated or procured by
Seller in amounts in excess of those authorized in delivery releases nor for any
undelivered goods which are in Seller's standard stock or which are readily
marketable. Payments made under this Paragraph shall not exceed the aggregate
price payable by Buyer for finished goods which would be produced by Seller
under delivery or release schedules outstanding at the date of termination.
Except as provided in this Paragraph, Buyer shall not be liable for and shall
not be required to make payments to Seller, directly or on account of claims by
Seller's subcontractors, for loss of anticipated profit, unabsorbed overhead,
interest on claims, product development and engineering costs, facilities and
equipment rearrangement costs or rental, unamortized depreciation costs, and
general and administrative burden charges from termination of this order. Within
sixty (60) days from the effective date of termination, Seller shall submit a
comprehensive termination claim to Buyer, with sufficient supporting data to
permit Buyer's audit, and shall thereafter promptly furnish such supplemental
and supporting information as Buyer shall request. Buyer, or its agents, shall
have the right to audit and examine all books, records, facilities, work,
material, inventories, and other items relating to any termination claim of
Seller.
14. INTELLECTUAL PROPERTY. Seller agrees: (a) to defend, hold harmless and
indemnify Buyer, its successors and customers against all claims, demands,
losses, suits, damages, liability and expenses (including reasonable attorney
fees) arising out of any suit, claim or action for actual or alleged direct or
contributory infringement of, or inducement to infringe, any United States or
foreign patent, trademark, copyright or mask work right by reason of the
manufacture, use or sale of the goods or services ordered, including
infringement arising out of compliance with specifications furnished by Buyer,
or for actual or alleged misuse or misappropriation of a trade secret resulting
directly or indirectly from Seller's actions; (b) to waive any claim against
Buyer under the Uniform Commercial Code or otherwise, including any hold
harmless or similar claim, in any way related to a claim asserted against Seller
or Buyer for patent, trademark, copyright or mask work right infringement or the
like, including claims arising out of compliance with specifications furnished
by Buyer; and (c) to grant to Buyer a worldwide, nonexclusive, royalty-free,
irrevocable license to repair and have repaired, to reconstruct and have
reconstructed the goods ordered hereunder. Seller assigns to Buyer all right,
title and interest in and to all trademarks, copyrights and mask work rights in
any material created for Buyer under this order.
<PAGE>
15. TECHNICAL INFORMATION DISCLOSED TO BUYER: Seller agrees not to assert any
claim (other than a claim for patent infringement) with respect to any technical
information which Seller shall have disclosed or may hereafter disclose to Buyer
in connection with the goods or services covered by this order.
16. INDEMNIFICATION: If Seller performs any work on Buyer's premises or
utilizes the property of Buyer, whether on or off Buyer's premises. Seller shall
indemnify and hold Buyer harmless from and against any liability, claims,
demands or expenses (including reasonable attorney fees) for damages to the
property of or injuries (including death) to Buyer, its employes or any other
person arising from or in connection with Seller's performance of work or use of
Buyer's property, except for such liability, claim, or demand arising out of the
sole negligence of Buyer.
17. INSURANCE: Seller shall maintain insurance coverage in amounts not less
than the following: (a) Workers' Compensation - Statutory Limits for the state
or states in which this order is to be performed (or evidence of authority to
self-insure); (b) Employer's Liability - $250,000; (c) Comprehensive General
Liability (including Products/Completed Operations and Blanket Contractual
Liability) - $1,000,000 per person. $1,000,000 per occurrence Personal Injury,
and $1,000,000 per occurrence Property Damage, or $1,000,000 per occurrence
Personal Injury and Property Damage combined single limit; and (d) Automobile
Liability (including owned, non-owned and hired vehicles)-$1,000,000 per person,
$1,000,0000 per occurrence Personal Injury and $1,000,000 per occurrence
Property Damage, or $1,000,000 per occurrence Personal Injury and Property
Damage combined single limit. At Buyer's request, Seller shall furnish to Buyer
certificates of insurance setting forth the amount(s) of coverage, policy
number(s) and date(s) of expiration for insurance maintained by Seller and, if
further requested by Buyer, such certificates will provide that Buyer shall
receive thirty (30) days' prior written notification from the insurer of any
termination or reduction in the amount or scope of coverages. Seller's purchase
of appropriate insurance coverage or the furnishing of certificates of insurance
shall not release Seller of its obligations or liabilities under this order. In
the event of Seller's breech of this provision, Buyer shall have the right to
cancel the undelivered portion of any goods or services covered by this order
and shall not be required to make further payments except for conforming goods
delivered or services rendered prior to cancellation.
