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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
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[x] Preliminary Proxy Statement [ ] Confidential, for Use of the
[ ] Definitive Proxy Statement Commission Only (as permitted by
[ ] Definitive Additional Materials Rule 14a-6(e)(2))
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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CRYENCO SCIENCES, INC.
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(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
[ ] No fee required
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: Class A
Common Stock, Options to Purchase Class A Common Stock, Warrants to
purchase Class B Convertible Non-Voting Common Stock which stock is
convertible into Class A Common Stock on a share for share basis ('Class
B Common Stock'), and Series A Preferred Stock
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies: 6,996,997
shares of Class A Common Stock, Options to purchase 164,000 shares of
Class A Common Stock, Warrants to purchase 341,434 shares of Class B
Common Stock, and 68,517 shares of Series A Preferred Stock
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): $2.75 per
share of Class A Common Stock, value of in the money options to purchase
164,000 shares of Class A Common Stock at exercise prices ranging from
$1.81 to $2.50, value of in the money Warrants to purchase 341,434
shares of Class B Common Stock at an exercise price of $0.8352 per
share, and $10.00 per share (plus accumulated but unpaid dividends) of
Series A Preferred Stock
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(4) Proposed maximum aggregate value of transaction: $20,715,700
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(5) Total fee paid: $4,143
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[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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FOR INFORMATION ONLY -- PRELIMINARY COPY
CRYENCO SCIENCES, INC.
3811 JOLIET STREET
DENVER, COLORADO 80239
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To the Stockholders of
CRYENCO SCIENCES, INC.:
NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders (the
'Special Meeting') of CRYENCO SCIENCES, INC. (the 'Company') will be held at the
Princeton Club, 15 West 43rd Street, New York, New York 10036, on July , 1997
at a.m. local time, for the following purposes:
1. To consider and vote upon a proposal to approve and adopt the Plan and
Agreement of Merger dated as of April 30, 1997, and the transactions
contemplated thereby, pursuant to which, among other things, Chart Acquisition
Company, Inc., a Delaware corporation and an indirect wholly-owned subsidiary of
Chart Industries, Inc. ('Chart'), a Delaware corporation, will be merged with
and into the Company (the 'Merger'). The Company will be the surviving
corporation in the Merger and the entire equity interest in the Company will be
owned by Greenville Tube Corporation, an Arkansas corporation and wholly-owned
subsidiary of Chart. As a result of the Merger, each outstanding share of Class
A Common Stock, par value $.01 per share, of the Company (the 'Common Stock'),
other than those held by stockholders of the Company who perfect their
dissenters' rights in accordance with the Delaware General Corporation Law, will
be converted into the right to receive $2.75 in cash, without interest, and each
outstanding share of Series A Preferred Stock, par value $.01 per share, of the
Company will be converted into the right to receive $10.00 in cash plus any
accumulated but unpaid dividends with respect thereto, all as more fully
described in the accompanying Proxy Statement.
2. To transact such other business as may properly come before the Special
Meeting or at any and all adjournments or postponements thereof.
The Board of Directors has fixed the close of business on June 9, 1997 as
the record date for determination of stockholders entitled to notice of, and to
vote at, the Special Meeting. Only stockholders of record at the close of
business on such date will be entitled to notice of and to vote at the Special
Meeting or at any and all adjournments or postponements thereof.
All stockholders who are entitled to vote, even if they plan to attend the
Special Meeting, are requested to execute the enclosed proxy card and return it
without delay in the enclosed postage-paid envelope. You may revoke your proxy
at any time before it is voted by giving written notice to the Company. If you
attend the Special Meeting and vote in person, your vote will supersede your
proxy.
By Order of the Board of Directors,
/s/ Alfred Schechter
ALFRED SCHECHTER
Chairman of the Board, President
and Chief Executive Officer
Denver, Colorado
June , 1997
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES OF COMMON STOCK
YOU OWN. YOU ARE EARNESTLY REQUESTED, WHETHER OR NOT YOU PLAN TO BE PRESENT AT
THE SPECIAL MEETING, TO MARK, DATE, SIGN AND RETURN PROMPTLY THE ACCOMPANYING
PROXY IN THE ENCLOSED ENVELOPE TO WHICH NO POSTAGE NEED BE AFFIXED IF MAILED IN
THE UNITED STATES.
PLEASE DO NOT SEND ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
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FOR INFORMATION ONLY -- PRELIMINARY COPY
CRYENCO SCIENCES, INC.
3811 JOLIET STREET
DENVER, COLORADO 80239
---------------------------------
PROXY STATEMENT
---------------------------------
SPECIAL MEETING OF STOCKHOLDERS
OF
CRYENCO SCIENCES, INC.
TO BE HELD ON JULY , 1997
INTRODUCTION
This Proxy Statement is being furnished to the stockholders of Cryenco
Sciences, Inc., a Delaware corporation (the 'Company'), in connection with the
solicitation of proxies by the Board of Directors (the 'Board') of the Company
from holders of outstanding shares of Class A common stock, par value $.01 per
share, of the Company ('Common Stock') to be voted at a special meeting of
stockholders (the 'Special Meeting') of the Company to be held at the Princeton
Club, 15 West 43rd Street, New York, New York 10036, on July , 1997 at
a.m. local time, and at any adjournment or adjournments thereof. This Proxy
Statement and the accompanying proxy card are being mailed to the Company's
stockholders (the 'Common Stockholders') on or about June , 1997.
At the Special Meeting, the Common Stockholders on the Record Date (as
defined) will consider and vote upon a proposal to approve and adopt a Plan and
Agreement of Merger dated as of April 30, 1997 (the 'Merger Agreement'), and the
transactions contemplated thereby, pursuant to which, among other things, Chart
Acquisition Company, Inc. ('CAC'), a Delaware corporation and an indirect
wholly-owned subsidiary of Chart Industries, Inc. ('Chart'), a Delaware
corporation, will be merged with and into the Company (the 'Merger'). The
Company will be the surviving corporation in the Merger and the entire equity
interest in the Company will be owned by Greenville Tube Corporation ('GTC'), an
Arkansas corporation and wholly-owned subsidiary of Chart. As a result of the
Merger, each outstanding share of Common Stock, other than those held by
stockholders of the Company who perfect their dissenters' rights in accordance
with the Delaware General Corporation Law, will be converted into the right to
receive $2.75 in cash, without interest, and each outstanding share of Series A
Preferred Stock, par value $.01 per share, of the Company (the 'Preferred
Stock') will be converted into the right to receive $10.00 in cash plus any
accumulated but unpaid dividends with respect thereto, all as more fully
described in this Proxy Statement.
All proxies in the accompanying form which are properly executed and duly
returned will be voted in accordance with the instructions specified therein. If
no instructions are given, such proxies will be voted 'FOR' approval and
adoption of the Merger Agreement and the Merger. A proxy may be revoked at any
time prior to its exercise by written notice to the Company, by submission of
another proxy bearing a later date or by voting in person at the Special
Meeting. Such revocation will not affect a vote on any matters taken prior
thereto. The mere presence at the Special Meeting of the person appointing a
proxy will not revoke the appointment.
Only holders of record of the Common Stock at the close of business on June
9, 1997 (the 'Record Date') will be entitled to vote at the Special Meeting or
any adjournment or adjournments thereof. There were 6,996,997 shares of Common
Stock outstanding on the Record Date. Each share of Common Stock outstanding on
the Record Date entitles the holder thereof to one vote.
Consummation of the Merger is subject to a number of conditions, including
approval and adoption of the Merger Agreement by the holders of the majority of
the outstanding shares of Common Stock. It is anticipated that the Merger will
be consummated shortly after such stockholder approval is obtained and the other
conditions with respect to the Merger are satisfied or, where permissible,
waived.
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Pursuant to a voting agreement dated as of April 30, 1997 (the 'Voting
Agreement'), 12 record and/or beneficial holders who have sole voting power with
respect to 3,303,714 shares of Common Stock, or approximately 47.2% of all the
issued and outstanding Common Stock, have agreed, among other things, to vote in
favor of the Merger.
All information in this Proxy Statement concerning Chart, GTC and CAC has
been supplied by Chart for inclusion herein and has not been independently
verified by the Company.
This Proxy Statement is being sent to the Common Stockholders together with
a copy of the Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1996 and a copy of the Company's Quarterly Report on Form 10-Q for
the fiscal quarter ended February 28, 1997, both of which were filed with the
Securities and Exchange Commission (the 'Commission').
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR ANY OTHER PERSON.
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TABLE OF CONTENTS
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INTRODUCTION........................................................................................... 1
SUMMARY................................................................................................ 5
The Parties....................................................................................... 5
The Special Meeting............................................................................... 5
Special Factors................................................................................... 6
The Merger........................................................................................ 8
Appraisal......................................................................................... 11
THE PARTIES............................................................................................ 13
The Company....................................................................................... 13
Chart............................................................................................. 13
GTC............................................................................................... 13
CAC............................................................................................... 13
THE SPECIAL MEETING.................................................................................... 13
Date, Time and Place.............................................................................. 14
Record Date; Quorum............................................................................... 14
Required Vote..................................................................................... 14
Proxies........................................................................................... 14
Manner and Expense of Solicitation................................................................ 14
SPECIAL FACTORS........................................................................................ 15
Background of the Merger.......................................................................... 15
Purpose and Structure of the Merger............................................................... 16
Recommendation of the Board....................................................................... 17
Opinion of Financial Advisor...................................................................... 18
Interests of Certain Persons in the Merger........................................................ 20
Certain Effects of the Merger..................................................................... 22
Certain Federal Income Tax Consequences........................................................... 22
THE MERGER............................................................................................. 23
General........................................................................................... 23
Effective Time of Merger.......................................................................... 23
Treatment of Common Stock in the Merger........................................................... 23
Treatment of Preferred Stock, Options and Warrants in the Merger.................................. 23
Surrender of Common Stock Certificates............................................................ 24
Sources and Uses of Funds......................................................................... 25
Conditions to the Merger.......................................................................... 25
Termination and Amendment......................................................................... 26
Conduct of Business Pending the Merger............................................................ 26
No Solicitations.................................................................................. 27
Officers' and Directors' Insurance; Indemnification............................................... 27
Fees and Expenses................................................................................. 27
Accounting Treatment.............................................................................. 27
Regulatory Approvals.............................................................................. 28
APPRAISAL.............................................................................................. 28
Rights of Dissenting Stockholders; Waiver of Notice............................................... 28
Waiver of Appraisal Rights by Certain Stockholders................................................ 29
MARKET PRICES AND DIVIDENDS............................................................................ 29
SELECTED CONSOLIDATED FINANCIAL DATA................................................................... 30
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS...................... 31
Security Ownership of Certain Beneficial Owners................................................... 33
Security Ownership of Directors and Executive Officers............................................ 33
Voting Agreement.................................................................................. 34
VOTING PROCEDURES...................................................................................... 34
INDEPENDENT PUBLIC ACCOUNTANTS......................................................................... 34
STOCKHOLDER PROPOSALS.................................................................................. 34
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................ 35
AVAILABLE INFORMATION.................................................................................. 35
ANNEX A
Plan and Agreement of Merger...................................................................... A-1
ANNEX B
Opinion of Houlihan, Lokey, Howard & Zukin, Inc................................................... B-1
ANNEX C
Section 262 of the Delaware General Corporation Law............................................... C-1
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and does not purport to be complete. Reference is made to
and this summary is qualified in its entirety by the more detailed information
contained elsewhere or incorporated by reference in this Proxy Statement and the
Annexes hereto. Stockholders are urged to read this Proxy Statement and the
Annexes hereto in their entirety. Except as otherwise noted, as used in this
Proxy Statement the term 'Company' refers to Cryenco Sciences, Inc. and its
consolidated subsidiaries, and the term 'Chart' refers to Chart Industries, Inc.
and its consolidated subsidiaries.
THE PARTIES
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The Company.................................. The Company manufactures vacuum jacketed containment systems and
related products for the transportation, storage and dispensing
of liquefied natural gas ('LNG'), compressed natural gas from
LNG ('LCNG'), and liquefied argon, oxygen and nitrogen. The
Company's products include cryogenic transport trailers, large
cryogenic storage tanks, cryogenic intermodal containers,
LNG/LCNG fueling stations, fuel gas modules and cryostats for
magnetic resonance imaging ('MRI') and low temperature research.
The Company's principal executive offices are located at 3811
Joliet Street, Denver, Colorado 80239, and its telephone number
is (303) 371-6332.
Chart........................................ Chart manufactures standard and custom-built industrial process
equipment primarily for low temperature and cryogenic
applications. Chart also manufactures other industrial equipment
such as structural pipe supports, stainless steel tubing and
high-vacuum systems. Chart's principal executive offices are
located at 35555 Curtis Boulevard, Eastlake, Ohio 44095, and its
telephone number is (216) 946-2525.
GTC.......................................... GTC, a wholly-owned subsidiary of Chart, manufactures specialty
stainless steel tubing. GTC's principal executive offices are
located at 35555 Curtis Boulevard, Eastlake, Ohio 44095, and its
telephone number is (216) 946-2525.
CAC.......................................... CAC was incorporated in Delaware in April 1997 to serve as the
vehicle through which GTC is to acquire the Company. CAC has
conducted no activities to date except for those incident to the
Merger. CAC's principal executive offices are located at 35555
Curtis Boulevard, Eastlake, Ohio 44095, and its telephone number
is (216) 946-2525.
THE SPECIAL MEETING
Date, Time and Place......................... The Special Meeting will be held at the Princeton Club, 15 West
43rd Street, New York, New York 10036 on July , 1997 at
a.m. local time.
Purpose of the Special Meeting............... The purpose of the Special Meeting is to consider and vote upon a
proposal to approve and adopt the Merger Agreement and the
transactions contemplated thereby,
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pursuant to which, among other things, CAC, an indirect
wholly-owned subsidiary of Chart, will be merged with and into
the Company. As a result of the Merger, the Company will
continue as the surviving corporation and as a wholly-owned
subsidiary of GTC. See 'The Special Meeting.' A copy of the
Merger Agreement is attached hereto as Annex A.
Record Date; Quorum.......................... The Record Date for the Special Meeting is June 9, 1997.
Accordingly, holders of record of Common Stock as of the Record
Date will be entitled to notice of and to vote at the Special
Meeting. Each share of Common Stock outstanding on the Record
Date is entitled to one vote at the Special Meeting. There were
6,996,997 shares of Common Stock outstanding on the Record Date.
The presence, in person or by proxy, of the holders of a
majority of the Common Stock entitled to vote at the Special
Meeting is necessary to constitute a quorum for the transaction
of business at the Special Meeting. See 'The Special
Meeting -- Record Date; Quorum.'
Required Vote................................ Pursuant to the Delaware General Corporation Law (the 'DGCL'),
assuming a quorum is present, the affirmative vote of holders of
a majority of all of the outstanding Common Stock entitled to
vote at the Special Meeting is required to approve the Merger.
See 'The Special Meeting -- Required Vote' and 'The Merger --
Conditions to the Merger.' Pursuant to the Voting Agreement, 12
record and/or beneficial holders who have sole voting power with
respect to 3,303,714 shares of Common Stock, or approximately
47.2% of all the issued and outstanding Common Stock, have
agreed, among other things, to vote in favor of the Merger. See
'Appraisal -- Waiver of Appraisal Rights by Certain
Stockholders' and 'Security Ownership of Certain Beneficial
Owners, Directors and Executive Officers -- Voting Agreement.'
Proxies...................................... A proxy card is enclosed for use at the Special Meeting. A proxy
may be revoked at any time prior to its exercise at the Special
Meeting. Common Stock represented by properly executed proxies
received at or prior to the Special Meeting and which have not
been revoked will be voted in accordance with the instructions
specified therein. If no instructions are given, such proxies
will be voted 'FOR' approval and adoption of the Merger
Agreement. See 'The Special Meeting -- Proxies.'
SPECIAL FACTORS
Background of the Merger..................... For a description of the events leading to the approval and
adoption of the Merger Agreement by the Board, see 'Special
Factors -- Background of the Merger.'
Purpose and Structure of the Merger.......... The Company's purpose for the Merger is to enhance Common
Stockholder value by permitting the inherent value of the
Company currently held by the Common
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Stockholders in the form of Common Stock to be converted into
cash at a price which the Board has unanimously determined is
fair to, and in the best interests of, all Common Stockholders.
Chart's purpose for consummating the Merger is to acquire all
the equity interest in the Company for the reasons described in
'Special Factors -- Purpose and Structure of the Merger.' As of
the date of this Proxy Statement, Chart and its affiliates owned
6,000 shares of Common Stock. The acquisition of the equity
interest represented by the Common Stock outstanding as of the
Effective Time (as defined) from the Common Stockholders is
structured as a cash merger in order to transfer ownership of
that equity interest to Chart in a single transaction and
provides the Common Stockholders with prompt payment in cash in
exchange for the Common Stock. See 'Special Factors -- Purpose
and Structure of the Merger.'
Recommendation of the Board.................. The Board concluded that the terms of the Merger are fair to, and
in the best interests of, the Common Stockholders. Accordingly,
the Board has unanimously approved and adopted the Merger
Agreement. The Board recommends a vote FOR approval and adoption
of the Merger Agreement. For a discussion of the factors
considered by the Board in making its recommendation, see
'Special Factors -- Recommendation of the Board.'
Opinion of Financial Advisor................. Houlihan, Lokey, Howard & Zukin, Inc. ('Houlihan Lokey') delivered
its opinion to the Board on April 21, 1997 to the effect that as
of such date, the Merger is fair to the Common Stockholders from
a financial point of view. The full text of the written opinion
of Houlihan Lokey, which sets forth assumptions made, matters
considered and limitations on the review undertaken in
connection with the opinion, is attached hereto as Annex B and
is incorporated herein by reference. Common Stockholders are
urged to, and should, read such opinion in its entirety. See
'Special Factors -- Opinion of Financial Advisor.'
Interests of Certain Persons in the Merger... In considering the recommendation of the Board with respect to the
Merger, the Common Stockholders should be aware that certain
officers, directors and stockholders have certain interests
summarized below that may present actual or potential conflicts
of interest in connection with the Merger. For a more detailed
discussion of such interests, see 'Special Factors -- Interests
of Certain Persons in the Merger.' The Board was aware of the
potential or actual conflicts of interest and considered them
along with other matters described under 'Special
Factors -- Recommendation of the Board.'
Certain Effects of the Merger................ Upon consummation of the Merger, each share of Common Stock, other
than shares as to which dissenters' rights
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have been perfected under the DGCL, will be converted into the
right to receive $2.75 in cash, without interest, and each share
of Preferred Stock will be converted into the right to receive
$10.00 in cash plus any accumulated but unpaid (as of the
Effective Time) dividends with respect thereto. The Common
Stockholders will cease to have any ownership interest in the
Company or rights as stockholders of the Company. The Common
Stockholders will no longer benefit from any increases in the
value of the Company and will no longer bear the risk of any
decreases in the value of the Company. See 'Special
Factors -- Certain Effects of the Merger.'
Following the Merger, GTC, a wholly-owned subsidiary of Chart,
will own 100% of the capital stock of the surviving corporation.
Chart will have complete control over the management and conduct
of the Company's business, all income generated by the Company
and any future increases in the value of the Company. Similarly,
Chart will also bear the risk of any losses sustained as a
result of the operation of the Company and any decreases in the
value of the Company.
Certain Federal Income Tax Consequences...... The receipt of cash for Common Stock pursuant to the Merger
Agreement will be a taxable transaction for Federal income tax
purposes and may also be taxable for foreign, state and local
income tax purposes. Common Stockholders should consult their
own tax advisors regarding the Federal income tax consequences
of the Merger, as well as any tax consequences under the laws of
any state or other jurisdiction. The Company will not recognize
any gain or loss as a result of the Merger for Federal income
tax purposes. See 'Special Factors -- Certain Federal Income Tax
Consequences.'
THE MERGER
General...................................... Upon consummation of the Merger, CAC will be merged with and into
the Company and the Company will be the surviving corporation
(the 'Surviving Corporation'). The Surviving Corporation will
succeed to all the rights and obligations of the Company and
CAC. See 'The Merger -- General.'
Effective Time of the Merger................. Pursuant to the Merger Agreement, the effective time of the Merger
(the 'Effective Time') will occur upon the filing of a
certificate of merger with the Secretary of State of the State
of Delaware in accordance with the DGCL. See 'The
Merger -- Effective Time of the Merger.'
Treatment of Common Stock in the Merger...... At the Effective Time, each share of Common Stock outstanding
immediately prior to the Effective Time, except for (i) Common
Stock owned by Chart, (ii) Common Stock owned by the Company and
(iii) Common Stock owned by Common Stockholders
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who perfect their dissenters' rights in accordance with the
DGCL, shall be converted into the right to receive $2.75 in
cash, without interest, payable to the holder thereof, upon
surrender of the certificate representing such Common Stock. See
'The Merger -- Treatment of Common Stock in the Merger' and
'Appraisal -- Rights of Dissenting Stockholders; Waiver of
Notice.'
Each share of CAC common stock outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without
action on the part of the holder thereof, be converted into and
exchangeable for one fully paid and nonassessable share of the
Surviving Corporation.
Treatment of Preferred Stock, Options and
Warrants in the Merger..................... At the Effective Time, each share of Preferred Stock outstanding
immediately prior to the Effective Time, shall be converted into
the right to receive $10.00 in cash plus any accumulated but
unpaid (as of the Effective Time) dividends with respect
thereto. There are currently 68,517 shares of Preferred Stock
outstanding. See 'Special Factors -- Interests of Certain
Persons in the Merger' and 'The Merger -- Treatment of Preferred
Stock, Options and Warrants in the Merger.'
As of the Record Date, there were outstanding options to purchase
279,000 shares of Common Stock with exercise prices ranging from
$1.81 to $6.38. 271,500 of such options were issued in the
ordinary course pursuant to the Company's various stock option
plans from March 1992 through June 1997. The Company has agreed
to use its reasonable best efforts to: (i) cause all individuals
whose employment will not continue after the Effective Time (the
'Non-Continuing Employees') who hold options to purchase Common
Stock to either (A) exercise such options prior to the Effective
Time or (B) agree to sell such options to Chart in exchange for
cash equal to the excess of $2.75 per share of Common Stock
issuable upon exercise thereof over the exercise price for such
options; (ii) cause all individuals who are not Non-Continuing
Employees (the 'Continuing Employees') who hold options to
purchase Common Stock to either (A) exchange their options for
options to purchase Chart Common Stock, par value $.01 per share
('Chart Common Stock'), on a pro rata basis or (B) agree to sell
such options to Chart in exchange for cash equal to the excess
of $2.75 per share of Common Stock issuable upon exercise
thereof over the exercise price for such options; and (iii)
cause all non-employee directors who hold options pursuant to
the Company's 1993 Non-Employee Director Stock Option Plan (each
a 'Non-Employee Director') to agree to sell such options to
Chart prior to the Effective Time in exchange for cash equal to
the excess of $2.75 per share of Common Stock issuable upon
exercise thereof over the exercise price for such options.
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See 'Special Factors -- Interests of Certain Persons in the
Merger' and 'The Merger -- Treatment of Preferred Stock, Options
and Warrants in the Merger.'
The Company has also agreed to use its reasonable best efforts to
cause all holders of warrants ('Warrants') to purchase Common
Stock or Class B Common Stock, par value $.01 per share, of the
Company (the 'Class B Common Stock') to agree to either (i) sell
to Chart any Warrants having an exercise price less than $2.75
per share for a cash payment per Warrant equal to the excess of
$2.75 over the exercise price for such Warrant or (ii) to
exchange such Warrants for warrants to purchase Chart Common
Stock on a pro rata basis. See 'The Merger -- Treatment of
Preferred Stock, Options and Warrants in the Merger.'
Surrender of Common Stock Certificates....... Promptly after the Effective Time, the Surviving Corporation shall
cause National City Bank (the 'Exchange Agent') to mail to each
holder of record as of the Effective Time of an outstanding
certificate or certificates of Common Stock, a letter of
transmittal and instructions for use in effecting the surrender
of such certificates for payment in accordance with the Merger
Agreement. Upon surrender to the Exchange Agent of a
certificate, together with a duly executed letter of
transmittal, the holder thereof shall be entitled to receive
cash in an amount equal to the product of the number of shares
of Common Stock represented by such certificate and $2.75, less
any applicable withholding tax, and such certificate shall be
cancelled.
Until surrendered pursuant to the procedures set forth above, each
certificate shall represent for all purposes solely the right to
receive $2.75 in cash, without interest, multiplied by the
number of shares of Common Stock evidenced by such certificate.
See 'The Merger -- Surrender of Common Stock Certificates.'
COMMON STOCKHOLDERS OF THE COMPANY SHOULD NOT SEND ANY COMMON
STOCK CERTIFICATES WITH THEIR PROXY CARDS. TRANSMITTAL MATERIALS
AND INSTRUCTIONS RELATING TO COMMON STOCK CERTIFICATES WILL BE
MAILED TO COMMON STOCKHOLDERS AS SOON AS PRACTICABLE AFTER THE
EFFECTIVE TIME. See 'The Merger -- Surrender of Common Stock
Certificates.'
Conditions to the Merger; Termination and
Amendment.................................. The obligations of the parties to consummate the Merger are
subject to certain conditions set forth in the Merger Agreement.
In certain circumstances, the Merger Agreement may be terminated
at any time prior to the Effective Time. The Merger Agreement
may be amended
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by the parties in writing at any time prior to the Effective
Time; provided, however, that after approval of the Merger by
the Common Stockholders, no amendment, which under applicable
law may not be made without the approval of the Common
Stockholders, may be made without such approval. See 'The
Merger -- Conditions to the Merger' and ' -- Termination and
Amendment.'
Sources and Uses of Funds.................... It is currently anticipated that $19,241,741.75 will be required
to pay the purchase price for the Common Stock (assuming no
Common Stockholder exercises dissenters' rights), approximately
$685,170 will be required to pay the purchase price for the
Preferred Stock and approximately $776,000 will be required to
purchase the 'in the money' options to purchase Common Stock
(assuming no exercise thereof) and Warrants to purchase Class B
Common Stock (assuming no exercise thereof), and that all such
funds will be funded from Chart's credit facility and available
cash. It is currently expected that approximately $400,000 will
be required to pay the expenses of the Company and that such
funds will be furnished from available general funds of the
Company. See 'The Merger -- Sources and Uses of Funds.' If the
Merger Agreement is terminated prior to the Effective Time,
under certain circumstances, the Company will be required to pay
Chart $850,000. See 'The Merger -- Termination and Amendment.'
Accounting Treatment......................... The Merger will be accounted for as a 'purchase', as such term is
used under generally accepted accounting principles for
accounting and financial reporting purpose. See 'The
Merger -- Accounting Treatment.'
APPRAISAL
Rights of Dissenting Stockholders; Waiver of
Notice..................................... Under the DGCL, all Common Stockholders who file the required
written demand for appraisal for their Common Stock prior to the
date of the Special Meeting, and who do not consent to the
Merger, will have the right to be paid the 'fair value' of their
Common Stock, together with a fair rate of interest, if any, as
determined by the Delaware Court of Chancery, in lieu of $2.75
per share of Common Stock, all pursuant to the applicable
provisions of the DGCL. SUCH APPRAISAL RIGHTS WILL BE FORFEITED,
HOWEVER, IF THE PROCEDURAL REQUIREMENTS OF THE DGCL ARE NOT
FULLY AND PRECISELY SATISFIED. Common Stockholders should
consult their own legal advisors regarding such appraisal. See
'The Merger -- Conditions to the Merger,' for a discussion of
the closing condition relating to appraisal rights of dissenting
stockholders; 'Appraisal -- Rights of Dissenting Stockholders;
Waiver of Notice' and Section 262 of the DGCL attached hereto as
Annex C.
</TABLE>
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<S> <C>
Waiver of Appraisal Rights by Certain
Stockholders............................... Pursuant to the Voting Agreement, 12 record and/or beneficial
holders who have sole dispositive power with respect to
3,306,214 shares of Common Stock, or approximately 47.3% of all
the issued and outstanding Common Stock, have agreed, among
other things, to waive any and all appraisal rights to which
they may be entitled under Section 262 of the DGCL in connection
with the Merger. See 'Appraisal -- Waiver of Appraisal Rights by
Certain Stockholders' and 'Security Ownership of Certain
Beneficial Owners, Directors and Executive Officers -- Voting
Agreement.'
</TABLE>
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THE PARTIES
THE COMPANY
The Company manufactures vacuum jacketed containment systems and related
products for the transportation, storage and dispensing of LNG, LCNG, and
liquefied argon, oxygen and nitrogen. The Company's products include cryogenic
transport trailers, large cryogenic storage tanks, cryogenic intermodal
containers, LNG/LCNG fueling stations, fuel gas modules and cryostats for MRI
and low temperature research. The Company was incorporated in 1986 under the
name Gulf & Mississippi Corporation. The Company's operating subsidiary,
Cryenco, Inc., a Colorado corporation, was organized in 1978. In August 1991,
the Company and a group of investors organized by Charterhouse Group
International, Inc. ('Charterhouse') acquired all of the outstanding equity
capital of Cryenco Holdings, Inc. ('CHI'), which simultaneously acquired
Cryenco, Inc. In February 1992, CHI was merged into the Company, which changed
its name to Cryenco Sciences, Inc. The Company's principal executive offices are
located at 3811 Joliet Street, Denver, Colorado 80239, and its telephone number
is (303) 371-6332.
CHART
Chart manufactures standard and custom-built industrial process equipment
primarily for low temperature and cryogenic applications. Chart also
manufactures other industrial equipment such as structural pipe supports,
stainless steel tubing and high-vacuum systems. Chart was organized in June 1992
as a Delaware corporation to serve as a holding company for its various
operating units, including GTC. Chart's principal executive offices are located
at 35555 Curtis Boulevard, Eastlake, Ohio 44095, and its telephone number is
(216) 946-2525.
GTC
GTC, a wholly-owned subsidiary of Chart, manufactures specialty stainless
steel tubing. GTC's principal executive offices are located at 35555 Curtis
Boulevard, Eastlake, Ohio 44095, and its telephone number is (216) 946-2525.
Chart is using GTC to serve as a vehicle through which it is to acquire the
Company.
CAC
CAC was incorporated in Delaware in April 1997 to serve as the vehicle
through which GTC is to acquire the Company. CAC has conducted no activities to
date except for those incident to the Merger. CAC's principal executive offices
are located at 35555 Curtis Boulevard, Eastlake, Ohio 44095, and its telephone
number is (216) 946-2525.
THE SPECIAL MEETING
This Proxy Statement is being furnished to the Common Stockholders in
connection with the solicitation of proxies by the Board from holders of
outstanding shares of Common Stock to be voted at the Special Meeting to be held
at the Princeton Club, 15 West 43rd Street, New York, New York 10036, on July
, 1997 at a.m. local time, and at any adjournment or adjournments
thereof. This Proxy Statement and the accompanying proxy card are being mailed
to the Common Stockholders on or about June , 1997.
At the Special Meeting, the Common Stockholders on the Record Date will
consider and vote upon a proposal to approve and adopt the Merger Agreement, and
the transactions contemplated thereby, pursuant to which, among other things,
CAC, an indirect wholly-owned subsidiary of Chart, will be merged with and into
the Company. The Company will be the Surviving Corporation in the Merger and the
entire equity interest in the Company will be owned by GTC, a wholly-owned
subsidiary of Chart. As a result of the Merger, each outstanding share of Common
Stock, other than those (i) held by Common Stockholders who perfect their
dissenters' rights in accordance with the DGCL, (ii) owned by the Company and
(iii) owned by Chart, will be converted into the right to receive $2.75 in cash,
without interest, and each outstanding share of Preferred Stock will be
converted into the
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right to receive $10.00 in cash plus any accumulated but unpaid dividends with
respect thereto, all as more fully described in this Proxy Statement.
DATE, TIME AND PLACE
The Special Meeting will be held at the Princeton Club, 15 West 43rd
Street, New York, New York 10036 on July , 1997 at a.m. local time.
RECORD DATE; QUORUM
The Record Date for the Special Meeting is June 9, 1997. Accordingly,
holders of record of Common Stock as of the Record Date will be entitled to
notice of and to vote at the Special Meeting. Each share of Common Stock
outstanding on the Record Date is entitled to one vote at the Special Meeting.
There were 6,996,997 shares of Common Stock outstanding on the Record Date. The
presence, in person or by proxy, of the holders of a majority of the Common
Stock entitled to vote at the Special Meeting is necessary to constitute a
quorum for the transaction of business at the Special Meeting.
REQUIRED VOTE
Pursuant to the DGCL, assuming a quorum is present, the affirmative vote of
holders of a majority of all of the outstanding Common Stock entitled to vote at
the Special Meeting is required to approve the Merger. Pursuant to the Voting
Agreement, 12 record and/or beneficial holders who have sole voting power with
respect to 3,303,714 shares of Common Stock, or approximately 47.2% of all the
issued and outstanding Common Stock, have agreed, among other things, to vote in
favor of the Merger. See 'Appraisal -- Waiver of Appraisal Rights by Certain
Stockholders' and 'Security Ownership of Certain Beneficial Owners, Directors
and Executive Officers -- Voting Agreement.'
PROXIES
A proxy card is enclosed for use at the Special Meeting. A proxy may be
revoked at any time prior to its exercise at the Special Meeting. Common Stock
represented by properly executed proxies received at or prior to the Special
Meeting and which have not been revoked will be voted in accordance with the
instructions specified therein. If no instructions are given, such proxies will
be voted 'FOR' approval and adoption of the Merger Agreement and the Merger. A
proxy may be revoked at any time prior to its exercise by written notice to the
Company, by submission of another proxy bearing a later date or by voting in
person at the Special Meeting. Such revocation will not affect a vote on any
matters taken prior thereto. The mere presence at the Special Meeting of the
person appointing a proxy will not revoke the appointment.
If the Special Meeting is adjourned or postponed for any purpose, at any
subsequent reconvening of the Special Meeting, all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Special Meeting (except for any proxies which have theretofore effectively
been revoked or withdrawn), notwithstanding that they may have been effectively
voted on the same or any other matter at a previous meeting.
COMMON STOCKHOLDERS SHOULD NOT SEND ANY CERTIFICATES REPRESENTING COMMON
STOCK WITH THEIR PROXY CARDS. IF THE MERGER IS CONSUMMATED, THE PROCEDURES FOR
THE EXCHANGE OF CERTIFICATES REPRESENTING COMMON STOCK WILL BE AS SET FORTH IN
THIS PROXY STATEMENT. See 'The Merger -- Surrender of Common Stock
Certificates.'
MANNER AND EXPENSE OF SOLICITATION
The solicitation of proxies in the accompanying form is made by the Board
and all costs thereof will be borne by the Company. In addition to the
solicitation of proxies by use of the mails, some of the officers, directors and
other employees of the Company may also solicit proxies personally or by mail,
telephone or telegraph, but they will not receive additional compensation for
such services. The
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Company may retain the services of a professional proxy solicitation firm if it
deems it to be necessary. Brokerage firms, custodians, banks, trustees, nominees
or other fiduciaries holding shares of Common Stock in their names are required
under rules and regulations promulgated by the Commission to forward proxy
material to their principals and will be reimbursed for their reasonable out of
pocket expenses in such connection.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
On October 24, 1996, Mr. Arthur S. Holmes, Chairman and Chief Executive
Officer of Chart, and Mr. Charles S. Holmes, a Director of Chart, met with Mr.
Alfred Schechter, Chairman of the Board, President and Chief Executive Officer
of the Company, and Mr. Jerome L. Katz, a Director of the Company, in New York
City. At this initial meeting Messrs. A.S. Holmes and C.S. Holmes expressed
interest in purchasing the Company. At that meeting Mr. Schechter informed
Messrs. A.S. Holmes and C.S. Holmes that the Company was not for sale, but that
the Board would review a formal offer if one was presented.
During an October 30, 1996 telephone conference, Mr. A.S. Holmes suggested
to Mr. Schechter a two-step transaction, in which Chart would first purchase a
controlling stock position from the Company's larger stockholders and the
balance of the Common Stock would be purchased in the future. Mr. Schechter
advised Mr. Holmes that such a transaction would not be acceptable to the
Company.
On November 8, 1996, Mr. Schechter reviewed a letter from Mr. A.S. Holmes
which contained a proposed confidentiality agreement together with a list of
requested information. In response to the November 8, 1996 letter, on November
11, 1996 the Company submitted to Chart its own form of confidentiality and
standstill agreement. On November 18, 1996, Chart executed and returned the
confidentiality and standstill agreement.
At various times during late November and early December 1996, Mr.
Schechter discussed with Mr. A.S. Holmes areas in which Chart could achieve cost
savings if a transaction were completed between the parties. These potential
areas of savings included certain salaries, financial services fees, travel
expenses, research and development expenses, as well as debt service and
elimination of dividends on the Preferred Stock.
On December 9, 1996, Mr. A.S. Holmes, Mr. Don A. Baines, Chief Financial
Officer and Treasurer of Chart, Mr. Schechter and Mr. Katz participated in a
conference call. Mr. Holmes stated that a merger would be a potentially good
fit. However, Mr. Holmes stated that the Company would need to achieve better
earnings if Chart were to pay over $2.00 per share for the Common Stock.
On December 11, 1996, a conference call was convened among Messrs. A.S.
Holmes, Schechter and Katz. During this call, Messrs. Schechter and Katz stated
that a price of $3.50 per share, payable in Chart Common Stock, would be
considered. Mr. Holmes responded that such a price was too high. The
conversation concluded with the parties disagreeing on the price to be paid for
the Common Stock, with the understanding that if factors changed they would
re-open their discussions in the future.
On February 14, 1997, Mr. Schechter received a telephone call from Mr. A.S.
Holmes who informed Mr. Schechter that Chart was willing to acquire the Company
for a price of $2.50 per share in cash and that Chart would consider paying the
purchase price in Chart Common Stock. Mr. Holmes and Mr. Schechter made an
appointment to meet in New York City on February 27, 1997.
As scheduled, on February 27, 1997, Messrs. A.S. Holmes and Schechter met
in New York City to discuss the potential transaction. Mr. Schechter provided
Mr. Holmes with a general overview of the Company and its subsidiaries and
affiliates. At this meeting, Mr. Holmes, on behalf of Chart, increased the offer
to $2.75 per share in cash or Chart Common Stock.
At a special meeting of the Board on March 10, 1997, at which all the
members of the Board were present, a general discussion was held with respect to
Chart and the potential transaction and numerous questions were raised. It was
agreed that a meeting between the Board and representatives of Chart should be
scheduled. Later that day, Mr. Schechter called Mr. Holmes to schedule such a
meeting.
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On March 21, 1997, Chart sent a term sheet with respect to the proposed
transaction to Mr. Schechter for distribution to the Board and for discussion at
the meeting to be held with Chart shortly thereafter.
On March 26, 1997, Mr. A.S. Holmes met with the Board in New York City. At
the meeting the various terms of the term sheet which had previously been
provided by Chart were discussed and resolved, including (i) setting the price
for the Common Stock at $2.75 per share payable in cash or Chart Common Stock,
(ii) the conversion ratio and buyout provisions with respect to Warrants, (iii)
the conversion ratio and buyout provisions with respect to options to purchase
Common Stock and (iv) a break up fee of $850,000 (Chart had requested
$1,000,000).
After the representatives of Chart left the meeting, the Board determined
that the Company should engage an investment advisor to render a fairness
opinion with respect to the proposed transaction.
On March 27, 1997, the Company entered into an engagement letter with
Houlihan Lokey pursuant to which Houlihan Lokey would undertake to render a
fairness opinion to the Board with respect to the Merger.
On April 7, 1997, representatives of Chart commenced their due diligence
review of the Company. The due diligence review process involved reviewing
written materials provided by the Company, touring the Company's two facilities
in Denver, Colorado, meeting with various members of the Company's management
and reviewing various matters with the Company's counsel.
On or about April 7, 1997, representatives of Chart indicated that, if
acceptable to the Company, a transaction in which Common Stockholders were
offered only cash, would be easier and less expensive to accomplish than a
transaction in which the Common Stockholders were offered their choice of cash
or Chart Common Stock. The Company's management conferred with its larger
stockholders who indicated their preference for cash, and the Company advised
Chart that an all cash transaction would be acceptable.
The first draft of a definitive merger agreement was received by the
Company and its counsel on April 14, 1997. Negotiations of the definitive merger
agreement between counsel for each of the Company and Chart were conducted
during that week.
On April 21, 1997, the Board held a special meeting at which the proposed
terms of the Merger were fully discussed. Houlihan Lokey presented its detailed
analysis of the Merger and rendered its opinion to the effect that a price of
$2.75 in cash per share of Common Stock was fair, from a financial point of
view, to the Common Stockholders. The Board discussed the conclusion rendered by
Houlihan Lokey as well as the information considered in rendering the fairness
opinion. At that point, the Board instructed its representatives to finalize
negotiations with Chart and to execute a merger agreement substantially in the
form previously delivered to the Board.
On April 30, 1997, Mr. Schechter, Mr. Katz and Mr. Ajit G. Hutheesing,
constituting three members of the Board, held a telephone conference to discuss
the status of the various open issues with respect to the transaction.
Later the same day, representatives of Chart and the Company held a meeting
at which negotiations with respect to the various open issues were finalized and
the Merger Agreement was executed. Contemporaneously with the execution of the
Merger Agreement, Chart delivered a letter to the Company, which letter set
forth Chart's sources and uses of funds in connection with the Merger and which
included copies of commitment letters from Chart's lenders with respect to a
$45.0 million senior revolving credit facility ($27.0 million of which was
earmarked for the Merger).
PURPOSE AND STRUCTURE OF THE MERGER
The Company. The Company's purpose for the Merger is to enhance Common
Stockholder value by permitting the inherent value of the Company currently held
by the Common Stockholders in the form of Common Stock to be converted into cash
at a price which the Board has unanimously determined is fair to, and in the
best interests of, all Common Stockholders. The Board has, pursuant to the
Merger Agreement, called the Special Meeting in order for Common Stockholders to
consider and
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vote upon a proposal to approve and adopt the Merger Agreement and the Merger.
In the Merger, each share of Common Stock, other than those (i) held by Common
Stockholders who perfect their dissenters' rights in accordance with the DGCL,
(ii) owned by the Company and (iii) owned by Chart, will be converted into the
right to receive $2.75 in cash, without interest.
The primary benefit to the Common Stockholders is the opportunity to sell
all of their Common Stock at a price which represents a substantial premium over
the trading prices in effect immediately prior to the announcement of the
Merger. The structure of the transaction as a cash merger provides a cash
payment at a premium price to all Common Stockholders and an orderly transfer of
ownership of the equity interest represented by the Common Stock to Chart. The
structure of the Merger also ensures the acquisition of all of the Common Stock
by Chart. In addition, the Board believes, based upon the factors discussed
below under ' -- Recommendation of the Board' and under ' -- Opinion of
Financial Advisor,' that the Merger provides the best opportunity to maximize
stockholder value.
Chart. Chart's purpose for the Merger is to acquire all of the equity
interest in the Company represented by the outstanding Common Stock. As of the
date of this Proxy Statement, Chart and its affiliates owned 6,000 shares of
Common Stock. In determining to acquire the Common Stock at this time, Chart has
focused on a number of factors including the Company's historic results of
operations, its financial condition, operation and prospects, and the potential
for revenue growth and increased profitability. The acquisition of the Common
Stock has been structured as a cash merger because it would be easier and less
expensive to accomplish than a transaction in which Common Stockholders were
offered their choice of cash or Chart Common Stock, and in order to provide a
prompt and orderly transfer of ownership of the equity interest represented by
the Common Stock.
RECOMMENDATION OF THE BOARD
At a meeting held on April 21, 1997, the Board unanimously determined to
approve and adopt the Merger Agreement and to recommend to the Common
Stockholders that such stockholders vote to approve and adopt the Merger
Agreement and unanimously determined that the terms of the Merger are fair to,
and in the best interests of, the Common Stockholders. See ' -- Background of
the Merger.'
In determining to approve and adopt the Merger Agreement, and in
determining the fairness of the terms of the Merger, the Board considered the
following factors, each of which, in the Board's view, supported the
determination to recommend the Merger:
(i) the Board's knowledge of the financial condition, assets, results
of operations, business and prospects of the Company, and the risks
inherent in achieving those prospects;
(ii) the terms and conditions of the Merger Agreement, including the
amount and form of consideration, the nature of the parties'
representations, warranties, covenants and agreements, and the conditions
of Chart, GTC and CAC under the Merger Agreement to consummate the Merger
including Chart's ability to finance the transaction;
(iii) the belief by the members of the Board that $2.75 per share of
Common Stock was the best price that could be obtained from Chart;
(iv) the fact that the $2.75 per share price represented a substantial
premium over the reported average closing price of the Common Stock during
the past nine months and the fact that the Company's stock price has
generally been declining for the past 1 1/2 years;
(v) the opinion of Houlihan Lokey as to the fairness, from a financial
point of view, of the purchase price of $2.75 in cash per share of Common
Stock to be received by the Common Stockholders and the analysis presented
to the Board by Houlihan Lokey;
(vi) the stock price and trading volume history of the Common Stock
and the fact that such Common Stock is thinly traded; and
(vii) the availability of dissenters' rights under the DGCL to
dissenting Common Stockholders in the Merger.
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The Board was also aware of the potential or actual conflicts of interest
as more fully described below under ' -- Interests of Certain Persons in the
Merger' and considered them along with the other factors set forth above.
On the basis of the aforementioned analysis, the Board determined that the
terms of the Merger are fair and in the best interests of the Company and the
Common Stockholders.
OPINION OF FINANCIAL ADVISOR
The Company retained Houlihan Lokey to act as its financial advisor in
connection with the Merger and to render an opinion as to the fairness, from a
financial point of view, to the Common Stockholders of the purchase price of
$2.75 in cash to be paid for each share of Common Stock. At the April 21, 1997
meeting of the Board, Houlihan Lokey delivered an oral opinion, which was
confirmed by a written opinion dated the same day, that as of such date and
based on the matters described therein, the Merger is fair to the Common
Stockholders from a financial point of view.
THE COMPLETE TEXT OF HOULIHAN LOKEY'S OPINION IS ATTACHED HERETO AS ANNEX B
AND THE SUMMARY OF THE OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH OPINION. THE COMMON STOCKHOLDERS ARE URGED TO READ SUCH
OPINION CAREFULLY AND IN ITS ENTIRETY FOR A DESCRIPTION OF THE PROCEDURES
FOLLOWED, THE FACTORS CONSIDERED AND THE ASSUMPTIONS MADE BY HOULIHAN LOKEY.
Houlihan Lokey's opinion did not recommend to the Board that any specific
amount of consideration constituted the appropriate consideration for the
Merger. The amount to be paid for each share of Common Stock was offered by
Chart and negotiated by the Company. Houlihan Lokey's opinion to the Board
addressed only the fairness from a financial point of view of the Merger, and
does not constitute a recommendation to the Common Stockholders as to how such
Common Stockholders should vote at the Special Meeting. Houlihan Lokey expressed
no opinion as to the tax consequences of the Merger, and Houlihan Lokey's
opinion as to the fairness of the purchase price of $2.75 in cash to be paid for
each share of Common Stock does not take into account the particular tax status
or position of any Common Stockholder.
In connection with the preparation of its opinion, Houlihan Lokey, among
other things: (i) reviewed the Company's annual reports to stockholders and on
Form 10-K for the four fiscal years ended August 31, 1996 and the quarterly
report on Form 10-Q for the fiscal quarter ended February 28, 1997; (ii)
reviewed the Merger Agreement; (iii) met with certain members of senior
management of the Company to discuss the operations, financial condition, future
prospects and projected operations and performance of the Company; (iv) reviewed
a forecast prepared by the Company's management with respect to the Company for
the fiscal year ending August 31, 1997; (v) reviewed the historical market
prices and trading volume for the Common Stock; (vi) reviewed publicly available
financial data for certain companies that Houlihan Lokey deemed comparable to
the Company, and publicly available prices and premiums paid in other
transactions that Houlihan Lokey considered similar to the Merger; and (vii)
conducted such other studies, analyses and inquiries as Houlihan Lokey deemed
appropriate.
In assessing the fairness of the Merger to the Common Stockholders,
Houlihan Lokey (i) analyzed the reasonableness of the Company's unaffected stock
price, (ii) analyzed the reasonableness of the premium being offered in the
Merger relative to the Company's unaffected stock price and (iii) reviewed the
valuation implications to the Common Stockholders of various relevant
alternatives to the Merger.
Assessment of the Company's Publicly Traded Stock Value. Houlihan Lokey
reviewed the trading prices and values for the Common Stock for the period from
December 30, 1994 to April 15, 1997 and applied a market multiple approach to
arrive at an independent confirmation of the recent public trading value of the
Common Stock. As part of its analysis, Houlihan Lokey calculated the ratio of
the Company's average daily volume (over the 365 day period ending April 15,
1997) to the Company's float and total shares outstanding, and compared it to
similar ratios of other publicly traded companies.
In the market multiple approach, Houlihan Lokey examined publicly traded
companies that were selected on the basis of operational and economic similarity
with the principal business operations of
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the Company. However, Houlihan Lokey noted that none of the pubic companies
analyzed were considered directly comparable to the Company. Accordingly, for
purposes of the market multiple approach, Houlihan Lokey selected four companies
that had Standard Industrial Classifications ('SIC') codes similar to the
Company's. A comparative analysis between each of the selected publicly traded
companies and the Company formed the basis of Houlihan Lokey's independent
valuation of the Company.
Comparable Transaction Analysis. Houlihan Lokey analyzed publicly available
information with respect to acquisition multiples paid in 52 acquisitions
between January 1, 1994 and April 15, 1997 of public and private companies with
SIC codes similar to the Company's. Of the 52 transactions analyzed, only two
involved publicly traded companies with meaningful financial information.
Multiples compared included P/E ratios, total enterprise value ('TIC') to EBIT
and TIC to EBITDA. Houlihan Lokey's analysis indicated that for the two
acquisitions of publicly traded companies with meaningful financial information
(i) the P/E multiples ranged from 15.6 to 26.8, (ii) the TIC/EBIT multiples
ranged from 16.2 to 17.5 and (iii) the TIC/EBITDA multiples ranged from 11.9 to
12.3. The implied P/E, TIC/EBIT and TIC/EBITDA multiples for the Company based
on the purchase price of $2.75 per share of Common Stock are 34.4, 15.6 and 9.4,
respectively. Houlihan Lokey noted that none of the companies acquired in the
transactions analyzed were directly comparable to the Company.
Houlihan Lokey analyzed the acquisition premiums (the difference between
acquisition price and unaffected trading price) paid in the three transactions
involving publicly traded targets and noted that the acquisition premiums ranged
from a low of 12.1% to a high of 17.7%. The acquisition premium implied by the
$2.75 purchase price per share of Common Stock is approximately 69%. In
addition, Houlihan Lokey compared the 12 month median acquisition premium paid
for all companies from December 31, 1994 to December 31, 1996, which ranged from
a low of 27.0% to a high of 36.0%, to the implied acquisition premium for the
Company of 69%. Houlihan Lokey noted that the median acquisition premium paid in
the 123 completed transactions in the manufacturing industry between January 1,
1996 and December 31, 1996 was 30%.
Houlihan Lokey also analyzed the breakup fee in 14 transactions (with a
transaction size of $200,000,000 or less) that occurred between January 1, 1996
and April 19, 1997 where the size of the breakup fee was publicly disclosed. The
breakup fee ranged from 0.9% to 5.5% of the transaction value, with a median of
approximately 3.4%. The breakup fee relative to the value of the Merger is
approximately 3.0%.
Summary of Theoretical Strategic Alternatives Considered. In evaluating the
fairness of the Merger, Houlihan Lokey considered the expected value to the
Common Stockholders of completing the Merger and certain theoretical
alternatives to the Merger. Such analysis qualitatively considered the valuation
implications to the Common Stockholders, the probability of successfully
completing the theoretical alternatives and the cost and time to implement such
alternatives. The theoretical strategic alternatives considered included
maintaining the status quo, the sale to Chart, the sale to another strategic
buyer, the sale to a financial buyer and the sale by the Company of its business
units. Houlihan Lokey summarized, that of the theoretical strategic alternatives
considered, the Merger appears to provide the greatest value to the Common
Stockholders on a present value risk adjusted basis.
Houlihan Lokey has not been requested to, and did not, solicit third party
indications of interest with respect to the acquisition of all or any part of
the Company.
Houlihan Lokey has relied upon and assumed, without independent
verification, that the financial forecast provided to it has been reasonably
prepared and reflects the best currently available estimate of the future
financial results and condition of the Company, and that there has been no
material change in the assets, financial condition, business or prospects of the
Company since the date of the most recent financial statements made available to
it.
Houlihan Lokey has not independently verified the accuracy and completeness
of the information supplied to it with respect to the Company and does not
assume any responsibility with respect to it. Houlihan Lokey has not made any
physical inspection or independent appraisal of any of the properties or assets
of the Company. Houlihan Lokey's opinion is based on business, economic, market
and other conditions as they exist and can be evaluated by it at the date of its
opinion.
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Houlihan Lokey is a nationally recognized investment banking firm with
special expertise in, among other things, valuing businesses and securities and
rendering fairness opinions. Houlihan Lokey is continually engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, leveraged buyouts, private placements of debt and equity,
corporate reorganizations, employee stock ownership plans, corporate and other
purposes. The Company selected Houlihan Lokey because of its experience and
expertise in performing valuation and fairness analysis. Houlihan Lokey does not
beneficially own nor has it ever beneficially owned any interest in the Company.
Fees and Expenses. Pursuant to an agreement entered into on March 27, 1997,
Houlihan Lokey was retained by the Company to analyze the fairness of the Merger
to the Common Stockholders, from a financial point of view. The Company has
agreed to pay Houlihan Lokey a fee of $100,000 plus its reasonable out-of-pocket
expenses incurred in connection with the rendering of a fairness opinion. The
Company has further agreed to indemnify Houlihan Lokey against certain
liabilities and expenses in connection with the rendering of its services.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board with respect to the Merger,
the Common Stockholders should be aware that certain officers, directors and
Common Stockholders have certain interests summarized below that may present
actual or potential conflicts of interest in connection with the Merger. The
Board was aware of the potential or actual conflicts of interest and considered
them along with other matters described under 'Special Factors -- Recommendation
of the Board.'
Ownership of Common Stock. As of the date of this Proxy Statement, the
executive officers and directors of the Company beneficially owned an aggregate
of 568,213 shares of Common Stock, constituting approximately 7.8% of all the
outstanding Common Stock.
Pursuant to the Merger Agreement, the executive officers and directors of
the Company will be entitled to receive $2.75 per share in cash for each share
of Common Stock held by them. In addition, as of the Record Date, the executive
officers and directors of the Company held options and Warrants to acquire an
aggregate of 331,535 shares of Common Stock, a portion of which options required
the Company to attain various levels of pre-tax profit prior to becoming
exercisable but which Chart has agreed to purchase as provided in (iii) below.
Prior to consummation of the Merger, (i) 242,535 of such options and Warrants
will be converted into options and warrants to acquire shares of Chart Common
Stock, (ii) 27,000 of such options held by Mr. Schechter will be terminated
pursuant to the terms of the Merger Agreement and (iii) 62,000 of such options
will be converted into the right to receive cash in an amount equal to the
excess of $2.75 per share of Common Stock issuable upon exercise thereof over
the exercise price for such options, which cash amount in the aggregate is
approximately $46,000.
Ownership of Preferred Stock. As of the date of this Proxy Statement, there
are 68,517 shares of Preferred Stock outstanding. Mr. Schechter is the owner of
26,353 shares of Preferred Stock. The balance of the Preferred Stock is owned by
Mr. Don M. Harwell and Mezzanine Capital Corporation Limited (in liquidation)
('MCC'), who also are beneficial holders of an aggregate of 1,344,838 shares of
Common Stock, or 19.2% of all the outstanding Common Stock. All of the holders
of Preferred Stock have entered into the Voting Agreement pursuant to which they
have agreed to vote FOR the approval and adoption of the Merger Agreement. See
'Security Ownership by Certain Beneficial Owners, Directors and Executive
Officers -- Voting Agreement.' Chart has agreed to purchase all of the Preferred
Stock at a price of $10.00 in cash per share plus any accumulated but unpaid (as
of the Effective Date) dividends with respect thereto. The holders of Preferred
Stock will receive $685,170 in exchange for the Preferred Stock (excluding
accumulated but unpaid dividends).
In March 1993, Mr. Schechter, Mr. Harwell and MCC, agreed to lend to the
Company an aggregate of $650,000, $325,000 of which was advanced in March 1993
and $325,000 of which was advanced in May 1993. These loans were subordinated to
the Company's indebtedness to its lenders, bore interest at 12% per annum and
were to become due at such time as the Company's lenders were paid the balance
of amounts which they deferred receipt of, but no later than September 30, 1997.
In consideration for the loans, the Company issued Warrants with a fair value of
$55,000 as determined by an independent appraiser, to purchase 130,000 shares of
Common Stock (50,000 to each of Messrs. Schechter and
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Harwell and 30,000 to MCC), at an initial exercise price of $8.85 per share,
such price being the average closing price of the Common Stock during the ten
trading days prior to the loan advances made on March 12, 1993, which price was
adjusted to $7.90 per share pursuant to certain price adjustment provisions
contained in the Warrants.
In April 1994, the Company entered into an Exchange Agreement with Messrs.
Schechter and Harwell and MCC to exchange the junior subordinated indebtedness
and the current interest notes related thereto for Preferred Stock (the
'Exchange'). At April 13, 1994, the Company exchanged $450,000 of the junior
subordinated indebtedness for 45,000 shares of Preferred Stock, and on August
17, 1994 the remaining $228,000 of indebtedness was exchanged for 22,800 shares
of Preferred Stock. The Preferred Stock has a liquidation value of $10.00 per
share and provides for a dividend of 12% per annum through August 31, 1995,
increasing 1% per annum thereafter to a maximum of 18%. Dividends in excess of
12% per annum are not paid in cash, but are paid by issuing additional shares of
Preferred Stock. In consideration for the Exchange, on January 26, 1995, the
Company issued five-year Warrants to purchase 65,000 shares of Common Stock, at
an exercise price of $3.55 per share, such price being the average of the
closing prices of the Common Stock during the ten trading days prior to the
Exchange.
Charterhouse. On August 30, 1991, the Company entered into a financial
consulting services agreement with Charterhouse, pursuant to which Charterhouse
agreed to provide a variety of financial consulting services to the Company.
These services include advice and assistance in connection with the preparation
of financial budgets, forecasts, cash flow projections and return on investment
analysis relating to capital expenditures; services relating to the Company's
banking relationships including advice and assistance in connection with the
financing and refinancing of corporate indebtedness; analysis, from both a
financial and operational standpoint, in connection with the Company's entering
into additional business areas as well as the consolidation or elimination of
existing business operations; and other miscellaneous services and advice
primarily of a financial nature. The agreement had an initial term of five years
and is automatically renewed on a year-to-year basis unless either party gives
60 days written notice prior to the end of the initial term or any renewal term.
The agreement provides for an annual fee of $125,000 payable in monthly
installments. As of the Record Date, the Company was in arrears with respect to
these payments in the aggregate amount of approximately $323,000. Pursuant to
the Merger Agreement, Chart has agreed to pay Charterhouse in full and
Charterhouse has agreed to terminate its agreement with the Company as of the
Effective Time.
Charterhouse is also a party to the Voting Agreement pursuant to which it
has agreed to vote the 206,650 shares of Common Stock which it beneficially owns
in favor of the Merger. See 'Security Ownership of Certain Beneficial Owners,
Directors and Executive Officers -- Security Ownership of Certain Beneficial
Owners' and ' -- Voting Agreement.'
Employment Agreement. Mr. Alfred Schechter has entered into an employment
agreement with the Company with an original term expiring August 31, 1996, and
which provides for annual renewals thereafter unless sooner terminated by either
party. Under the agreement, Mr. Schechter may not compete with the Company
during the term of the agreement and for two years after its termination under
certain circumstances. Mr. Schechter's employment agreement also requires him to
devote such time to the Company and its affiliates as the Board shall request
and as is reasonably necessary to enable him to fulfill his duties. The
agreement provides for a minimum annual base salary of $120,000. As of September
1, 1996, Mr. Schechter's annual salary was $150,000, the same as it was for the
previous fiscal year. Mr. Schechter is also entitled to bonus compensation at
the discretion of the Board, as well as participation in all pension,
profit-sharing, retirement, health, insurance and other benefit programs
available to other executive management employees of the Company. In the event
Mr. Schechter's employment is terminated without 'cause' (as defined in his
employment agreement) by the Company or by Mr. Schechter for 'good reason' (as
defined in his employment agreement), then he will be entitled to receive his
continuing base salary through the end of the initial term or any renewal term,
as applicable. Pursuant to the Merger Agreement, Chart has agreed to pay Mr.
Schechter's salary and to maintain his benefits through August 31, 1997 or the
Effective Time, whichever is later, and Mr. Schechter has agreed to the
termination of his employment agreement as of the Effective Time.
Indemnification of Chart. In connection with the Merger, Mr. Schechter,
Charterhouse and Chart have entered into an indemnification agreement dated as
of April 30, 1997 (the 'Indemnification
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Agreement') pursuant to which Mr. Schechter and Charterhouse have agreed to
indemnify Chart from and against certain liabilities with respect to certain
environmental matters and litigations to which the Company is or may become a
party. The obligations of Mr. Schechter and Charterhouse are limited to an
aggregate of $150,000 ($42,000 for Mr. Schechter and $108,000 for Charterhouse)
and are triggered only after the Company has incurred unreimbursed costs in
excess of $100,000 with respect to the aforementioned matters. Such obligations
are secured by an indemnification fund of $150,000, which will be funded by
deductions from (i) the consideration to be paid to Mr. Schechter as a result of
the Merger; and (ii) from the amount of consulting fees to be paid to
Charterhouse at the Effective Time. Pursuant to the Indemnification Agreement,
such funds will be released to Mr. Schechter and Charterhouse, assuming no
claims are made thereon by Chart, on January 31, 1998.
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the entire equity interest of the Company will
be owned by GTC, a subsidiary of Chart. Therefore, following the Merger, the
Common Stockholders will no longer benefit from any increases in the value of
the Company and will on longer bear the risk of any decreases in the value of
the Company. As of the Effective Time, Chart and its subsidiaries will own 100%
of the Company and Chart will have complete control over the management and
conduct of the Company's business, all income generated by the Company and any
future increases in the value of the Company. Similarly, Chart will also bear
the risk of any losses sustained as a result of the operation of the Company and
any decreases in the value of the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the material Federal income tax
consequences of the Merger to the holders of the Common Stock under the law in
effect as of the date hereof. This discussion is based on currently existing
provisions of the Internal Revenue Code of 1986, as amended (the 'Code'),
existing and proposed Treasury Regulations thereunder and current administrative
rulings and court decisions, all of which are subject to change. Any such
change, which may or may not be retroactive, could alter the tax consequences to
the Common Stockholders as described herein. The following discussion is for
general information only, and may not apply to particular categories of holders,
such as financial institutions, broker-dealers, tax-exempt entities, holders who
acquired their Common Stock pursuant to the exercise of employee stock options
or other compensation arrangements with the Company and holders who are not
citizens or residents of the United States. ALL COMMON STOCKHOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS AS TO THE TAX CONSEQUENCES OF THE MERGER TO THEM
WITH SPECIFIC REFERENCE TO THEIR PARTICULAR TAX SITUATIONS, INCLUDING SUCH TAX
CONSEQUENCES UNDER STATE, LOCAL, FEDERAL AND FOREIGN TAX LAWS.
The receipt of cash in exchange for Common Stock pursuant to the Merger,
and the receipt of cash by a Common Stockholder who exercises his, her or its
dissenter's rights under the DGCL, will be a taxable transaction for Federal
income tax purposes and may also be a taxable transaction under applicable
state, local and foreign tax laws. A Stockholder will generally recognize gain
or loss for Federal income tax purposes in an amount equal to the difference
between such Common Stockholder's adjusted tax basis in the Common Stock and the
amount of cash received in exchange therefor (other than amounts received
pursuant to a Common Stockholder's statutory rights of appraisal that are
denominated as interest, which amounts would be taxable as ordinary income).
Such gain or loss will be a capital gain or loss if such Common Stockholder has
held such Common Stock as capital assets within the meaning of Section 1221 of
the Code. Such capital gain or loss will be a long-term capital gain or loss if
such Common Stockholder has held such Common Stock for more than one year as of
the date of exchange. There are certain limitations on the deductibility of
capital losses.
Cash received in exchange for Common Stock in the Merger may be subject to
a backup withholding tax at a rate of 31%, unless the relevant Common
Stockholder is an exempt recipient or complies with certain identification
procedures. Upon the consummation of the Merger, the Exchange Agent will forward
to each Common Stockholder a Form W-9 which when properly completed and returned
would fulfill such identification procedures.
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THE MERGER
GENERAL
The following is a summary of the Merger Agreement. All references to and
summaries of the Merger Agreement in this Proxy Statement are qualified in their
entirety by reference to the Merger Agreement, a copy of which is attached
hereto as Annex A. The Merger Agreement provides for the merger of CAC with and
into the Company. The Company will be the Surviving Corporation and it will
continue its corporate existence under the DGCL. At the Effective Time, the
separate corporate existence of CAC shall cease. The Surviving Corporation shall
possess all the property, rights, privileges, powers and franchises of CAC and
the Company and shall assume and become liable for all debts, liabilities,
obligations, restrictions, disabilities and duties of the Company and CAC.
EFFECTIVE TIME OF MERGER
The Effective Time will occur upon the filing of a certificate of merger
(the 'Certificate of Merger') with the Secretary of State of the State of
Delaware in accordance with the DGCL. The Certificate of Merger will be filed as
promptly as practicable after the requisite approval and adoption of the Merger
Agreement and the Merger by the Common Stockholders at the Special Meeting is
obtained and the other conditions precedent to the consummation of the Merger
have been satisfied or, if permissible, waived.
TREATMENT OF COMMON STOCK IN THE MERGER
At the Effective Time, each share of Common Stock outstanding immediately
prior to the Effective Time, except for (i) Common Stock owned by Chart, (ii)
Common Stock owned by the Company and (iii) Common Stock owned by Common
Stockholders who perfect their dissenters' rights in accordance with the DGCL,
shall be converted into the right to receive $2.75 in cash, without interest,
payable to the holder thereof, upon surrender of the certificate representing
such Common Stock. Each share of Common Stock owned by the Company immediately
prior to the Effective Time and each share of Common Stock owned by Chart, GTC,
CAC or any other subsidiary of Chart will, by virtue of the Merger and without
any action on the part of the holder thereof, be cancelled and retired and cease
to exist, without any conversion thereof and no payment or distribution shall be
made with respect thereto.
Common Stockholders who do not vote in favor of the Merger at the Special
Meeting and who shall have properly elected to dissent in the manner provided in
Section 262 of the DGCL will be entitled to payment of the fair value of their
Common Stock in accordance with, and subject to, the provisions of Section 262
of the DGCL.
Each share of CAC common stock outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without action on the part of
the holder thereof, be converted into and exchangeable for one fully paid and
nonassessable share of the Surviving Corporation.
TREATMENT OF PREFERRED STOCK, OPTIONS AND WARRANTS IN THE MERGER
At the Effective Time, each share of Preferred Stock outstanding
immediately prior to the Effective Time, shall be converted into the right to
receive $10.00 in cash plus any accumulated but unpaid (as of the Effective
Time) dividends with respect thereto. There are currently 68,517 shares of
Preferred Stock outstanding. The Preferred Stock does not have voting rights
and, therefore, will not be voted at the Special Meeting. The holders of
Preferred Stock are also Common Stockholders and have agreed, pursuant to the
Voting Agreement, to vote FOR adoption and approval of the Merger Agreement and
the Merger. Additionally, pursuant to an agreement among each of the holders of
Preferred Stock and the Company, the holders of Preferred Stock have agreed to
sell all of the Preferred Stock to Chart for a purchase price of $10.00 per
share plus any and all accumulated but unpaid (as of the Effective Time)
dividends.
As of the Record Date, there were 608,042 outstanding Warrants to purchase
Common Stock and 417,032 outstanding Warrants to purchase Class B Common Stock.
Additionally, as of the Record Date, there were outstanding options to purchase
279,000 shares of Common Stock with exercise prices
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ranging from $1.81 to $6.38. 271,500 of such options were issued in the ordinary
course pursuant to the Company's various stock option plans from March 1992
through June 1997. The Company has agreed to use its reasonable best efforts to:
(i) cause all Non-Continuing Employees who hold options to purchase Common Stock
to either (A) exercise such options prior to the Effective Time or (B) agree to
sell such options to Chart in exchange for cash equal to the excess of $2.75 per
share of Common Stock issuable upon exercise thereof over the exercise price for
such options; (ii) cause all Continuing Employees who hold options to purchase
Common Stock to either (A) exchange their options for options to purchase Chart
Common Stock on a pro rata basis or (B) agree to sell such options to Chart in
exchange for cash equal to the excess of $2.75 per share of Common Stock
issuable upon exercise thereof over the exercise price for such options; and
(iii) cause all Non-Employee Directors who hold options pursuant to the
Company's 1993 Non-Employee Director Stock Option Plan to agree to sell such
options to Chart in exchange for cash equal to the excess of $2.75 per share of
Common Stock issuable upon exercise thereof over the exercise price for such
options.
The Company has also agreed to use its reasonable best efforts to cause all
holders of Warrants to agree to either (i) sell to Chart any Warrants having an
exercise price less than $2.75 per share for a cash payment per Warrant equal to
the excess of $2.75 over the exercise price for such Warrant or (ii) to exchange
such Warrants for warrants to purchase Chart Common Stock on a pro rata basis. A
portion of the Warrants are held by Common Stockholders and Preferred
Stockholders who have agreed, pursuant to the Voting Agreement, to vote FOR
adoption and approval of the Merger Agreement and the Merger.
SURRENDER OF COMMON STOCK CERTIFICATES
The Company and Chart have designated National City Bank to act as the
Exchange Agent under the Merger Agreement. As of the Effective Time, Chart shall
deposit with the Exchange Agent cash in an aggregate amount equal to the product
of: (x) the number of shares of Common Stock outstanding immediately prior to
the Effective Time (other than shares owned by the Company, Chart and Common
Stockholders who have perfected their dissenters' rights); and (y) $2.75 (such
amount together with an amount sufficient to pay the purchase price for the
Preferred Stock being hereinafter referred to as the 'Exchange Fund'). Chart
shall also deposit with the Exchange Agent an amount sufficient to purchase the
Preferred Stock and to pay any and all accumulated but unpaid dividends through
the Effective Date. The Exchange Agent shall, pursuant to irrevocable
instructions, make the payments provided for under the Merger Agreement out of
the Exchange Fund to the holders of Common Stock and Preferred Stock.
Promptly after the Effective Time, the Surviving Corporation shall cause
the Exchange Agent to mail to each holder of record as of the Effective Time of
an outstanding certificate or certificates of Common Stock, a letter of
transmittal (which shall specify that delivery shall be effected and risk of
loss and title to certificates shall pass, only upon proper delivery of the
certificates to the Exchange Agent) and instructions for use in effecting the
surrender of such certificates for payment in accordance with the Merger
Agreement. Upon surrender to the Exchange Agent of a certificate, together with
a duly executed letter of transmittal, and other documents that are customarily
required by letters of transmittal, the holder thereof shall be entitled to
receive cash in an amount equal to the product of the number of shares of Common
Stock represented by such certificate and $2.75, less any applicable withholding
tax, and such certificate shall be cancelled.
Until surrendered pursuant to the procedures set forth above, each
certificate shall represent for all purposes solely the right to receive $2.75
in cash, without interest, multiplied by the number of shares of Common Stock
evidenced by such certificate. The holders of Preferred Stock will follow a
similar procedure for exchanging their Preferred Stock into cash as that set
forth above for Common Stock.
COMMON STOCKHOLDERS SHOULD NOT SEND ANY COMMON STOCK CERTIFICATES WITH
THEIR PROXY CARDS. TRANSMITTAL MATERIALS AND INSTRUCTIONS RELATING TO COMMON
STOCK CERTIFICATES WILL BE MAILED TO COMMON STOCKHOLDERS AS SOON AS PRACTICABLE
AFTER THE EFFECTIVE TIME.
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Any portion of the Exchange Fund that remains undistributed to the Common
Stockholders for 12 months after the Effective Time shall be delivered to Chart,
upon demand, and any Common Stockholders who have not exchanged their Common
Stock for their pro rata portion of the Exchange Fund shall thereafter look only
to Chart for payment of the Merger Consideration. At the time of such demand by
Chart, the Exchange Agent's duties shall terminate.
SOURCES AND USES OF FUNDS
It is currently anticipated that $19,241,741.75 will be required to pay the
purchase price for the Common Stock (assuming no Common Stockholder exercises
dissenters' rights), approximately $685,170 will be required to pay the purchase
price for the Preferred Stock and approximately $776,000 will be required to
purchase the 'in the money' options to purchase Common Stock (assuming no
exercise thereof) and Warrants to purchase Class B Common Stock (assuming no
exercise thereof). Chart also anticipates that approximately $200,000 will be
required to pay its expenses in connection with the Merger, approximately
$325,000 will be required to pay Charterhouse and approximately $7,000,000 will
be required to retire the Company's long-term debt. All of the required funds
will be funded from Chart's bank credit facility and available cash. Chart has
received a commitment from National City Bank and NBD Bank, N.A. to increase
such credit facility to $45.0 million in connection with the Merger. It is
currently expected that approximately $400,000 will be required to pay the
expenses of the Company and that such funds will be furnished from available
general funds of the Company.
CONDITIONS TO THE MERGER
Pursuant to the Merger Agreement, the obligations of each of the Company,
Chart, GTC and CAC to effect the Merger are subject to the following conditions:
(a) the Merger Agreement shall have been approved and adopted by the affirmative
vote of holders of a majority of the issued and outstanding shares of Common
Stock; (b) the Company and Chart shall have made all filings with, and all
relevant waiting periods shall have expired (including all filings required to
be made under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the 'HSR Act'), and waiting period in connection therewith), and given
all notices to and obtained all necessary consents, authorizations and approvals
from, all governmental or regulatory authorities which are required to
consummate the transactions contemplated by the Merger Agreement; and (c) no
temporary restraining order, preliminary or permanent injunction or other order,
restraint or prohibition shall have been issued by any court of competent
jurisdiction preventing the consummation of the transactions contemplated by the
Merger Agreement, and no action shall have been taken, and no statute, rule or
regulation shall have been executed, by any state or Federal government or any
governmental or regulatory authority that would prevent the consummation of the
transactions contemplated by the Merger Agreement.
In addition, the obligations of the Company to effect the Merger are also
subject to the satisfaction, or waiver by the Company, of the following
conditions: (a) each of the representations and warranties of Chart, GTC and CAC
in the Merger Agreement shall be true and correct in all material respects; and
(b) Chart, GTC and CAC shall each have performed, in all material respects,
their obligations and agreements contained in the Merger Agreement.
Additionally, the obligations of Chart, GTC and CAC to effect the Merger
are also subject to the satisfaction, or waiver by Chart, GTC and CAC, of the
following conditions: (a) each of the representations and warranties of the
Company in the Merger Agreement shall be true and correct in all material
respects; (b) the Company shall have performed, in all material respects, its
obligations and agreements contained in the Merger Agreement; (c) the Company
shall have obtained all consents, authorizations or approvals to the Merger and
Merger Agreement which are required to be obtained from any third parties; (d)
the Company shall not have suffered a material adverse effect upon the business,
financial condition, results of operations or prospects of the Company and its
subsidiaries, taken as a whole; (e) the Company shall not have received demand
for appraisal from the holders of more than 15% of the Common Stock; (f) the
Company shall have terminated its agreements and arrangements with Charterhouse,
Mr. Alfred Schechter and the holders of Preferred Stock; and (g) the Company
shall have obtained and delivered to Chart agreements from holders of options to
purchase
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Common Stock and Warrants exercising such options or warrants, agreeing to the
cancellation thereof, agreeing to the sale thereof to Chart pursuant to the
terms of the Merger Agreement or agreeing to the exchange thereof for warrants
or options to purchase shares of Chart Common Stock.
TERMINATION AND AMENDMENT
The Merger Agreement may be terminated at any time prior to the Effective
Time: (a) by mutual consent of the Company and Chart; (b) by Chart, upon a
breach of any representation, warranty, covenant or agreement on the part of the
Company, or if any representation or warranty of the Company shall be untrue, in
either case, and would be incapable of being cured by August 29, 1997; (c) by
the Company, upon a breach of any representation, warranty, covenant or
agreement on the part of Chart, or if any representation or warranty of Chart
shall be untrue, in either case, and would be incapable of being cured by August
29, 1997; (d) by either Chart or the Company if any permanent injunction or
action by any governmental or regulatory authority preventing the consummation
of the Merger shall have become final and nonappealable; (e) by either the
Company or Chart if the Merger shall not have been consummated before August 29,
1997; provided, however, that the Merger Agreement may be extended to a date not
later than September 30, 1997, if the Merger shall not have been consummated as
a direct result of either of the parties failing by August 29, 1997, to receive
all required approvals or consents from governmental or regulatory authorities;
(f) by the Company or Chart, if the Merger Agreement and the Merger shall fail
to receive the requisite vote for approval and adoption by the Common
Stockholders at the Special Meeting; (g) by Chart, if: (i) the Board shall
withdraw, modify or change its recommendation of the Merger Agreement or the
Merger in a manner adverse to Chart or shall have resolved to do any of the
foregoing; (ii) the Board shall have recommended to the Common Stockholders a
Competing Transaction (as defined in the Merger Agreement); (iii) a tender offer
for 25% or more of the outstanding shares of Common Stock is commenced and the
Board recommends that the Common Stockholders tender their shares in such tender
offer or exchange offer; or (iv) at any time after the date of the Merger
Agreement any person shall acquire beneficial ownership or the right to acquire
beneficial ownership of, or any 'group' (as defined under Section 13(d) of the
Securities Exchange Act of 1934, as amended) shall have been formed which
beneficially owns, more than 25% of the then outstanding Common Stock; (h) by
the Company, if the Board (x) fails to make or withdraws or modifies its
recommendations that the Common Stockholders approve the Merger, and there
exists at such time a Competing Transaction or (y) recommends to the Common
Stockholders approval or acceptance of a Competing Transaction, in each case
only if the Board, after consultation with and based upon the advice of counsel,
determines in good faith that such action is necessary for the Board to comply
with its fiduciary duties to stockholders under applicable law; and (i) by
Chart, if the Company shall receive demand for appraisal from the holders of
more than 15% of the Common Stockholders.
The Company has agreed that if the Merger Agreement is terminated: (i)
pursuant to (b) above and at any time prior to Chart's delivery to the Company
of notice of termination there existed a Competing Transaction; (ii) pursuant to
(f) above and at any time between the date of the Merger Agreement and the
Special Meeting there existed a Competing Transaction; (iii) pursuant to (g)
above; (iv) pursuant to (h) above; or (v) pursuant to (i) above and one or more
of the affiliates of the Company who executed the Voting Agreement has made a
demand for appraisal with respect to 5% or more of the Common Stock, then in any
of such cases the Company is required to pay to Chart $850,000.
The Merger Agreement may be amended by the parties thereto at any time
prior to the Effective Time; provided, however, that after approval of the
Merger Agreement and the Merger by the Common Stockholders, no amendment, which
under applicable law may not be made without approval of the Common
Stockholders, may be made without such approval.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the terms of the Merger Agreement, during the period from the
date of the Merger Agreement to the Effective Time, with certain exceptions, the
Company has agreed to conduct its business in the ordinary course and consistent
with past practices and use its reasonable best efforts to preserve intact its
business organization and goodwill, keep available the services of its present
officers
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and key employees and preserve the goodwill and business relationships with
suppliers, customers and others having business relationships with it. Without
limiting the generality of the foregoing, the Company has agreed, with certain
exceptions, to refrain from: (i) declaring or paying dividends or other
distributions; (ii) issuing, redeeming, selling or disposing of, or creating
obligations to issue, redeem, sell or dispose of, any shares of its capital
stock or any option, warrant or security convertible into capital stock; (iii)
taking any action with respect to the grant of any severance or termination pay
to any employee; (iv) entering into, adopting, accelerating, modifying or
amending in any other manner, any employment, collective bargaining, consulting,
bonus, incentive compensation, deferred compensation, employee stock option,
profit sharing, employee benefit, welfare benefit or other agreement, plan or
arrangement; and (v) taking certain other actions enumerated in the Merger
Agreement.
NO SOLICITATIONS
Between the date of the Merger Agreement and the Effective Time or earlier
termination of the Merger Agreement as provided therein, the Company has agreed
not to solicit, encourage, initiate or participate in discussions or
negotiations with any third party concerning the sale or merger of the Company
or the sale or transfer of the Company's assets (a 'Third Party Transaction'),
except that the Company may furnish information about the Company and access
thereto, in each case in response to unsolicited requests therefor, to any third
party pursuant to an appropriate confidentiality agreement, and may participate
in discussions and negotiate with such third party concerning a Third Party
Transaction, if the Board determines in the exercise of its good faith judgment
as to its fiduciary duties to the Common Stockholders and based upon advice of
counsel, that such action is required.