18. TOOLS: Unless otherwise agreed to by Buyer, Seller at its own expense shall
furnish, keep in good condition, and replace when necessary all tools, jigs,
dies, gauges, fixtures, molds and patterns ("Tools") necessary for the
production of the goods. The cost of changes to the Tools necessary to make
design and specification changes authorized by Buyer shall be paid for by Buyer.
Seller shall insure the Tools with full fire and extended coverage insurance for
the replacement value thereof. Seller grants Buyer an irrevocable option to take
possession of and title to the Tools that are special for the production of the
goods upon payment to Seller of the book value thereof less any amounts which
Buyer has previously paid to Seller for the cost of such Tools; provided;
however, that this option shall not apply if such Tools are used to produce
goods that are the standard stock of Seller or if a substantial quantity of like
goods are being sold by Seller to others.
19. BAILED PROPERTY: All supplies, materials, tools, jigs, dies, gauges,
fixtures, molds, patterns, equipment and other items furnished by Buyer, either
directly or indirectly, to Seller to perform this order, or for which Seller has
been reimbursed by Buyer, shall be and remain the property of Buyer. Seller
shall bear the risk of loss of and damage to Buyer's property. Buyer's property
shall at all times be properly housed and maintained by Seller; shall not be
used by Seller for any purpose other than the performance of this order; shall
be deemed to be personality; shall be conspicuously marked "Property of General
Motors Corporation" by Seller; shall not be commingled with the property of
Seller or with that of a third person; and shall not be moved from Seller's
premises without Buyer's prior written approval. Upon the request of Buyer, such
property shall be immediately released to Buyer or delivered to Buyer by Seller,
either (i) F.O.B. transport equipment at Seller's plant, properly packed and
marked in accordance with the requirements of the carrier selected by Buyer to
transport such property, or (ii) to any location designated by Buyer, in which
event Buyer shall pay to Seller the reasonable cost of delivering such property
to such location. Buyer shall have the right to enter onto Seller's premises at
all reasonable times to inspect such property and Seller's records with respect
thereto.
20. REMEDIES. The rights and remedies reserved to Buyer in this order shall be
cumulative, and additional to all other or further remedies provided in law or
equity.
21. DUTY DRAWBACK RIGHTS: This order includes all related customs duty and
import drawback rights, if any, (including rights developed by substitution and
rights which may be acquired from Seller's suppliers) which Seller can transfer
to Buyer. Seller agrees to inform Buyer of the existence of any such rights and
upon request to supply such documents as may be required to obtain such
drawback.
<PAGE>
22. SETOFF: In addition to any right of setoff provided by law, all amounts due
Seller shall be considered net of indebtedness of Seller to General Motors
Corporation and its subsidiaries; and General Motors Corporation may deduct any
amounts due or to become due from Seller to General Motors Corporation and its
subsidiaries from any sums due or to become due from General Motors Corporation
to Seller.
23. ADVERTISING: Seller shall not, without first obtaining the written consent
of Buyer, in any manner advertise or publish the fact that Seller has contracted
to furnish Buyer the goods or services herein ordered, or use any trademarks or
tradenames of Buyer in Seller's advertising or promotional materials. In the
event of Seller's breach of this provision, Buyer shall have the right to cancel
the undelivered portion of any goods or services covered by this order and shall
not be required to make further payments except for conforming goods delivered
or services rendered prior to cancellation.
24. GOVERNMENT COMPLIANCE: Seller agrees to comply with all federal, state and
local laws, Executive Orders, rules, regulations and ordinances which may be
applicable to Seller's performance of its obligations under this order.
25. EQUAL OPPORTUNITY AND AFFIRMATIVE ACTION: This order incorporates by
reference: (a) all provisions of 41 C.F.R. 60-1.4, as amended, pertaining to the
equal opportunity clause in government contracts; (b) all provisions of 41
C.F.R. 60-250, as amended, pertaining to affirmative action for disabled
veterans of the Vietnam Era; and (c) all provisions of 41 C.F.R. 60-741, as
amended, pertaining to affirmative action for handicapped workers. Seller
certifies that it is in compliance with all applicable provisions of 41 C.F.R.
60-1, including but not limited to: (a) developing and presently having in full
force and effect a written affirmative action compliance program for each of its
establishments as required by 41 C.F.R. 60-1.40, as amended; (b) filing EEO-1
Reports as required by 41 C.F.R. 60-1.7, as amended; and (c) neither maintaining
segregated facilities nor permitting its employes to perform services at
segmented facilities as prohibited by 41 C.F.R. 60-1.8, as amended. Buyer
requests that Seller adopt and implement a policy to extend employment
opportunities to qualified applicants and employes on an equal basis regardless
of an individual's age, race, color, sex, religion or national origin.
26. NO IMPLIED WAIVER: The failure of either party at any time to require
performance by the other party of any provision of this order shall in no way
affect the right to require such performance at any time thereafter, nor shall
the waiver of either party of a breach of any provision of this order constitute
a waiver of any succeeding breach of the same or any other provision.
27. NON-ASSIGNMENT: Seller may not assign or delegate its obligations under
this order without Buyer's prior written consent.
28. RELATIONSHIP OF PARTIES: Seller and Buyer are independent contracting
parties and nothing in this order shall make either party the agent or legal
representative of the other for any purpose whatsoever, nor does it grant either
party any authority to assume or to create any obligation on behalf of or in the
name of the other.
29. GOVERNING LAW: This order is to be construed according to the laws of the
state from which this order issues as shown by the address of Buyer on the face
side of this order.
30. SEVERABILITY: If any term of this order is invalid or unenforceable under
any statute, regulations, ordinance, executive order or other rule of law, such
term shall be deemed reformed or deleted, but only to the extent necessary to
comply with such statute, regulation, ordinance, order or rule, and the
remaining provisions of this order shall remain in full force and effect.
31. ENTIRE AGREEMENT: This order, together with the attachments, exhibits, or
supplements, specifically referenced in this order, constitutes the entire
agreement between Seller and Buyer with respect to the matter contained herein
and supersedes all prior oral or written representations and agreements. This
order may only be modified by a purchase order amendment/alteration issued by
Buyer.
MAY, 1986
<PAGE>
ADDITIONAL PURCHASE ORDER PROVISIONS
LIFETIME CONTRACTS
1. Purchase of Product
-------------------
Seller agrees to sell, and Buyer agrees to purchase, approximately ___ percent
(___%) of Buyer's production and service requirements for the following product
(the "Product" or "Goods"):
Part Number Description Per Unit Price Annual Daily Tool Capacity
- ----------- ----------- -------------- --------------------------
2. Term
----
The term of this Purchase Order is for the "Life of the Product," which is
defined as the duration of the __ Car/Truck style presently projected to run
from 19__ through 19__ [or complete other appropriate definition - use of part
numbers is generally not recommended since they are not always consistent with
vehicle models and can differ in service application.] Paragraph 13
("Termination") on the reverse side of this Purchase Order is deleted.
3. Prices; Price Reduction
-----------------------
The per unit of this Product is for [calendar/model] year 19__, is $__, F.O.B.
[Seller's/Buyer's] Plant. This price is subject to the following minimum annual
percentage reduction from the prior year's price:
[Calendar/Model] Year 19__ five percent (5%)
[Calendar/Model] Year 19__ five percent (5%)
[Calendar/Model] Year 19__ four percent (4%)
[Calendar/Model] Year 19__ four percent (4%)
Succeeding years three percent (3%)
No adjustments will be made for cost increases, including increases in Seller's
costs for labor, material or overhead.
In addition, Buyer and Seller will use their best efforts to implement cost
savings and productivity improvements in order to reduce Seller's costs, with
the understanding that ___ percent (__%) of the net savings (after deduction of
expenditures for development, applications, engineering, tools, prototypes and
financing) will be applied to reduce the price of the Product to Buyer and the
balance will be for the benefit of Seller.
<PAGE>
4. Supplier Quality and Development
--------------------------------
Seller agrees to participate in Buyer's supplier quality and development
program(s). In addition, Seller shall comply with all quality requirements and
procedures specified by Buyer, as the same may be revised from time to time,
including those applicable to Seller as set forth in Quality System Requirements
QS-9000.
5. Right to Purchase from Others
-----------------------------
Seller will assure that the Product remains competitive in terms of technology,
design, and quality with similar goods available to Buyer during the term of
this Purchase Order. If, in the reasonable opinion of Buyer, the Product does
not remain competitive, Buyer, to the extent it is free to do so, will advise
Seller in writing of the area(s) in which another product is more competitive
with respect to technology, design or quality. If, within (thirty to ninety)
days, Seller does not agree to immediately sell the Product with comparable
technology, design or quality, Buyer may terminate this Purchase Order and
purchase from another supplier without liability to Seller.