OFFICERS' AND DIRECTORS' INSURANCE; INDEMNIFICATION
The Merger Agreement provides that Chart has agreed that all rights to
indemnification and all limitations of liability existing in favor of the
employees, agents, directors and officers of the Company and its subsidiaries to
the extent provided in the Company's and each subsidiary's certificate of
incorporation and by-laws or in the indemnity agreements between the Company and
each of its officers and directors, each as in effect on the date of the Merger
Agreement with respect to matters occurring on or prior to the Effective Time
shall continue in full force and effect without any amendment thereto for a
period of six years from the Effective Time; provided, however, that all rights
of indemnification in respect of any claim asserted or made within such six-year
period shall continue until the final disposition of such claim. The Merger
Agreement also provides that Chart has agreed that at or prior to the Effective
Time, Chart shall continue existing officers' and directors' liability insurance
coverage for the Company's officers and directors which shall provide such
officers and directors with coverage for six years following the Effective Time;
provided, however, that Chart shall not be obligated to make annual premium
payments for such insurance in excess of 125% of the Company's current annual
premium for such insurance and if such annual premium for such insurance at any
time exceeds 125% of the Company's current annual premium, then Chart shall
cause to be maintained policies of insurance which in Chart's good faith
determination provides the maximum coverage available at an annual premium equal
to 125% of the Company's current annual premium.
FEES AND EXPENSES
Each party to the Merger Agreement has agreed to pay its own fees and
expenses in connection with the Merger.
ACCOUNTING TREATMENT
The Merger will be accounted for as a 'purchase', as such term is used
under generally accepted accounting principles, for accounting and financial
reporting purposes. Accordingly, a determination of the fair value of the
Company's assets and liabilities will be made in order to allocate the purchase
price to the assets acquired and the liabilities assumed.
27
<PAGE>
<PAGE>
REGULATORY APPROVALS
No Federal or state regulatory approvals are required to be obtained, nor
any regulatory requirements complied with, in connection with the consummation
of the Merger by any party to the Merger Agreement, except for (i) the
expiration of the waiting period, or early termination thereof, under the HSR
Act, (ii) the requirements of the DGCL regarding the Common Stockholders'
approval of the Merger and the consummation thereof, and (iii) the requirements
of Federal securities law.
APPRAISAL
RIGHTS OF DISSENTING STOCKHOLDERS; WAIVER OF NOTICE
Common Stockholders who follow the procedures specified in Section 262 of
the DGCL ('Section 262') will be entitled to have their Common Stock appraised
by the Delaware Court of Chancery and to receive payment of the 'fair value' of
such shares, exclusive of any elements of value arising from the accomplishment
or expectation of the Merger, together with a fair rate of interest, if any, as
determined by such Court. THE PROCEDURES SET FORTH IN SECTION 262 SHOULD BE
STRICTLY COMPLIED WITH. FAILURE TO FOLLOW ANY OF SUCH PROCEDURES MAY RESULT IN A
TERMINATION OR WAIVER OF APPRAISAL RIGHTS UNDER SECTION 262.
The following discussion of the provisions of Section 262 is not intended
to be a complete statement of its provisions and is qualified in its entirety by
reference to the full text of that section, a copy of which is attached hereto
as Annex C.
Under Section 262, a Common Stockholder electing to exercise appraisal
rights must both:
(a) deliver to the Company, before the date of the Special Meeting, a
written demand for appraisal of his or her Common Stock which reasonably
informs the Company of the identity of the stockholder of record and that
such stockholder intends thereby to demand the appraisal of his or her
Common Stock. This written demand is in addition to and separate from any
proxy relating to the Merger. Voting against, abstaining from voting or
failing to vote on the Merger will not constitute a demand for appraisal
within the meaning of Section 262. Such written demand for appraisal should
be delivered either in person to the Secretary of the Company or by mail
(certified mail, return receipt requested, being the recommended form of
transmittal) to the Secretary at 3811 Joliet Street, Denver, Colorado
80239, prior to the date of the Special Meeting; and
(b) not vote in favor of the Merger. Neither an abstention from voting
with respect to, nor failure to vote in person or by proxy against approval
of the Merger constitutes a waiver of the rights of a dissenting
stockholder.
Within 10 days after the Effective Time, the Company is required to, and
will, notify each Common Stockholder who has satisfied the conditions of Section
262 of the date on which the Merger became effective. Within 120 days after the
Effective Time, the Company or any such Common Stockholder who has satisfied the
conditions of Section 262 and is otherwise entitled to appraisal rights under
Section 262, may file a petition in the Delaware Court of Chancery demanding a
determination of the value of the Common Stock held by all Common Stockholders
entitled to appraisal rights. If no such petition is filed, appraisal rights
will be lost for all Common Stockholders who had previously demanded appraisal
of the Common Stock. Common Stockholders seeking to exercise appraisal rights
should not assume that the Company will file a petition with respect to the
appraisal of the value of the Common Stock or that the Company will initiate any
negotiations with respect to the 'fair value' of such shares. ACCORDINGLY,
COMMON STOCKHOLDERS WHO WISH TO EXERCISE THEIR APPRAISAL RIGHTS SHOULD REGARD IT
AS THEIR OBLIGATION TO TAKE ALL STEPS NECESSARY TO PERFECT THEIR APPRAISAL
RIGHTS IN THE MANNER PRESCRIBED IN SECTION 262.
Within 120 days after the Effective Time, any Common Stockholder who has
complied with the provisions of Section 262 is entitled, upon written request,
to receive from the Company a statement setting forth the aggregate number of
shares of Common Stock not approving the Merger with respect to which demands
for appraisal were received by the Company and the number of holders of such
shares. Such statement must be mailed within 10 days after the written request
therefor has been
28
<PAGE>
<PAGE>
received by the Company or within 10 days after expiration of the time for
delivery of demands for appraisal under Section 262, whichever is later.
If a petition for an appraisal is timely filed, after a hearing to
determine the Common Stockholders entitled to appraisal rights, the Delaware
Court of Chancery will appraise the Common Stock owned by such Common
Stockholders, determining its fair value, exclusive of any element of value
arising from the accomplishment or expectation of the Merger. The Court will
direct the payment of the fair value of such Common Stock together with a fair
rate of interest, if any, on such fair value to Common
WAIVER OF APPRAISAL RIGHTS BY CERTAIN STOCKHOLDERS
Pursuant to the Voting Agreement, 12 record and/or beneficial holders who
have sole dispositive power with respect to 3,306,214 shares of Common Stock, or
approximately 47.3% of all the issued and outstanding Common Stock, have agreed,
among other things, to waive any and all appraisal rights to which they may be
entitled under Section 262 in connection with the Merger.
MARKET PRICES AND DIVIDENDS
The Common Stock is traded on the NASDAQ National Market System under the
symbol CSCI. The following table sets forth the high and low sales prices for
the Common Stock as reported on the NASDAQ National Market System from September
1, 1994 to June , 1997. The prices set forth reflect interdealer quotations,
without retail markups, markdowns or commissions, and do not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
HIGH LOW
----------- -----------
<S> <C> <C>
Fiscal Quarter Ended
November 30, 1994................................................................................. $5 1/2 $3 1/8
February 28, 1995................................................................................. 4 1/2 2 1/2
May 31, 1995...................................................................................... 4 1/2 3
August 31, 1995................................................................................... 4 1/4 3 1/4
November 30, 1995................................................................................. $5 $3 5/8
February 29, 1996................................................................................. 5 1/8 3 3/8
May 31, 1996...................................................................................... 4 3/8 3
August 31, 1996................................................................................... 4 3/4 2 5/8
November 30, 1996................................................................................. $3 3/4 $1 3/8
February 28, 1997................................................................................. 2 3/8 1 3/8
May 31, 1997...................................................................................... [2 9/16] [1 1/2]
August 31, 1997 (through June , 1997)...........................................................
</TABLE>
On April 30, 1997, the last full trading day prior to the public
announcement that the parties had entered into the Merger Agreement, the closing
bid price and high ask and low bid prices of the Common Stock were all $1 5/8.
On June , 1997, the date of the latest bid price available prior to the
mailing of this Proxy Statement, the closing bid price was $ . COMMON
STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE COMMON
STOCK.
At June , 1997, there were approximately 200 Common Stockholders of
record. However, the Company believes that at such date there were in excess of
500 beneficial Common Stockholders.
The Company has never declared or paid any cash dividends on its Common
Stock and currently intends to retain any earnings for use in its business. The
Company's ability to pay cash dividends is currently limited by credit
agreements and the Company does not anticipate paying any cash dividends in the
foreseeable future.
29
<PAGE>
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data at and for the fiscal years ended
August 31, 1996, 1995, 1994 and 1993 are derived from financial statements which
have been audited by Ernst & Young LLP, independent auditors. The selected
consolidated financial data at and for the fiscal year ended August 31, 1992 are
derived from the consolidated financial statements which have been audited by
KPMG Peat Marwick LLP, independent auditors. This information should be read in
conjunction with the Company's consolidated financial statements and related
notes and other financial information appearing in the Company's Annual Report
on Form 10-K for the fiscal year ended August 31, 1996, a copy of which has been
provided with this Proxy Statement.
The selected financial data set forth below for the six months ended
February 28, 1997 and February 29, 1996 has been derived from the unaudited
consolidated financial statements of the Company, but, in the opinion of
management, reflect all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation of the results for such
periods. This information should be read in conjunction with the Company's
unaudited consolidated financial statements and related notes thereto appearing
in the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
February 28, 1997, a copy of which has been provided with this Proxy Statement.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AUGUST 31,
SIX MONTHS ENDED SIX MONTHS ENDED -----------------------------------------------
FEBRUARY 28, 1997 FEBRUARY 29, 1996 1996 1995 1994 1993 1992
----------------- ----------------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of income data:
Contract Revenue............... $12,838 $16,187 $31,259 $27,215 $17,665 $13,099 $22,198
Cost of revenue................ 10,087 13,139 24,898 22,350 14,670 12,198 16,398
----------------- ----------------- ------- ------- ------- ------- -------
Gross Profit................... 2,751 3,048 6,361 4,865 2,995 901 5,800
Selling, general and
administrative expenses...... 1,486 1,539 3,288 2,867 2,834 3,396 2,366
Research and development
expenses..................... 330 431 792 70 86 701 319
Amortization expense........... 121 172 346 346 338 286 321
----------------- ----------------- ------- ------- ------- ------- -------
Operating income (loss)........ 814 906 1,935 1,582 (263) (3,482) 2,794
Interest expense, net.......... 491 439 943 987 1,105 1,037 1,282
Other nonoperating expense
(income), net................ (56) (5) 9 40 (69) (19) 111
----------------- ----------------- ------- ------- ------- ------- -------
Income (loss) before income
taxes and extraordinary
item......................... 379 472 983 555 (1,299) (4,500) 1,401
Income tax (expense) benefit... (140) (174) (363) (194) 403 1,196 (483)
----------------- ----------------- ------- ------- ------- ------- -------
Income from operations before
extraordinary item........... 239 298 620 361 (896) (3,304) 918
Extraordinary item, net of
taxes........................ -- (93) 93 -- -- -- --
----------------- ----------------- ------- ------- ------- ------- -------
Net income (loss).............. $ 239 $ 205 $ 527 $ 361 $ (896) $(3,304) $ 918
----------------- ----------------- ------- ------- ------- ------- -------
----------------- ----------------- ------- ------- ------- ------- -------
Earnings (loss) per share(1)... $ .03 $ .02 $ .06 $ .04 $ (.17) $ (.62) $ .20
----------------- ----------------- ------- ------- ------- ------- -------
----------------- ----------------- ------- ------- ------- ------- -------
Balance sheet data:
Total assets................... $24,908 $23,277 $25,704 $23,377 $18,404 $20,344 $21,644
Long-term debt, excluding
current maturities........... 7,322 6,644 8,634 5,629 6,928 8,191 7,558
Stockholders' equity........... 11,870 11,395 11,673 11,236 7,047 7,191 10,420
</TABLE>
- ------------
(1) Net income per share for the six months ended February 28, 1997 and February
29, 1996 have been calculated based on 7,320,111 and 7,204,109 weighted
average common and common equivalent shares outstanding during the period,
respectively. Net income (loss) per share for the fiscal years ended August
31, 1996, 1995, 1994, 1993 and 1992 have been calculated based on 7,230,773,
6,620,055, 5,346,760, 5,326,936 and 4,491,392 weighted average common and
common equivalent shares outstanding during the year, respectively.
30
<PAGE>
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS,
DIRECTORS AND EXECUTIVE OFFICERS
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of the Record Date
(except as otherwise footnoted below) as to shares of Common Stock beneficially
owned by each person known by the Company to be the beneficial owner of more
than five percent of the outstanding Common Stock.
<TABLE>
<CAPTION>
SHARES PERCENTAGE OF
BENEFICIALLY OUTSTANDING
NAME AND ADDRESS OWNED(1) COMMON STOCK(2)
- ------------------------------------------------------------------------------- --------------- ---------------
<S> <C> <C>
Mezzanine Capital Corporation Limited (in liquidation)(3)(4)(5) ............... 745,645 10.6%
c/o Capital House
Administrators (CI) Limited
P.O. Box 189
Bath Street, St. Helier
Jersey Channel Islands
Alfred Schechter(6)(7) ........................................................ 200,853 2.8%
c/o Charterhouse Group International, Inc.
535 Madison Avenue
New York, NY 10022-4299
Don M. Harwell(8) ............................................................. 599,193 8.5%
12 Glenmoore Circle
Cherry Hills Village, Colorado 80110
Globe Venture Nominees Limited, on behalf of
The Mineworkers' Pension Scheme and
The British Coal Staff Superannuation Scheme(9).............................. 55,000 *
Hobard House, Grosvenor Place
London, SW1X 7AD, England
Electra Investment Trust P.L.C.(9) ............................................ 165,709 2.4%
Electra House, Temple Place,
Victoria Embankment
London WC2R 3HP, England
Slough Parks Holdings Incorporated(9) ......................................... 55,100 *
33 West Monroe Street, Suite 2610
Chicago, Illinois 60603-2409
Mezzanine Capital Corporation Limited(3)(9) ................................... 13,750 *
85 Watling Street
London EC4M 9BJ, England
Charterhouse Finance Corporation Limited(9) ................................... 22,080 *
c/o Charterhouse Group International, Inc.
535 Madison Avenue
New York, NY 10022-4299
Merifin Capital N.V.(9) ....................................................... 127,169 1.8%
c/o Finabel S.A.
254 Route de Lausanne
CH-1292 Geneva-Chambesy
Switzerland
Charterhouse Group International, Inc.(4)(6)(9) ............................... 206,650 3.0%
535 Madison Avenue
New York, NY 10022-4299
Jerome L. Katz ................................................................ 126,356 1.8%
45 Rockefeller Plaza, 20th Floor
New York, NY 10111
Zesiger Capital Group LLC(10) ................................................. 1,170,790 16.7%
320 Park Avenue
New York, NY 10022
</TABLE>
- ------------
* Less than 1%
(footnotes continued on next page)
31
<PAGE>
<PAGE>
(footnotes continued from previous page)
(1) Except as otherwise indicated in the following footnotes, each of the
persons listed in the table owns the shares of Common Stock opposite his or
its name and has sole voting and dispositive power with respect to such
shares.
(2) For purposes of calculating the percentage of Common Stock owned by each
stockholder listed in this table, shares beneficially owned and issuable
upon the exercise of Warrants and options to purchase Common Stock owned by
such stockholder exercisable within 60 days of the Record Date have been
deemed to be outstanding with respect to such stockholder.
(3) MCC, a Cayman Islands corporation, is a separate and distinct corporation
from Mezzanine Capital Corporation Limited, a corporation organized under
the laws of England and Wales ('Mezzanine') (referred to in this table
below).
(4) Charterhouse is a party to an investment advisory agreement with MCC
pursuant to which Charterhouse provides investment advice to MCC, including
advice as to its investment in the Common Stock, but does not have the
power to vote or dispose of any such investment on MCC's behalf. By reason
of the foregoing, Charterhouse may be considered to have shared power to
vote and dispose of the shares of Common Stock held by MCC and, therefore,
for purposes of Commission regulations, may be deemed to be the beneficial
owner of those shares. Charterhouse disclaims beneficial ownership of the
shares of Common Stock held by MCC.
(5) Includes 45,000 shares of Common Stock deemed to be beneficially owned by
reason of the right to acquire such shares within 60 days of the Record
Date pursuant to Warrants.
(6) Mr. Schechter is a director of Charterhouse. He disclaims ownership of the
shares of Common Stock of which Charterhouse may be deemed to be the
beneficial owner.
(7) Includes 83,531 shares of Common Stock deemed to be beneficially owned by
reason of the right to acquire such shares within 60 days of the Record
Date pursuant to Warrants and 27,000 shares of Common Stock deemed to be
beneficially owned by reason of the right to acquire such shares within 60
days of the Record Date upon exercise of stock options. Does not include
200,000 shares of Common Stock which Mr. Schechter gifted to The Schechter
Foundation, Inc. (the 'Schechter Foundation'). Mr. Schechter is the
president of the Schechter Foundation and retains voting and dispositive
power with respect to the gifted shares. Nevertheless, Mr. Schechter has no
beneficial interest in the Schechter Foundation and he disclaims beneficial
ownership of the gifted shares.
(8) Includes 75,000 shares of Common Stock deemed to be beneficially owned by
reason of the right to acquire such shares within 60 days of the Record
Date pursuant to Warrants. Does not include 10,000 shares of Common Stock
which Mr. Harwell gifted to The Harwell Family Foundation (the 'Harwell
Foundation'). Mr. Harwell is a director of the Harwell Foundation and
retains voting and dispositive power with respect to the gifted shares. Mr.
Harwell has no beneficial interest in the Harwell Foundation and he
disclaims beneficial ownership of the gifted shares. The foregoing is based
upon information set forth in Amendment No. 3 to Schedule 13G, dated
February 13, 1996, filed with the Commission by Mr. Harwell.
(9) Charterhouse holds no shares of Common Stock in its own name. Charterhouse
is a party to investment management agreements with Electra Investment
Trust P.L.C. ('Electra'), Globe Venture Nominees Limited ('Globe'), Slough
Parks Holdings Incorporated ('Slough'), Mezzanine, Charterhouse Finance
Corporation Limited ('CFC'), and Merifin Capital N.V. ('Merifin'), pursuant
to which Charterhouse manages certain investments, including the investment
in a portion of the shares of Common Stock referred to above, on behalf of
these companies. In connection therewith, Charterhouse was granted
authority to vote and dispose of these investments. However, the
above-referenced companies also retained voting and dispositive power with
respect to these investments. For purposes of Commission regulations,
Charterhouse may be deemed to be the beneficial owner of those shares (an
aggregate of 206,650 shares or 3.0% of the issued and outstanding shares of
Common Stock). Electra, Globe, Slough, Merifin and CFC (which owns non-
voting stock) own, in the aggregate, 78.5% of the issued and outstanding
shares of capital stock of
(footnotes continued on next page)
32
<PAGE>
<PAGE>
(footnotes continued from previous page)
Charterhouse and each of Electra, Globe, Merifin and Slough has a
representative who is a director of Charterhouse.
(10) Zesiger Capital Group LLC ('Zesiger') disclaims beneficial ownership of all
of these shares. Such shares are held in discretionary accounts which
Zesiger manages. Zesiger has sole voting power with respect to 1,168,290 of
such shares and sole dispositive power with respect to all of such shares.
The foregoing is based upon information set forth in Amendment No. 2 to
Schedule 13G, dated January 27, 1997, filed with the Commission by Zesiger.
SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information as of the Record Date,
as to shares of Common Stock beneficially owned by the Company's directors, the
Chief Executive Officer of the Company, the other executive officer of the
Company and the directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES
NAME OF BENEFICIALLY PERCENTAGE OF OUTSTANDING
BENEFICIAL OWNER OWNED(1) COMMON STOCK(2)
- ------------------------------------------------------------- ------------ -------------------------
<S> <C> <C>
Alfred Schechter............................................. 200,853(3)(4) 2.8%
James A. Raabe............................................... 19,500(5) *
Russell R. Haines............................................ 9,000(6) *
Jerome L. Katz............................................... 126,356 1.8%
Burton J. Ahrens............................................. 52,504(7) *
Ajit G. Hutheesing........................................... 160,000(8) 2.3%
All directors and officers as a group (six persons).......... 568,213(9) 7.8%
</TABLE>
- ------------
* Less than 1%
(1) Except as otherwise indicated in the following footnotes, each of the
persons listed in the table owns the shares of Common Stock opposite his
name and has sole voting and dispositive power with respect to such shares
of Common Stock.
(2) For purposes of calculating the percentage of Common Stock owned by each
officer and/or director of the Company, shares beneficially owned and
issuable upon the exercise of Warrants and options to purchase Common Stock
owned by such individual exercisable within 60 days of the Record Date have
been deemed to be outstanding with respect to such individual.
(3) See footnote 6 to the first table set forth above under the heading
'Security Ownership of Certain Beneficial Owners, Directors and Executive
Officers Security Ownership of Certain Beneficial Owners' with respect to
voting and dispositive power concerning the shares of Common Stock.
(4) Includes 83,531 shares of Common Stock deemed to be beneficially owned by
reason of the right to acquire such shares within 60 days of the Record Date
pursuant to Warrants and 27,000 shares of Common Stock deemed to be
beneficially owned by reason of the right to acquire such shares within 60
days of the Record Date upon exercise of stock options. Does not include
200,000 shares of Common Stock which Mr. Schechter gifted to the Schechter
Foundation. Mr. Schechter is the president of the Schechter Foundation and
retains voting and dispositive power with respect to the gifted shares.
Nevertheless, Mr. Schechter has no beneficial interest in the Schechter
Foundation and he disclaims beneficial ownership of the gifted shares.
(5) Includes 18,000 shares of Common Stock deemed to be beneficially owned by
reason of the right to acquire such shares within 60 days of the Record Date
upon the exercise of stock options.
(6) Includes 6,500 shares of Common Stock deemed to be beneficially owned by
reason of the right to acquire such shares within 60 days of the Record Date
upon the exercise of stock options.
(footnotes continued on next page)
33
<PAGE>
<PAGE>
(footnotes continued from previous page)
(7) Includes 36,504 shares of Common Stock deemed to be beneficially owned by
reason of the right to acquire such shares within 60 days of the Record Date
pursuant to Warrants. Does not include 2,000 shares of Common Stock and
Warrants to purchase 4,602 shares of Common Stock owned by Mr. Ahrens' sons.
Mr. Ahrens disclaims beneficial ownership of the shares and Warrants owned
by his sons.
(8) All these shares of Common Stock are deemed to be beneficially owned by
reason of the right to acquire such shares within 60 days of the Record Date
upon exercise of Warrants.
(9) Includes 51,500 shares of Common Stock deemed to be beneficially owned by
reason of the right to acquire such shares within 60 days of the Record Date
upon exercise of stock options and 280,035 shares of Common Stock deemed to
be beneficially owned by reason of the right to acquire such shares within
60 days of the Record Date pursuant to Warrants. Does not include 200,000
shares of Common Stock which Mr. Schechter gifted to the Schechter
Foundation (see footnote 4 above), and 2,000 shares of Common Stock and
Warrants to purchase 4,602 shares of Common Stock owned by Mr. Ahrens' sons
(see footnote 7 above).
VOTING AGREEMENT
Pursuant to the Voting Agreement, 12 record and/or beneficial holders who
have sole voting power with respect to 3,303,714 shares of Common Stock, or
approximately 47.2% of all the issued and outstanding Common Stock, have agreed
to vote in favor of the Merger. Such 12 record and/or beneficial holders also
have sole dispositive power with respect to 3,306,214 shares of Common Stock, or
approximately 47.3% of all the issued and outstanding Common Stock, and have
agreed to waive any and all appraisal rights to which they may be entitled under
Section 262 in connection with the Merger. The obligations of the holders under
the Voting Agreement terminate upon the earlier to occur of (i) September 30,
1997 or (ii) the occurrence of a Competing Transaction with a third party that
is not a signatory to the Voting Agreement or an affiliate thereof.
VOTING PROCEDURES
Pursuant to Commission rules, boxes are provided on the proxy card for
Common Stockholders to vote for or against, or to abstain from voting with
respect to, the approval and adoption of the Merger Agreement and the Merger.
Votes withheld in connection with the approval and adoption of the Merger
Agreement and the Merger will not be counted in determining the votes cast and
will have the effect of a vote against the Merger.
Under the rules of the National Association of Securities Dealers, brokers
who hold shares in street name for customers have the authority to vote on
certain items when they have not received instructions from beneficial owners.
Under the DGCL, a broker non-vote will have the effect of a vote against the
Merger.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company as of August 31, 1996
and 1995 and for each of the three years in the period ended August 31, 1996
incorporated by reference into this Proxy Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon appearing
therein. The Company expects representatives of Ernst & Young LLP either to be
available by telephone or to be present at the Special Meeting at which time
they will respond to appropriate questions submitted by Common Stockholders and
make such statements as they may desire.
STOCKHOLDER PROPOSALS
Pursuant to the DGCL and the By-laws of the Company, no other business may
be transacted at the Special Meeting. If the Merger is not consummated for any
reason, then, in accordance with
34
<PAGE>
<PAGE>
regulations issued by the Commission, Common Stockholder proposals in respect of
matters to be acted upon at the Company's next Annual Meeting of Stockholders
must be received by the Secretary of the Company on or before August 18, 1997 in
order that they may be considered for inclusion in the Company's proxy
materials. Proposals should be mailed via certified mail and addressed to:
Secretary, Cryenco Sciences, Inc., 3811 Joliet Street, Denver, Colorado 80239.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference into this Proxy Statement:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1996 as provided to each Common Stockholder together with this
Proxy Statement;
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended November 30, 1996; and
3. The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended February 28, 1997 as provided to each Common Stockholder together
with this Proxy Statement.
All documents and reports filed by the Company with the Commission pursuant
to Sections 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as
amended (the 'Exchange Act'), after the date of this Proxy Statement and prior
to the date of the Special Meeting shall be deemed to be incorporated by
reference into this Proxy Statement and to be a part hereof from the respective
dates of filing of such documents or reports.
Any statement contained in a document or report incorporated or deemed to
be incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein or in any other subsequently filed document or report which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Proxy
Statement.
THIS PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO
SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE
TO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNERS, TO WHOM THIS PROXY STATEMENT IS DELIVERED, ON WRITTEN OR ORAL
REQUEST TO JAMES A. RAABE, VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, CRYENCO
SCIENCES, INC., 3811 JOLIET STREET, DENVER, COLORADO 80239, TELEPHONE NO.: (303)
371-6332. IN ORDER TO ENSURE DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL
MEETING, REQUESTS MUST BE RECEIVED BY JULY , 1997.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and in accordance therewith, files reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information may be inspected and copied at the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at Seven World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or part of
such materials can be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. Such material may also be accessed
electronically by means of the Commission's Web
35
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<PAGE>
Site (http://www.sec.gov). In addition, such reports, proxy statements and other
information may be inspected at the office of the NASDAQ National Market, 1735 K
Street, N.W., Washington, D.C. 20006.
By Order of the Board of Directors,
/s/ Alfred Schechter
.....................................
ALFRED SCHECHTER
Chairman of the Board, President and
Chief Executive Officer
Denver, Colorado
June , 1997
36
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ANNEX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
PLAN AND AGREEMENT OF MERGER
DATED AS OF
APRIL 30, 1997
AMONG
CHART INDUSTRIES, INC.,
GREENVILLE TUBE CORPORATION,
CHART ACQUISITION COMPANY, INC.
AND
CRYENCO SCIENCES, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I -- THE MERGER................................................................................... A-1
1.1 The Merger....................................................................................... A-1
1.2 Effective Time of the Merger..................................................................... A-1
1.3 Effect of the Merger............................................................................. A-1
1.4 Continuation of Business......................................................................... A-1
1.5 Directors and Officers of Surviving Corporation.................................................. A-1
1.6 No Further Rights or Transfers................................................................... A-2
ARTICLE II -- CLOSING..................................................................................... A-2
2.1 Closing.......................................................................................... A-2
2.2 Deliveries at Closing............................................................................ A-2
ARTICLE III -- MERGER CONSIDERATION AND EFFECT OF THE MERGER ON THE CAPITAL STOCK OF CAC AND CRYENCO;
PAYMENT OF MERGER CONSIDERATION......................................................................... A-2
3.1 Effect on Capital Stock.......................................................................... A-2
(a) Capital Stock of CAC........................................................................ A-3
(b) Cryenco Common Stock........................................................................ A-3
(c) Cryenco Preferred Stock..................................................................... A-3
(d) Distribution of Merger Consideration........................................................ A-3
3.2 Payment of Merger Consideration.................................................................. A-3
(a) Exchange Agent.............................................................................. A-3
(b) Exchange Procedures......................................................................... A-3
(c) No Further Ownership Rights in Cryenco Common Stock and Cryenco Preferred Stock............. A-3
(d) Termination of Exchange Fund................................................................ A-4
(e) Dissenting Shares........................................................................... A-4
ARTICLE IV -- CRYENCO PROXY STATEMENT..................................................................... A-4
4.1 Filing of Proxy Statement........................................................................ A-4
4.2 Cryenco Covenant................................................................................. A-4
ARTICLE V -- ADDITIONAL COVENANTS AND AGREEMENTS.......................................................... A-5
5.1 Additional Covenants of All Parties.............................................................. A-5
(a) Corporate Actions........................................................................... A-5
(b) Publicity................................................................................... A-5
(c) Notice of Certain Events.................................................................... A-5
(d) Advice of Changes........................................................................... A-5
(e) Further Assurances.......................................................................... A-5
5.2 Conduct of Business of Cryenco Until Closing Date................................................ A-5
5.3 Additional Covenants of Cryenco.................................................................. A-7
(a) Approval of Cryenco Stockholders............................................................ A-7
(b) Access to Information and Confidentiality................................................... A-7
(c) No Solicitations............................................................................ A-8
(d) No Acquisitions............................................................................. A-8
(e) Third-Party Consents........................................................................ A-8
(f) Employee and Non-Employee Director Options.................................................. A-8
(g) Cryenco Warrants............................................................................ A-9
(h) Monthly Financial Information............................................................... A-9
</TABLE>
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<TABLE>
<S> <C>
5.4 Additional Covenants of Chart.................................................................... A-9
(a) Indemnification and Insurance............................................................... A-9
(b) Disposition of Cryenco Options and Cryenco Warrants......................................... A-10
ARTICLE VI -- REPRESENTATIONS AND WARRANTIES.............................................................. A-10
6.1 Representations and Warranties of Cryenco........................................................ A-10
(a) Due Organization............................................................................ A-10
(b) Power and Authority; No Conflicts........................................................... A-11
(c) Capital Structure........................................................................... A-11
(d) Subsidiaries................................................................................ A-11
(e) SEC Documents............................................................................... A-12
(f) Vote Required............................................................................... A-12
(g) Title to Assets............................................................................. A-12
(h) Condition of Assets......................................................................... A-13
(i) Accounts Receivable and Accounts Payable.................................................... A-13
(j) Insurance................................................................................... A-13
(k) Dividends and Distributions................................................................. A-13
(l) Cryenco Data................................................................................ A-13
(m) Undisclosed Liabilities..................................................................... A-13
(n) Investigation or Litigation................................................................. A-14
(o) Certain Agreements.......................................................................... A-14
(p) Employee Benefits........................................................................... A-14
(q) Labor Matters............................................................................... A-15
(r) Taxes....................................................................................... A-15
(s) Absence of Certain Changes.................................................................. A-16
(t) Legal Compliance............................................................................ A-16
(u) Environmental Protection.................................................................... A-16
(v) Patents, Copyrights, Trademarks, Trade Names etc. .......................................... A-17
(w) Contracts................................................................................... A-18
(x) Full Disclosure............................................................................. A-18
(y) Brokers or Finders.......................................................................... A-18
6.2 Representations and Warranties of Chart, GTC and CAC............................................. A-18
(a) Due Organization............................................................................ A-18
(b) Power and Authority, No Conflicts........................................................... A-18
(c) Financing of the Merger..................................................................... A-19
(d) Brokers and Finders......................................................................... A-19
(e) Financial Condition......................................................................... A-19
ARTICLE VII -- CONDITIONS................................................................................. A-19
7.1 Conditions Precedent to the Obligations of All Parties........................................... A-19
(a) Stockholder Approvals....................................................................... A-19
(b) Governmental Approvals...................................................................... A-19
(c) No Injunctions or Restraints................................................................ A-19
7.2 Conditions Precedent to the Obligations of Cryenco............................................... A-19
(a) Representations and Warranties True......................................................... A-19
(b) Performance of Obligations and Agreements................................................... A-20
(c) Resolutions................................................................................. A-20
(d) Officers' Certificates...................................................................... A-20
</TABLE>
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<TABLE>
<S> <C>
7.3 Conditions Precedent to the Obligations of Chart, GTC and CAC.................................... A-20
(a) Representations and Warranties True......................................................... A-20
(b) Performance of Obligations and Agreements................................................... A-20
(c) Resolutions................................................................................. A-20
(d) Officer's Certificate....................................................................... A-20
(e) Consents and Approvals...................................................................... A-20
(f) No Cryenco Material Adverse Effect.......................................................... A-20
(g) Dissenters Claims........................................................................... A-20
(h) Cryenco Arrangements with Affiliated Persons................................................ A-20
(i) Cancellation, Exercise Sale or Exchange of Cryenco Warrants and Options..................... A-20
ARTICLE VIII -- TERMINATION, AMENDMENT AND WAIVER......................................................... A-21
8.1 Termination...................................................................................... A-21
8.2 Effect of Termination............................................................................ A-22
8.3 Amendment........................................................................................ A-22
8.4 Waiver........................................................................................... A-22
8.5 Fees, Expenses and Other Payments................................................................ A-22
ARTICLE IX -- GENERAL PROVISIONS.......................................................................... A-23
9.1 Effectiveness of Representations, Warranties and Agreements...................................... A-23
9.2 Notices.......................................................................................... A-23
9.3 Governing Law.................................................................................... A-24
9.4 Successors....................................................................................... A-24
9.5 Assignment....................................................................................... A-24
9.6 Counterparts..................................................................................... A-24
9.7 Schedules........................................................................................ A-24
9.8 Entire Agreement................................................................................. A-24
</TABLE>
iii
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<PAGE>
PLAN AND AGREEMENT OF MERGER
THIS PLAN AND AGREEMENT OF MERGER (the 'Agreement'), dated as of April ,
1997, is among CHART INDUSTRIES, INC., a Delaware corporation ('Chart'),
GREENVILLE TUBE CORPORATION, an Arkansas corporation ('GTC') and a wholly-owned
subsidiary of Chart, CHART ACQUISITION COMPANY, INC., a Delaware corporation
('CAC') and a wholly-owned subsidiary of GTC, and CRYENCO SCIENCES, INC., a
Delaware corporation ('Cryenco').
WHEREAS, on the terms and subject to the conditions set forth in this
Agreement, Chart desires to acquire, through merger, One Hundred Percent (100%)
of the shares of capital stock of Cryenco issued and outstanding on the date
hereof (and to be outstanding on the Closing Date, as defined in Section 2.1);
WHEREAS, the respective Boards of Directors of Chart, GTC, CAC and Cryenco
deem the merger to be advisable and in the best interests of each of Chart, GTC,
CAC and Cryenco and their respective stockholders and have adopted resolutions
approving the acquisition by Chart of Cryenco through the merger of CAC with and
into Cryenco (the 'Merger') in accordance with the laws of the State of Delaware
upon the terms and conditions set forth in this Agreement;
WHEREAS, the Board of Directors of Cryenco has directed that this Agreement
be submitted for consideration at a special meeting of the voting stockholders
of Cryenco;
WHEREAS, unless the context shall otherwise require, capitalized terms used
herein shall have the meanings assigned thereto.
NOW, THEREFORE, in consideration of their respective agreements and
undertakings set forth herein, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. On the terms and subject to the conditions set forth in
this Agreement and in reliance on the representations, warranties and covenants
set forth herein, at the Effective Time, as defined in Section 1.2, CAC shall be
merged with and into Cryenco in accordance with the laws of the State of
Delaware, with Cryenco being the surviving corporation (the 'Surviving
Corporation').
1.2 Effective Time of the Merger. The Merger shall be effective when a
certificate of merger in the form of Schedule 1.2 (the 'Certificate of Merger')
shall have been properly executed by CAC and Cryenco and delivered to and
accepted for filing by the Secretary of State of the State of Delaware
('Secretary') in accordance with the Delaware General Corporation Law ('DGCL'),
which filing shall be made as promptly as practicable following the Closing, as
defined in Section 2.1. When used in this Agreement, the term 'Effective Time'
shall mean the time and the date as of which the Certificate of Merger shall
have been accepted for filing in the office of the Secretary.
1.3 Effect of the Merger.
(a) At the Effective Time, (i) the separate existence and corporate
organization of CAC shall cease, and CAC shall be merged with and into Cryenco;
(ii) the Certificate of Incorporation of CAC as in effect immediately prior to
the Effective Time shall become the Certificate of Incorporation of the
Surviving Corporation (except as set forth in the Certificate of Merger); and
(iii) the By-laws of CAC as in effect immediately prior to the Effective Time
shall be the By-laws of the Surviving Corporation.
(b) At and after the Effective Time, the Merger shall have the effect set
forth in the DGCL.
1.4 Continuation of Business. The Surviving Corporation shall, after the
Effective Time, continue the businesses of CAC and Cryenco with the assets of
both of such constituent corporations.
1.5 Directors and Officers of Surviving Corporation. As of the Effective
Time, the directors of CAC immediately prior to the Effective Time shall become
the directors of the Surviving Corporation. The officers of CAC immediately
prior to the Effective Time shall become the officers of the Surviving
Corporation. Each of such directors and officers shall hold office until their
respective successors are duly elected or appointed and qualified in the manner
provided in the Certificate of Incorporation and By-laws of the Surviving
Corporation, or as otherwise provided by law.
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1.6 No Further Rights or Transfers. At and after the Effective Time.
(a) The stock transfer books of Cryenco shall be closed and there shall be
no further registration of transfers on the stock transfer books of Cryenco
thereafter.
(b) All shares of Cryenco Common Stock and Cryenco Preferred Stock shall no
longer be outstanding and shall automatically be canceled and retired and shall
cease to exist, and each holder of a certificate representing any such shares
('Cryenco Certificate') shall cease to have any rights with respect thereto,
except the right to receive the Merger Consideration (as defined below) to be
issued or paid in consideration therefor upon the surrender of such Cryenco
Certificate in accordance with Article III hereof.
ARTICLE II
CLOSING
2.1 Closing. The closing of the transactions contemplated by this Agreement
(the 'Closing') shall take place at the offices of Calfee, Halter & Griswold
LLP, 1400 McDonald Investment Center, 800 Superior Avenue, Cleveland, Ohio, at
10:00 am, local time, on the second business day immediately following the date
on which the last of the conditions set forth in Article VII hereof is fulfilled
or waived, or at such other time and place as Chart and Cryenco may mutually
agree (the 'Closing Date').
2.2 Deliveries at Closing.
(a) At the Closing, Cryenco shall deliver to Chart, GTC and CAC:
(i) the resolutions referred to in Section 7.3(c) hereof;
(ii) the certificate referred to in Section 7.3(d) hereof;
(iii) a certificate representing 100 shares of Cryenco Common Stock
duly registered in Chart's name, duly executed and authenticated;
(iv) copies of the executed consents referred to in Section 7.3(e)
hereof;
(v) evidence, in form reasonably satisfactory to Chart, of the
termination of the arrangements with Cryenco affiliates described in
Section 7.3(h);
(vi) executed agreements with the holders of Cryenco Warrants and
Cryenco Options exercising such warrants and options or agreeing to the
cancellation or exchange thereof all as described in Section 5.3(f) and
5.3(g) hereof; and
(vii) all other documents, instruments and writings reasonably
requested by Chart, GTC or CAC at or prior to Closing pursuant to this
Agreement or otherwise required herein.
(b) At the Closing, Chart, GTC and CAC shall deliver to Cryenco:
(i) the resolutions referred to in Section 7.2(c) hereof;
(ii) the certificates referred to in Section 7.2(d) hereof;
(iii) the warrants and options to purchase shares of Chart Common
Stock issuable in exchange for Cryenco Warrants and Cryenco Options
pursuant to the provisions of Section 5.4(b) and the cash payment
required under Section 5.4(b); and
(iv) all other documents, instruments and writings reasonably
requested by Cryenco at or prior to Closing pursuant to this Agreement
or otherwise required herein.
ARTICLE III
MERGER CONSIDERATION AND EFFECT OF THE MERGER ON
THE CAPITAL STOCK OF CAC AND CRYENCO;
PAYMENT OF MERGER CONSIDERATION
3.1 Effect on Capital Stock. As of the Effective Time, by virtue of the
Merger and without any action on the part of the holder of any shares of Cryenco
capital stock ('Cryenco Stockholders') or CAC capital stock:
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<PAGE>
(a) Capital Stock of CAC. Each issued and outstanding share of the
capital stock of CAC shall be converted into and become one fully paid and
nonassessable share of common stock, par value $.01 per share, of the
Surviving Corporation ('Surviving Corporation Common Stock').