6. Technical Information; Waiver of Claims
---------------------------------------
6.1 Buyer and Seller will cooperate to create, maintain, update, and share
technical information about the Product and its manufacture, as needed,
without restriction and in compliance with buyer's drafting and math data
standards.
6.2 In the event Buyer exercises its right to terminate or cancel this Purchase
Order and then makes the Product or purchases the Product from another
supplier, Seller agrees not to bring any action or claim against Buyer, its
suppliers, dealers, or customers for any reason, including any claim for
infringement of patents or other proprietary rights, arising from the
manufacture, use and sale of the Product or use of the information
furnished by Seller to Buyer under this Purchase Order. Seller will secure
the necessary agreements with its employees and sub-contractors to assure
compliance with this Section 6.
7. Service Parts
Seller will sell to Buyer the product necessary to fulfill Buyer's current
model service and replacement requirements for such items at production
part pricing plus any actual cost differential for packaging. After Buyer
completes current model purchases, Seller will sell product to buyer to
fulfill Buyer's past model service and replacement requirements. The prices
for product during the first three (3) years of this period shall be those
in effect at the conclusion of current model purchases plus any actual cost
differentials for packaging. Thereafter, the prices for product shall be as
agreed upon by the parties. When requested by Buyer, Seller shall make
service literature and other materials available to support Buyer's service
part sales activities. (Revised: October, 1997)
<PAGE>
7. Note: Date to be used is either (1) last day of first model year or (2) 12
months after start of production date - whichever is shorter. This pricing
exemption period may be extended for up to two additional model years (for a
total of three (3) years). However, exemptions with durations of more than
one (1) year must be approved in advance by your purchasing management.
Lifetime Contract
(Revised: October, 1997)
<PAGE>
EXHIBIT 10.2
AGREEMENT
THIS AGREEMENT is dated as of April 5, 2000 among Questor Partners Fund,
L.P., a Delaware limited partnership, Questor Side-by-Side Partners, L.P., a
Delaware limited partnership, (collectively "Questor") and IMPCO Technologies,
Inc., a Delaware corporation (the "Company").
WHEREAS
- -------
The Company is working with FleetBoston Robertson Stephens Inc. ("Lead Bank"),
with whom representatives of Questor have had discussions in the last week, and
other investment bankers in preparing an S-3 registration statement and
preparing for a primary underwritten offering to be led by Lead Bank prior to
July 31, 2000 (the "Primary Offering").
NOW THIS AGREEMENT WITNESSETH:
- ------------------------------
The parties hereto, intending to be legally bound, hereby agree as follows:
1. The Company will include (on customary terms, including indemnification of
selling stockholders) 875,000 (or such lesser number requested by Questor)
of Questor's shares of the Company's Common Stock in the Primary Offering,
such number to be reduced by (i) any public sales of Common Stock by Questor
under Rule 144 on or after the date of this agreement and prior to
consummation of the Primary Offering, and (ii) if prior to consummation of
the Primary Offering Questor sells at least 700,000 shares of the Company's
Common Stock in a private transaction to a buyer that was brought to Questor
by the Company, 50% of the aggregate number of shares sold by Questor in
such private transaction (such net number of shares, the "First Tranche").
Questor shall have no obligation to consummate any such private sale. The
Company will pay all expenses incurred by the Company associated with the
Primary Offering, other than underwriting concessions and discounts on
shares included by Questor and fees of Questor's counsel. In connection with
the Primary Offering, Questor will agree to enter into a customary
underwriting agreement with the underwriters, provided, however, Questor's
indemnification obligations will be limited to its representations,
warranties and agreements as to its ownership of shares, its authorization
of the sale of such shares and similar matters and to information expressly
provided by it for inclusion in the registration statement. Questor will
also enter into a standard lock-up agreement with the underwriters on the
same form provided to other affiliates and officers and directors that is
consistent with the terms of this agreement.
2. Questor's shares will be the first shares included in the Primary Offering
(and conversely, will be the last shares cut-back).