(b) Cryenco Common Stock. Each issued and outstanding share of the
Class A common stock, $.01 par value per share of Cryenco and each issued
and outstanding share of the convertible non-voting common stock, $.01 par
value per share of Cryenco, if any ('Cryenco Common Stock'), other than
shares as to which dissenters rights are perfected pursuant to Section
3.2(e) below, shall be converted into the right to receive a cash amount
equal to $2.75.
(c) Cryenco Preferred Stock. Each issued and outstanding share of
Cryenco Series A Preferred Stock, $.01 par value per share (the 'Cryenco
Preferred Stock'), shall be converted into the right to receive cash in an
amount equal to the sum of $10 plus any accumulated but unpaid (as of the
Effective Time) dividends with respect to such share of Cryenco Preferred
Stock.
(d) Distribution of Merger Consideration. The cash amounts into which
shares of Cryenco Common Stock and Cryenco Preferred Stock are converted
pursuant to Section 3.1(b) and (c) above are hereafter referred to as the
'Merger Consideration'. The Merger Consideration shall be distributed to
the Cryenco Stockholders in accordance with Section 3.2 below.
3.2 Payment of Merger Consideration.
(a) Exchange Agent. As of the Effective Time, Chart shall deposit with
National City Bank or such other bank or trust company designated by Chart (and
reasonably acceptable to Cryenco) (the 'Exchange Agent'), for the benefit of the
Cryenco Stockholders, for exchange through the Exchange Agent in accordance with
this Article III, cash in an amount sufficient to effect the cash payments
provided for in Sections 3.1(b) and 3.1(c) hereof (such cash being hereinafter
referred to as the 'Exchange Fund').
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail to each holder of record as of the
Effective Time of a Cryenco Certificate or Certificates (who has not perfected
dissenters rights pursuant to Section 3.2(e) below) (A) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and title
to the Cryenco Certificates shall pass, only upon delivery of the Cryenco
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as Chart and Cryenco may reasonably specify) ('Transmittal Letter')
and (B) instructions for use in effecting the surrender of the Cryenco
Certificates for cash in the amounts prescribed by either Section 3.1(b) or
Section 3.1(c) above. Upon surrender of a Cryenco Certificate for Cryenco Common
Stock for cancellation to the Exchange Agent together with such Transmittal
Letter, duly executed, the holder of such Cryenco Certificate for Cryenco Common
Stock shall be entitled to receive in exchange therefor cash in an amount equal
to $2.75 per share of Cryenco Common Stock surrendered. Upon surrender of a
Cryenco Certificate for Cryenco Preferred Stock for cancellation to the Exchange
Agent, together with such Transmittal Letter, duly executed, the holder of such
Cryenco Certificate for Cryenco Preferred Stock shall be entitled to receive in
exchange therefor cash in an amount per share prescribed by Section 3.1(c)
above. Cryenco Certificates so surrendered shall forthwith be canceled. Until
surrendered as contemplated by this Section 3.2, each Cryenco Certificate shall
be deemed at any time after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration as contemplated by Section
3.1(b) or 3.1(c).
(c) No Further Ownership Rights in Cryenco Common Stock and Cryenco
Preferred Stock. The Merger Consideration paid upon the surrender of shares of
Cryenco Common Stock or Cryenco Preferred Stock in accordance with the terms
hereof shall be deemed to have been paid in full satisfaction of all rights
pertaining to such shares of Cryenco Common Stock or Cryenco Preferred Stock. As
of the Effective Time, entries shall be made in the stock transfer books of
Cryenco to reflect the cancellation of the Cryenco Common Stock and the Cryenco
Preferred Stock issued and outstanding immediately prior to the Effective Time
and there shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the shares of Cryenco Common Stock and the
Cryenco Preferred Stock that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Cryenco Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Article III.
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(d) Termination of Exchange Fund. Any portion of the Exchange Fund that
remains undistributed to the Cryenco Stockholders (pursuant to Section 3.2 (a)
above) for twelve months after the Effective Time shall be delivered to Chart,
upon demand, and any Cryenco Stockholders who have not theretofore complied with
this Article III shall thereafter look only to Chart for payment of their claim
for cash.
(e) Dissenting Shares. Notwithstanding any other provision of this
Agreement, shares of Cryenco Common Stock that are outstanding immediately prior
to the Effective Time and which are held by holders of shares of Cryenco Common
Stock who shall have (a) not voted in favor of the Merger or consented thereto
in writing, (b) demanded properly in writing appraisal for such shares in
accordance with Section 262 of the DGCL, and (c) not withdrawn such demand or
otherwise forfeited appraisal rights (collectively, the 'Dissenting Shares'),
shall not be converted into or represent the right to receive any part of the
Merger Consideration. Such holders of shares of Cryenco Common Stock shall be
entitled to receive payment of the appraised value of their shares in accordance
with the provisions of such Section 262, except that all Dissenting Shares held
by holders who shall have failed to perfect or who effectively shall have
withdrawn or lost their appraisal rights under such Section 262 shall thereupon
be deemed to have been converted into and to have become exchangeable, as of the
Effective Time, for the right to receive, without any interest thereon, cash in
the amount of $2.75 per share of Cryenco Common Stock, upon surrender, in the
manner provided in Section 3.2, of the certificate or certificates that formerly
evidenced such shares of Cryenco Common Stock. Cryenco shall give Chart (i)
prompt notice of any demands for appraisal received by Cryenco, withdrawals of
such demands, and any other instruments served pursuant to DGCL and received by
Cryenco and (ii) the opportunity to participate in all negotiations and
proceedings occurring prior to the Effective Time with respect to demands for
appraisal under DGCL. Chart shall direct all proceedings with respect to
appraisal demands after the Effective Time. Cryenco shall not, except with the
prior written consent of Chart, make any payment with respect to any demands for
appraisal, or offer to settle, or settle, any such demands. Dissenting Shares
shall not, after the Effective Time, be entitled to vote for any purpose or be
entitled to the payment of dividends or other distributions (except for
dividends or other distributions payable to stockholders of record as of a time
prior to the Effective Time).
ARTICLE IV
CRYENCO PROXY STATEMENT
4.1 Filing of Proxy Statement. Cryenco will prepare and file with the
Securities and Exchange Commission ('SEC') as soon as reasonably practicable
after the date hereof a proxy statement complying with the Securities Exchange
Act of 1934, as amended ('Exchange Act') to be distributed by Cryenco in
connection with the solicitation of the approval by holders of Cryenco Common
Stock of the Merger (the 'Proxy Statement'). Chart and Cryenco shall exchange
all information which the other party or its counsel may reasonably request and
which is required or customary for inclusion in the Proxy Statement.
4.2 Cryenco Covenant. Cryenco shall cause the Proxy Statement (i) to comply
in all material respects with the applicable provisions of the Exchange Act and
the rules and regulations of the SEC thereunder and (ii) at the time such
document is filed with the SEC, at the time of the mailing of the Proxy
Statement and any amendments thereof or supplements thereto, not to contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, or
necessary to correct any statement in any earlier filing with the SEC of such
Proxy Statement or any amendment thereof or any supplement thereto or any
earlier communication (including the Proxy Statement) to stockholders of Cryenco
with respect to the transactions contemplated by this Agreement; provided
however, that no covenant or agreement is made by Cryenco in this Section 4.2 or
any other provision of this Agreement with respect to any information supplied
by Chart or its counsel for inclusion in the Proxy Statement.
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ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 Additional Covenants of All Parties. Chart, GTC, CAC and Cryenco agree
that:
(a) Corporate Actions. Upon the terms and subject to the conditions of
this Agreement, each of Chart, GTC and CAC, on the one hand, and Cryenco,
on the other hand, shall (i) take all necessary corporate and other
actions, (ii) use its reasonable best efforts to obtain all necessary
authorizations and approvals, and (iii) make all necessary filings required
to carry out the transactions contemplated by this Agreement, to satisfy
the conditions specified in Article VII hereof at the earliest practicable
date and otherwise to perform their obligations under this Agreement.
(b) Publicity. Subject to each party's disclosure obligations imposed
by law, Chart, GTC and CAC, on the one hand, and Cryenco, on the other
hand, shall consult with each other prior to issuing any press releases or
otherwise making public statements with respect to the transactions
contemplated hereby and prior to making any filings with any federal or
state governmental or regulatory agency or with any securities exchange
with respect thereto.
(c) Notice of Certain Events. If, in the course of the transactions
contemplated by this Agreement, either Chart, GTC or CAC, on the one hand,
or Cryenco, on the other hand, shall acquire knowledge of any fact, law or
circumstance which would be required to be disclosed, either by such party
or by the other party, to avoid a breach of a representation or warranty
contained in this Agreement, then such party shall immediately disclose
such fact, law or circumstance to the other party.
(d) Advice of Changes. Chart, GTC and CAC shall promptly advise
Cryenco of any change or event which individually or in the aggregate with
other such changes or events has a Chart Material Adverse Effect (as
defined below) or which Chart believes would or would be reasonably likely
to cause or constitute a material breach of any of the representations,
warranties or covenants of Chart, GTC and CAC contained herein. Cryenco
shall promptly advise Chart, GTC and CAC of any change or event which
individually or in the aggregate with other such changes or events has a
Cryenco Material Adverse Effect (as defined below) or which Cryenco
believes would or would be reasonably likely to cause or constitute a
material breach of any of its representations, warranties or covenants
contained herein.
(e) Further Assurances. Before and after the Closing, each of the
parties shall make all reasonable best efforts to execute such other
documents and take such further actions as may be reasonably required or
desirable to carry out the provisions of this Agreement and the
transactions contemplated hereby.
5.2 Conduct of Business of Cryenco Until Closing Date. From the date of
this Agreement until the Closing Date, except with the prior written consent of
Chart, which consent shall not be unreasonably delayed or withheld, Cryenco
shall conduct its business in the ordinary course and consistent with past
practices and use its reasonable best efforts to preserve intact its business
organization and goodwill, keep available the services of its present officers
and key employees and preserve the goodwill and business relationships with
suppliers, customers and others having business relationships with it. Without
limiting the generality of the foregoing, Cryenco shall:
(a) refrain from changing, in any material respect, any of its
business policies relating to its business;
(b) maintain and keep its assets in good repair, working order and
condition in the ordinary course of its business as presently conducted
(except for obsolescence and ordinary wear and tear and damage due to
casualty);
(c) perform in all material respects all of its obligations under all
contracts, leases and any and all other agreements relating to or affecting
its assets or its business;
(d) refrain from:
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(i) declaring or paying any dividends or other distributions other
than cash and preferred stock dividends required by the terms of the
Certificate of Designation with respect to the Cryenco Preferred Stock;
(ii) except for issuing shares of Cryenco Common Stock pursuant to
the exercise of Cryenco Options or Cryenco Warrants outstanding on the
date hereof and listed on Schedule 6.1(c) or pursuant to options
automatically granted between the date hereof and the Closing pursuant
to Cryenco 1993 Non-Employee Director Stock Option Plan, issuing Cryenco
Preferred Stock as preferred stock dividends as required by the terms of
the Certificate of Designation with respect to the Cryenco Preferred
Stock, issuing, redeeming, selling or disposing of, or creating any
obligation to issue, redeem, sell or dispose of, any shares of its
capital stock (whether authorized but unissued or held in treasury) or
any option, warrant or security convertible into capital stock,
including, without limitation, making any contributions to any employee
stock ownership or compensation plans or granting any stock options;
(iii) taking any action with respect to the grant of any severance
or termination pay (other than pursuant to severance arrangements in
effect on the date of this Agreement and disclosed on a schedule to this
Agreement to the extent required) to any employees or with respect to
any increase of benefits payable under its severance or termination pay
policies or agreements in effect on the date hereof and applicable to
employees;
(iv) except for renewals of existing arrangements which expire
between the date of this Agreement and the Closing, entering into,
adopting, accelerating, modifying or amending in any other manner any
written employment, collective bargaining, consulting, bonus, incentive
compensation, deferred compensation, employee stock option, profit
sharing, employee benefit, welfare benefit or other agreement, plan or
arrangement providing for compensation or benefits to directors,
officers or employees (except as required by law or as necessary to
maintain the tax-qualified status of such plan, trust or other
agreement);
(v) increasing in any manner the compensation or fringe benefits of
any of Al Schechter, Rod Moe, William R. Jones or James Raabe, or,
except in the ordinary course of business, of any other employee or
paying any benefit or compensation not required by any existing
agreement, plan or arrangement;
(vi) taking any action that could be reasonably anticipated to have
a Cryenco Material Adverse Effect, as defined in Section 6.1(a), or that
could reasonably be anticipated to cause any representation or warranty
set forth in Article VI hereof to be untrue or any condition to Closing
not to be satisfied;
(vii) accelerating billings, shipments to customers, payments from
customers, orders from suppliers or payment of accounts payable or
adjusting the level of inventory, except in the ordinary course of
business;
(viii) entering into or assuming any new mortgage, pledge,
conditional sale or title retention agreement, lien, easement,
right-of-way, lease, encumbrance or charge of any kind which will
continue on or after the Closing upon the assets of Cryenco, whether now
or hereafter acquired, or creating or assuming any obligation for
borrowed money;
(ix) except as provided in the Cryenco budget for the year ending
August 31, 1997 (a copy of which has been provided to Chart), making
capital expenditures in excess of $100,000 in the aggregate;
(x) acquiring any of the business, capital stock or assets
constituting a business of any other person, firm, association or
corporation;
(xi) selling or otherwise disposing of assets of Cryenco other than
the sale of inventory in the ordinary course of business;
(xii) entering into any settlement or other dispositive agreements
with respect to any litigation which would obligate Cryenco for amounts
in excess of $5,000 in any one case or $100,000 in the aggregate for all
cases;
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(xiii) doing any act or omitting to do any act, or permitting any
act or omission to act, which Cryenco is aware could reasonably be
anticipated to cause a breach or default by Cryenco under any of
Cryenco's contracts, agreements, commitments or obligations;
(xiv) entering into or amending any confidentiality agreement or
any agreement, contract or arrangement which would impose any
restriction on competition on Cryenco or on the ability to hire
employees from any person;
(xv) entering into or amending any other agreements, commitments or
contracts which, individually or in the aggregate, are material to
Cryenco, except agreements for the purchase and sale of goods or
services in the ordinary course of business, consistent with past
practice and not in excess of normal requirements;
(xvi) assuming or otherwise becoming liable or responsible (whether
directly, contingently or otherwise) for any obligations or liabilities
of any other person;
(xvii) moving the location of Cryenco's main offices or any
production facility;
(xviii) incurring expenses other than in the ordinary course of
business; provided, that Cryenco shall be entitled to incur reasonable
investment banking, legal and accounting fees and expenses in connection
with the Merger and the Special Meeting; or
(xix) agreeing to take any of the foregoing actions.
5.3 Additional Covenants of Cryenco. Cryenco agrees that:
(a) Approval of Cryenco Stockholders. Cryenco shall as soon as
reasonably practicable (i) take all steps necessary duly to call, give
notice of, convene and hold a special meeting of holders of Cryenco Common
Stock (the 'Cryenco Special Meeting') (A) for the purpose of adopting this
Agreement (the 'Cryenco Stockholders' Approval') and (B) for such other
purposes as may be necessary or desirable, (ii) distribute to holders of
Cryenco Common Stock the Proxy Statement in accordance with applicable
Federal and state law, and Cryenco's Certificate of Incorporation and
By-laws, (iii) recommend to the holders of Cryenco Common Stock, through
unanimous resolution of the Cryenco Board of Directors, the adoption of
this Agreement and such other matters as may be submitted to such
stockholders in connection with this Agreement and (iv) cooperate and
consult with Chart with respect to each of the foregoing matters. The Board
of Directors of Cryenco may fail to make such recommendation, or withdraw,
modify or change such recommendation in a manner adverse to the interest of
Chart, if the Board of Directors of Cryenco, after having consulted with
and considered the advice of outside counsel, has reasonably determined in
good faith that the making of such recommendation, or the failure to
withdraw, modify or change its recommendation, would constitute a breach of
the fiduciary duties of the members of such Board of Directors under
applicable law.
(b) Access to Information and Confidentiality. Upon reasonable notice
and subject to applicable laws relating to the exchange of information and
the use of insider information,
(i) Cryenco shall, and shall cause each of its subsidiaries to,
afford to the officers, employees, accountants, counsel and other
representatives of Chart access, during normal business hours during the
period prior to the Effective Time, to all its properties, books,
contracts, commitments and records, and to its officers, employees,
accountants, counsel and other representatives and, during such period,
Cryenco shall, and shall cause its respective subsidiaries to, provide
Chart with copies of any documents filed by Cryenco under the Exchange
Act and make available to Chart such information concerning its
business, properties and personnel as Chart may reasonably request.
(ii) All information furnished pursuant to this Section 5.3(b) and
to Section 5.3(h) below or otherwise by Cryenco or its representatives
to Chart or its representatives shall be treated as the sole property of
Cryenco and, if the Merger shall not occur, Chart and its
representatives shall return to Cryenco all of such written information
and all documents, notes, summaries or other materials containing,
reflecting or referring to, or derived from, such information. Chart
shall, and shall use its best efforts to cause its representatives to,
keep confidential all such information, and shall not directly or
indirectly use such information for
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any competitive or other commercial purpose. The obligation to keep such
information confidential shall continue for three years from the date
the proposed Merger is abandoned and shall not apply to any information
which (i) (w) was already in Chart's possession prior to the disclosure
thereof by Cryenco; (x) was then generally known to the public; (y) was
disclosed to Chart by a third party not bound by an obligation of
confidentiality or (z) becomes available to Chart from the demonstrated
independent research and/or development efforts of Chart or its
representatives, or (ii) is disclosed as required by law. It is further
agreed that, if in the absence of a protective order or the receipt of a
waiver hereunder, Chart is nonetheless, in the reasonable opinion of its
counsel, compelled to disclose information concerning Cryenco to any
tribunal or governmental body or agency or else stand liable for
contempt or suffer other censure or penalty, Chart may disclose such
information to such tribunal or governmental body or agency without
liability hereunder.
(c) No Solicitations. Between the date hereof and the Effective Time
or earlier termination of this Agreement in accordance with its terms,
Cryenco shall not, nor shall it authorize or permit any of its officers,
directors or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it to, solicit,
encourage, initiate or participate in discussions or negotiations with any
third party concerning the sale or merger of Cryenco or the sale or
transfer of Cryenco's assets (a 'Third Party Transaction'), except that
Cryenco may furnish information about Cryenco and access thereto, in each
case in response to unsolicited requests therefor, to any third party
pursuant to appropriate confidentiality agreements, and may participate in
discussions and negotiate with such third party concerning a Third Party
Transaction, if the Board of Directors of Cryenco determines, in the
exercise of its good faith judgment as to its fiduciary duties to the
Cryenco Stockholders and based upon advice of counsel, that such action is
required. Cryenco shall promptly inform Chart in writing if it receives any
proposals or requests for information from a third party with respect to a
Third Party Transaction.
(d) No Acquisitions. Between the date hereof and the Effective Time or
earlier termination of this Agreement in accordance with its terms, Cryenco
shall not acquire or agree to acquire by merging or consolidating with, or
by purchasing an equity interest in or a portion of the assets of, or by
any other manner, any business or any corporation, partnership, association
or other business organization or division thereof.
(e) Third-Party Consents. Prior to the Closing Date, Cryenco shall use
its reasonable best efforts to obtain all consents or approvals of third
parties set forth in Schedule 6.1 (b), and shall provide copies of all such
consents and approvals to Chart and CAC.
(f) Employee and Non-Employee Director Options
(i) Purchase of Non-Continuing Employee Options. Within five days
after receipt by Cryenco of written notice from Chart as to those
Cryenco employees whose employment will not be continued after the
Effective Time (the 'Non-Continuing Employees'), Cryenco shall use its
reasonable best efforts to cause such Non-Continuing Employees who hold
options to purchase shares of Cryenco Common Stock pursuant to any stock
option plan maintained or previously maintained by Cryenco for the
benefit of Cryenco employees (together with the options described in
Section 5.3(f)(iii) hereof, the 'Cryenco Options') that do not, by their
terms, expire at or before the Effective Time or are not by their terms,
extinguished upon termination of such Non-Continuing Employee's
employment with Cryenco to either (A) exercise such Cryenco Options
prior to the Closing, or (B) agree in writing to sell such Cryenco
Options to Chart at the Closing in exchange for cash equal to the excess
of $2.75 per share of Cryenco Common Stock issuable upon exercise
thereof over the exercise price for such Cryenco Options.
(ii) Purchase or Exchange of Continuing Employee Options. Prior to
the Closing Date, Cryenco shall use its reasonable best efforts to cause
all Cryenco employees who are not Non-Continuing Employees ('Continuing
Employees') and who hold unexercised Cryenco Options to agree in writing
to either (A) exchange, on the Closing Date, their Cryenco Options for
options to purchase Chart Common Stock, on the basis described in
Section 5.4(b)(ii) hereof, and pursuant to such exchange, to surrender
and waive any and all continuing rights with
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respect to such Cryenco Options or (B) sell such Cryenco Options to
Chart at the Closing in exchange for cash equal to the excess of $2.75
per share of Cryenco Common Stock issuable upon exercise thereof over
the exercise price for such Cryenco Options.
(iii) Purchase of Non-Employee Director Stock Options. Prior to the
Closing, Cryenco shall use its reasonable best efforts to cause all
individuals who hold unexercised options to purchase shares of Cryenco
Common Stock pursuant to Cryenco's 1993 Non-Employee Director Stock
Option Plan (each a 'Non-Employee Director'), that do not by their
terms, expire at or before the Effective Time or are not by their terms,
extinguished upon termination of such Non-Employee Director's position
as a Director of Cryenco, to agree in writing to sell such Cryenco
Options to Chart at the Closing in exchange for cash equal to the excess
of $2.75 per share of Cryenco Common Stock issuable upon exercise
thereof over the exercise price for such Cryenco Options.
(g) Cryenco Warrants. Prior to the Closing Date, Cryenco shall use its
reasonable best efforts to cause the holders of all warrants to purchase
any class of Cryenco capital stock (the 'Cryenco Warrants') to agree in
writing either (i) to sell to Chart, on the Closing Date, any Cryenco
Warrants having an exercise price less than $2.75 per share for a cash
payment per Warrant equal to the excess of $2.75 over the exercise price
for such Cryenco Warrants or (ii) to exchange such Cryenco Warrants on the
Closing Date for warrants to purchase shares of Chart Common Stock on the
basis described in Section 5.4(b)(iii) hereof, and, pursuant to such
exchange, to surrender and waive any and all continuing rights with respect
to such Cryenco Warrants.
(h) Monthly Financial Information. Not more than thirty (30) days
after the end of each month, Cryenco will deliver to Chart Cryenco's
unaudited consolidated balance sheet as of the end of such prior month and
its unaudited consolidated statement of income for such prior month,
certified by the Chief Financial Officer of Cryenco as having been prepared
from the books and records of Cryenco and in a manner consistent with past
internal practice; provided, however, that Cryenco's consolidated balance
sheet and income statement for the month of August, 1997 need not be
certified by Cryenco's Chief Financial Officer until after completion of
the audit of Cryenco's financial statements for the fiscal year ended
August 31, 1997.
5.4 Additional Covenants of Chart. Chart agrees that:
(a) Indemnification and Insurance. Chart agrees that all rights to
indemnification and all limitations of liability existing in favor of the
employees, agents, directors and officers of Cryenco and its subsidiaries
(collectively, the 'Indemnified Parties') to the extent provided for each
such employee, agent, director and officer in Cryenco's Certificate of
Incorporation or By-laws (or in the similar governing documents of any of
Cryenco's subsidiaries) or in any indemnification agreement for such
individual which is specifically listed on Schedule 6.1(o) to this
Agreement, each as in effect as of the date of this Agreement with respect
to matters occurring on or prior to the Effective Time shall survive the
Merger and shall continue in full force and effect without any amendment
thereto for a period of six (6) years from the Effective Time; provided,
however, that all rights of indemnification in respect of any claim
asserted or made within such six-year period shall continue until the final
disposition of such claim; provided further, however, that nothing
contained in this Section 5.4(a) shall be deemed to preclude the
liquidation, consolidation or merger of Cryenco or any Cryenco subsidiary,
in which case all of such rights to indemnification and limitations on
liability shall be deemed to survive and continue notwithstanding any such
liquidation, consolidation or merger and shall constitute rights which may
be asserted against Chart. Chart shall use its reasonable best efforts to
cause the persons serving as officers and directors of Cryenco and of the
Cryenco subsidiaries immediately prior to the Effective Time to be covered
for a period of six (6) years from the Effective Time by the Directors and
Officers Liability Insurance Policy maintained by Cryenco (provided that
Chart may substitute therefor policies of at least the same coverage and
amounts containing terms and conditions which are not less advantageous to
such directors and officers of Cryenco or its subsidiaries than the terms
and conditions of such existing policy) with respect to acts or omissions
occurring prior to the Effective Time which were committed by such officers
and directors in their capacity as such; provided, however, that Chart
shall not be obligated to make annual premium payments for such insurance
to
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the extent that such premiums exceed 125% of the premiums paid as of the
date hereof by Cryenco for such insurance ('Cryenco's Current Premium') and
if such premiums for such insurance would at any time exceed 125% of
Cryenco's Current Premium then Chart shall cause to be maintained policies
of insurance which in Chart's good faith determination provide the maximum
coverage available at an annual premium equal to 125% of Cryenco's Current
Premium.
(b) Disposition of Cryenco Options and Cryenco Warrants.
(i) Purchase of Cryenco Options. At the Closing, Chart shall
purchase, from any holders of Cryenco Options who elect to sell such
options to Chart pursuant to Section 5.3(f), the Cryenco Options which
are offered to it, in each case in exchange for the cash price described
in Section 5.3(f).
(ii) Continuing Employee Options Exchange. At the Closing, Chart
shall grant each Continuing Employee who holds unexercised Cryenco
Options, and who agrees to exchange such options pursuant to Section
5.3(f)(ii), options to purchase Chart Common Stock ('Chart Options'),
having the following terms: (A) the Chart Options shall be issued
pursuant to Chart's Key Employee Stock Option Plan; (B) the option term
of the each Chart Option shall be the remaining term of the Cryenco
Option exchanged therefor; (C) each Chart Option shall be exercisable
for the number of shares of Chart Common Stock arrived at by multiplying
the number of shares of Cryenco Common Stock issuable upon exercise of
the Cryenco Option exchanged therefor by a fraction (the 'Exchange
Ratio') determined by the following formula:
<TABLE>
<S> <C>
Exchange Ratio = $2.75
---------
'P'
</TABLE>
where 'P' equals the average of the closing sales price of Chart Common
Stock on the New York Stock Exchange as reported by the Wall Street
Journal (or another mutually-agreeable national publication) for the ten
trading days preceding the Closing Date; provided, however, that in no
event shall the Exchange Ratio be less than .11 nor more than .1375;
and (D) the exercise price of each Chart Option (per share of Chart
Common Stock issuable thereunder) shall be the exercise price of the
Cryenco Option exchanged therefor divided by the Exchange Ratio.
(iii) Cryenco Warrants. At the Closing, Chart shall (A) purchase
any Cryenco Warrants having an exercise price less than $2.75 per share
for a cash payment per Warrant equal to the excess of $2.75 over the
exercise price for such Cryenco Warrants, or (B) with respect to those
Cryenco Warrants for which the exercise price is greater than $2.75,
Chart shall grant the holder, in exchange for (and surrender of) each
such Warrant, a substitute warrant (the 'Chart Warrant') to purchase the
number of shares of Chart Common Stock arrived at by multiplying the
number of shares of Cryenco Common Stock issuable upon exercise of each
Cryenco Warrant by the Exchange Ratio. The exercise price of each Chart
Warrant (per share of Chart Common Stock issuable thereunder) shall be
the exercise price of the Cryenco Warrant exchanged therefor divided by
the Exchange Ratio. All other terms of the Chart Warrant (including the
term thereof) shall remain substantially unchanged from those of the
Cryenco Warrant.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties of Cryenco. Cryenco represents and
warrants to Chart, GTC and CAC as follows:
(a) Due Organization. Cryenco is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, has
full corporate power and authority to own its properties and to carry on
its business as it is now being conducted, is duly qualified to do business
and is in good standing in all jurisdictions in which it is required to be
so qualified, except where
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the failure to so qualify or be in good standing would not, in the
aggregate, have a material adverse effect upon the business, financial
condition, results of operations or prospects of Cryenco and its
subsidiaries, taken as a whole (a 'Cryenco Material Adverse Effect'), and
has received all necessary authorizations, consents and approvals of
governmental authorities material to the ownership of its properties and
assets and to the conduct of its business.
(b) Power and Authority; No Conflicts. Cryenco has full power and
authority (corporate or otherwise) to enter into and carry out the terms of
this Agreement subject to stockholder approval. The execution and delivery
by Cryenco of this Agreement and the other documents and instruments to be
executed and delivered by Cryenco pursuant hereto and thereto and the
consummation of the transactions contemplated hereby and thereby by Cryenco
have been duly authorized by the unanimous vote of the Board of Directors
of Cryenco. This Agreement has been duly and validly executed by Cryenco,
and will, when executed and delivered, along with each other document and
instrument to be executed and delivered by Cryenco pursuant hereto,
constitute, a valid and binding agreement of Cryenco enforceable against it
in accordance with their respective terms subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors' rights
generally and except to the extent that the enforceability of rights and
remedies may be limited by general principles of equity. The execution and
delivery of this Agreement does not, and, subject to any requisite
governmental or other consents or approvals, the consummation of the
transactions contemplated hereby will not (i) violate any provision of the
Certificate of Incorporation or the By-laws of Cryenco, in each case as
amended, (ii) violate or conflict with any law, ordinance, rule,
regulation, order, judgment or decree to which Cryenco or any of its
subsidiaries is subject or by which Cryenco or any of its subsidiaries is
bound, or (iii) violate or conflict with or constitute a material default
(or an event which, with notice or lapse of time, or both, would constitute
a material default) under, or will result in the termination of, or
accelerate the performance required by, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties
or assets under any term or provision of any material contract, commitment,
understanding, arrangement, agreement or restriction of any kind or
character to which Cryenco or any of its subsidiaries is a party or by
which Cryenco or any of its subsidiaries or any of their respective assets
or properties may be bound or affected. Except as set forth on Schedule
6.1(b), no consent, approval, authorization or action by any federal,
state, local or foreign governmental agency, instrumentality, commission,
authority, board or body (collectively, 'Governmental Agency') or any other
third party is required in connection with the execution and delivery by
Cryenco of this Agreement and the other documents and instruments to be
executed and delivered by Cryenco pursuant hereto or the consummation by
Cryenco of the transactions contemplated herein or therein.
(c) Capital Structure. Cryenco's authorized, issued, outstanding and
reserved capital stock is, as of March 31, 1997, as set forth on Schedule
6.1(c), and all of the outstanding shares of its capital stock have been
duly authorized and validly issued and are fully paid and nonassessable and
free from preemptive rights. There are no outstanding options, warrants,
convertible securities, subscriptions or other rights or agreements
providing for the issuance or delivery of any additional shares of capital
stock of Cryenco, except as set forth on Schedule 6.1(c). Schedule 6.1(c)
lists all of the Cryenco Options and the Cryenco Warrants and also sets
forth, in the case of each item listed thereon, the identity of the record
holder thereof (or beneficial holder, if known) the number of shares of
Cryenco capital stock issuable thereunder, the expiration date (if any)
thereof and the exercise price thereof.
(d) Subsidiaries. (i) Except as set forth on Schedule 6.1(d), Cryenco
has no subsidiaries, either wholly or partially owned. Cryenco has full
power and authority to transfer all right, title and interest in and to
such shares without the consent of any other person, and such shares are
free and clear of all liens, equities, encumbrances and claims of every
kind. Each subsidiary of Cryenco (i) is duly organized and validly existing
as a corporation under the laws of its jurisdiction of organization (ii) is
duly qualified to do business and in good standing in all jurisdictions
where its ownership or leasing of property or the conduct of its business
requires it to be so qualified and in which the failure to be so qualified
would have or reasonably be expected to have a Cryenco
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Material Adverse Effect and (iii) has all requisite corporate power and
authority to own or lease its properties and assets and to carry on its
business as now conducted.
(e) SEC Documents. Cryenco has made available to Chart a true and
complete copy of each report, schedule, registration statement and
definitive proxy statement filed by Cryenco with the SEC since August 31,
1995 (as such documents have since the time of their filing been amended,
the 'Cryenco SEC Documents') which are all of the documents that Cryenco
was required to file with the SEC since such date. As of their respective
dates, the Cryenco SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such
Cryenco SEC Documents, and none of the Cryenco SEC Documents at the time
they were filed with the SEC (or amended) contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Cryenco has
previously made available to Chart copies of (i) the consolidated balance
sheets of Cryenco and its subsidiaries, as of August 31, for the fiscal
years 1995 and 1996 and the related consolidated statements of operations,
stockholders equity and cash flows for the fiscal years 1994 through 1996
inclusive as reported in Cryenco's Annual Report on Form 10-K for the
fiscal year ended August 31, 1996 filed with the SEC under the Exchange
Act, in each case accompanied by the audit report of Ernst & Young LLP,
independent auditors with respect to Cryenco and (ii) the unaudited
consolidated balance sheet of Cryenco and its subsidiaries as of February
28, 1996 and February 28, 1997 and the related unaudited consolidated
statements of operations, stockholders equity and cash flows for the
periods then ended as reported in Cryenco's Quarterly Report on Form 10-Q
for the period ended February 28, 1997 filed with the SEC under the
Exchange Act. The August 31, 1996 consolidated balance sheet of Cryenco
(including the related notes) fairly presents the consolidated financial
position of Cryenco and its subsidiaries as of the date thereof and the
other financial statements referred to in this Section 6.1(e) (including
the related notes, where applicable) fairly present (subject in the case of
the unaudited statements to recurring audit adjustments normal in nature
and amount), and the Cryenco financial statements hereafter filed by
Cryenco with the SEC prior to the Effective Time will fairly present
(subject in the case of the unaudited statements to recurring audit
adjustments normal in nature and amount), the results of the consolidated
operations and changes in stockholders equity and consolidated financial
position of Cryenco and its subsidiaries for the respective fiscal periods
or as of the respective dates therein set forth. Each of such statements
(including the related notes, where applicable) complies, and the Cryenco
financial statements hereafter filed by Cryenco with the SEC prior to the
Effective Time will comply, in all material respects with applicable
accounting requirements and with the published rules and regulations of the
SEC with respect thereto and each of such statements (including the related
notes, where applicable) has been, and the Cryenco financial statements
hereafter filed by Cryenco with the SEC prior to the Effective Time will be
prepared in accordance with generally accepted accounting principles
('GAAP') consistently applied during the periods involved, except in each
case as indicated in such statements or in the notes thereto or, in the
case of unaudited statements, as permitted by Form 10-Q. The books and
records of Cryenco and its subsidiaries have been and are being maintained
in all material respects in accordance with GAAP and any other applicable
legal and accounting requirements and reflect only actual transactions.
Except as disclosed on Schedule 6.1 (e), to the best of its knowledge,
Cryenco is not the subject of any review, study, audit, examination,
inquiry or other investigation by the SEC ('SEC Investigation'), nor, to
the best knowledge of Cryenco, is any such SEC Investigation pending or
threatened.
(f) Vote Required. The affirmative vote of the holders of a majority
of the shares of Cryenco Common Stock issued and outstanding on the record
date for the Cryenco Special Meeting is the only vote of the holders of
Cryenco capital stock necessary to approve this Agreement and the Merger.
(g) Title to Assets. Except as set forth on Schedule 6.1 (g), Cryenco
and each subsidiary of Cryenco, has good, marketable and valid title in and
to all of its assets, including all real, personal and intangible property,
and except as reflected on Schedule 6.1(g), Cryenco and each subsidiary of
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Cryenco holds its assets free and clear of any mortgage, conditional sale
agreement, title retention agreement, security interest, lease, pledge,
hypothecation, lien or other encumbrance.
(h) Condition of Assets. All of the assets (whether owned or leased)
that are necessary for the conduct of the business of Cryenco or any
subsidiary of Cryenco are in normal operating condition, free from defects
other than such defects as do not materially interfere with the continued
use thereof in normal operations, except as set forth on Schedule 6.1 (h).
(i) Accounts Receivable and Accounts Payable. Cryenco has delivered to
Chart and CAC an accurate aging schedule of all of the accounts receivable
reflected on the books of Cryenco or any subsidiary of Cryenco, as of March
31, 1997. Any account receivable due from any affiliate of Cryenco or any
affiliate of any subsidiary of Cryenco shall be paid in full in cash on or
prior to the Closing Date. Any account payable due to any affiliate of
Cryenco or any affiliate of any subsidiary of Cryenco and disclosed on
Schedule 6.1(o) shall be paid in full in cash on or prior to the Closing
Date.
(j) Insurance. Cryenco (on its own behalf and on behalf of its
subsidiaries) (a) maintains insurance policies with licensed insurance
carriers on such assets, properties and businesses and against such risks
as is customary for companies engaged in its business, or (b) has reserved
on its financial statements sufficient funds to cover all losses known to
it arising from such risks. Schedule 6.1(j) sets forth a list and brief
description (specifying the insurer and describing each pending claim
thereunder) of all policies, binders or reserves of fire, liability,
product liability, workers' compensation, vehicular and other insurance or
self-insurance held by or on behalf of Cryenco or any subsidiary of
Cryenco. All such policies are in full force and effect and insure against
risks and liabilities to an extent and in a manner customary in the
business in which Cryenco and its subsidiaries operate. Except for claims
identified on Schedule 6.1(j), there are no outstanding unpaid claims under
any such policy, binder or reserve. Except as specifically set forth on
Schedule 6.1(j), there will be no liability of Cryenco or any Cryenco
subsidiary, as of the Closing Date, under any such insurance policy or
ancillary agreement with respect thereto in the nature of a retroactive
rate adjustment, loss sharing arrangement or other actual or contingent
liability arising wholly or partially out of events occurring prior to the
Closing Date. Cryenco has received no notice of cancellation or nonrenewal
of any such policy or binder. There is no inaccuracy in any application for
such policies or binders, or any failure to pay premiums due. Cryenco has
not received any notice from any of its insurance carriers that any
insurance premiums will be materially increased in the future or that any
insurance coverage listed on Schedule 6.1(j) will not be available in the
future on substantially the same terms as now in effect.
(k) Dividends and Distributions. From August 31, 1996 to the date
hereof, Cryenco has not declared or paid any dividends on any shares of its
capital stock, nor has it made any other payments or distributions thereon
to its stockholders. All dividends declared by Cryenco prior to August 31,
1996 have been fully paid or Cryenco has fully and properly reserved
against the payment of such dividends on its audited, consolidated balance
sheet as of August 31, 1996.
(l) Cryenco Data. Cryenco has made available to Chart, with respect to
Cryenco and each Cryenco subsidiary, all corporate minutes (other than
Directors' minutes pertaining to the Merger), charter and by-laws, books
and records, all material contracts, all product warranties, all loan
documentation, all notes, all leases, a list of all accounts receivable,
evidence of all bank accounts, an accurate and complete list of each
insurance policy currently providing coverage for the real and personal
property owned, operated or leased together with copies of such policies,
information regarding employee compensation and benefit plans, a list of
all outstanding workers' compensation, unemployment and other claims known
to Cryenco as of the date hereof, all licenses and permits that Cryenco has
with respect to its operations, and all outstanding or existing citations,
complaints or reports relating to environmental, health or safety laws or
regulations (collectively, the 'Cryenco Data'). Cryenco acknowledges that
Chart and CAC have relied on the Cryenco Data in deciding to execute this
Agreement and consummate the transactions contemplated hereby.
(m) Undisclosed Liabilities. Except (i) for those liabilities that are
fully reflected or reserved against on the consolidated balance sheet of
Cryenco included in the Cryenco Form 10-Q for the quarter ended February
28, 1997, (ii) for liabilities incurred in the ordinary course of business
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consistent with past practice since February 28, 1997 and (iii) as set
forth in Schedule 6.1(m), neither Cryenco nor any of its subsidiaries has
incurred any liability of any nature whatsoever (whether absolute, accrued,
contingent or otherwise and whether due or to become due) that, either
alone or when combined with all similar liabilities, has had or would
reasonably be expected to have a Cryenco Material Adverse Effect.
(n) Investigation or Litigation. Except as set forth on Schedule
6.1(n), there is no investigation or review pending or to the best
knowledge of Cryenco threatened by any Governmental Agency with respect to
Cryenco or any Cryenco subsidiary including without limitation,
investigations or reviews relating to (i) any product alleged to have been
sold by Cryenco or any Cryenco subsidiary, and alleged to have been
defective or improperly designed or manufactured, (ii) hazardous
substances, (iii) pollution, (iv) the environment, or (v) workers'
compensation; nor has any Governmental Agency indicated in writing to
Cryenco or any Cryenco subsidiary an intention to conduct any such
investigation or review; nor, to the knowledge of Cryenco, is there any
valid basis for any such investigation or review. Except as set forth in
Schedule 6.1 (n), there is no claim, action, suit or proceeding pending
before or, to the best knowledge of Cryenco, threatened against or
affecting Cryenco or any Cryenco subsidiary at law or in equity by, any
Governmental Agency or arbitrator, including, without limitation, claims,
actions, suits or proceedings relating to (i) any product alleged to have
been sold by Cryenco or any Cryenco subsidiary, and alleged to have been
defective or improperly designed or manufactured, (ii) hazardous
substances, (iii) pollution, (iv) the environment, or (v) workers'
compensation, nor is there, to the best knowledge of Cryenco, any valid
basis for any such claim, action, suit or proceeding.
(o) Certain Agreements. Except as disclosed in the Cryenco SEC
Documents filed prior to the date of this Agreement or in Schedule 6.1 (o)
as of the date of this Agreement, neither Cryenco nor any Cryenco
subsidiary is a party to any oral or written (i) consulting agreement not
terminable on 60 days' or less notice, (ii) agreement with any Director,
executive officer, key employee or affiliate of Cryenco or any Cryenco
subsidiary, or (iii) agreement or plan, including any stock option plan,
stock appreciation rights plan, any of the Plans (as defined in Section 6.1
(p)), restricted stock plan or stock purchase plan, any of the benefits of
which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by
this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement.
(p) Employee Benefits.
(i) Schedule 6.1 (p) contains a true and complete list of each
bonus, deferred compensation, incentive compensation, stock purchase,
stock option, severance or termination pay, hospitalization or other
medical, life or other insurance, supplemental unemployment benefits,
profit-sharing, pension, retirement or other employee benefit plan,
program, practice, agreement or arrangement, including, without
limitation, each 'employee benefit plan' as defined in section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended
('ERISA'), sponsored, maintained, contributed to or required to be
contributed to by Cryenco, any Cryenco subsidiary or any trade or
business, whether or not incorporated (together with the Cryenco
subsidiaries, an 'ERISA Affiliate'), which together with Cryenco or any
Cryenco subsidiary would be deemed a 'single employer' within the
meaning of section 4001 of ERISA, for the benefit of current or former
employees or directors of Cryenco or any Cryenco subsidiary (the
'Plans'). Cryenco has delivered or made available to Chart true and
complete copies of all documents, as they may have been amended to the
date hereof, embodying or relating to the Plans.
(ii) Except as set forth in Schedule 6.1(p), neither Cryenco nor
any Cryenco subsidiaries maintains any Plans that are intended to
qualify under sections 401 (a) or 501 (a) of the Code. Neither Cryenco
nor any current or former ERISA Affiliate sponsored, maintained,
contributed to or was required to contribute to, during the six year
period ending on the Closing Date, any Plan subject to Title IV of ERISA
or any 'multiemployer plan' within the meaning of section 3 (37) of
ERISA or any multiemployer or multiple employer welfare benefit plan.
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(iii) Each of the Plans has been operated and administered in all
material respects in accordance with applicable laws, including but not
limited to ERISA and the Code. To Cryenco's knowledge, no reportable
event within the meaning of section 403(b) of ERISA (for which the
reporting requirements have not been waived) or prohibited transaction
within the meaning of section 406 of ERISA or section 4975(c) of the
Code has occurred with respect to any Plan, no civil penalty has been
assessed pursuant to sections 409 or 502(i) of ERISA, and no tax has
been imposed pursuant to sections 4975 or 4976 of the Code.
(iv) There are no pending, or to the best knowledge of Cryenco,
threatened or anticipated claims (other than routine claims for
benefits) by, on behalf of or against any of the Plans or any trusts
related thereto.
(v) Except as specifically set forth on Schedule 6.1 (p), no Plan
provides benefits, including without limitation death or medical
benefits (whether or not insured), with respect to current or former
employees or directors of the business of Cryenco or any ERISA Affiliate
beyond their retirement or other termination of service other than
coverage mandated by applicable law or deferred compensation benefits
accrued as liabilities in compliance with applicable Financial
Accounting Standards Board requirements on the books of Cryenco.
(vi) Except as specifically set forth in Schedule 6.1(p), with
respect to each Plan that is funded wholly or partially through an
insurance policy, there will be no liability of Cryenco or any ERISA
Affiliate, as of the Closing Date, under any such insurance policy or
ancillary agreement with respect to such insurance policy in the nature
of a retroactive rate adjustment, loss sharing arrangement or other
actual or contingent liability arising wholly or partially out of events
occurring prior to the Closing Date.
(q) Labor Matters. Except as set forth on Schedule 6.1 (q), neither
Cryenco nor any Cryenco subsidiary has entered into any collective
bargaining agreements or any other agreements with any labor organization
or any other person or group claiming to represent or bargain collectively
for any of its employees. Cryenco has delivered or made available to Chart
true and correct copies of all of the agreements described on Schedule
6.1(q). There are no unfair labor practice charges, lawsuits, grievances or
administrative charges pending or to the best knowledge of Cryenco
threatened, concerning or affecting Cryenco or any Cryenco subsidiary.
Neither Cryenco nor any Cryenco subsidiary has received any written notice
nor has there been any proceeding or adjudication questioning whether or
alleging or determining that Cryenco or any Cryenco subsidiary is not in
compliance, in all material respects, with all federal, state and local
laws and regulations with respect to employment, employment practices and
terms and conditions of employment. There is no work stoppage, strike,
slowdown or adverse job action of any form by any persons or labor
organizations occurring or, to the knowledge of Cryenco, threatened against
Cryenco or any Cryenco subsidiary.
(r) Taxes. Cryenco has (directly or through one or more of its
subsidiaries)
(i) timely filed all tax returns, schedules, declarations, and
tax-related documents including, without limitation, all Forms 5500
pertaining to the Plans (collectively, 'Returns') required to be filed
by any jurisdictions to which Cryenco or any Cryenco subsidiary is or
has been subject,
(ii) timely paid in full any taxes, interest and penalties with
respect to Returns, and timely made any deposits of taxes required by
taxing jurisdictions,
(iii) fully accrued on its books an amount sufficient to pay all
taxes not yet due but related to operations through the Closing Date,
and
(iv) otherwise satisfied, in all material respects, all legal
requirements applicable to Cryenco or any Cryenco subsidiary with
respect to all aforementioned obligations to taxing jurisdictions. All
tax returns filed by Cryenco or any Cryenco subsidiary accurately
reflect in all material respects all income, expenses, deductions,
credits and loss carryovers and the taxes due and are otherwise accurate
and complete in all material respects. Except for consequences arising
from the transactions contemplated by this Agreement, to Cryenco's
knowledge, there have been no events that would impair the full
availability of the net operating losses available
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against future state taxes in the State of Colorado as reflected on
Cryenco's audited consolidated balance sheet as of August 31, 1996.
Cryenco has delivered to Chart true and complete copies of all federal
and state income and franchise tax returns for each of the taxable years
ended August 31, 1994 through August 31, 1996, inclusive. The most
recent period for which an assessment can no longer be made by the IRS
with respect to Cryenco's federal income tax is for the fiscal year
ended August 31, 1993. Cryenco has no knowledge that an audit of any of
the federal income tax returns of Cryenco is in progress and has no
reason to believe that any such audit is contemplated. To Cryenco's
knowledge, there are no other claims asserted for (or to the knowledge
of Cryenco any substantial basis therefor), taxes or assessments. For
purposes of this Section, 'tax' and 'taxes' (when not modified by other
words such as 'income' or 'franchise') shall include all income, gross
receipts, franchise, payroll, excise, real and personal property, and
other taxes imposed by any foreign, federal, state, municipal, local, or
other governmental agency, including assessments in the nature of taxes.
(s) Absence of Certain Changes. Except as disclosed on Schedule 6.1
(s), since February 28, 1997, neither Cryenco nor any Cryenco subsidiary
has suffered any Cryenco Material Adverse Effect.
(t) Legal Compliance. Cryenco and each Cryenco subsidiary has complied
in all material respects with all applicable laws, rules, regulations, and
ordinances of any Governmental Agency having jurisdiction, any trademark,
tradename or copyright rules and regulations, and any zoning, occupational
safety or environmental protection laws or any laws relating to the
employment of labor. Neither Cryenco nor any Cryenco subsidiary is in
violation of, or in default under, any terms or provisions of any material
mortgage, indenture, security agreement, lease, license, contract,
agreement, instrument, order, arbitration award, judgment, injunction or
decree. Neither Cryenco nor any Cryenco subsidiary has received any written
notice nor to Cryenco's knowledge has there been any proceeding or
adjudication questioning whether or alleging or determining that the
business of Cryenco or any Cryenco subsidiary is or has been conducted in
violation of any law, ordinance, regulation, order, decree, judgment or
injunction. Neither Cryenco nor any Cryenco subsidiary has received any
written notice nor has there been any proceeding or adjudication
questioning whether or alleging or determining it has not obtained all
permits, licenses and other authorizations which relate to its assets or
business. Neither Cryenco nor any Cryenco subsidiary has received any
written notice nor has there been any proceeding or adjudication
questioning whether or alleging or determining that it is not in compliance
in all material respects with all material terms and conditions of such
permits, licenses and authorizations.
(u) Environmental Protection.
(i) Except as set forth on Schedule 6.1(u), Cryenco and each
Cryenco subsidiary is in compliance with all Environmental Laws (as
hereinafter defined) applicable to the business of Cryenco and each
Cryenco subsidiary, which compliance includes, but is not limited to,
the possession by Cryenco and each Cryenco subsidiary of all permits and
other governmental authorizations required under applicable
Environmental Laws, and compliance with the terms and conditions
thereof. Neither Cryenco nor any Cryenco subsidiary has received any
written communication, whether from a Governmental Agency, citizens
group, employee or otherwise, that alleges that the business of Cryenco
or any Cryenco subsidiary is not in such compliance. To the best
knowledge of Cryenco, there are no circumstances that may prevent or
interfere with such compliance in the future. All permits and other
governmental authorizations currently held by Cryenco and each Cryenco
subsidiary pursuant to the Environmental Laws are identified on Schedule
6.1(u).
(ii) Except as set forth in Schedule 6.1 (u), there is no
Environmental Claim pending or, to the best knowledge of Cryenco,
threatened against Cryenco or any Cryenco subsidiary or against any
person or entity whose liability for any Environmental Claims Cryenco or
any Cryenco subsidiary has or may have retained or assumed either
contractually or by operation of law.
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(iii) Cryenco has disclosed to Chart all outside consultants'
reports, internal memoranda, legal documents involving third parties,
and any other information, written or otherwise, in the possession of
Cryenco or any Cryenco subsidiary that relates to the release, emission,
discharge or disposal of any Materials of Environmental Concern (as
defined below).
(iv) Without in any way limiting the generality of the foregoing,
(A) all on-site and off-site locations where Cryenco or any Cryenco
subsidiary has stored, disposed or arranged for the disposal of
Materials of Environmental Concern since August 31, 1989, are identified
in Schedule 6.1 (u), (B) all existing underground storage tanks and all
areas impacted by former underground storage tanks, and the capacity and
contents of such existing tanks located on property owned or leased by
Cryenco or any Cryenco subsidiary are identified in Schedule 6.1 (u) and
(C) neither Cryenco nor any Cryenco subsidiary has any liability or
potential liability for remediation cost at any present or former site
where its business is or was conducted which is reasonably expected to
exceed $100,000 in the aggregate.
(v) 'Environmental Claim' means any claim, action, cause of action,
investigation or notice (written or oral) ('Claim') by any person or
entity alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup costs, governmental
response costs, natural resources damages, property damages, personal
injuries, or penalties) arising out of, based on or resulting from (A)
the presence, or release into the environment of any Materials of
Environmental Concern at any location, whether or not owned by Cryenco
or any Cryenco subsidiary or (B) circumstances forming the basis of any
violation, or alleged violation, of any Environmental Law by Cryenco or
any Cryenco subsidiary; provided, however, that no such Claim, or group
of Claims arising from a single activity or incident, shall be
considered to be an Environmental Claim under this provision unless the
value of such Claim or group of Claims is in excess of One Hundred
Thousand Dollars ($100,000).
(vi) 'Environmental Laws' means all federal, state, local and
foreign laws and regulations relating to pollution or protection of
human health or the environment (including, without limitation, ambient
air, surface water, ground water, land surface or subsurface strata),
including, without limitation, laws and regulations relating to
emissions, discharges, releases or threatened releases of Materials of
Environmental Concern, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Materials of Environmental Concern.
(vii) 'Materials of Environmental Concern' means chemicals,
pollutants, contaminants, wastes, hazardous or toxic substances,
petroleum and petroleum products.
(v) Patents, Copyrights, Trademarks, Trade Names etc. Schedule 6.1 (v)
hereto contains an accurate and complete list of all material patents,
patent applications, trademark registrations, trademark applications,
service marks, trade names and assumed names used by Cryenco or any Cryenco
subsidiary in its business which are presently owned or held by Cryenco or
any Cryenco subsidiary or under which it owns or holds any license or other
interest. Such items of intellectual property constitute all such items
used by Cryenco or any Cryenco subsidiary in its business. Neither Cryenco
nor any Cryenco subsidiary has received written notice nor to Cryenco's
knowledge has there been any proceeding or adjudication questioning whether
or alleging or determining that the use thereof by Cryenco or any Cryenco
subsidiary infringes on or conflicts with any existing patents, trademarks
or copyrights or any other rights of any person. Neither Cryenco nor any
Cryenco subsidiary has received any written notice of any material claim of
a third party to the use of any such names. Cryenco and its subsidiaries
have the right to use such patents, trademarks, trade names and copyrights
in the business in which they are currently being used and the consummation
of the transactions contemplated hereby will not alter or impair any such
rights. Neither Cryenco nor any Cryenco subsidiary has received any written
notice nor to Cryenco's knowledge has there been any material proceeding or
adjudication questioning whether or alleging or determining that any
services provided or products manufactured or sold by Cryenco or any
Cryenco subsidiary nor any patents, formulae, processes, know-how, trade
secrets, trademarks, trade names, assumed names, copyrights or designations
used by Cryenco or any Cryenco subsidiary in its business, infringe on any
existing patents, trademarks or copyrights, or any other
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rights of any person or corporate entity. To the knowledge of Cryenco, any
license included in the intellectual property of Cryenco or any Cryenco
subsidiary constitutes a valid and binding agreement of the other party
thereto enforceable in accordance with its terms.
(w) Contracts. Each contract and commitment (whether written or oral)
that individually involves potential future payments by or to Cryenco or
any Cryenco subsidiary of $100,000 or more is disclosed on Schedule 6.1(w)
and copies of such written contracts or commitments have been provided to
Chart. Except as set forth on such schedule, neither Cryenco nor any
Cryenco subsidiary, nor has been during the past three years, a partner in
any partnership or a party to any joint venture.
(x) Full Disclosure. There is no fact or set of circumstances known to
Cryenco, which has not been disclosed to Chart in writing, that has caused
since August 31, 1996, or would reasonably be anticipated to result in, a
Cryenco Material Adverse Effect.
(y) Brokers or Finders. Neither Cryenco nor any Cryenco subsidiary has
incurred or will incur, any liability for any brokerage fees, commissions,
finders' fees or similar fees or expenses in connection with this Agreement
or the transactions contemplated hereby.
6.2 Representations and Warranties of Chart, GTC and CAC. Chart, GTC and
CAC represent and warrant to Cryenco as follows:
(a) Due Organization. Chart is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, has
full corporate power and authority to own its properties and to carry on
its business as it is now being conducted, is duly qualified to do business
and is in good standing in all jurisdictions in which it is required to be
so qualified, except where the failure to so qualify or be in good standing
would not, in the aggregate, have a material adverse effect upon the
business, financial condition, results of operations or prospects of Chart
and its subsidiaries, taken as a whole (a 'Chart Material Adverse Effect'),
and has received all necessary authorizations, consents and approvals of
governmental authorities material to the ownership of its properties and
assets and to the conduct of its business.
(b) Power and Authority, No Conflicts. Each of Chart, GTC and CAC has
full power and authority (corporate or otherwise) to enter into and carry
out the terms of this Agreement. The execution and delivery of this
Agreement and the other documents and instruments to be executed and
delivered by Chart, GTC and CAC pursuant hereto and thereto and the
consummation of the transactions contemplated hereby and thereby by Chart,
GTC and CAC have been duly authorized by the Boards of Directors of Chart,
GTC and CAC, and by GTC as the sole stockholder of CAC. This Agreement has
been duly and validly executed and delivered by each of Chart, GTC and CAC
and constitutes, when executed and delivered, along with the other
documents and instruments to be executed and delivered by each of Chart,
GTC and CAC pursuant hereto, valid and binding agreements of Chart, GTC and
CAC, enforceable against each of Chart, GTC and CAC in accordance with
their respective terms subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general
applicability relating to or affecting creditors' rights generally and
except to the extent that the enforceability of rights and remedies may be
limited by general principles of equity. The execution and delivery of this
Agreement does not, and, subject to any requisite governmental or other
consents or approvals the consummation of the transactions contemplated
hereby and thereby will not (i) violate any provision of the Certificate of
Incorporation or the by-laws of each of Chart, GTC and CAC, (ii) violate or
conflict with any law, ordinance, rule, regulation, order, judgment or
decree to which either Chart, GTC or CAC is subject or by which either
Chart, GTC or CAC is bound, or (iii) violate or conflict with or constitute
a default (or an event which, with notice or lapse of time, or both, would
constitute a default) under, or will result in the termination of, or
accelerate the performance required by, or result in the creation of any
lien, security interest, charge or encumbrance upon any of the properties
or the assets under, any term or provision of any contract, commitment,
understanding, arrangement, agreement or restriction of any kind or
character to which Chart, GTC or CAC is a party or by which either of them
or any of their assets or properties may be bound or affected. Except as
set forth in Schedule 6.2(b), no consent, approval, authorization or action
by any Governmental Agency or any other third party is required in
connection with the execution and
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delivery by each of Chart, GTC and CAC of this Agreement and the other
documents and instruments to be executed and delivered by each of Chart,
GTC and CAC pursuant hereto or the consummation by each of Chart, GTC and
CAC of the transactions contemplated herein or therein.
(c) Financing of the Merger. Chart, GTC and CAC have all funds, or
appropriate commitments for funds, necessary for the exchange of all
outstanding shares of Cryenco Common Stock and Cryenco Preferred Stock
pursuant to the Merger.
(d) Brokers and Finders. Neither Chart nor GTC nor CAC has employed
any broker or finder or incurred any liability for any brokerage fees,
commissions, finders' fees or similar fees or expenses in connection with
this Agreement or the transactions contemplated hereby.
(e) Financial Condition. Chart's audited, consolidated balance sheet,
included in its Annual Report on Form 10-K for the fiscal year ended
December 31, 1996, was prepared in accordance with GAAP, and fairly
presents the financial position of Chart as of the date thereof. Since the
date of said balance sheet, no change to Chart's financial condition has
occurred which would reasonably be anticipated to adversely affect its
ability to make the payments necessary to consummate the Merger, as
contemplated by this Agreement.
ARTICLE VII
CONDITIONS
7.1 Conditions Precedent to the Obligations of All Parties. The obligations
of each of Cryenco, Chart, GTC and CAC under this Agreement are subject to and
shall be conditional upon the satisfaction of each of the following conditions
prior to the Closing Date:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of the issued
and outstanding shares of Cryenco Common Stock.
(b) Governmental Approvals. Cryenco and Chart shall have made all
filings with, and all relevant waiting periods shall have expired
(including all filings required to be made under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976 and waiting period in connection
therewith), and given all notices to and obtained all necessary consents,
authorizations and approvals from, all Governmental Agencies which are
required to consummate the transactions contemplated in this Agreement.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order, restraint or
prohibition shall have been issued by any court of competent jurisdiction
preventing the consummation of the transactions contemplated by this
Agreement (each party agreeing to use its reasonable best efforts,
including appeals to higher courts, to have any such order, injunction,
legal restraint or prohibition set aside or lifted), and no action shall
have been taken, and no statute, rule or regulation shall have been
enacted, by any state or Federal government or Governmental Agency that
would prevent the consummation of the transactions contemplated by this
Agreement.
7.2 Conditions Precedent to the Obligations of Cryenco. The obligations of
Cryenco under this Agreement are subject to and shall be conditional upon the
satisfaction, or waiver (in whole or in part) by Cryenco, of each of the
following conditions:
(a) Representations and Warranties True. The representations and
warranties of Chart, GTC and CAC contained herein shall have been true and
correct in all material respects on and as of the date of this Agreement,
and shall be true and correct in all material respects on and as of the
Closing Date as if those representations and warranties were made on and as
of the Closing Date, except for changes permitted by the terms of this
Agreement and except insofar as any of those representations and warranties
relate solely to a particular date or period, in which case they shall be
true and correct in all material respects on and as of the Closing Date
with respect to such date or period.
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(b) Performance of Obligations and Agreements. Chart, GTC and CAC
shall each have performed, in all material respects, their obligations and
agreements contained in this Agreement to be performed or complied with by
them on or before the Closing Date.
(c) Resolutions. Each of Chart, GTC and CAC shall have delivered to
Cryenco copies of the resolutions of its Board of Directors authorizing and
approving the execution of this Agreement and the consummation of the
transactions contemplated hereby, certified as true and correct on the
Closing Date by its Secretary or an Assistant Secretary.
(d) Officers' Certificates. Each of Chart, GTC and CAC shall have
delivered to Cryenco a certificate dated on and as of the Closing Date and
signed by its Chief Executive Officer and Chief Financial Officer to the
effect that the conditions set forth in Sections 7.2(a) and 7.2(b) have
been satisfied.
7.3 Conditions Precedent to the Obligations of Chart, GTC and CAC. The
obligations of Chart, GTC and CAC under this Agreement are subject to and shall
be conditional upon the satisfaction, or waiver (in whole or in part) by Chart,
GTC and CAC of each of the following conditions:
(a) Representations and Warranties True. The representations and
warranties of Cryenco contained herein shall have been true and correct in
all material respects on and as of the date of this Agreement, and shall be
true and correct in all material respects on and as of the Closing Date as
if those representations and warranties were made on and as of the Closing
Date, except for changes permitted by the terms of this Agreement and
except insofar as any of those representations and warranties relate solely
to a particular date or period, in which case they shall be true and
correct in all material respects on and as of the Closing Date with respect
to such date or period.
(b) Performance of Obligations and Agreements. Cryenco shall have
performed, in all material respects, its obligations and agreements
contained in this Agreement to be performed or complied with by it on or
before the Closing Date.
(c) Resolutions. Cryenco shall have delivered to Chart copies of the
resolutions of its Board of Directors and Stockholders, authorizing and
approving the execution of this Agreement and the consummation of the
transactions contemplated hereby, certified as true and correct on the
Closing Date by its Secretary or an Assistant Secretary.
(d) Officer's Certificate. Cryenco shall have delivered to Chart a
certificate dated on and as of the Closing Date and signed by the Chief
Executive Officer and the Chief Financial Officer of Cryenco to the effect
that the conditions set forth in Sections 7.3(a) and 7.3(b) have been
satisfied.
(e) Consents and Approvals. Cryenco shall have obtained any consent,
authorization or approval to the transactions contemplated by the Agreement
which is required to be obtained from any third party which is not a
Governmental Agency.
(f) No Cryenco Material Adverse Effect. From the date of this
Agreement through the Closing Date, Cryenco shall not have suffered a
Cryenco Material Adverse Effect.
(g) Dissenters Claims. Cryenco has not received a written demand for
appraisal from the holders of more than fifteen percent (15%) of the issued
and outstanding shares of Cryenco Common Stock in connection with the
Merger.
(h) Cryenco Arrangements with Affiliated Persons. Prior to Closing,
Cryenco shall have terminated the agreements and arrangements listed on
Schedule 6.1(o) ('Insider Agreements') hereto between Cryenco and certain
affiliated persons (including, but not limited to, directors, officers, key
employees and affiliates) by payment of the amounts set forth on Schedule
6.1(o) but without any other expense to or obligation on the part of
Cryenco, Chart or CAC.
(i) Cancellation, Exercise, Sale or Exchange of Cryenco Warrants and
Options. Cryenco shall have obtained and delivered to Chart written
agreements from the holders of the Cryenco Warrants and Cryenco Options
listed on Schedule 6.1(c) exercising such Warrants or Options, agreeing to
the cancellation thereof, agreeing to the sale thereof to Chart pursuant to
this Agreement or agreeing to the exchange thereof for warrants or options
to acquire shares of Chart Common Stock pursuant to the provisions of
Sections 5.3(f) and 5.3(g) above.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of this Agreement and the
Merger by the stockholders of Cryenco:
(a) by mutual consent of Cryenco and Chart;
(b) by Chart, upon a breach of any representation, warranty, covenant
or agreement on the part of Cryenco set forth in this Agreement, or if any
representation or warranty of Cryenco shall have become untrue, in either
case such that the condition set forth in Section 7.3(a) or Section 7.3(b)
as the case may be, would be incapable of being satisfied by August 29,
1997; provided, that in any case, a willful breach shall be deemed to cause
such conditions to be incapable of being satisfied for purposes of this
Section 8.1(b);
(c) by Cryenco, upon a breach of any representation, warranty,
covenant or agreement on the part of Chart set forth in this Agreement, or
if any representation or warranty of Chart shall have become untrue, in
either case such that the condition set forth in Section 7.2(a) or 7.2(b),
as the case may be, would be incapable of being satisfied by August 29,
1997; provided, that in any case, a willful breach shall be deemed to cause
such conditions to be incapable of being satisfied for purposes of this
Section 8.1(c);
(d) by either Cryenco or Chart, if any permanent injunction or action
by any Governmental Agency preventing the consummation of the Merger shall
have become final and nonappealable;
(e) by either Cryenco or Chart, if the Merger shall not have been
consummated before August 29, 1997; provided, however, that this Agreement
may be extended by written notice of either Cryenco or Chart to a date not
later than September 30, 1997, if the Merger shall not have been
consummated as a direct result of Cryenco or Chart having failed by August
29, 1997, to receive all required regulatory approvals or consents from
Governmental Agencies with respect to the Merger;
(f) by either Cryenco or Chart, if this Agreement and the Merger shall
fail to receive the requisite vote for approval and adoption by the holders
of Cryenco Common Stock at the Cryenco Special Meeting;
(g) by Chart, if (i) the Board of Directors of Cryenco shall withdraw,
modify or change its recommendation of this Agreement or the Merger in a
manner adverse to Chart or shall have resolved to do any of the foregoing;
(ii) the Board of Directors of Cryenco shall have recommended to the
stockholders of Cryenco a Competing Transaction (as defined below); (iii) a
tender offer or exchange offer for 25% or more of the outstanding shares of
Common Stock of Cryenco is commenced, and the Board of Directors of Cryenco
recommends that the stockholders of Cryenco tender their shares in such
tender or exchange offer; or (iv) subsequent to the date hereof, any person
shall acquire beneficial ownership or the right to acquire beneficial
ownership of, or any 'group' (as such term is defined under Section 13(d)
of the Exchange Act and the rules and regulations promulgated thereunder)
shall have been formed which beneficially owns, more than 25% of the then
outstanding shares of Common Stock of Cryenco; provided, however, that for
purposes of the foregoing definition of 'group,' the Voting Agreements
described in Section 9.8 shall not be deemed to form the basis for
determination that the signers thereof constitute a 'group;'
(h) by Cryenco, if the Board of Directors of Cryenco (x) fails to make
or withdraws or modifies its recommendation that Cryenco stockholders
approve the Merger (as described in Section 5.3(a)), and there exists at
such time a Competing Transaction or (y) recommends to Cryenco's
stockholders approval or acceptance of a Competing Transaction, in each
case only if the Board of Directors of Cryenco, after consultation with and
based upon the advice of independent legal counsel (who may be such party's
regularly engaged independent legal counsel), determines in good faith that
such action is necessary for the Board of Directors of Cryenco to comply
with its fiduciary duties to stockholders under applicable law; and
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(i) by Chart, if Cryenco shall have received a written demand for
appraisal from the holders of more than 15% of the issued and outstanding
shares of Cryenco Common Stock in connection with the Merger.
In order to terminate this Agreement pursuant to Section 8.1(b) -- (h) hereof,
the party so acting shall give written notice thereof to the other party hereto
specifying the reason for termination.
8.2 Effect of Termination. Except as provided in Section 8.5 or Section
9.1(b), in the event of the termination of this Agreement pursuant to Section
8.1, this Agreement shall forthwith become void, there shall be no liability on
the part of Chart, CAC or Cryenco or any of their respective officers or
directors to the other and all rights and obligations of any party hereto shall
cease; provided, however, that nothing herein shall relieve any party from
liability for the willful breach of any of its representations, warranties,
covenants or agreements set forth in this Agreement.
8.3 Amendment. This Agreement may be amended by the parties hereto by
action taken by or on behalf of their respective Boards of Directors at any time
prior to the Effective Time; provided, however, that, after approval of the
Merger by the stockholders of Cryenco, no amendment, which under applicable law
may not be made without the approval of the stockholders of Cryenco, may be made
without such approval. This Agreement may not be amended except by an instrument
in writing signed by the parties hereto.
8.4 Waiver. At any time prior to the Effective Time, either party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document delivered pursuant hereto and (c) waive compliance by the other party
with any of the agreements or conditions contained herein. Any such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
8.5 Fees, Expenses and Other Payments.
(a) Except as set forth in Section 8.5(b), all costs and expenses,
including, without limitation, fees and disbursements of counsel, financial
advisors and accountants, incurred by the parties hereto shall be borne solely
and entirely by the party which has incurred such costs and expenses (with
respect to such party, its 'Expenses').
(b) Cryenco agrees that if this Agreement shall be terminated pursuant to:
(i) Section 8.1(b) and, at any time prior to the written notice of
termination delivered by Chart to Cryenco, there existed a Competing
Transaction;
(ii) Section 8.1(f) and at any time between the date hereof and the
Cryenco Special Meeting there existed a Competing Transaction;
(iii) Section 8.1(g);
(iv) Section 8.1(h); or
(v) Section 8.1(i) and one or more of the affiliates of Cryenco
executing a Voting Agreement in connection with the Merger has made a
written demand for appraisal with respect to 5% or more of the Cryenco
Common Stock entitled to vote on the Merger;
then, in any such event, Cryenco shall pay to Chart an amount equal to $850,000.
(c) Any payment required to be made pursuant to Section 8.5(b) shall be
made as promptly as practicable but not later than five business days after
termination of this Agreement and shall be made by wire transfer of immediately
available funds to an account designated by Chart.
(d) For purposes of this Section 8.5, the term 'Competing Transaction'
shall mean any of the following (other than the Merger) involving Cryenco or any
of its subsidiaries:
(i) any merger, consolidation, share exchange, business combination or
other similar transaction;
(ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 25% or more of the assets of Cryenco and its subsidiaries,
taken as a whole, in a single transaction or series of transactions;
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(iii) any tender offer or exchange offer for 25% or more of the
outstanding shares of Common Stock of Cryenco or the filing of a
registration statement under the Securities Act in connection therewith;
(iv) any person acquiring (after the date hereof) beneficial ownership
or the right to acquire beneficial ownership of, or any 'group' (as such
term is defined under Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder) being formed (after the date hereof)
which beneficially owns or has the right to acquire beneficial ownership
of, 25% or more of the then outstanding shares of Common Stock of Cryenco;
provided, however, that for purposes of the foregoing definition of
'group,' the Voting Agreements described in Section 9.8 shall not be deemed
to form the basis for determination that the signers thereof constitute a
'group;'
(v) any public announcement of a proposal, plan or intention to do any
of the foregoing or any agreement to engage in any of the foregoing.
ARTICLE IX
GENERAL PROVISIONS
9.1 Effectiveness of Representations, Warranties and Agreements.
(a) Except as set forth in Section 9.1(b), the representations, warranties
and agreements of each party hereto shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of any other party
hereto, any person controlling any such party or any of their officers or
directors, whether prior to or after the execution of this Agreement.
(b) The representations, warranties and agreements in this Agreement shall
terminate at the Effective Time or upon the termination of this Agreement
pursuant to Article VIII, except that the agreements set forth in Articles I,
II, III and IX and Sections 5.1(e) and 5.4(a) shall survive the Effective Time
and those set forth in Sections 8.2, 8.5 and Article IX hereof shall survive
termination. In addition, in the event of the termination of this Agreement
pursuant to Article VIII, the provisions of the Confidentiality Agreement dated
as of November 11, 1996 shall be reinstated as if they had never been superseded
by Section 9.8 hereof.
9.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given (and shall be deemed to have
been duly received if so given), when addressed as follows:
To Chart at:
Chart Industries, Inc.
35555 Curtis Boulevard
Eastlake, OH
Attention: Arthur S. Holmes, Chairman of the Board
and Chief Executive Officer
With a copy to:
Calfee, Halter & Griswold LLP
1400 McDonald Investment Center
800 Superior Avenue
Cleveland, Ohio 44114-2688
Attention: Thomas F. McKee
To Cryenco at:
Cryenco Sciences, Inc.
c/o Charterhouse Group International, Inc.
535 Madison Avenue -- 28th Floor
New York, New York 10022
Attention: Alfred Schechter, Chairman of the Board,
Chief Executive Officer and President
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With a copy to:
Shack & Siegel, P.C.
530 Fifth Avenue
New York, New York 10036
Attention: Jeffrey N. Siegel
Except as otherwise specified herein, all notices and other communications
shall be deemed to have been duly given on the first to occur of (a) the date of
delivery if delivered personally on a business day during normal business hours,
and, if not, on the next occurring business day, (b) five days following posting
if transmitted by mail, (c) the first business day following the date of
delivery to a nationally-recognized, next day courier service; or (d) the date
of receipt if transmitted by telecopier or facsimile on a business day during
normal business hours, and, if not, on the next occurring business day. Any
party may change his or its address for purposes hereof by notice to the other
party given as provided in this Section.
9.3 Governing Law. Except to the extent required to comply with the
provisions of other jurisdictions, this Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
9.4 Successors. References in this Agreement to particular persons, firms,
agencies, statutes, regulations and the like shall be considered as references
to any successors thereto.
9.5 Assignment. This Agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests, or obligations hereunder is otherwise assignable, or shall be
assigned (whether by operation of law or otherwise), by any of the parties
without the prior written consent of the other parties.
9.6 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but both of which together shall constitute
one and the same agreement.
9.7 Schedules. Cryenco, Chart, GTC and CAC have, simultaneously with the
execution of this Agreement, initialed the front page of the Schedules which are
referred to herein.
9.8 Entire Agreement. This Agreement and the Schedules referred to herein
contain the entire agreement among the parties hereto with respect to the Merger
and the other transactions contemplated hereby, and supersedes all prior
agreements among the parties with respect to such matters including, without
limitation, the Confidentiality Agreement dated November 11, 1996.
Simultaneously herewith, (a) certain affiliates of Cryenco are entering into
agreements pursuant to which such affiliates agree under certain conditions, to
vote in favor of the Merger at the Cryenco Special Meeting (the 'Voting
Agreements') and (b) Charterhouse Group International, Inc. and Alfred Schechter
are entering into agreements to indemnify and hold Chart harmless from and
against certain liabilities (the 'Indemnification Agreement').
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IN WITNESS WHEREOF, each party hereto has caused this Agreement to be duly
executed as of the date first above written.
CHART INDUSTRIES, INC.
By: /S/ ARTHUR S. HOLMES
...................................
GREENVILLE TUBE CORPORATION
By: /S/ ARTHUR S. HOLMES
...................................
CHART ACQUISITION COMPANY, INC.
By: /S/ JAMES R. SADOWSKI
...................................
CRYENCO SCIENCES, INC.
By: /S/ ALFRED SCHECHTER
...................................
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ANNEX B
[LETTERHEAD OF HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.]
April 21, 1997
To The Board of Directors of
CRYENCO SCIENCES, INC.
Gentlemen:
We understand that Cryenco Sciences, Inc. (the 'Company') is contemplating
entering into a plan and agreement of merger (the 'Agreement') with Chart
Industries, Inc. ('Chart') and Chart Acquisition Company, Inc. ('CAC'), a
wholly-owned subsidiary of Chart, pursuant to which the Company would become a
wholly-owned subsidiary of Chart (the 'Transaction'). It is our understanding
that in the Transaction (i) each issued and outstanding share of the Company's
Class A common stock, $.01 par value, shall be converted into the right to
receive a cash amount equal to $2.75 and (ii) each issued and outstanding share
of the Company's Series A preferred stock, $.01 par value, shall be converted
into the right to receive cash in an amount equal to the sum of $10.00 plus any
accumulated but unpaid dividends.
You have requested our opinion (the 'Opinion') as to the matters set forth
below. The Opinion does not address the Company's underlying business decision
to effect the Transaction. We have not been requested to, and did not, solicit
third party indications of interest in acquiring all or any part of the Company.
Furthermore, at your request, although we have reviewed and commented on the
Agreement, we have not negotiated the Transaction or advised you with respect to
alternatives to it.
In connection with this Opinion, we have made such reviews, analyses and
inquiries as we have deemed necessary and appropriate under the circumstances.
Among other things, we have:
1. reviewed the Company's annual reports to stockholders and on Form
10-K for the four fiscal years ended August 31, 1996 and quarterly report
on Form 10-Q for the quarter ended February 28, 1997, which the Company's
management has identified as being the most current financial statements
available;
2. reviewed the Plan and Agreement of Merger among Chart, CAC and the
Company, draft dated April 11, 1997;
3. met with certain members of the senior management of the Company to
discuss the operations, financial condition, future prospects and projected
operations and performance of the Company;
4. reviewed a forecast prepared by the Company's management with
respect to the Company for the year ending August 31, 1997;
5. reviewed the historical market prices and trading volume for the
Company's publicly traded securities;
6. reviewed publicly available financial data for certain companies
that we deem comparable to the Company, and publicly available prices and
premiums paid in other transactions that we considered similar to the
Transaction; and
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7. conducted such other studies, analyses and inquiries as we have
deemed appropriate.
We have relied upon and assumed, without independent verification, that the
financial forecast provided to us has been reasonably prepared and reflects the
best currently available estimate of the future financial results and condition
of the Company, and that there has been no material change in the assets,
financial condition, business or prospects of the Company since the date of the
most recent financial statements made available to us.
We have not independently verified the accuracy and completeness of the
information supplied to us with respect to the Company and do not assume any
responsibility with respect to it. We have not made any physical inspection or
independent appraisal of any of the properties or assets of the Company. Our
opinion is necessarily based on business, economic, market and other conditions
as they exist and can be evaluated by us at the date of this letter.
Based upon the foregoing, and in reliance thereon, it is our opinion that
the Transaction is fair to the common stockholders of the Company, from a
financial point of view.
HOULIHAN, LOKEY, HOWARD & ZUKIN, INC.
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ANNEX C
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS. -- (a) Any stockholder of a corporation of this State
who holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to 'SS'228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word 'stockholder' means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words 'stock' and 'share' mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words 'depository receipt' mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to 'SS'251 (other than a merger effected pursuant to
'SS'251(g) of this title), 'SS'252, 'SS'254, 'SS'257, 'SS'258, 'SS'263 or
'SS'264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of and to vote at
the meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no
appraisal rights shall be available for any shares of stock of the
constituent corporation surviving a merger if the merger did not require
for its approval the vote of the stockholders of the surviving corporation
as provided in subsection (f) of 'SS'251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to
'SS''SS'251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subpararaphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under 'SS'253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent
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corporation or the sale of all or substantially all of the assets of the
corporation. If the certificate of incorporation contains such a provision, the
procedures of this section, including those set forth in subsections (d) and (e)
of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsections (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of his shares
shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to
demand the appraisal of his shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to 'SS'228 or
'SS'253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights
of the approval of the merger or consolidation and that appraisal rights
are available for any or all shares of such class or series of stock of
such constituent corporation, and shall include in such notice a copy of
this section; provided that, if the notice is given on or after the
effective date of the merger or consolidation, such notice shall be given
by the surviving or resulting corporation to all such holders of any class
or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective
date of the merger or consolidation, shall, also notify such stockholders
of the effective date of the merger or consolidation. Any stockholder
entitled to appraisal rights may, within 20 days after the date of mailing
of such notice, demand in writing from the surviving or resulting
corporation the appraisal of such holder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
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(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trail upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree
C-3
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<PAGE>
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this State
or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
C-4
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APPENDIX A
CRYENCO SCIENCES, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF STOCKHOLDERS
JULY , 1997
KNOW ALL MEN BY THESE PRESENTS, that the undersigned stockholder of Cryenco
Sciences, Inc. (the 'Company') does hereby constitute and appoint Alfred
Schechter and James A. Raabe or either of them (each with full power of
substitution of another for himself) as attorneys, agents and proxies, for and
in the name, place and stead of the undersigned, and with all the powers the
undersigned would possess if personally present, to vote as instructed below all
of the shares of Class A Common Stock of the Company which the undersigned is
entitled to vote at the Special Meeting of Stockholders of the Company to be
held on , July , 1997 at a.m. local time at the Princeton
Club, 15 West 43rd Street, New York, New York 10036, and at any adjournment or
adjournments thereof, all as set forth in the Notice of Special Meeting and
Proxy Statement.