3. In addition to the Company's obligations under paragraph 1, if Questor holds
more than 75,000 shares of the Company's Common Stock, Questor may demand in
writing that the Company register some or all of the shares that it holds on
Form S-3. Questor may exercise its right to demand registration at any time
on or after the earliest of (i) thirty days following the effective date of
the Primary Offering or (ii) the date on which the Lead Bank advises the
Company that it will not be proceeding as lead manager with respect to the
Primary Offering or (iii) July 31, 2000. The written demand shall state the
number of shares that Questor desires the Company to register. If the
Primary Offering does not occur before July 31, 2000, Questor shall have the
right to exercise a demand on two occasions, otherwise Questor shall have
the right to exercise a demand on only one occasion. Upon receipt of a
demand meeting the foregoing requirements, the Company at its expense will
promptly prepare, file and use reasonable efforts to have declared effective
a stand-alone S-3 registration statement covering all shares of the
Company's Common stock that Questor has stated it wishes to have registered
in such registration. The Company will use its best efforts to maintain the
effectiveness of any registration statement filed in response to Questor's
demand until the earlier of the sale of all of the shares covered by the
registration statement or the expiration of two years from the effective
date of the registration statement (three years if Questor is not able to
sell all of the First Tranche in the Company's Primary offering by
<PAGE>
July 31, 2000). Each such registration will provide for a broad manner of
distribution (e.g., block trades, ordinary broker transactions, privately
negotiated sales and, if Questor provides the necessary information,
underwritten offerings), and the Company and Questor will sign a
registration rights agreement providing for the Company's cooperation with
any secondary offering by Questor (including indemnification of the selling
stockholders and underwriters by the Company) and other customary terms.
4. Questor will not sell publicly (except under the Primary Offering), without
the consent of the Lead Bank, any shares of the Company's Common Stock
during a period (the "Interim Period") beginning on the date of this
agreement and ending on the earliest to occur of (i) the consummation of the
Primary Offering, (ii) July 31, 2000, if no Primary Offering that includes
the First Tranche has been consummated by July 31, 2000, and (iii) the date
on which the Lead Bank advises the Company that it will not be proceeding as
lead manager with respect to the Primary Offering.
5. If a Primary Offering that includes all of the First Tranche is consummated
by July 31, 2000, Questor will not sell publicly (except under the Primary
Offering), without the prior written consent of the Lead Bank any shares of
the Company's Common Stock for a period beginning on the day prior to the
consummation of the Primary Offering and ending 135 days after the effective
date of the Primary Offering. The 135 day period specified in the preceding
sentence shall be shortened to any shorter period that applies to any
officer, director or other person who is an affiliate by virtue of share
ownership on the date of this agreement; provided, however, this provision
shall not apply to (i) case by case exceptions made by the Lead Bank or (ii)
up to 1000 shares for each person who becomes an officer after the date of
this agreement or who own no shares on the date of this agreement who in
either case receives the shares by virtue of purchases upon exercise of
options or similar rights.
6. Persons designated by Questor on the Company's Board of Directors will
resign from the Board prior to the effective date of the Primary Offering.
If the directors have resigned and the Primary Offering does not occur by
July 31, 2000 or the Primary Offering does occur before that date, but on
the first anniversary of the date of this agreement Questor continues to
hold at least 500,000 shares of the Company's Common Stock, then upon
receipt of a written request to appoint or elect a person designated by
Questor to become a member of the Company's Board of Directors, naming a
person who is willing to become a director, the Company will take all action
necessary and within its power and will use all reasonable good faith
efforts to cause such person to be appointed or elected to the Board.
7. It is understood by the parties that this agreement will be disclosed in
connection with one or more filings with the Securities and Exchange
Commission.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first written above.
QUESTOR PARTNERS FUND, L.P.
By: Questor General Partner, L.P., its general
partner
By: Questor Principals, Inc, its general
partner
By: /s/ [SIGNATURE ILLEGIBLE]
---------------------------
Name: [SIGNATURE ILLEGIBLE]
Title: Managing Director
QUESTOR SIDE-BY-SIDE PARTNERS, L.P.
By: Questor Principals, Inc, its general partner
By: /s/ [SIGNATURE ILLEGIBLE]
--------------------------------
Name: [SIGNATURE ILLEGIBLE]
Title: Managing Director
IMPCO TECHNOLOGIES, INC.
By: /s/ WILLIAM BRIAN OLSON
--------------------------------
Name: William Brian Olson
Title: Chief Financial Officer
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-3) and related Prospectus of IMPCO Technologies,
Inc. to be filed with the Securities and Exchange Commission on or about April
6, 2000 and to the use and incorporation by reference therein of our report
dated June 30, 1999 with respect to the consolidated financial statements and
schedule of IMPCO Technologies, Inc. included in its Annual Report (Form 10-K)
for the year ended April 30, 1999, filed with the Securities and Exchange
Commission.
/s/ ERNST & YOUNG LLP
Long Beach, California
April 6, 2000
<TABLE> <S> <C>
<PAGE>
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<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 3,546,409
<SECURITIES> 0
<RECEIVABLES> 27,140,461
<ALLOWANCES> 550,980
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0
0
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