(1) Approval and adoption of the Plan and Agreement of Merger and the
transactions contemplated thereby. [ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) In their discretion, the Proxies are authorized to vote upon such other and
further business as may properly come before the meeting.
<PAGE>
<PAGE>
The shares represented by this Proxy will be voted in accordance with the
instructions given. If no such instructions are given, the shares represented by
this Proxy will be voted 'FOR' Item 1.
Dated:........................, 1997
....................................
....................................
IMPORTANT: PLEASE SIGN EXACTLY AS
YOUR NAME OR NAMES APPEAR HEREON,
AND WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR
GUARDIAN, GIVE YOUR FULL TITLE AS
SUCH. IF SIGNATORY IS A CORPORATION,
SIGN THE FULL CORPORATE NAME BY DULY
AUTHORIZED OFFICER. IF SHARES ARE
HELD JOINTLY, EACH STOCKHOLDER NAMED
SHOULD SIGN.
NOTE: PLEASE MARK, DATE, SIGN AND MAIL THIS PROXY IN THE ENVELOPE PROVIDED FOR
THIS PURPOSE. NO POSTAGE IS REQUIRED FOR MAILING IN THE UNITED STATES.
<PAGE>
<PAGE>
APPENDIX B
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended August 31, 1996 Commission file number 0-14996
- ----------------------------------------- ------------------------------
CRYENCO SCIENCES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 52-1471630
--------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
3811 Joliet Street, Denver, CO 80239
- --------------------------------------------------------------------------------
Address of principal executive offices (Zip Code)
Registrant's telephone number, including area code: 303-371-6332
------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
------------------- -------------------------
None None
Securities registered pursuant to Section 12(g) of the Act: Class A Common
Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
---
Indicate by check mark if disclosure of delinquent filers pursuant to
item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]
The aggregate market value at November 25, 1996 of shares of the
registrant's Common Stock, $.01 par value, held by non-affiliates of the
registrant was approximately $13,334,638. On such date, the closing price of the
Common Stock on the NASDAQ-National Market System was $2.00 per share. Solely
for the purposes of this calculation, shares held by directors and executive
officers of the registrant have been excluded. Such exclusion should not be
deemed a determination or an admission by the registrant that such individuals
are, in fact, affiliates of the registrant.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date: At November 25,
1996, there were outstanding 6,996,997 shares of Class A Common Stock, $.01 par
value.
Documents Incorporated by Reference: Certain portions of the registrant's
definitive proxy statement to be filed not later than December 29, 1996 pursuant
to Regulation 14A are incorporated by reference in Items 10 through 13 of Part
III of this Annual Report on Form 10-K.
<PAGE>
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CRYENCO SCIENCES, INC.
INDEX TO FORM 10-K
<TABLE>
<CAPTION>
Item Number Page
- ----------- ----
PART I
<S> <C> <C>
Item 1. Business 2
Item 2. Properties 10
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 12
Item 6. Selected Consolidated Financial Data 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 20
Item 12. Security Ownership of Certain Beneficial Owners and
Management 20
Item 13. Certain Relationships and Related Transactions 20
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 21
Signatures 31
</TABLE>
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<PAGE>
PART I
ITEM 1. BUSINESS.
GENERAL
Cryenco Sciences, Inc., its subsidiaries and their predecessors (the
"Company") have manufactured vacuum jacketed containment systems and related
products since 1978. Vacuum jacketing provides a highly efficient and
cost-effective insulation to prevent heat transfer and is therefore critical for
many applications that are temperature-sensitive. The Company's products are
used in such applications as magnetic resonance imaging ("MRI"), industrial gas
transportation and storage, military cryogenics, liquefied natural gas
transportation, storage and dispensing, vacuum jacketed intermodal
transportation, and other applications requiring both custom and standard design
and fabrication.
The Company has significant expertise in the field of cryogenics, a
branch of physics that deals with the production and effects of extremely cold
temperatures on the properties of matter. To date, most applications for the
Company's products have required the storing and handling of cryogenic liquids.
Cryogenic liquids are typically atmospheric gases in the liquid state which have
extremely low boiling points, such as liquid oxygen (-297 degrees Fahrenheit; 90
Kelvin), liquid nitrogen (-320 degrees Fahrenheit; 77 Kelvin) and liquid helium
(-452 degrees Fahrenheit; 4 Kelvin), and density ratios reaching 700 to 1
compared to their atmospheric state. Cryogenic liquids are produced by
compressing and cooling gases until they reach the liquid state. As liquids,
they can be stored and transported with weight and volume advantages of five to
ten times compared with compressed gases. The Company's vacuum jacketed
containers minimize evaporation of these cryogenic liquids and preserve low
temperature.
The Company's expansion strategy is to extend vacuum jacketed technology
into new areas, including high performance insulated containers which enhance
energy conservation and environmental protection, and to take a leadership
position in the introduction of products to advance the use of liquefied natural
gas ("LNG") and compressed natural gas ("CNG") as alternatives to other fuels.
Management believes that current international efforts to conserve energy
together with growing concerns for environmental issues provide opportunities
for the Company to broaden the applications for its existing technology, both
within and outside of its historical focus. One such opportunity is a direct
application of the Company's current manufacturing expertise to develop
alternative fuel powered transportation systems including dispensing systems
using LNG and CNG. Another application is the use of LNG for heat and power in
areas which are not served by gas pipelines. LNG is less costly than propane and
is a much more environmentally friendly fuel. The Company is working with
various bus and engine manufacturers, transit authorities and private fleet
operators to supply LNG fuel tanks and systems. See "Products -- Liquefied and
Compressed Natural Gas Products."
2
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PRODUCTS
The Company offers a wide range of custom and standard vacuum systems,
components and accessories to meet the needs and requirements of customers in
the medical, industrial gas, transportation, chemical, pharmaceutical, food, and
aerospace and defense industries, as well as national laboratories,
semiconductor manufacturers and the United States Government. The Company's
products generally include an inner vessel that is surrounded by a jacket
casing. An annular space is created between the vessel and the jacket casing
into which insulation such as aluminum foil, glass paper or fiberglass is
installed and a vacuum is created. This insulated system is designed to prevent
heat gain or, in some cases, to promote heat retention. Both the inner vessel
and jacket casing are generally made of carbon steel, stainless steel or
aluminum. While the Company's products differ substantially in their use, they
all require close tolerance forming and sophisticated welding of stainless steel
and aluminum to create microscopically leak-tight systems.
MRI CRYOSTAT COMPONENTS
MRI is generally regarded as a significant advance in medical diagnostics
and has been found to offer benefits not provided by other forms of medical
examination. From a clinical point of view, MRI may also be considered superior
to other available techniques in providing images of the central nervous system,
particularly in the brain. Unlike x-rays and certain other imaging techniques,
such as computerized axial tomography, MRI is a non-invasive procedure where the
patient is not exposed to radiation or required to ingest any liquids or receive
injections of any type. Although MRI is a relatively expensive technology to
purchase and to operate, its growth has been substantial. MRI use has replaced
or complemented much of the imaging done by other techniques and can decrease
the number of necessary tasks performed on a patient, thereby eliminating the
need for many exploratory procedures and adding significantly to diagnostic
knowledge.
The basis of the MRI technique is the magnetic properties of certain
nuclei of the human body which can be detected, measured and converted into
images for analysis. MRI equipment uses high-strength magnetic fields, applied
radio waves and high-speed computers to obtain cross-sectional images of the
body. The major components of the MRI assembly are a series of concentric
thermal shields and a supercooled magnet immersed in a liquid helium vessel (a
"cryostat") that maintains a constant, extremely low temperature (-452 degrees
Fahrenheit; 4 Kelvin) to achieve superconductivity. The Company manufactures
large cryostats, various cryogenic interfaces, electrical feed-throughs and
various other MRI components, that are used to transfer power and/or cryogenic
fluids from the exterior of the MRI unit to the various layers of the cryostat
and superconducting magnet.
The Company currently sells all of its MRI cryostats to General Electric
Company ("GE"), and is the exclusive supplier of GE's cryostats. GE is the
leading worldwide manufacturer of MRI equipment. The Company will soon complete
the second year of its current two-year contract with GE for the production of
MRI cryostats, its tenth consecutive year of this work for GE. A new contract of
two years is currently being negotiated with GE. It is anticipated that the
contract will allow for price adjustments based upon the cost of material, which
can be modified if GE changes specifications and contains options under which GE
may adjust the number of units which it will purchase. Revenue from MRI
cryostats and components was 35%, 36% and 50% of the Company's total revenue
during the fiscal years
3
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ended August 31, 1996, 1995 and 1994, respectively. The Company's backlog of
purchase orders with GE was approximately $6.0 million and $4.3 million at
September 30, 1996 and September 30, 1995, respectively. It is expected that all
of the Company's current backlog for MRI cryostat components will be filled by
August 31, 1997.
TRANSPORTATION AND STORAGE EQUIPMENT
Cryogenic Transport Trailers
Cryogenic transport trailers are designed to hold a variety of gases in
liquid or gaseous state and are capable of storing and transporting such gases
without substantial evaporation, limiting the loss to less than one percent per
day. Because of these characteristics, cryogenic liquids can be transported over
relatively long distances with marginal loss.
The Company designs and produces transport trailers to the specific
requirement of its customers. The primary purchasers of cryogenic transport
trailers are industrial gas companies, independent carriers which service
producers and users of these gases, and independent carriers transporting LNG
for use as an alternative fuel. During the past year, the increased demand for
new cryogenic transport trailers, combined with the Company's success in
obtaining a high percentage of trailer orders placed, has resulted in an
increased level of trailer production by the Company. The Company also repairs
transport trailers built by others and provides such services for its own
trailers.
Revenue from cryogenic transport trailers was 42%, 33% and 17% of the
Company's total revenue for the fiscal years ended August 31, 1996, 1995 and
1994, respectively. Sales of cryogenic transport trailers to Jack B. Kelley,
Inc. and affiliated companies accounted for 21%, 12% and 6% of total revenue for
the fiscal years ended August 31, 1996, 1995 and 1994, respectively. The
Company's backlog of cryogenic transport trailers at September 30, 1996 and
September 30, 1995 was $2.7 million and $10.3 million, respectively. It is
expected that the Company's current backlog of cryogenic transport trailers will
be filled by August 31, 1997.
TVAC'r' Intermodal Containers
Intermodal containers, which are used to store and transport various
items worldwide, are generally uniform in size and are transferable from one
mode of transportation or carrier to another. Management believes that there are
in excess of 70,000 intermodal tank containers worldwide, many of which rely on
mechanical refrigeration or heating to maintain the temperature of their
contents.
The Company has designed a number of models of its proprietary TVAC
intermodal tank container, which fall into two categories. The first category,
which is used in the chemical, food and pharmaceutical industries, enables the
transportation of up to 5,500 gallons of temperature sensitive hot or cold
liquids by truck, rail and ship without mechanical refrigeration or heating. The
Company has been producing these products since 1993 for applications involving
the transportation of various temperature-sensitive products, including hot
liquid chocolate, glacial acrylic acid and chilled fruit juices. The second
category, for the transportation and storage of cryogenic liquids, was developed
in 1994, and also transports up to 5,500 gallons of these liquids without the
need for mechanical refrigeration. As of
4
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October 31, 1996, over 175 TVACs have been produced and are in service
transporting food and chemical products as well as various cryogenic liquids
including liquid argon and LNG.
Revenue from TVACs accounted for 13%, 21% and 13% of the Company's total
revenue for the fiscal years ended August 31, 1996, 1995 and 1994, respectively.
Sales of TVACs to Jack B. Kelley, Inc. and affiliated companies accounted for
9%, 20% and 8% of the Company's total revenue during the same years. The
Company's backlog of TVACs at September 30, 1996 and September 30, 1995 was $7.3
million and $4.8 million, respectively. It is expected that the Company's
current backlog of TVACs will be filled by August 31, 1997.
Cryogenic Storage Tanks
Large cryogenic storage tanks ("Big Tanks") are used for the storage of
liquefied atmospheric gases and LNG at sites where a permanent storage facility
is desired. The Company has designed a series of shop-built Big Tanks to
accommodate storage of cryogenic liquids from 15,000 gallons through 60,000
gallons. These tanks are an alternative to fieldbuilt tanks, and often provide a
more cost effective storage solution for customers. The Company made its initial
deliveries of Big Tanks in the fiscal year ended August 31, 1996.
LIQUEFIED AND COMPRESSED NATURAL GAS PRODUCTS
The Company believes that LNG, used as an alternative fuel in the
transportation sector, offers a significant opportunity for application of the
Company's cryogenic equipment and technology. Natural gas burns more cleanly
than gasoline or diesel fuel, and advanced natural gas-fueled vehicles have the
potential to reduce carbon monoxide emissions by about 90% and carbon dioxide
emissions by about 25% compared with most gasoline powered vehicles. Recent
legislation, including the Clean Air Act of 1990, has prompted many governmental
agencies to consider and require conversion of municipal vehicles to the
utilization of natural gas. In addition, the cost of LNG in many areas has
decreased in the past year, primarily due to the increasing supply of LNG. This
has resulted, in some cases, in an economic advantage over other fuels in both
vehicle and industrial applications. Natural gas may be used in compressed (CNG)
or liquid (LNG) states, and the Company believes that LNG offers a superior
alternative to CNG for certain transportation applications, providing
substantially longer range before refueling is required and requiring
significantly less vehicle tank space and weight. Additionally, the Company
believes that compressed natural gas made from liquefied natural gas ("LCNG")
offers some distinct advantages as an alternative fuel compared to traditional
CNG. Currently, LNG production requires liquefaction plants to convert the gas
into a liquid state and specialized cryogenic containers to store and transport
the liquid gas to fueling stations.
5
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The Company continues to develop proprietary products for the LNG and CNG
transportation market. Among the products developed to date are LNG vehicle
tanks for heavy vehicle applications, portable dispensing equipment for both LNG
and LCNG, fueling facilities utilizing either a TVAC or a large permanent
storage tank and dispensing equipment which looks and operates like a gasoline
fuel station, a mobile refueling facility for dispensing both LNG and LCNG, and
fuel gas modules for converting LNG to pipeline gas for industrial and
commercial applications. Management believes that the Company's proprietary
products developed for this market will be increasingly well received as the
supply of LNG becomes more widespread, and as the advantages of LNG and LCNG as
alternative fuels, including the economic advantages in an increasing number of
cases, become apparent to the potential customers.
The Company's joint venture with Jack B. Kelley, Inc., Applied LNG
Technologies USA, LLC ("ALT-USA") has been active throughout the year in
identifying opportunities for the use of LNG as an alternative fuel source, both
for vehicle applications and for heat and power applications in areas not served
by gas pipelines. The vehicle opportunities have recently been limited by an
increased excise tax burden imposed by the Internal Revenue Service (the "IRS")
for highway use of LNG as a motor fuel.
On August 7, 1995 the IRS ruled that LNG is not a gaseous fuel, and
should be taxed as a liquid motor fuel. The result of this ruling is to impose a
much higher effective rate of tax on LNG, one that is 25.1 cents higher than CNG
and 7.1 cents higher than diesel fuel. This tax penalty compared to diesel fuel
has virtually halted the conversion of medium and large trucks from diesel to
LNG. A number of bills have been introduced in Congress to eliminate this
disparity, and this issue is currently working its way through the legislative
process. While there appears to be substantial support for a reduction of the
tax on LNG to a rate equaling the tax on CNG, the outcome of the effort and the
timing are in question.
The Company continues to seek international sales agents, licensees and
joint venture partners, and continues to pursue the sale of LNG fuel tanks and
systems to a number of potential domestic customers, including municipal and
private fleets.
TADOPTR
The Company has obtained exclusive rights to license technology from the
Los Alamos National Laboratory which management believes may enable the Company
to produce a low cost, low maintenance, reliable cryogenic refrigerator, known
as "TADOPTR", to be used as a liquefier to produce LNG and CNG in a variety of
locations and applications. The TADOPTR refrigerator's maximum theoretical
efficiency occurs at approximately 110 Kelvin (-260 degrees Fahrenheit), the
liquefication temperature for natural gas.
6
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In June 1994, the Company received $780,000 in funding from a limited
partnership for the purpose of developing a 500 gallon per day TADOPTR. In
return for the partnership's investment, the Company issued warrants to purchase
200,000 shares of the Company's Common Stock at $3.00 per share, and entered
into a Royalty Rights and Technology Development Agreement with the partnership
pursuant to which royalties will be paid to the partnership on net revenues from
the sale of TADOPTRs. The royalties are payable for a period of 20 years from
the execution of the agreement. The Company spent the funds provided by the
partnership for the development of a 500 gallon per day TADOPTR during the years
ended August 31, 1995 and 1994. Should the development under this contract be
successful, management believes that there are numerous potential applications
for this technology, including use at fueling stations for LNG and CNG vehicles,
use for liquefaction of natural gas at remote well locations and use in other
commercial liquefaction applications.
In May, 1995, the Company received a contract from BDM-Oklahoma, Inc., a
program manager for the U.S. Department of Energy administering funding for LNG
and CNG research, in the amount of $452,500 for further development of and
additional enhancements to the TADOPTR liquefier and LNG dispenser system.
During the year ended August 31, 1996, the Company billed approximately $120,000
against this contract.
In October 1995, the Company successfully liquefied a stream of natural
gas, utilizing a compressor to power the OPTR phase of the TADOPTR, which
demonstrates that the OPTR technology can be scaled to a large size. In August
1996, the Company successfully operated a TAD power source, designed to operate
a 500 gallon per day TADOPTR, which demonstrates that the TAD technology can
also be scaled to a large size. Currently the Company is working to integrate
the TAD and the OPTR hardware as well as developing related liquefier products.
Considerable additional development is required to transition these developments
to a refrigerator that will produce LNG efficiently and economically.
MANUFACTURING
The Company's reputation as an innovative and effective problem solver is
supported by its engineering expertise and manufacturing capabilities.
Customized products often result from extended efforts between the Company's
engineers and the customers' design staff.
The Company meets stringent industrial and governmental specifications
throughout the entire design and manufacturing process and produces fabrications
in accordance with the requirements of the American Society of Mechanical
Engineers ("ASME") and the Boiler and Pressure Container Vessel Code ("ASME
Code"). The ASME Code sets forth generally recognized standards for
manufacturing, inspection and testing of containers for pressurized gases and
liquids. The ASME, through the National Board of Pressure Vessel Inspectors, has
examined and approved the Company's quality control system. This approval
permits the Company to stamp its pressure containers with a symbol indicating
that the equipment was built according to the requirements of the ASME Code. In
addition, many of the Company's products are designed to meet various
international standards for containers used for transporting regulated
materials, such as the International Maritime Organization standards. The
Company believes that, in many cases, its ability to meet such standards gives
it a competitive advantage.
7
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To the extent that the Company's products transport cryogenic liquids in
interstate commerce, they are also subject to regulation by the United States
Department of Transportation. These regulations provide safety inspections that
vary according to the method of transportation and the nature of the substance
being transported. Also, many states and localities impose safety requirements
which are independent of federal requirements.
The Company's quality control procedures incorporate many "inspection
points." Such inspection points require review of the quality of raw materials
used by the Company, review of the engineering design, inspections throughout
the manufacturing process and postmanufacture tests to insure the structural
integrity of the container, its durability and its impermeability to leaks. At
each inspection point, the quality control review is conducted both by employees
of the Company and by representatives of an independent agency acceptable to the
ASME. The frequency of inspections varies according to the nature of the
manufacturing projects underway at any given time.
The Company generally warrants its manufactured products against
defective materials and workmanship for a period of one year from the date of
delivery of the product.
The principal raw materials and supplies used by the Company in its
manufacturing processes are stainless steel, carbon steel, aluminum, valves,
pressure gauges, liquid level detectors and insulation materials, such as
aluminum foil. These materials are generally available at competitive prices
from many sources.
SALES AND MARKETING
The Company currently has five sales account executives. These sales
account executives are responsible for specific customer and industry
relationships. To facilitate its sales and marketing efforts, the Company has a
sales administration department consisting of a sales manager, a sales
administrator, an order entry clerk and a contract administrator, and agreements
with marketing representatives to cover parts of the United States and Europe.
In addition, the Company utilizes a team selling effort which draws upon the
expertise of senior management from areas such as engineering, manufacturing,
operations and finance. To supplement its direct sales efforts, the Company also
has an indirect sales and marketing network, utilizing the personnel of
customers and affiliates, including Chemical Leaman Tank Lines, Jack B. Kelley,
Inc. and ALT-USA. The Company believes that its team approach and the
utilization of outside resources enables it to address its customers'
requirements more effectively and provide a more complete understanding of the
costs involved in a particular project, allowing the Company to bid more
competitively and maximize the opportunity for longer-term, high volume
contracts.
8
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CUSTOMERS
Over the past several years, the Company has developed close working
relationships with several significant customers, including GE, Jack B. Kelley,
Inc., Chemical Leaman Tank Lines, MG Industries, BOC Gases, Air Products, the
Department of Defense (the "DOD") and others. The Company's recent focus on
broadening its product lines is reducing customer concentration to levels where
the loss of a single contract or customer, other than GE and Jack B. Kelley,
Inc., would not have a material adverse effect on the Company's overall
business. GE and Jack B. Kelley, Inc. have accounted for substantial percentages
of the Company's revenues during the past three fiscal years. See "Products --
MRI Cryostat Components" and "Products -- Transportation Equipment." The Company
anticipates that its dependence on these customers will be reduced in future
years.
Historically, the Company's products were sold pursuant to customer
orders which called for delivery on a relatively short term basis. Over the past
several years, the Company has developed proprietary products which has enabled
it to enter into longer term contracts with certain of its major customers. Such
contracts contain product specifications, numbers of units, and pricing per
unit, subject in some cases to adjustment for changes in cost of materials and
product specifications. During the term of these contracts, the customer will
issue specific purchase orders against which the Company will commence
production. These orders are counted in the backlog when purchase orders are
received.
At September 30, 1996, the Company had a total backlog of $18.8 million,
compared to a backlog of $21.2 million at September 30, 1995. The Company
estimates that all of the current backlog will be filled by August 31, 1997. The
Company's backlog fluctuates depending on placement of large orders from certain
customers.
COMPETITION
The Company has competitors in each of its product lines. Certain of
these competitors are significantly larger and have greater financial resources
than the Company. The Company believes that the principal competitive factors in
the markets in which it competes are product expertise, quality, service and
price. The Company believes that its products have achieved market acceptance
due to the Company's ability to meet stringent industrial and governmental
specifications, innovative design and attention to customer service. The Company
has achieved significant market position in the fields of MRI cryostats,
cryogenic truck trailers, cryogenic intermodal tank containers and LNG fueling
systems, and has historically been one of the largest suppliers of cryogenic
tankage to the DOD.
EMPLOYEES
At September 30, 1996, the Company employed 210 persons, including 167 in
manufacturing, 5 in quality control, 12 in administration, 11 in sales and 15 in
engineering.
The Company depends on many skilled employees, and the Company's success
is affected by its ability to retain such employees. None of the Company's
employees is represented by a union or other collective bargaining group, and
management believes that its relationships with its employees are generally
good.
9
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ITEM 2. PROPERTIES.
The Company leases 14,700 square feet of office space and 105,100 square
feet of manufacturing space for its primary offices and plant under a lease
expiring in 2006 at 3811 Joliet Street, Denver, Colorado. Lease expense is $3.75
per square foot per year, to be increased every two years at an annual rate of
between 3% and 5%, depending upon the level of inflation. Additionally, the
Company is required to pay all maintenance for the premises and the cost of
insurance and property taxes.
The Company also leases approximately 13,700 square feet of office space
and 91,300 square feet of manufacturing space at 5995 North Washington Street,
Denver, Colorado under a lease expiring in 1999. The facility was remodeled in
1989 and substantial leasehold improvements were made to the manufacturing area
to facilitate production and improve efficiencies. Lease expense is $3.25 per
square foot per year and the Company is required to pay all taxes, insurance and
maintenance for the premises. The Company has a right of first refusal to
purchase the facility.
The Company believes that its facilities are generally in good repair and
provide suitable and adequate capacity for its present needs. Additional
facilities may be required for future expansion of operations.
ITEM 3. LEGAL PROCEEDINGS.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable
10
<PAGE>
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth certain information concerning the
executive officers of the Company.
<TABLE>
<CAPTION>
Positions and offices held
Name Age during the past fiscal year
---- --- ---------------------------
<S> <C> <C>
Alfred Schechter................ 76 Chairman of the Board, Chief Executive
Officer and President of the Company;
Chairman of the Board, Chief Executive
Officer and President of Cryenco, Inc.
James A. Raabe.................. 44 Vice President, Treasurer, Chief Financial
Officer and Secretary of the Company;
Vice President, Treasurer, Chief Financial
Officer and Secretary of Cryenco, Inc.
</TABLE>
Each executive officer serves at the pleasure of the Board of Directors
and until his or her successor is duly elected and qualifies.
ALFRED SCHECHTER has been Chairman of the Board and Chief Executive
Officer of Cryenco, Inc. since September 1991, President of Cryenco, Inc. since
September 1996 and Chairman of the Board, Chief Executive Officer and President
of the Company since February 1992. Mr. Schechter has been a Director of
Charterhouse Group International, Inc. ("Charterhouse") since 1985. Mr.
Schechter served as Chairman of the Board and Chief Executive Officer of
Charter-Crellin, Inc., a designer, manufacturer and marketer of proprietary
injected molded plastic products, from 1985 to 1989 and as Chairman of the Board
and Chief Executive Officer of Paco Pharmaceutical Services, Inc., a
pharmaceutical contract packaging company, from 1975 to 1988. Mr. Schechter is
also a member of The Advisory Board of The Recovery Group, L.P., which invests
in debt and equity securities of distressed companies. Mr. Schechter has held
the positions of Chairman of Stanley Interiors Corporation, a manufacturer of
home furnishings, Vice Chairman of Joseph Kirschner Company, Inc., a
manufacturer of processed meat products, and Director of Paco Pharmaceutical
Services, Inc., WDP, Inc., a brick refractory servicing the steel industry,
Dreyers Grand Ice Cream, Inc., a manufacturer of ice cream products, Marathon
Enterprises Inc., a manufacturer of processed meat products, and Garden America
Corporation, a manufacturer and distributor of garden products.
JAMES A. RAABE became Vice President and Chief Financial Officer of
Cryenco, Inc. and Chief Financial Officer of the Company in July 1994. He later
became Vice President of the Company and Treasurer of Cryenco, Inc. in January
1995 and Secretary and Treasurer of the Company and Secretary of Cryenco, Inc.
in July 1995. Mr. Raabe was employed by Cryenco, Inc. in March 1994 as Financial
Manager. Mr. Raabe was previously employed by Stanley Aviation Corporation, a
manufacturer of aerospace products, from 1977 to 1993, where he was Vice
President - Finance, Corporate Secretary and a Director of the Company. Mr.
Raabe received his B.A. degree in Business Administration from California State
University, Fullerton, and is a Certified Public Accountant.
11
<PAGE>
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Company's Common Stock is traded on the NASDAQ National Market System
under the symbol CSCI. The following table sets forth the high and low sales
prices for the Company's Common Stock as reported on the NASDAQ National Market
System from September 1, 1994 to November 25, 1996. The prices set forth reflect
interdealer quotations, without retail markups, markdowns or commissions, and do
not necessarily represent actual transactions.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Fiscal Quarter Ended
November 30, 1994....................................................... $5 1/2 $3 1/8
February 28, 1995....................................................... 4 1/2 2 1/2
May 31, 1995............................................................ 4 1/2 3
August 31, 1995......................................................... 4 1/4 3 1/4
November 30, 1995....................................................... $5 $3 5/8
February 29, 1996....................................................... 5 1/8 3 3/8
May 31, 1996............................................................ 4 3/8 3
August 31, 1996......................................................... 4 3/4 2 5/8
November 30, 1996 (through November 25, 1996)........................... $3 3/4 $1 3/8
</TABLE>
The closing price of the Company's Common Stock on November 25, 1996 was
$2.00 per share. At November 25, 1996, there were approximately 200 stockholders
of record. However, the Company believes that at such date there were in excess
of 500 beneficial stockholders.
DIVIDENDS
The Company has never declared or paid any cash dividends on its Common
Stock and currently intends to retain any earnings for use in its business. The
Company's ability to pay cash dividends is currently limited by credit
agreements and the Company does not anticipate paying any cash dividends in the
foreseeable future.
12
<PAGE>
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The selected consolidated financial data at and for the fiscal years
ended August 31, 1996, 1995, 1994 and 1993 are derived from financial statements
which have been audited by Ernst & Young LLP, independent auditors. The selected
consolidated financial data at and for the fiscal year ended August 31, 1992 are
derived from the consolidated financial statements which have been audited by
KPMG Peat Marwick LLP, independent auditors. This information should be read in
conjunction with the Company's consolidated financial statements and related
notes and other financial information appearing elsewhere herein.
<TABLE>
<CAPTION>
Fiscal year ended August 31,
-----------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(In thousands, except per share data)
Statement of income data:
<S> <C> <C> <C> <C> <C>
Contract Revenue $31,259 $27,215 $17,665 $13,099 $22,198
Cost of revenue 24,898 22,350 14,670 12,198 16,398
------- ------- ------- ------- -------
Gross Profit 6,361 4,865 2,995 901 5,800
Selling, general and
administrative expenses 3,288 2,867 2,834 3,396 2,366
Research and development expenses 792 70 86 701 319
Amortization expense 346 346 338 286 321
------- ------- ------- ------- -------
Operating income (loss) 1,935 1,582 (263) (3,482) 2,794
Interest expense, net 943 987 1,105 1,037 1,282
Other nonoperating expense
(income), net 9 40 (69) (19) 111
------- ------- ------- ------- -------
Income (loss) before income taxes
and extraordinary item 983 555 (1,299) (4,500) 1,401
Income tax (expense) benefit (363) (194) 403 1,196 (483)
------- ------- ------- ------- -------
Income from operations before
extraordinary item 620 361 (896) (3,304) 918
Extraordinary item, net of taxes 93 -- -- -- --
------- ------- ------- ------- -------
Net income (loss) $ 527 $ 361 $ (896) $(3,304) 918
======= ======= ======= ======= =======
Earnings (loss) per share (1) $ .06 $ .04 $ (.17) $ (.62) $ .20
======= ======= ======= ======= =======
Balance sheet data:
Total assets $25,704 $23,377 $18,404 $20,344 $21,644
Long-term debt, excluding
current maturities 8,634 5,629 6,928 8,191 7,558
Stockholders' equity 11,673 11,236 7,047 7,191 10,420
</TABLE>
(1) Net income (loss) per share for the fiscal years ended August 31, 1996,
1995, 1994, 1993 and 1992 have been calculated based on 7,230,773,
6,620,055, 5,346,760, 5,326,936 and 4,491,392 weighted average common and
common equivalent shares outstanding during the year, respectively.
13
<PAGE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Annual Report on Form 10-K contains certain forward-looking
statements that involve risks and uncertainties. Discussions containing such
forward-looking statements may be found in the materials set forth under
"Business" and in "Management's Discussion and Analysis of Financial Condition
and Results of Operations" set forth below. The Company's actual results could
differ materially from those anticipated in the forward-looking statements.
GENERAL
The Company's operating subsidiary, Cryenco, Inc. was organized in 1978.
Effective August 30, 1991, Cryenco Holdings, Inc. ("CHI") acquired all of the
outstanding common stock of Cryenco, Inc. On February 11, 1992, CHI was merged
with and into Gulf & Mississippi Corporation and Gulf & Mississippi Corporation
changed its name to Cryenco Sciences, Inc. (the "Merger"). The Merger has been
accounted for as a reverse acquisition, whereby CHI is considered to be the
acquirer of Gulf & Mississippi Corporation for accounting and financial
reporting purposes. The discussion and analysis set forth below refers to the
financial condition and results of operations of the Company, including its
predecessor, Cryenco, Inc.
The Company accounts for its revenue using the percentage-of-completion
method, units delivered or completed contract, whichever is deemed more
appropriate for the contract. See Note 1 to the consolidated financial
statements. Revenue has been generated primarily from sales of cryogenic
components and systems to a small number of significant customers. During the
fiscal years ended August 31, 1996, 1995 and 1994, revenue from MRI cryostats
and components accounted for 35%, 36% and 50%, respectively, of total contract
revenue. Revenue from the sale and repair of cryogenic transport trailers and
intermodal tank containers accounted for 55%, 55% and 40% of total contract
revenue for the fiscal years ended August 31, 1996, 1995 and 1994, respectively.
During fiscal 1996, the Company continued to concentrate its efforts on
developing new domestic and international markets with an emphasis on product
lines offering repeatability and higher volume potential while de-emphasizing
its traditional job shop or short product run products. During this period, the
Company expanded certain segments of its operations, including personnel and
plant capacity, to support the growth from these new markets for its cryogenic
technology. Management believes that the Company has been successful in securing
the majority of the orders placed during the past year for these trailers. The
markets for LNG fuel tanks and systems both in the United States and
internationally are growing, but much more slowly than the Company had hoped.
Nevertheless, this market appears to be improving as an increased availability
of LNG and new products, including the Company's dispensing equipment and TVAC,
have made LNG vehicles more economically viable.
14
<PAGE>
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
income and expense items as a percentage of revenue:
<TABLE>
<CAPTION>
Fiscal Year Ended
August 31,
--------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Contract revenue.............................................. 100.0% 100.0% 100.0%
Cost of revenue............................................... 79.7 82.1 83.0
----- ----- -----
Gross profit.................................................. 20.3 17.9 17.0
Selling, general and administrative expenses.................. 10.5 10.5 16.1
Research and development expenses............................. 2.5 0.3 0.5
Amortization expense.......................................... 1.1 1.3 1.9
----- ----- -----
Operating (loss) income ...................................... 6.2 5.8 (1.5)
Interest expense, net......................................... 3.0 3.6 6.3
Other nonoperating (income) expense, net...................... 0.0 0.2 (0.4)
----- ----- -----
Income (loss) before income taxes and extraordinary item...... 3.2 2.0 (7.4)
Income tax (expense) benefit.................................. (1.2) (0.7) 2.3
----- ----- -----
Income (loss) before extraordinary item....................... 2.0 1.3 (5.1)
Extraordinary item............................................ 0.3 -- --
----- ----- -----
Net income (loss)..................................... 1.7% 1.3% (5.1)%
===== ===== =====
</TABLE>
FISCAL YEARS ENDED AUGUST 31, 1996 AND 1995
Contract revenue increased 14.9% to $31.3 million in 1996 from $27.2
million in 1995, primarily as a result of the increase in revenue derived from
the sale of industrial gas and LNG transport trailers, as well as revenue
derived from the sale of various products to ALT-USA. Additionally, the Company
recognized smaller increases in revenue from the production of MRI cryostats and
sales of LNG products.
Gross profit in 1996 increased 30.8% to $6.4 million from $4.9 million in
1995 and gross profit as a percentage of contract revenue increased to 20.3% in
1996 from 17.9% in 1995. This increase is the result of higher production levels
which reduced the unabsorbed overhead, as well as the increasing gross margins
in Transportation Equipment. Additionally, excess and obsolete inventory costs
increased to $269,000 in 1996 from $55,000 in 1995, while warranty costs
decreased from $663,000 in 1995 to $379,000 in 1996. The increase in obsolete
inventory costs is primarily due to the changing of the Company's products
during the past few years, which has resulted in certain inventory items having
no anticipated production use, and an increase in the reserve for obsolete
inventory. The decrease in warranty costs is primarily based on the improved
quality of the Company's products. At August 31, 1996 the reserve for obsolete
inventory was $150,000, compared to the $100,000 reserve at August 31, 1995.
Selling, general and administrative expenses increased 14.7% to $3.3
million in 1996 from $2.9 million in 1995 and remained at 10.5% of contract
revenue.
15
<PAGE>
<PAGE>
Research and development expenses increased to $792,000 in 1996 from
$70,000 in 1995. This increase is primarily due to the Company's funding of
research and development for the TADOPTR program and for the further development
of LNG products, both of which were in excess of amounts reimbursed from
customers.
Amortization expense remained at $346,000 in both 1996 and 1995.
Interest income decreased to $1,000 in 1996 from $20,000 in 1995. This
decrease is primarily due to the lower level of excess cash invested in
short-term interest bearing accounts.
Interest expense decreased to $944,000 in 1996 from $1.0 million in 1995.
This decrease is the result of slightly higher average borrowings during the
year which is more than offset by lower interest rates.
Other nonoperating expense decreased to $9,000 in 1996 from $40,000 in
1995. This decrease is primarily due to the expenses from the Company's
investment in ALT-USA in 1995 that did not recur in 1996.
Income tax expense increased to $363,000 in 1996 from $194,000 in 1995,
due primarily to the increased profit in 1996 compared to 1995.
In 1996, the Company recorded an extraordinary expense of $93,000 net of
income tax benefit of $54,000, with no corresponding expense in 1995. This
amount is the result of the expensing in the current period of certain deferred
financing expenses, due to the early retirement of the Chemical Bank loans and a
portion of The CIT Group/Equity Investments, Inc.
("CIT") note.
Net income increased to $527,000 in 1996 from $377,000 in 1995. The
resulting net income is the result of the cumulative effect of the above
factors.
Net cash used by operating activities in 1996 amounted to $356,000
compared to $1.2 million in 1995. The use of cash in 1996 is primarily the
result of an increase in accounts receivable resulting from the Company
discontinuing its policy of granting cash discounts, combined with a decrease in
accounts payable following the increase in borrowing capacity from FBS Business
Finance Corporation. This use of funds was only partially offset by the decrease
in costs and estimated earnings in excess of billings on uncompleted contracts
during 1996.
FISCAL YEARS ENDED AUGUST 31, 1995 AND 1994
Contract revenue increased 54.1% to $27.2 million in 1995 from $17.7
million in 1994, primarily as a result of the increase in revenue derived from
the sale of industrial gas and LNG transport trailers and TVAC intermodal
containers. Additionally, the Company recognized smaller increases in revenue
from the production of MRI cryostats and sales of LNG products.
16
<PAGE>
<PAGE>
Gross profit in 1995 increased 62.4% to $4.9 million from $3.0 million in
1994 and gross profit as a percentage of contract revenue increased to 17.9% in
1995 from 17.0% in 1994. This increase is the result of higher production levels
which reduced the unabsorbed overhead, as well as the increasing gross margins
in Transportation Equipment and LNG Products. Additionally, the excess and
obsolete inventory costs decreased to $55,000 in 1995 from $142,000 in 1994,
while warranty costs increased from $287,000 in 1994 to $663,000 in 1995. The
increase in warranty costs is primarily due to costs incurred on cryogenic
transport trailers produced in 1993, and an increase in the warranty reserve. At
August 31, 1995 the reserve for warranty costs was $200,000, compared to the
$144,000 reserve at August 31, 1994, and the allowance for excess and obsolete
inventory increased from $52,000 at August 31, 1994 to $100,000 at August 31,
1995.
Selling, general and administrative expenses increased 1.2% to $2.9
million in 1995 from $2.8 million in 1994 and decreased as a percentage of
contract revenue to 10.6% from 16.1%. This decrease resulted from continuing
savings resulting from the Company's cost reduction efforts and the fixed nature
of certain general and administrative expenses in relation to increased revenue.
Research and development expenses decreased to $70,000 in 1995 from
$86,000 in 1994. In both years, the costs for the continuing development of
products were generally charged against specific customer orders.
Amortization expense increased to $346,000 in 1995 from $338,000 in 1994.
This increase is the result of the increased warrant amortization resulting from
the 1993 debt restructuring with Chemical Bank, CIT and the Company's junior
subordinated debt holders.
Interest income decreased to $20,000 in 1995 from $103,000 in 1994. This
decrease is primarily due to the lower level of excess cash invested in
short-term interest bearing accounts.
Interest expense decreased to $1.0 million in 1995 from $1.2 million in
1994. This decrease is primarily due to reduced level of interest bearing debt
in 1995 compared to 1994.
Other nonoperating expense increased to $40,000 in 1995 from the
nonoperating income of $69,000 in 1994. This increase is primarily due to
expenses from the Company's investment in ALT-USA in the current year compared
to a reimbursement received for warranty claims in the prior year.
Income tax expense increased to $194,000 in 1995 from a tax benefit of
$403,000 in 1994, due primarily to the profit in 1995 compared to the loss in
1994.
Net income increased to $361,000 in 1995 from a net loss of $896,000 in
1994. The resulting net income is the result of the cumulative effect of the
above factors.
Net cash used by operating activities in 1995 amounted to $1.2 million
compared to $1.9 million provided by operating activities in 1994. The
difference of $3.2 million is due to
17
<PAGE>
<PAGE>
the increased level of operating activities of the Company, which has resulted
in increased inventories and costs and estimated earnings in excess of billings
on uncompleted contracts, which are only partially offset by the increase in
accounts payable.
LIQUIDITY AND CAPITAL RESOURCES
At August 31, 1996, the Company's working capital was $9.8 million, which
represented a current ratio of 2.8 to 1. Also, the Company's outstanding
indebtedness under the Credit and Security Agreement with FBS Business Finance
Corporation ("FBS") was $7.8 million, of which $615,000 represented term
indebtedness and $7.2 million represented revolving indebtedness. At August 31,
1996, the Company's outstanding indebtedness to CIT was $1.7 million which
represented subordinated indebtedness.
In December 1995, the Company entered into a Credit and Security
Agreement with FBS. Under the agreement, FBS is providing a revolving loan
facility of up to $10,000,000 and a term loan facility of up to $2,960,000,
subject to the amount of the Company's borrowing base and manufacturing
equipment additions in the fiscal year ended August 31, 1996, respectively. The
revolving loan initially bore interest at the First Bank National Association
reference rate (the "Reference Rate") plus 0.5%, while the term loan bears
interest at the Reference Rate plus 0.75%. The revolving loan has a provision
for incentive pricing whereby the rate may adjust upward or downward on a
quarterly basis depending upon the performance of the Company.
On January 16, 1996, the Company obtained the initial funding under the
revolving loan in the amount of $5,825,000. The proceeds of this loan were used
to retire the outstanding Chemical Bank revolving credit facility ($2,200,000),
to retire the outstanding Chemical Bank term loan ($2,125,000), to make a
partial payment on the outstanding note payable to CIT ($500,000), and for
general corporate purposes ($1,000,000).
The Credit and Security Agreement limits the Company's ability to make
capital expenditures to $6.5 million for fiscal 1997, and $4.5 million for
fiscal 1998. As necessary to supplement capital expenditure needs, Cryenco, Inc.
intends to utilize leasing arrangements to the extent they are available on
commercially reasonable terms. The Company intends to fund capital expenditure
needs from cash flow from operations, future borrowing capacity under the Credit
and Security Agreement, if any, and, as necessary, future financing.
The Company believes that its existing capital resources, together with
its cash flow from future operations will be sufficient to meet its short term
working capital needs. Additional financing may be required for future expansion
of operations and research and development, as necessary, including for the
continued development of the Company's TADOPTR products.
18
<PAGE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See pages F-1 and S-2.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Not Applicable.
19
<PAGE>
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS OF THE COMPANY.
See Part I, page 11. "Executive Officers of the Company." Other
information required by this item is incorporated by reference from the
Company's definitive proxy statement to be filed not later than December 29,
1996 pursuant to Regulation 14A of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended ("Regulation 14A").
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than December 29,
1996 pursuant to Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than December 29,
1996 pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS.
The information required by this item is incorporated by reference from
the Company's definitive proxy statement to be filed not later than December 29,
1996 pursuant to Regulation 14A.
20
<PAGE>
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
<TABLE>
<S> <C>
(a)(1) Consolidated Financial Statements of Registrant.
Report of Independent Auditors...........................................F-2 & S-1
Consolidated Balance Sheets as of August 31, 1996 and 1995...............F-3
Consolidated Statements of Operations for the Years Ended
August 31, 1996, 1995 and 1994.........................................F-5
Consolidated Statements of Stockholders' Equity for the
Years Ended August 31, 1996, 1995 and 1994.............................F-6
Consolidated Statements of Cash Flows for the Years Ended
August 31, 1996, 1995 and 1994.........................................F-7
Notes to Consolidated Financial Statements...............................F-9
(a)(2) Schedule II..............................................................S-2
</TABLE>
All other schedules for which provision is made in the applicable
regulations of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable and,
therefore, have been omitted.
(a)(3) Exhibits.
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
3.1 - Restated Certificate of Incorporation of the
Registrant, incorporated by reference to Exhibit
3.1 to the Registrant's Registration Statement on
Form S-2, File No. 33-48738, filed on June 19,
1992 (the "S-2 Registration Statement").
3.2 - By-laws of the Registrant, incorporated by
reference to Exhibit 3.2 to the Registrant's
Registration Statement on Form S-1, File No.
33-7532, filed on July 25, 1986 (the "S-1
Registration Statement").
3.3 - Certificate of Amendment to the Restated
Certificate of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.3 to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended August 31, 1995 (the "1995
Annual Report").
</TABLE>
21
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
3.4 - Certificate of Designation, Preferences and Rights
of the Series A Preferred Stock of the Registrant,
incorporated by reference to Exhibit 3.4 to the
1995 Annual Report.
3.5 - Corrected Certificate of Amendment of Restated
Certificate of Incorporation of the Registrant,
incorporated by reference to Exhibit 3.5 to the
1995 Annual Report.
4.1 - See Article Fourth of the Restated Certificate of
Incorporation, as amended and corrected, of the
Registrant (Exhibit 3.5 hereof), incorporated by
reference to Exhibit 4.1 to the 1995 Annual
Report.
4.2 - Forms of Common Stock and Class B Common Stock
certificates of the Registrant, incorporated by
reference to Exhibit 4.3 of the Registrant's
Registration Statement on Form S-4, File No. 33-
43782, filed on December 19, 1991 (the "S-4
Registration Statement").
4.3 - Registration Rights Agreement dated as of August
30, 1991 among CHI, CIT, Chemical Bank and the
Investors named therein, incorporated by reference
to Exhibit 4.3 to the 1995 Annual Report.
4.4 - Warrant Agreement dated as of August 30, 1991
between Chemical Bank, CHI and the Registrant,
incorporated by reference to Exhibit 4.4 to the
1995 Annual Report.
4.5 - Letter Agreement dated April 15, 1992 among the
Registrant, CIT and Chemical Bank relating to the
Warrants referred to herein at Exhibits 4.8 and
4.9, incorporated by reference to Exhibit 4.9 to
the S-2 Registration Statement.
4.6 - Letter Agreement dated August 12, 1992 between the
Registrant and Chemical Bank relating to the
Warrants referred to herein at Exhibit 4.8,
incorporated by reference to Exhibit 4.6 to the
1995 Annual Report.
4.7 - Letter Agreement dated August 12, 1992 between the
Registrant and CIT relating to the Warrants
referred to herein at Exhibit 4.9, incorporated by
reference to Exhibit 4.7 to the 1995 Annual
Report.
</TABLE>
22
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
4.8 - Warrants issued to Chemical Bank each dated April
27, 1992, incorporated by reference to Exhibit 4.8
to the 1995 Annual Report.
4.9 - Warrants issued to CIT each dated April 27, 1992,
incorporated by reference to Exhibit 4.9 to the
1995 Annual Report.
4.10 - Warrant issued to Dain Bosworth Incorporated dated
August 20, 1992, incorporated by reference to
Exhibit 4.12 to the S-2 Registration Statement.
4.11 - Warrant Agreement dated as of March 12, 1993
between the Registrant and Alfred Schechter,
incorporated by reference to Exhibit 4.11 to the
1995 Annual Report.
4.12 - Warrant Agreement dated as of March 12, 1993
between the Registrant and Don M. Harwell,
incorporated by reference to Exhibit 4.12 to the
1995 Annual Report.
4.13 - Warrant Agreement dated as of March 12, 1993
between the Registrant and MCC, incorporated by
reference to Exhibit 4.13 to the 1995 Annual
Report.
4.14 - Warrant issued to Alfred Schechter dated March 12,
1993, incorporated by reference to Exhibit 4.14 to
the 1995 Annual Report.
4.15 - Warrant issued to Don M. Harwell dated March 12,
1993, incorporated by reference to Exhibit 4.15 to
the 1995 Annual Report.
4.16 - Warrant issued to MCC dated March 12, 1993,
incorporated by reference to Exhibit 4.16 to the
1995 Annual Report.
4.17 - Letter Agreement dated as of June 9, 1993 between
the Registrant and Alfred Schechter with respect
to the Exercise Price for the Warrant referred to
herein at Exhibit 4.14, incorporated by reference
to Exhibit 4.17 to the 1995 Annual Report.
4.18 - Letter Agreement dated as of June 9, 1993 between
the Registrant and Don M. Harwell with respect to
the Exercise Price for the Warrant referred to
herein at Exhibit 4.15, incorporated by reference
to Exhibit 4.18 to the 1995 Annual Report.
</TABLE>
23
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
4.19 - Letter Agreement dated as of June 9, 1993 between
the Registrant and MCC with respect to the Warrant
referred to herein at Exhibit 4.16, incorporated
by reference to Exhibit 4.19 to the 1995 Annual
Report.
4.20 - Warrant issued to Chemical Bank dated November 24,
1993, incorporated by reference to Exhibit 4.20 to
the 1995 Annual Report.
4.21 - Warrant issued to CIT dated November 24, 1993,
incorporated by reference to Exhibit 4.21 to the
1995 Annual Report.
4.22 - Warrant Agreement dated as of January 26, 1995
between the Company and Alfred Schechter,
incorporated by reference to Exhibit 4.22 to the
1995 Annual Report.
4.23 - Warrant Agreement dated as of January 26, 1995
between the Company and Don M. Harwell,
incorporated by reference to Exhibit 4.23 to the
1995 Annual Report.
4.24 - Warrant Agreement dated as of January 26, 1995
between the Company and MCC, incorporated by
reference to Exhibit 4.24 to the 1995 Annual
Report.
4.25 - Warrant issued to Alfred Schechter dated January
26, 1995, incorporated by reference to Exhibit
4.25 to the 1995 Annual Report.
4.26 - Warrant issued to Don M. Harwell dated January 26,
1995, incorporated by reference to Exhibit 4.26 to
the 1995 Annual Report.
4.27 - Warrant issued to MCC dated January 26, 1995,
incorporated by reference to Exhibit 4.27 to the
1995 Annual Report.
4.28 - See the Certificate of Designation, Preferences
and Rights of the Series A Preferred Stock of the
Registrant (Exhibit 3.4 hereof), incorporated by
reference to Exhibit 4.28 to the 1995 Annual
Report.
4.29 - Warrant Agreement dated as of June 8, 1994 between
the Registrant and Cryogenic TADOPTR Company, L.P.
and the Form of Warrant Certificate issued
pursuant thereto, incorporated by reference to
Exhibit 4.29 to the 1995 Annual Report.
</TABLE>
24
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
4.30 - Warrant Agreement dated as of December 20, 1994
between the Registrant and The Edgehill
Corporation, incorporated by reference to Exhibit
4.30 to the 1995 Annual Report.
4.31 - Warrant issued to The Edgehill Corporation dated
as of December 20, 1994, incorporated by reference
to Exhibit 4.31 to the 1995 Annual Report.
4.32 - Registration Rights Agreement dated as of December
20, 1994 among the Registrant, certain parties
named therein and International Capital Partners,
Inc., incorporated by reference to Exhibit 4.32 to
the 1995 Annual Report.
4.33 - Form of Warrant issued to each of International
Capital Partners, Inc. and the parties named in
the Registration Rights Agreement dated as of
December 20, 1994 (Exhibit 4.32 hereof),
incorporated by reference to Exhibit 4.33 to the
1995 Annual Report.
10.1 - 1986 Non-Qualified Stock Option Agreement,
incorporated by reference to Exhibit 10.1 to the
1995 Annual Report.
10.2 - Stockholders Agreement dated as of August 30, 1991
among the Registrant, CHI and other stockholders
of CHI, incorporated by reference to Exhibit 10.2
to the 1995 Annual Report.
10.3 - Securities Purchase Agreement dated as of August
30, 1991 among CIT, CHI, the Registrant, CEC
Acquisition Corp. and Cryogenic Energy Company,
incorporated by reference to Exhibit 10.3 of the
1995 Annual Report.
10.4 - Credit Agreement dated as of August 30, 1991 among
Cryenco, Inc., the Lenders named therein, and
Chemical Bank, as Agent, incorporated by reference
to Exhibit 10.7 to the S-4 Registration Statement.
10.5 - Form of Amended and Restated Pledge Agreement
dated February 11, 1992 relating to the capital
stock of Cryenco, Inc. executed by CSCI
Corporation in favor of Chemical Bank,
incorporated by reference to Exhibit 10.6 to the
S-4 Registration Statement.
</TABLE>
25
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
10.6 - Employment Agreement dated as of September 1, 1991
between Cryenco, Inc. and Alfred Schechter,
incorporated by reference to Exhibit 10.8 of the
S-4 Registration Statement.
10.7 - 1992 Employee Incentive and Non-Qualified Stock
Option Plan, incorporated by reference to Exhibit
4.1 to the Registrant's Registration Statement on
Form S-8, File No. 33-65864, filed on July 12,
1993 (the "S-8 Registration Statement").
10.8 - Form of Option Agreement under the 1992 Employee
Incentive and Non-Qualified Stock Option Plan,
incorporated by reference to Exhibit 4.2 to the
S-8 Registration Statement.
10.9 - 1993 Non-Employee Director Stock Option Program,
incorporated by reference to Exhibit 4.3 to the
S-8 Registration Statement.
10.10 - Form of Option Agreement under the 1993 Non-
Employee Director Stock Option Program (contained
in the 1993 Non-Employee Director Stock Option
Program referred to herein at Exhibit 10.9),
incorporated by reference to Exhibit 4.4 to the
S-8 Registration Statement.
10.11 - 1991 Incentive Compensation Plan of Cryenco, Inc.,
as amended, incorporated by reference to Exhibit
10.9 to the S-2 Registration Statement.
10.12 - Lease, as amended, dated August 22, 1989
concerning the property leased by the Registrant
located at 5995 North Washington Street, Denver,
Colorado, incorporated by reference to Exhibit
10.10 to the S-2 Registration Statement.
*10.13 - Lease, as amended, dated June 19, 1996 concerning
the property leased by the Registrant located at
3811 Joliet Street, Denver, Colorado.
10.14 - Consulting Agreement dated August 30, 1991 between
the Registrant and Charterhouse, incorporated by
reference to Exhibit 10.12 to the S-2 Registration
Statement.
</TABLE>
26
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
10.15 - Waiver and Amendment Agreement dated as of
February 28, 1993 among Cryenco, Inc., the Lenders
named therein and Chemical Bank, amending the
Credit Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.15 to the 1995 Annual Report.
10.16 - Waiver and Amendment Agreement dated as of
February 28, 1993 among Cryenco, Inc., the
Registrant and CIT, amending the Securities
Purchase Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.16 to the 1995 Annual Report.
10.17 - Funding Agreement dated March 12, 1993 among
Alfred Schechter, Don M. Harwell, MCC and the
Registrant, incorporated by reference to Exhibit
10.17 to the 1995 Annual Report.
10.18 - Intentionally left blank.
10.19 - Form of Indemnification Agreement entered into
between the Registrant and certain of its officers
and directors dated March 16, 1993, incorporated
by reference to Exhibit 10.19 to the 1995 Annual
Report.
10.20 - Second Waiver and Amendment Agreement dated as of
August 31, 1993 among Cryenco, Inc., the Lenders
named therein and Chemical Bank, amending the
Credit Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.20 to the 1995 Annual Report.
10.21 - Second Waiver and Amendment Agreement dated as of
October 31, 1993 among Cryenco, Inc., the
Registrant and CIT, amending the Securities
Purchase Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.21 to the 1995 Annual Report.
10.22 - Letter Agreement dated April 13, 1994 among the
Registrant, Cryenco, Inc., Chemical Bank and CIT,
incorporated by reference to Exhibit 10.22 to the
1995 Annual Report.
27
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
10.23 - Exchange Agreement dated April 13, 1994 among
Alfred Schechter, Don M. Harwell, MCC and the
Registrant, incorporated by reference to Exhibit
10.23 to the 1995 Annual Report.
10.24 - Royalty Rights and Technology Development
Agreement dated June 8, 1994 between the
Registrant and Cryogenic TADOPTR Company, L.P.,
incorporated by reference to Exhibit 10.24 to the
1995 Annual Report.
10.25 - Third Waiver and Amendment Agreement dated as of
November 29, 1994 among Cryenco, Inc., the Lenders
named therein and Chemical Bank, as Agent,
amending the Credit Agreement dated as of August
30, 1991, as amended, incorporated by reference to
Exhibit 10.25 to the 1995 Annual Report.
10.26 - Third Waiver and Amendment Agreement dated as of
November 29, 1994 among Cryenco, Inc., the
Registrant and CIT, amending the Securities
Purchase Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.26 to the 1995 Annual Report.
10.27 - Purchase Agreement dated as of November 29, 1994
among the Registrant, International Capital
Partners, Inc. and the Purchasers named therein,
incorporated by reference to Exhibit 10.27 to the
1995 Annual Report.
10.28 - Fourth Waiver and Amendment Agreement dated as of
December 20, 1994 among the Registrant, Cryenco,
Inc., the Lenders named therein and Chemical Bank,
as Agent, amending the Credit Agreement dated as
of August 30, 1991, as amended, incorporated by
reference to Exhibit 10.28 to the 1995 Annual
Report.
10.29 - Fourth Waiver and Amendment Agreement dated as of
December 20, 1994 among Cryenco, Inc., the
Registrant and CIT, amending the Securities
Purchase Agreement dated as of August 30, 1991, as
amended, incorporated by reference to Exhibit
10.29 to the 1995 Annual Report.
</TABLE>
28
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
10.30 - First Amendment to the Purchase Agreement dated as
of December 20, 1994 among the Registrant,
International Capital Partners, Inc. and the
Purchasers named therein, amending the Purchase
Agreement dated as of November 29, 1994,
incorporated by reference to Exhibit 10.30 to the
1995 Annual Report.
10.31 - Second Amendment to the Purchase Agreement dated
as of January 30, 1994 among the Registrant,
International Capital Partners, Inc. and the
Purchasers named therein, amending the Purchase
Agreement dated as of November 29, 1994, as
amended, incorporated by reference to Exhibit
10.31 to the 1995 Annual Report.
10.32 - Amended and Restated Employment Agreement dated
January 18, 1995 between Cryenco, Inc. and Dale A.
Brubaker, incorporated by reference to Exhibit
10.32 to the 1995 Annual Report.
10.33 - Letter Agreement dated May 18, 1995 among the
Registrant, International Capital Partners, Inc.
and the Purchasers named therein, incorporated by
reference to Exhibit 10.33 to the 1995 Annual
Report.
10.34 - Fifth Waiver and Amendment Agreement dated as of
May 30, 1995 among Cryenco, Inc., the Lenders
named therein and Chemical Bank, as Agent,
amending the Credit Agreement dated as of August
30, 1995, as amended, incorporated by reference to
Exhibit 10.34 to the 1995 Annual Report.
10.35 - Credit and Security Agreement dated as of December
19, 1995 and Supplement A thereto between Cryenco,
Inc., the Company and FBS Business Finance
Corporation, incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended November 30,
1995.
</TABLE>
29
<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit Description
------- -----------
<S> <C> <C>
10.36 - First Amendment dated as of January 16, 1996
between FBS Business Finance Corporation, Cryenco,
Inc., the Company and Cryenex, Inc., amending the
Credit and Security Agreement dated as of December
19, 1995, incorporated by reference to Exhibit
10.1 to the Registrant's Quarterly Report on Form
10-Q for the fiscal quarter ended February 29,
1996 (the "February 29, 1996 Quarterly Report").
10.37 - Letter Agreement dated January 12, 1996 between
CIT and FBS Business Finance Corporation,
incorporated by reference to Exhibit 10.2 to the
February 29, 1996 Quarterly Report.
*21 - Subsidiaries of the Registrant
*23.1 - Consent of Ernst & Young LLP
*27 - Financial Data Schedule pursuant to Article 5 of
Regulation S-X filed with EDGAR filing only.
</TABLE>
- -------------------------
* Filed herewith
(b) Reports on Form 8-K: None
30
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
CRYENCO SCIENCES, INC.
(Registrant)
By: /s/ Alfred Schechter
--------------------------
Alfred Schechter,
Chairman of the Board
November 25, 1996
------------------
Date
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE DATE CAPACITY IN WHICH SIGNED
--------- ---- ------------------------
<S> <C> <C>
/s/ Alfred Schechter November 25, 1996 Chairman of the Board, Chief Executive
------------------- Officer, President and Director of the
Alfred Schechter Company (Principal Executive Officer)
/s/ James A. Raabe November 25, 1996 Vice President, Treasurer, Chief
------------------- Financial Officer and Secretary of the
James A. Raabe Company, Vice President, Treasurer,
Chief Financial Officer and Secretary
of Cryenco, Inc. (Principal Financial
and Accounting Officer)
/s/ Jerome L. Katz November 25, 1996 Director of the Company
-------------------
Jerome L. Katz
/s/ Russell R. Haines November 25, 1996 Director of the Company
-------------------
Russell R. Haines
/s/ Burton J. Ahrens November 25, 1996 Director of the Company
-------------------
Burton J. Ahrens
/s/ Ajit G. Hutheesing November 25, 1996 Director of the Company
-------------------
Ajit G. Hutheesing
</TABLE>
31
<PAGE>
<PAGE>
Consolidated Financial Statements
Cryenco Sciences, Inc.
Years ended August 31, 1996, 1995 and 1994
with Report of Independent Auditors
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Consolidated Financial Statements
Years ended August 31, 1996, 1995 and 1994
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Auditors .....................................................F-2
Audited Consolidated Financial Statements
Consolidated Balance Sheets.........................................................F-3
Consolidated Statements of Operations...............................................F-5
Consolidated Statements of Stockholders' Equity.....................................F-6
Consolidated Statements of Cash Flows...............................................F-7
Notes to Consolidated Financial Statements .........................................F-9
</TABLE>
F-1
<PAGE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Cryenco Sciences, Inc.
We have audited the accompanying consolidated balance sheets of Cryenco
Sciences, Inc. as of August 31, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended August 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Cryenco Sciences,
Inc. at August 31, 1996 and 1995, and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
August 31, 1996, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Denver, Colorado
October 5, 1996
F-2
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Consolidated Balance Sheets
(In Thousands, except share amounts)
<TABLE>
<CAPTION>
AUGUST 31
1996 1995
-----------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 111 $ 632
Accounts receivable, trade, net of allowance of $12
in 1996 and $14 in 1995 5,352 2,738
Accounts receivable, affiliate 1,423 83
Costs and estimated earnings in excess of billings
on uncompleted contracts 3,944 6,707
Inventories 4,333 4,208
Prepaid expenses 57 116
-----------------------------
Total current assets 15,220 14,484
Property and equipment:
Leasehold improvements 739 684
Machinery and equipment 5,355 3,979
Office furniture and equipment 1,231 402
-----------------------------
7,325 5,065
Less accumulated depreciation 3,099 2,249
-----------------------------
4,226 2,816
Property on operating leases, net of accumulated
depreciation of $7 604 -
Deferred financing costs, net of accumulated
amortization of $177 in 1996 and $738 in 1995 120 256
Organizational costs, net of accumulated
amortization of $507 in 1996 and $404 in 1995 - 103
Goodwill, net of accumulated amortization of
$738 in 1996 and $589 in 1995 5,226 5,375
Other assets 308 343
-----------------------------
Total assets $25,704 $23,377
=============================
F-3
<PAGE>
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31
1996 1995
-----------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,224 $ 3,469
Accrued expenses 1,123 880
Accrued management fees 324 324
Current portion of long-term debt and capital lease
obligations 1,382 1,593
Income tax payable 344 246
-----------------------------
Total current liabilities 5,397 6,512
Long-term debt and capital lease obligations, less
current portion 8,634 5,629
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value, authorized shares -
2,000,000, preferences, limitations and relative
rights to be established by the Board of Directors:
Series A, nonvoting, authorized shares - 150,000
Issued and outstanding shares - 67,838
(aggregate liquidation preference of $678,380) 1 1
Common stock, $.01 par value:
Class A, voting, authorized shares - 21,500,000
Issued and outstanding shares - 6,996,997 at August 31,
1996 and 6,842,828 at August 31,
1995 70 68
Class B, nonvoting, authorized shares - 1,500,000
Issued and outstanding shares - none - -
Additional paid-in capital 14,020 14,022
Warrants 169 169
Retained earnings (deficit) (2,587) (3,024)
-----------------------------
Total stockholders' equity 11,673 11,236
-----------------------------
Total liabilities and stockholders' equity $25,704 $23,377
=============================
</TABLE>
See accompanying notes.
F-4
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Consolidated Statements of Operations
(In Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
1996 1995 1994
------------------------------------------
<S> <C> <C> <C>
Contract revenue $31,259 $27,215 $17,665
Cost of revenue 24,898 22,350 14,670
------------------------------------------
Gross profit 6,361 4,865 2,995
Selling, general and administrative expenses 3,288 2,867 2,834
Research and development expenses 792 70 86
Amortization expense 346 346 338
------------------------------------------
Operating income (loss) 1,935 1,582 (263)
Other (income) expense:
Interest income (1) (20) (103)
Interest expense 944 1,007 1,208
Other nonoperating (income) expense, net 9 40 (69)
------------------------------------------
Income (loss) from operations before
income taxes and extraordinary item 983 555 (1,299)
Income tax expense (benefit) 363 194 (403)
------------------------------------------
Income (loss) from operations before
extraordinary item 620 361 (896)
Extraordinary item (net of income tax
benefit of $54) 93 - -
------------------------------------------
Net income (loss) $ 527 $ 361 $ (896)
==========================================
Earnings (loss) per common share and common share equivalent:
Income (loss) from operations before
extraordinary item $ .07 $ .04 $ (.17)
Extraordinary item (.01) - -
------------------------------------------
Net income (loss) $ .06 $ .04 $ (.17)
==========================================
Weighted average number of shares
outstanding during year 7,230,773 6,620,055 5,346,760
==========================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Consolidated Statements of Stockholders' Equity
(In Thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Preferred Common Additional Retained
Stock Stock Paid-In Earnings
------------------------------------
Shares Amount Shares Amount Capital Warrants (Deficit) Total
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at August 31, 1993 - $- 5,326,936 $53 $ 9,469 $ 55 $(2,386) $ 7,191
Issuance of warrants - - - - - 94 - 94
Issuance of preferred
stock 67,838 1 - - 678 - - 679
Issuance of common
stock in exchange for
warrants exercised - - 56,974 1 (1) - - -
Cash dividends paid on
preferred stock ($.32
per share) - - - - - - (21) (21)
Net loss - - - - - - (896) (896)
------------------------------------------------------------------------------
Balance at August 31, 1994 67,838 1 5,383,910 54 10,146 149 (3,303) 7,047
Sale of common stock - - 800,000 8 2,223 - - 2,231
Issuance of warrants - - - - - 74 - 74
Issuance of common
stock in exchange for
warrants exercised - - 658,918 6 1,653 (54) - 1,605
Cash dividends paid on
preferred stock ($1.22
per share) - - - - - - (82) (82)
Net income - - - - - - 361 361
------------------------------------------------------------------------------
Balance at August 31, 1995 67,838 1 6,842,828 68 14,022 169 (3,024) 11,236
Issuance of common
stock in exchange for
warrants exercised - - 154,169 2 (2) - - -
Dividends on preferred
stock ($1.32 per share) - - - - - - (90) (90)
Net income - - - - - - 527 527
==============================================================================
Balance at August 31, 1996 67,838 $1 6,996,997 $70 $14,020 $169 $(2,587) $11,673
==============================================================================
</TABLE>
See accompanying notes.
F-6
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Consolidated Statements of Cash Flows
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 527 $ 361 $ (896)
Adjustments to reconcile net income (loss) to net
cash provided (used) by operating activities:
Depreciation 857 684 571
Amortization 436 346 338
Deferred taxes 26 - -
Write-down of deferred financing costs 147 - -
Changes in operating assets and liabilities:
Accounts receivable (3,954) (48) 525
Costs and estimated earnings in excess of
billings on uncompleted contracts 2,763 (3,191) (293)
Inventories (125) (1,562) (114)
Income tax payable 72 596 863
Prepaid expenses and other assets (101) 14 228
Accounts payable (1,245) 2,107 217
Accrued expenses 220 (16) 87
Accrued management fees - 80 133
Customer deposits - (607) 285
-------------------------------------------
Net cash provided (used) by operating activities (377) (1,236) 1,944
INVESTING ACTIVITIES
Purchases of property and equipment (1,956) (1,402) (601)
Payments for operating lease property (611) - -
Proceeds from sale of property and equipment - 6 17
-------------------------------------------
Net cash used by investing activities (2,567) (1,396) (584)
FINANCING ACTIVITIES
Net proceeds from issuance of common stock - 3,892 -
Net proceeds from issuance of stock warrants - 72 60
Principal payments on long-term debt and capital
lease obligations (31,322) (1,343) (1,927)
Proceeds from long-term debt borrowings, net
of expenses 33,812 - -
Exercise of common stock options and warrants - (54) -
Dividends paid on preferred stock (67) (82) (21)
-------------------------------------------
Net cash provided (used) by financing activities 2,423 2,485 (1,888)
-------------------------------------------
</TABLE>
F-7
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Consolidated Statements of Cash Flows (continued)
(In Thousands)
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31
1996 1995 1994
-------------------------------------------
<S> <C> <C> <C>
Net decrease in cash and cash equivalents $ (521) $ (147) $ (528)
Cash and cash equivalents at beginning of year 632 779 1,307
-------------------------------------------
Cash and cash equivalents at end of year $ 111 $ 632 $ 779
===========================================
Supplemental disclosures of cash flow information:
Cash paid for income taxes $ 247 $ - $ -
Cash paid for interest 787 875 1,267
Supplemental disclosures of noncash financing activities:
Equipment acquired and financed under capital
leases 304 317 87
Retirement of debt in exchange for issuance of
Series A preferred stock - - 678
Issuance of common stock in exchange for
warrants exercised 2 2 1
Issuance of warrants as part of debt restructurings - - 35
</TABLE>
See accompanying notes.
F-8
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements
August 31, 1996
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF THE BUSINESS
Cryenco Sciences, Inc. (the Company) designs and manufactures controlled
atmospheric enclosures and products to transport, store and dispense cryogenic
materials.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Cryenco Sciences,
Inc. and its wholly owned subsidiaries. All significant intercompany balances
and transactions have been eliminated.
INCOME TAXES
Deferred tax liabilities or assets (net of a valuation allowance) are provided
in the financial statements by applying the provisions of applicable tax laws to
measure the deferred tax consequences of temporary differences that will result
in net taxable or deductible amounts in future years as a result of events
recognized in the financial statements in the current or preceding years.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated statements of cash flows, the Company considers
all highly liquid investments with original maturities of three months or less
to be cash equivalents.
CONTRACT REVENUE AND COST RECOGNITION
Revenue and costs on long-term contracts (contracts with a value in excess of
$100,000 and requiring more than six months to complete) are recognized using
the percentage-of-completion method (measured by the percentage of costs
incurred to date to total estimated costs for each contract) or units delivered,
whichever is deemed more appropriate for the contract.
Revenue and costs on short-term contracts (contracts with a value less than
$100,000 and requiring six months or less to complete) are recognized using the
completed contract method, which results in the deferral of revenue and costs
until such time as the contracts
F-9
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
are complete. A contract is considered complete when all costs, except
insignificant items, have been incurred and the units have been delivered to the
customer.
Contract costs include all direct material and labor costs and those indirect
costs related to contract performance such as indirect labor, building and
equipment rental, supplies, freight and depreciation costs. Selling, general and
administrative costs are charged to expense as incurred. Provisions for
estimated losses on uncompleted contracts are made in the period such losses are
determined.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market. The
Company records an allowance for excess and obsolete inventory based on periodic
reviews.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized using the straight-line method over the
term of the related indebtedness.
ORGANIZATIONAL COSTS
Organizational costs are amortized using the straight-line method over five
years.
GOODWILL
Goodwill is being amortized using the straight-line method over forty years. The
Company periodically evaluates goodwill impairment on the basis of whether the
goodwill is fully recoverable from projected, undiscounted operating cash flows.
F-10
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RESEARCH AND DEVELOPMENT
Research and development expenses are typically charged to expense as incurred
or are charged against a specific contract, if to be reimbursed by the customer.
In May 1995, the Company entered into an arrangement with a corporation under
which the corporation would provide $452,500 to the Company for the development,
demonstration, delivery, and installation of an on-site Thermo-Acoustic Driven
Orifice Pulse Tube Refrigerator (TADOPTR) liquefier and LNG dispensing system.
The period of performance under the arrangement was over twelve months. For the
year ended August 31, 1995, the Company incurred approximately $255,000 in costs
for development for which it was fully reimbursed. For the year ended August 31,
1996, the Company incurred approximately $504,000 in costs for development and
received $120,000 of reimbursement.
WARRANTIES
The Company records a warranty accrual at the time of sale for estimated claims,
based on actual claims experience. The warranty for the Company's products
generally is for defects in material and workmanship for a period of twelve
months.
EARNINGS (LOSS) PER COMMON SHARE
Net earnings (loss) per common share is computed using the weighted average
number of shares of common stock outstanding. When dilutive, stock options and
warrants are included as share equivalents using the treasury stock method. In
calculating net earnings (loss) per share, preferred dividends of $89,661 and
$82,538 decreased the net earnings during 1996 and 1995, respectively. Preferred
dividends of $21,150 increased the net loss during 1994. Fully diluted net
earnings (loss) per common share is not significantly different from primary net
earnings (loss) per common share.
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
During the fiscal years ended August 31, 1996, 1995 and 1994, revenue from one
customer, General Electric, was approximately $11,067,000 (35% of revenue),
F-11
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
$9,702,000 (36% of revenue), and $8,888,000 (50% of revenue), respectively. This
customer also represented $1,140,000 (21%) and $659,000 (24%) of accounts
receivable at August 31, 1996 and 1995, respectively, and $2,775,000 (70%) and
$2,734,000 (40%) of costs and estimated earnings in excess of billings on
uncompleted contracts at August 31, 1996 and 1995, respectively.
Revenue from Jack B. Kelley, Inc. and affiliates totaled approximately
$9,566,000 (31% of revenue) in 1996, $9,854,000 (36% of revenue) in 1995 and
$2,545,000 (14% of revenue) in 1994. Jack B. Kelley, Inc. and affiliates also
represent $1,835,000 (34%) and $821,000 (30%) of accounts receivable and
$435,000 (11%) and $2,182,000 (32%) of costs and estimated earnings in excess of
billings on uncompleted contracts at August 31, 1996 and 1995, respectively.
Revenue from Air Products totaled approximately $4,024,000 (13% of revenue) in
1996. Air Products also represents $408,000 (8%) of accounts receivable and
$960,000 (24%) of costs and estimated earnings in excess of billings on
uncompleted contracts as of August 31, 1996.
The Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Receivables are generally
due within 30 days. Credit losses consistently have not been significant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and disclosures made in
the accompanying notes to the financial statements. Actual results could differ
from those estimates.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The carrying values of the Company's financial assets approximate fair value.
The fair values of debt are estimated using discounted cash flow analyses with
discount rates equal to the interest rates currently being offered for loans
with similar terms to borrowers of similar credit quality. While the Company
believes the carrying value of its note payable generally approximates fair
value, a reasonable estimate of the fair market value could not be made without
incurring excessive costs.
F-12
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK BASED COMPENSATION
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement No. 123, Accounting for Stock-Based Compensation. Statement No. 123 is
applicable for fiscal years beginning after December 15, 1995 and gives the
option to either follow fair value accounting or to follow Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees (APB No. 25), and
related interpretations.
The Company has determined it will follow APB No. 25 and related interpretations
in accounting for its employee stock options. The Company has not yet determined
the impact on its financial position or results of operations had fair value
accounting been adopted.
LONG-LIVED ASSETS
In March 1995, the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which requires
impairment losses to be recorded on long-lived assets used in operations when
indicators of impairment are present. The Company is required to adopt Statement
No. 121 in the first quarter of fiscal year 1997 and, based on current
circumstances, does not believe the effect of adoption will be material.
2. INVENTORIES
At August 31, inventories consist of:
<TABLE>
<CAPTION>
1996 1995
---------------------------------
(In Thousands)
<S> <C> <C>
Raw materials $3,344 $3,514
Finished goods and work-in-process 1,139 794
---------------------------------
4,483 4,308
Less reserve for obsolescence 150 100
---------------------------------
$4,333 $4,208
=================================
</TABLE>
F-13
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
3. COSTS AND ESTIMATED EARNINGS IN EXCESS OF BILLINGS ON UNCOMPLETED CONTRACTS
At August 31, costs and estimated earnings in excess of billings on uncompleted
contracts consist of:
<TABLE>
<CAPTION>
1996 1995
---------------------------------
(In Thousands)
<S> <C> <C>
Costs on uncompleted contracts $5,436 $ 8,776
Estimated gross profit to date 2,203 2,616
---------------------------------
Estimated revenue 7,639 11,392
Less billings to date 3,695 4,685
---------------------------------
$3,944 $ 6,707
=================================
</TABLE>
4. LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
AUGUST 31
1996 1995
---------------------------
(In Thousands)
<S> <C> <C>
Note payable bearing interest at 14%, subordinated,
unsecured. Interest is payable quarterly and
principal payments of $275,000 are payable quarterly
beginning November 30, 1996. $ 1,700 $2,200
Term loan maturing December 31, 1998 bearing interest
at the reference rate (as defined in the loan agreement)
plus 3/4% (9.0% at August 31, 1996)
payable monthly. Principal payments of $12,806 are
payable monthly beginning September 15, 1996. 615 -
Term loan bearing interest at the adjusted LIBO rate
plus 3 1/2%. - 2,500
Revolving credit facility. Interest payable at the
adjusted LIBO rate plus 3 1/2%. - 2,200
</TABLE>
F-14
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
AUGUST 31
1996 1995
---------------------------
(In Thousands)
<S> <C> <C>
Revolving credit facility maturing December 31, 1998
bearing interest at the reference rate (as defined in
the loan agreement) plus up to an additional 1.0%
depending upon financial performance (9.25% at
August 31, 1996). $ 7,210 $ -
Capital lease obligations 491 322
---------------------------
10,016 7,222
Less current portion 1,382 1,593
---------------------------
$ 8,634 $5,629
===========================
</TABLE>
In December 1995, the Company entered into a Credit and Security Agreement (the
Agreement) with FBS Business Finance Corporation (FBS). Under the Agreement, FBS
has provided a revolving loan facility of up to $9,000,000 through December 31,
1997, increasing to $10,000,000 through December 31, 1998, subject to the amount
of the Company's borrowing base, and a term loan facility of up to $2,960,000,
subject to eligible manufacturing additions for the year ended August 31, 1996.
On January 16, 1996, the Company obtained the initial funding under the
revolving loan in the amount of $5,825,000. The proceeds of this loan were used
to retire the outstanding revolving credit facility ($2,200,000), to retire the
outstanding term loan ($2,125,000), to make a partial payment on the outstanding
note payable ($500,000) and for general corporate purposes ($1,000,000). As a
result of the early retirement of the term loan, the revolving credit facility,
and the partial payment on the note payable, the Company recognized an
extraordinary expense of $93,000 (net of the related tax benefit of $54,000) for
the write-down of deferred financing expenses related to these debts.
The term loan and revolving credit facility are secured by the common stock of
Cryenco, Inc. and all accounts receivable, inventories, property and equipment
and intangible assets of the Company.
The Company must comply with certain debt covenants, including the maintenance
of certain financial ratios and restrictions on dividends.
F-15
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
4. LONG-TERM DEBT (CONTINUED)
The aggregate maturities of long-term debt are as follows (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year ending August 31:
1997 $ 1,382
1998 899
1999 7,648
2000 74
2001 13
-----------
$10,016
===========
</TABLE>
5. LEASES
Office space, production facilities, and certain equipment are leased under
agreements which are classified as operating leases for financial reporting
purposes. The facilities leases provide for renewal options of up to five and
ten years at approximately the same rates. Total rental expense charged to
operations for the years ended August 31, 1996, 1995 and 1994 was $784,000,
$853,000 and $828,000, respectively.
The Company's assets held under capital leases, which are included in property
and equipment, consist of the following at August 31:
<TABLE>
<CAPTION>
1996 1995
-----------------------------
<S> <C> <C>
Machinery and equipment $628,003 $418,039
Less accumulated depreciation 110,481 52,824
-----------------------------
$517,522 $365,215
=============================
</TABLE>
F-16
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
5. LEASES (CONTINUED)
Future minimum lease payments under capital and noncancelable operating leases
are as follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
-----------------------------
<S> <C> <C>
Year ending August 31:
1997 $180 $ 860
1998 180 360
1999 155 359
2000 80 42
2001 20 13
-----------------------------
Total minimum lease payments 615 $1,634
===========
Less interest 124
--------------
Present value of minimum lease payments $491
==============
</TABLE>
Depreciation expense relating to assets held under capital leases for the years
ended August 31, 1996, 1995 and 1994 was $98,323, $36,023 and $16,801,
respectively.
Subsequent to August 31, 1996, the property located at 3811 Joliet Street,
Denver, Colorado, was sold and a new lease agreement between the Company and the
new owners became effective. Under the terms of the lease, the Company is
obligated to pay a minimum rent of $38,841 per month for 10 years (subject to
increases based on an inflation index), property taxes and insurance. This lease
replaces the Company's lease with the prior owners which had one year remaining
with rent of $41,666 per month, and is not included in the future minimum lease
payments shown above.
6. EQUIPMENT LEASING
During the year ended August 31, 1996, the Company entered into lease agreements
under which equipment manufactured by the Company is leased to customers. These
leases have been classified as operating leases by the Company.
F-17
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
6. EQUIPMENT LEASING (CONTINUED)
Future minimum lease payments under noncancelable operating leases are as
follows (in thousands):
<TABLE>
<CAPTION>
Year ending August 31:
<S> <C>
1997 $ 81
1998 74
----------
$155
==========
</TABLE>
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS
In connection with a term loan and subordinated note payable, the Company issued
warrants to purchase 197,456 shares of its Class A common stock and 543,372
shares of its Class B common stock for $.86112 per share (the original
warrants). At April 15, 1992, the Company issued warrants to purchase a total of
38,323 additional shares of Class B common stock at $5 per share (the new
warrants) to the holders of the original Class A and Class B warrants in
exchange for the removal of a feature of the original warrants whereby the
holders had the option to require the Company to purchase the warrants or the
stock issued pursuant to the warrants. During 1995, the Company increased the
number of original warrants to purchase an additional 1,443 shares of its Class
A common stock and 16,854 shares of its Class B common stock and reduced the
exercise price to $.8352 per share as a result of antidilutive provisions which
were invoked when the Company issued the shares of common stock described below.
In addition, the new warrants were increased to purchase an additional 1,189
shares of Class A common stock and the exercise price was reduced to $4.8496 per
share. The holders of the original warrants, as amended, and the new warrants
have a "cashless exercise right," whereby the holders may reduce the number of
shares to be received to pay the exercise price, such reduction to be equal to
the exercise price to be paid divided by the then fair market value per share.
These warrants expire August 29, 2003. During the years ended August 31, 1996,
1995 and 1994, warrants for 191,766, 150,000 and 75,925 shares, respectively,
were exercised, using the cashless exercise option, which resulted in the
issuance of 154,169, 118,918 and 56,974 shares, respectively, of Class A common
stock.
In 1992, 130,000 outstanding options and warrants to acquire shares of Gulf &
Mississippi Corporation, which had acquired the Company in a reverse
acquisition, were converted into options and warrants to purchase the same
number of shares of Class A common stock of the Company. Warrants to purchase
100,000 shares of the Company's Class A common stock at $3.6956 per share
expired July 9, 1995 and options to purchase 30,000 shares of the Company's
Class A common stock at $16 per share are exercisable
F-18
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS (CONTINUED)
prior to November 5, 1996. The options were issued pursuant to the Company's
1986 Non-Qualified Stock Option Plan, which provides for an aggregate of 50,000
shares of common stock to be issued under the Plan.
In connection with the 1992 public offering, the Company sold a warrant to
purchase 10,000 shares of Class A common stock at $5.50 per share for $100 to
one of the underwriters. The warrant is exercisable for a period of five years
commencing August 13, 1993.
In March 1993, in conjunction with a debt restructuring, the Company was
advanced $650,000 from stockholders, treated as junior subordinated notes. In
consideration for the advances, these stockholders received warrants to purchase
130,000 shares of Class A common stock at $7.90 per share. The warrants are
exercisable for a period of five years commencing March 12, 1993. The warrants'
fair value of $55,000 at time of issuance, as determined by an independent
appraiser, was capitalized as a deferred expense and is being amortized to
expense over five years.
In November 1993, the Company amended certain of its debt agreements with
respect to certain covenants. Under the terms of these amendments, the Company
issued warrants to purchase 35,000 shares of the Company's Class B common stock
and warrants to purchase 17,500 shares of the Company's Class A common stock.
The warrants were exercisable at a price of $6.38 per share and expire on August
29, 2003. The warrants' fair value at time of issuance, as determined by the
Company, was $22,000. During 1995, the Company increased the number of warrants
to purchase an additional 1,086 shares of its Class B common stock and 542
shares of its Class A common stock and reduced the exercise price to $6.19 per
share as a result of antidilutive provisions which were invoked when the Company
issued the shares of common stock described below.
During the year ended August 31, 1994, the Company exchanged 67,838 shares of
its Series A Preferred Stock for the junior subordinated notes and related
current interest notes totaling approximately $678,000. The Series A Preferred
Stock provides for a cumulative cash dividend of 12% of the aggregate
liquidation value, as defined, per annum through August 31, 1995, increasing 1%
per annum thereafter to a maximum of 18%. However, all dividends in excess of
12% per annum shall not be paid in cash, but shall be paid by issuing additional
shares of Series A Preferred Stock. The Series A Preferred Stock shall be
redeemable, in whole or in part, at the option of the Company by
F-19
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS (CONTINUED)
resolution of its Board of Directors, at any time and from time to time, at the
liquidation value of such shares, plus all dividends payable on such shares up
to the date fixed for redemption. In consideration for the exchange, the Company
issued warrants to purchase up to 65,000 shares of the Company's Class A common
stock, at an exercise price of $3.55 per share. The warrants expire January 29,
2000. The warrants' fair value of $13,000 at time of issuance, as determined by
an independent appraiser, was capitalized as a deferred expense and is being
amortized to expense over five years.
As described in Note 10, in June 1994, the Company received $780,000 from a
limited partnership to fund the development of a 500 gallon per day TADOPTR. The
partnership received warrants as a part of the transaction to purchase 200,000
shares of Class A common stock at $3.00 per share. The warrants expire March 20,
2000. The warrants' fair value, as determined by an independent appraiser, was
$60,000 at the time of issuance.
On November 29, 1994, the Company entered into a Purchase Agreement with a group
of purchasers which provided for the sale of 800,000 shares of Class A common
stock and warrants to purchase 700,000 shares of Class A common stock in the
future at an exercise price of $4.00 per share. The aggregate purchase price for
the shares and warrants was approximately $2,700,000. The purchase was completed
in two closings, on December 20, 1994 and January 30, 1995, from which the
Company realized net proceeds of approximately $2,300,000. Warrants for 507,503
and 192,497 shares are exercisable for a period of five years commencing
December 20, 1994 and January 30, 1995, respectively. The warrants' fair value,
as determined by the Company, was $70,000 at the time of issuance.
On May 18, 1995, the Company agreed, among other things, to reduce the exercise
price of the warrants referred to in the preceding paragraph to $3.00 per share
and the purchasers agreed to exercise a portion of the warrants. On June 8,
1995, the purchasers exercised warrants to purchase 539,900 shares of Class A
common stock, from which the Company realized net proceeds of approximately
$1,600,000.
In connection with the aforementioned Purchase Agreement, the Company also
issued warrants to purchase 25,000 shares of Class A common stock at an exercise
price of $4.00 per share. The warrants expire December 20, 1999. The warrants'
fair value, as determined by the Company, was $2,500 at the time of issuance.
F-20
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS (CONTINUED)
The Company's 1992 Employee Incentive and Non-Qualified Stock Option Plan (the
1992 Plan) was adopted effective April 1, 1992. The 1992 Plan provides for up to
187,500 shares of the Company's Class A common stock pursuant to the exercise of
stock options which may be granted to employees and directors. Options may be
issued at not less than the fair market value on the date of grant.
Information for each of the three years in the period ended August 31, 1996,
with respect to activity of the 1992 Plan, is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
-----------------------------
<S> <C> <C> <C>
Options outstanding at August 31, 1993 26,000 $4.00 - 6.75
Granted in 1994 19,500 $3.00 - 6.38
--------------
Options outstanding at August 31, 1994 45,500 $3.00 - 6.75
Granted in 1995 58,000 $5.38
Forfeited in 1995 (17,500) $4.00 - 6.38
--------------
Options outstanding at August 31, 1995 86,000 $3.00 - 6.75
Granted in 1996 96,500 $4.50
Forfeited in 1996 (52,000) $4.50 - 6.38
==============
Options outstanding at August 31, 1996 130,500 $3.00 - 6.75
==============
</TABLE>
The Company's 1995 Incentive and Non-Qualified Stock Option Plan (the 1995 Plan)
was adopted effective November 16, 1995. The 1995 Plan provides for up to
300,000 shares of the Company's Class A common stock pursuant to the exercise of
stock options which may be granted to employees and directors. Options may be
issued at not less than the fair market value on the date of grant. No options
have been granted under the 1995 Plan at August 31, 1996.
The Company adopted the 1993 Non-Employee Director Stock Option Program (the
Program) effective September 1, 1993, whereby each director who is not an
officer or employee of the Company is entitled to receive options to purchase
500 shares of the Company's Class A common stock for each fiscal quarter served
as a director, commencing with the quarter ending November 30, 1993. Eligible
directors are limited to a total of 20,000 shares under the Program. The
purchase price is determined based on the fair market value of outstanding
shares as of the last business day of the applicable fiscal quarter (the Award
Date). Options are exercisable for a period of ten years subsequent to the Award
Date. In connection with the Program, the Company has
F-21
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
7. COMMON STOCK, PREFERRED STOCK, WARRANTS, AND OPTIONS (CONTINUED)
reserved 40,000 authorized and unissued shares of Class A common stock for
issuance and delivery upon exercise of the options.
Information for each of the three years in the period ended August 31, 1996,
with respect to activity of the Program, is as follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
OPTIONS PRICE
-----------------------------
<S> <C> <C>
Options outstanding at August 31, 1993 -
Granted in 1994 3,000 $2.50 - 6.13
--------------
Options outstanding at August 31, 1994 3,000 $2.50 - 6.13
Granted in 1995 4,000 $3.75 - 4.25
--------------
Options outstanding at August 31, 1995 7,000 $2.50 - 6.13
Granted in 1996 4,000 $3.50 - 4.75
--------------
Options outstanding at August 31, 1996 11,000 $2.50 - 6.13
==============
</TABLE>
8. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts
F-22
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
used for income tax purposes. Significant components of the Company's deferred
tax liabilities and assets at August 31 are as follows:
<TABLE>
<CAPTION>
1996 1995
-----------------------------
(In Thousands)
<S> <C> <C>
Deferred tax liabilities:
Prepaid expenses $ 9 $ 35
-----------------------------
Deferred tax assets:
Inventory obsolescence 56 37
Warranty 52 75
Inventory capitalization 23 25
Accrued liabilities 64 50
Tax basis of assets in excess of book basis 35 87
Other 4 6
-----------------------------
Total deferred tax assets 234 280
Valuation allowance for deferred tax assets (225) (245)
-----------------------------
Net deferred tax assets 9 35
-----------------------------
$ - $ -
=============================
</TABLE>
Components of income tax expense (benefit) are as follows:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------------------------------------
(In Thousands)
<S> <C> <C> <C>
1996
Federal $ 389 $(26) $ 363
State - - -
----------------------------------------
$ 389 $(26) $ 363
========================================
1995
Federal $ 194 $ - $ 194
State - - -
----------------------------------------
$ 194 $ - $ 194
========================================
</TABLE>
F-23
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
8. INCOME TAXES (CONTINUED)
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------------------------------------
(In Thousands)
<S> <C> <C> <C>
1994
Federal $(403) $ - $(403)
State - - -
----------------------------------------
$(403) $ - $(403)
========================================
</TABLE>
A reconciliation between the actual income tax expense (benefit) and income
taxes computed by applying the statutory tax rates is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----------------------------------------
(In Thousands)
<S> <C> <C> <C>
Computed "expected" tax expense (benefit) $334 $189 $(442)
Goodwill and other permanent differences 99 86 -
Other (70) (81) 39
----------------------------------------
Actual tax expense (benefit) $363 $194 $(403)
========================================
</TABLE>
The Company has net operating loss carryforwards for state income tax purposes
of approximately $2,668,000 which expire in various amounts from 2008 to 2009.
Net operating loss carryforwards of approximately $1,048,000 and $977,000 were
used for state income tax purposes in 1996 and 1995, respectively.
9. EMPLOYEE BENEFIT PLAN
The Company's 401(k) savings plan provides for both employee and employer
contributions. Employees who have reached the age of 21 years and who have
completed one year of service are eligible to participate in the Plan. Employees
may contribute up to 15% of their annual compensation limited to the maximum
contribution allowable under Internal Revenue Service guidelines. The employer
matches 25% of each employee's contribution, up to $1,000. Employee
contributions vest immediately, while amounts contributed by the employer vest
based upon the employee's term of service. Contributions for the years ended
August 31, 1996, 1995 and 1994 were $68,000, $52,000 and $41,000, respectively.
F-24
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
10. RELATED PARTY TRANSACTIONS
In June 1994, the Company entered into an arrangement with a limited partnership
in which the partnership would contribute $780,000 to the Company for the
development of a 500 gallon per day TADOPTR. A director of the Company is a
general partner of the limited partnership. In exchange for this funding, the
Company issued warrants to purchase 200,000 shares of Class A common stock at
$3.00 per share, and entered into a Royalty Rights and Technology Development
Agreement with the partnership pursuant to which royalties of between 1% and 5%
of net revenues from the sale of TADOPTRs will be paid to the partnership until
the partnership receives an aggregate of $1,600,000, after which the royalties
decrease to between 0.6% and 0.75% of net revenues. The royalties are payable
for a period of 20 years from the execution of the agreement. In addition, the
partnership was given a security interest in the Company's rights in the TADOPTR
to secure the royalty payments. The Company was obligated to spend funds
provided by the partnership for the development of a 500 gallon per day TADOPTR
over a period of 12 to 18 months. For the years ended August 31, 1996 and 1995,
the Company incurred approximately $455,000 and $325,000, respectively, in costs
for this development, for which it has been fully reimbursed under this
agreement.
In fiscal year 1992, the Company entered into an agreement with an affiliate of
several of the Company's principal stockholders pursuant to which such entity
provides a variety of management advisory services to the Company. The
agreement, which terminates on August 30, 1997, provides for monthly payments of
approximately $10,000 by the Company. At August 31, 1996 and 1995, the Company
has accrued management advisory fees of approximately $324,000 related to the
agreement.
In connection with the Purchase Agreement described in Note 7, the Company
issued warrants to purchase 700,000 and 25,000 shares of Class A common stock to
two entities within the purchaser group in which two directors of the Company
have a financial interest.
In June 1995, a limited liability company agreement was signed between Cryenex,
Inc. (Cryenex), a wholly owned subsidiary of the Company, and an affiliate of
Jack B. Kelley, Inc. for the establishment of a limited liability company,
Applied LNG Technologies USA, LLC (ALT), to develop turnkey projects utilizing
liquefied natural gas. Cryenex is a 49% owner of ALT, and accounts for its
investment using the equity method, under which Cryenex's share of income and
losses of ALT is reflected in income as earned and distributions will be
credited against the investment when received. As of August 31, 1995, Cryenex's
investment of $49,000 was reduced to zero. Under terms of the
F-25
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Notes to Consolidated Financial Statements (continued)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
agreement, Cryenex agreed to provide certain services to ALT, reimbursable to
Cryenex, in an amount up to $490,000. During the fiscal years ended August 31,
1996 and 1995, Cryenex has provided services to ALT in the amount of $189,000
and $83,000, respectively. In addition, during the fiscal year ended August 31,
1996, revenue resulting from sales to ALT amounted to approximately $1,344,000.
At August 31, 1996 and 1995, receivables from ALT represented $1,423,000 and
$83,000, respectively.
11. FAIR VALUES OF FINANCIAL INSTRUMENTS
FASB No. 107, Disclosures about Fair Value of Financial Instruments, requires
the disclosure of the fair value of all financial instruments, both on and off
balance sheet, for which it is practicable to estimate their value. Financial
instruments are generally defined as cash, equity instruments or investments and
contractual obligations to pay or receive cash or another financial instrument.
In defining fair value, the Statement indicates quoted market prices are the
preferred means of estimating the value of a specific instrument, but in cases
where market quotes are not available, fair values should be determined using
various valuation techniques such as discounted cash flow calculations. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. FASB No. 107 excludes certain financial instruments and all
nonfinancial instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts do not represent the underlying value of the
Company.
F-26
<PAGE>
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholders
Cryenco Sciences, Inc.
We have audited the consolidated financial statements of Cryenco Sciences, Inc.
as of August 31, 1996 and 1995, and for each of the three years in the period
ended August 31, 1996, and have issued our report thereon dated October 5, 1996
(included elsewhere in this Form 10-K). Our audits also included the financial
statement schedule of Cryenco Sciences, Inc. listed in Item 14(a). This schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Denver, Colorado
October 5, 1996
S-1
<PAGE>
<PAGE>
Cryenco Sciences, Inc.
Schedule II - Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED AUGUST 31, 1996
Deducted from asset
accounts:
Allowance for excess and
obsolete inventory $100,000 $268,726 $218,726(1) $150,000
Allowance for doubtful
accounts 14,240 11,900 14,240 11,900
---------------------------------------------------------------------
$114,240 $280,626 $232,966 $161,900
=====================================================================
Accrued warranty reserve $200,000 $379,259 $438,713(2) $140,546
=====================================================================
YEAR ENDED AUGUST 31, 1995
Deducted from asset accounts:
Allowance for excess and
obsolete inventory $ 52,226 $ 55,309 $ 7,535(1) $100,000
Allowance for doubtful
accounts 22,070 14,240 22,070 14,240
---------------------------------------------------------------------
$ 74,296 $ 69,549 $ 29,605 $114,240
=====================================================================
Accrued warranty reserve $143,697 $662,988 $606,685(2) $200,000
=====================================================================
YEAR ENDED AUGUST 31, 1994
Deducted from asset accounts:
Allowance for excess
and obsolete inventory $105,801 $142,319 $195,894(1) $ 52,226
Allowance for doubtful
accounts 1,791 20,279 - 22,070
---------------------------------------------------------------------
$107,592 $162,598 $195,894 $ 74,296
=====================================================================
Accrued warranty reserve $327,791 $287,955 $472,049(2) $143,697
=====================================================================
</TABLE>
(1) Obsolete and excess inventories written off, net of recoveries
(2) Warranty claims honored during the year
S-2
<PAGE>
<PAGE>
APPENDIX C
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission file number 0-14996
-------------------------------
CRYENCO SCIENCES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 52-1471630
-------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3811 Joliet Street, Denver, Colorado 80239
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(303) 371-6332
--------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest practicable date: Class A
common stock, par value $.01 per share; 6,996,997 shares outstanding as of
January 10, 1997.
<PAGE>
<PAGE>
CRYENCO SCIENCES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PART I - FINANCIAL INFORMATION ................................. 3
Item 1. Introductory Comments ......................... 3
Consolidated Balance Sheets
August 31, 1996 and November 30, 1996 ............. 4
Consolidated Statements of Operations
Three Month Periods Ended November 30,
1995 and November 30, 1996 ........................ 6
Consolidated Statements of Cash Flows
Three Month Periods Ended November 30,
1995 and November 30, 1996 ........................ 7
Notes to Consolidated Financial Statements ........ 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations .................................. 11
PART II - OTHER INFORMATION .................................... 13
Item 6. Exhibits and Reports on Form 8-K .............. 13
SIGNATURES ..................................................... 18
</TABLE>
2
<PAGE>
<PAGE>
CRYENCO SCIENCES, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Introductory Comments:
The Consolidated Financial Statements included herein have been prepared
by Cryenco Sciences, Inc. (the "Company"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. It is suggested that these Consolidated
Financial Statements be read in conjunction with the financial information set
forth in the Company's Annual Report for the fiscal year ended August 31, 1996.
3
<PAGE>
<PAGE>
CRYENCO SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1996 1996
---------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 111 $ 22
Accounts receivable 5,352 4,645
Accounts receivable - affiliate 1,423 1,204
Costs and estimated earnings in excess of
billings on uncompleted contracts 3,944 3,597
Inventories (Note 2) 4,333 4,790
Prepaid expenses 57 109
------------ -----------
Total current assets 15,220 14,367
Property and equipment:
Leasehold improvements 739 763
Machinery and equipment 5,355 5,505
Office furniture and equipment 1,231 1,231
------------ -----------
7,325 7,499
Less accumulated depreciation 3,099 3,368
------------ -----------
4,226 4,131
Property on operating leases 604 582
Deferred financing costs 120 105
Goodwill 5,226 5,189
Other assets 308 315
------------ -------------
Total assets $25,704 $24,689
------------ -------------
------------ -------------
</TABLE>
4
<PAGE>
<PAGE>
CRYENCO SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1996 1996
--------- ------------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,224 $ 1,856
Accrued expenses 1,123 1,515
Accrued management fees 324 334
Current portion of long-term debt (Note 3) 1,382 1,386
Income tax payable 344 52
-------- --------
Total current liabilities 5,397 5,143
Long-term debt, less current portion (Note 3) 8,634 7,748
-------- --------
14,031 12,891
Stockholders' equity:
Preferred stock, $0.01 par value,
authorized shares - 2,000,000, preferences,
limitations and relative rights to be established by
the Board of Directors:
Series A, nonvoting, 150,000 authorized shares,
67,838 and 68,517 issued
and outstanding shares (aggregate liquidation
preference of $678,380 and $685,170) 1 1
Common stock, $0.01 par value:
Class A, voting, 21,500,000 authorized shares
6,996,997 shares issued and outstanding 70 70
Class B, nonvoting, 1,500,000 authorized
shares, none issued or outstanding -- --
Additional paid-in capital 14,020 14,027
Warrants 169 169
Retained earnings (deficit) (2,587) (2,469)
-------- --------
Total stockholders' equity 11,673 11,798
-------- --------
Total liabilities and stockholders' equity $ 25,704 $ 24,689
-------- --------
-------- --------
</TABLE>
5
<PAGE>
<PAGE>
CRYENCO SCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1996
------------------ ------------------
<S> <C> <C>
Contract revenue $ 7,259 $ 6,648
Cost of revenue 5,945 5,043
----------- -----------
Gross profit 1,314 1,605
Selling, general and administrative expenses 700 889
Research and development expenses 202 161
Amortization expense 86 61
----------- -----------
Operating income 326 494
Other (income) expense:
Interest income (1) --
Interest expense 236 272
Other expense, net (3) (5)
----------- -----------
Income before income taxes 94 227
----------- -----------
Income tax expense 34 84
----------- -----------
Net income $ 60 $ 143
----------- -----------
----------- -----------
Earnings per common and 0.01 0.02
common equivalent share (Note 4) $ ------------- $ --------------
------------- --------------
Weighted average number of shares
and common equivalent shares outstanding 7,467,511 7,221,512
----------- -----------
----------- -----------
</TABLE>
6
<PAGE>
<PAGE>
CRYENCO SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
NOVEMBER 30, 1995 NOVEMBER 30, 1996
--------------------- ---------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 60 $ 143
Adjustments to reconcile net income
to net cash provided (used) by operating activities:
Depreciation 188 291
Amortization 121 77
Changes in operating assets and liabilities:
Accounts receivable 220 926
Costs and estimated earnings in excess of
billings on uncompleted contracts 861 347
Inventories (690) (457)
Income taxes (31) (292)
Prepaid expenses and other assets 9 (84)
Accounts payable 253 (358)
Accrued expenses (32) 399
----------- -------------
Net cash provided (used) by operating activities 959 992
------------ -------------
INVESTING ACTIVITIES
Purchases of property and equipment (197) (174)
----------- -------------
Net cash (used) by investing activities (197) (174)
------------ -------------
FINANCING ACTIVITIES
Payments of long-term debt (400) (8,522)
Borrowings -- 7,640
Dividends paid on preferred stock (22) (25)
----------- -------------
Net cash (used) by financing activities (422) (907)
Net increase (decrease) in cash and cash equivalents 340 (89)
Cash and cash equivalents at beginning of period 632 111
------------ -------------
Cash and cash equivalents at end of period $ 972 $ 22
------------ -------------
------------ -------------
Supplementary disclosure of cash flow information:
Cash paid for interest $ 202 $ 265
Cash paid for taxes 100 375
Supplementary disclosures of noncash financing
activity:
Issuance of preferred stock in consideration
for dividend payable $ -- $ 7
</TABLE>
7
<PAGE>
<PAGE>
CRYENCO SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 30, 1996
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended November 30, 1996
are not necessarily indicative of the results that may be expected for the year
ending August 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended August 31, 1996.
2. INVENTORIES
Inventories (in thousands) consisted of the following:
<TABLE>
<CAPTION>
AUGUST 31, NOVEMBER 30,
1996 1996
---------- -----------
<S> <C> <C>
Raw materials $ 3,344 $ 3,149
Finished goods and work-in-process 1,139 1,791
---------- ------------
4,483 4,940
Less reserve for obsolescence (150) (150)
---------- ------------
$ 4,333 $ 4,790
---------- ------------
---------- ------------
</TABLE>
8
<PAGE>
<PAGE>
3. LONG-TERM DEBT
Long-term debt at November 30, 1996 is comprised of the following:
<TABLE>
<CAPTION>
(In thousand)
--------------
<S> <C>
Note payable bearing interest at 14%, subordinated
unsecured. Interest and principal payments of $275,000
are payable quarterly. $ 1,425
Term loan maturing December 31, 1998 bearing interest
at the reference rate (as defined in the loan agreement)
plus 3/4% (9.0 at November 30, 1996) payable monthly.
Principal payments of $12,806 are payable monthly. 576
Revolving credit facility maturing December 31, 1998
bearing interest at the reference rate (as defined in the
loan agreement) plus up to an additional 1.0% depending upon
financial performance (8.75% at November 30, 1996). 6,673
Other 460
------------
9,134
Less current portion 1,386
------------
$ 7,748
------------
------------
</TABLE>
The Company must comply with certain financial covenants in connection with
its long-term debt, including the maintenance of certain financial ratios and
restrictions on dividends. The Company was out of compliance with one of these
financial covenants at November 30, 1996, and has received a waiver for this
violation covering an indefinite time period.
9
<PAGE>
<PAGE>
4. EARNINGS PER SHARE
Net earnings per share is computed using the weighted average number of
shares of common stock outstanding for the period. When dilutive, stock options
and warrants are included as share equivalents using the treasury stock method.
In calculating net earnings per share, preferred dividends of $23,916 and
$22,293 reduced the net earnings available to common stockholders for the three
months ended November 30, 1996 and 1995, respectively. Fully diluted net
earnings per common share is not significantly different from primary net
earnings per common share.
10
<PAGE>
<PAGE>
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
This Quarterly Report on Form 10-Q contains certain forward-looking
statements that involve risks and uncertainties. Discussions containing such
forward-looking statements may be found in the materials set forth below in
'Management's Discussion and Analysis of Financial Condition and Results of
Operations.' The Company's actual results could differ materially from those
anticipated in the forward-looking statements.
Results of Operations - Three Months Ended
November 30, 1995 and November 30, 1996
Contract revenue decreased 8.4% to $6.6 million for the three months ended
November 30, 1996 from $7.3 million for the three months ended November 30,
1995. The decrease is the result of decreases in revenue from industrial gas
trailers, large horizontal storage tanks and LNG fueling stations, which
decreased $466,000, $433,000 and $198,000, respectively, over the corresponding
period in the prior year. The Company does not believe that these decreases are
indicative of a long-term trend. These decreases were offset somewhat by
increased revenues from TVAC'r' intermodal containers and spares, which
increased $285,000 and $234,000, respectively, over the corresponding 1995
period.
Gross profit for the three months ended November 30, 1996 increased 22.1% to
$1.6 million, or 24.1% of contract revenue, from $1.3 million, or 18.1% of
contract revenue, for the three months ended November 30, 1995. The gross profit
improved despite the reduction in revenue due to increased gross margins in
most product categories, particularly industrial trailers.
Selling, general and administrative expenses increased 27.0% to $889,000 for
the three months ended November 30, 1996 from $700,000 for the three months
ended November 30, 1995, and increased as a percentage of contract revenue to
13.4% from 9.6% during the same period. This increase is primarily due to
increased sales expenses, as well as additional depreciation expense related to
computer and communication equipment. Research and development costs decreased
to $161,000 for the three months ended November 30, 1996 from $202,000 for the
three months ended November 30 1995. This decrease is primarily the result of
the decrease in expenditures for the Company's TADOPTR development. Amortization
expense decreased to $61,000 for the three months ended November 30, 1996 from
$86,000 for the three months ended November 30, 1995, as these costs were fully
amortized at August 31, 1996.
Interest expense for the three months ended November 30, 1996 increased 15.3%
to $272,000 from $236,000 for the three months ended November 30, 1995. This
increase is due to increased levels of borrowing offset somewhat by lower rates
of interest. Other non-operating items were virtually unchanged from the same
period of the prior year.
Income tax expense increased to $84,000 for the three months ended November
30, 1996 from $34,000 for the three months ended November 30, 1995. The expense
in both years is the result of taxable income for the periods and estimated
annual tax rates.
11
<PAGE>
<PAGE>
The resulting net income increased to $143,000 for the three months ended
November 30, 1996 from $60,000 for the corresponding prior year period. This
improvement is the result of the cumulative effect of the above factors.
Liquidity and Capital Resources
At November 30, 1996, the Company's working capital was $9.2 million, which
represented a current ratio of 2.8 to 1. Also, the Company's outstanding
indebtedness under the Credit Agreement with FBS Business Finance Corporation
("FBS") was $7.2 million, of which $576,000 represented term indebtedness and
$6.7 million represented revolving indebtedness. At November 30, 1996, the
Company's outstanding indebtedness to The CIT Group/Equity Investments, Inc.
("CIT") was $1.4 million which represented subordinated indebtedness.
Cash flow from operations for the three months ended November 30, 1996
resulted in cash provided in the amount of $992,000 compared to cash provided of
$959,000 in the same period of the prior year. In the current three month
period, cash was provided by net income and by decreases in accounts receivable
and costs and estimated earnings in excess of billings on uncompleted contracts.
These increases in cash were somewhat offset by cash used for increased
inventories and decreased accounts payable.
The Company must comply with certain financial covenants in connection with
its long-term debt, including the maintenance of certain financial ratios and
restrictions on dividends. The Company was out of compliance with one of these
financial covenants at November 30, 1996, and has received a waiver from FBS for
this violation covering an indefinite time period.
The Company believes that its existing capital resources, together with cash
flow from future operations will be sufficient to meet its short term working
capital needs. Additional financing may be required for future expansion of
operations, as necessary.
12
<PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit Description of Exhibits
------- ----------------------
3.1 Restated Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-2, File No.
33-48738, filed on June 19, 1992 (the "S-2 Registration
Statement").
3.2 By-laws of the Company, incorporated by reference to
Exhibit 3.2 to the Company's Registration Statement on
Form S-1, File No. 33-7532, filed on July 25, 1986.
3.3 Certificate of Amendment to the Restated Certificate of
Incorporation of the Company, incorporated by reference
to Exhibit 3.3 to the Company's Annual Report on Form
10-K for the fiscal year ended August 31, 1995 (the
"1995 Annual Report").
3.4 Certificate of Designation, Preferences and Rights of
the Series A Preferred Stock of the Company,
incorporated by reference to Exhibit 3.4 to the
Company's 1995 Annual Report.
3.5 Corrected Certificate of Amendment of Restated
Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3.5 to the
Company's 1995 Annual Report.
4.1 See Article Fourth of the Restated Certificate of
Incorporation, as amended and corrected, of the Company
(Exhibit 3.5 hereof), incorporated by reference to
Exhibit 4.1 to the Company's 1995 Annual Report.
4.2 Forms of Common Stock and Class B Common Stock
certificates of the Company, incorporated by reference
to Exhibit 4.3 of the Company's Registration Statement
on Form S-4, File No. 33-43782, filed on December 19,
1991.
13
<PAGE>
<PAGE>
4.3 Registration Rights Agreement dated as of August 30,
1991 among Cryenco Holdings, Inc. ("CHI"), CIT, Chemical
Bank and the Investors named therein, incorporated by
reference to Exhibit 4.3 to the Company's 1995 Annual
Report.
4.4 Warrant Agreement dated as of August 30, 1991 between
Chemical Bank, CHI and the Company, incorporated by
reference to Exhibit 4.4 to the Company's 1995 Annual
Report.
4.5 Letter Agreement dated April 15, 1992 among the Company,
CIT and Chemical Bank relating to the Warrants referred
to herein at Exhibits 4.8 and 4.9, incorporated by
reference to Exhibit 4.9 to the S-2 Registration
Statement.
4.6 Letter Agreement dated August 12, 1992 between the
Company and Chemical Bank relating to the Warrants
referred to herein at Exhibit 4.8, incorporated by
reference to Exhibit 4.6 to the Company's 1995 Annual
Report.
4.7 Letter Agreement dated August 12, 1992 between the
Company and CIT relating to the Warrants referred to
herein at Exhibit 4.9, incorporated by reference to
Exhibit 4.7 to the Company's 1995 Annual Report.
4.8 Warrants issued to Chemical Bank each dated April 27,
1992, incorporated by reference to Exhibit 4.8 to the
Company's 1995 Annual Report.
4.9 Warrants issued to CIT each dated April 27, 1992,
incorporated by reference to Exhibit 4.9 to the
Company's 1995 Annual Report.
4.10 Warrant issued to Dain Bosworth Incorporated dated
August 20, 1992, incorporated by reference to Exhibit
4.12 to the S-2 Registration Statement.
4.11 Warrant Agreement dated as of March 12, 1993 between the
Company and Alfred Schechter, incorporated by reference
to Exhibit 4.11 to the Company's 1995 Annual Report.
4.12 Warrant Agreement dated as of March 12, 1993 between the
14
<PAGE>
<PAGE>
Company and Don M. Harwell, incorporated by reference to
Exhibit 4.12 to the Company's 1995 Annual Report.
4.13 Warrant Agreement dated as of March 12, 1993 between the
Company and Mezzanine Capital Corporation Limited
("MCC"), incorporated by reference to Exhibit 4.13 to
the Company's 1995 Annual Report.
4.14 Warrant issued to Alfred Schechter dated March 12, 1993,
incorporated by reference to Exhibit 4.14 to the
Company's 1995 Annual Report.
4.15 Warrant issued to Don M. Harwell dated March 12, 1993,
incorporated by reference to Exhibit 4.15 to the
Company's 1995 Annual Report.
4.16 Warrant issued to MCC dated March 12, 1993, incorporated
by reference to Exhibit 4.16 to the Company's 1995
Annual Report.
4.17 Letter Agreement dated as of June 9, 1993 between the
Company and Alfred Schechter with respect to the
Exercise Price for the Warrant referred to herein at
Exhibit 4.14, incorporated by reference to Exhibit 4.17
to the Company's 1995 Annual Report.
4.18 Letter Agreement dated as of June 9, 1993 between the
Company and Don M. Harwell with respect to the Exercise
Price for the Warrant referred to herein at Exhibit
4.15, incorporated by reference to Exhibit 4.18 to the
Company's 1995 Annual Report.
4.19 Letter Agreement dated as of June 9, 1993 between the
Company and MCC with respect to the Warrant referred to
herein at Exhibit 4.16, incorporated by reference to
Exhibit 4.19 to the Company's 1995 Annual Report.
4.20 Warrant issued to Chemical Bank dated November 24, 1993,
incorporated by reference to Exhibit 4.20 to the
Company's 1995 Annual Report.
4.21 Warrant issued to CIT dated November 24, 1993,
incorporated by reference to Exhibit 4.21 to the
Company's 1995 Annual Report.
15
<PAGE>
<PAGE>
4.22 Warrant Agreement dated as of January 26, 1995 between
the Company and Alfred Schechter, incorporated by
reference to Exhibit 4.22 to the Company's 1995 Annual
Report.
4.23 Warrant Agreement dated as of January 26, 1995 between
the Company and Don M. Harwell, incorporated by
reference to Exhibit 4.23 to the Company's 1995 Annual
Report.
4.24 Warrant Agreement dated as of January 26, 1995 between
the Company and MCC, incorporated by reference to
Exhibit 4.24 to the Company's 1995 Annual Report.
4.25 Warrant issued to Alfred Schechter dated January 26,
1995, incorporated by reference to Exhibit 4.25 to the
Company's 1995 Annual Report.
4.26 Warrant issued to Don M. Harwell dated January 26, 1995,
incorporated by reference to Exhibit 4.26 to the
Company's 1995 Annual Report.
4.27 Warrant issued to MCC dated January 26, 1995,
incorporated by reference to Exhibit 4.27 to the
Company's 1995 Annual Report.
4.28 See the Certificate of Designation, Preferences and
Rights of the Series A Preferred Stock of the Company
(Exhibit 3.4 hereof), incorporated by reference to
Exhibit 4.28 to the Company's 1995 Annual Report.
4.29 Warrant Agreement dated as of June 8, 1994 between the
Company and Cryogenic TADOPTR Company, L.P. and the Form
of Warrant Certificate issued pursuant thereto,
incorporated by reference to Exhibit 4.29 to the
Company's 1995 Annual Report.
4.30 Warrant Agreement dated as of December 20, 1994 between
the Company and The Edgehill Corporation, incorporated
by reference to Exhibit 4.30 to the Company's 1995
Annual Report.
16
<PAGE>
<PAGE>
4.31 Warrant issued to The Edgehill Corporation dated as of
December 20, 1994, incorporated by reference to Exhibit
4.31 to the Company's 1995 Annual Report.
4.32 Registration Rights Agreement dated as of December 20,
1994 among the Company, certain parties named therein
and International Capital Partners, Inc., incorporated
by reference to Exhibit 4.32 to the Company's 1995
Annual Report.
4.33 Form of Warrant issued to each of International Capital
Partners, Inc. and the parties named in the Registration
Rights Agreement dated as of December 20, 1994 (Exhibit
4.32 hereof), incorporated by reference to Exhibit 4.33
to the Company's 1995 Annual Report.
*27 Financial Date Schedule pursuant to Article 5 of
Regulation S-X filed with EDGAR filing only.
(b) No reports on Form 8-K have been filed during the
quarter ended November 30, 1996.
- ----------------
* Filed herewith
17
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRYENCO SCIENCES, INC.
(Registrant)
By: /s/ Alfred Schechter
----------------------------
Alfred Schechter, Chairman
of the Board, Chief Executive
Officer and President
/s/ James A. Raabe
-----------------------------
James A. Raabe,
Chief Financial Officer
January 13, 1997
18
<PAGE>
<PAGE>
APPENDIX D
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended February 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number 0-14996
CRYENCO SCIENCES, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 52-1471630
- ------------------------------- ------------------------------------
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
3811 Joliet Street, Denver, Colorado 80239
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(303) 371-6332
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the
Registrant's classes of common stock, as of the latest practicable date: Class A
common stock, par value $.01 per share; 6,996,997 shares outstanding as of April
11, 1997.
<PAGE>
<PAGE>
CRYENCO SCIENCES, INC. AND SUBSIDIARY
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I - FINANCIAL INFORMATION............................................... 3
Item 1. Introductory Comments..................................... 3
Consolidated Balance Sheets
August 31, 1996 and February 28, 1997...................... 4
Consolidated Statements of Operations
Three Month and Six Month Periods Ended
February 29, 1996 and February 28, 1997.................... 6
Consolidated Statements of Cash Flows
Six Month Periods Ended February 29, 1996
and February 28, 1997...................................... 7
Notes to Consolidated Financial Statements................. 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations..............................................11
PART II - OTHER INFORMATION..................................................14
Item 4. Submission of Matters to a Vote of Security-Holders........14
Item 6. Exhibits and Reports on Form 8-K...........................15
SIGNATURES...................................................................20
</TABLE>
2
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<PAGE>
CRYENCO SCIENCES, INC. AND SUBSIDIARY
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Introductory Comments:
The Consolidated Financial Statements included herein have been prepared
by Cryenco Sciences, Inc. (the "Company"), without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been omitted
pursuant to such rules and regulations. It is suggested that these Consolidated
Financial Statements be read in conjunction with the financial information set
forth in the Company's Annual Report for the fiscal year ended August 31, 1996.
3
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<PAGE>
CRYENCO SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
1996 1997
--------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 111 $ 50
Accounts receivable, trade (Note 2) 5,352 6,337
Accounts receivable, affiliate (Note 2) 1,423 --
Costs and estimated earnings in excess of
billings on uncompleted contracts 3,944 3,066
Inventories (Note 3) 4,333 5,942
Prepaid expenses 57 125
------- -------
Total current assets 15,220 15,520
Property and equipment:
Leasehold improvements 739 865
Machinery and equipment 5,355 5,229
Office furniture and equipment 1,231 1,389
------- -------
7,325 7,483
Less accumulated depreciation 3,099 3,642
------- -------
4,226 3,841
Property on operating leases 604 54
Deferred financing costs 120 87
Goodwill 5,226 5,151
Other assets 308 255
------- -------
Total assets $25,704 $24,908
======= =======
</TABLE>
4
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CRYENCO SCIENCES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
1996 1997
-------- ---------
(UNAUDITED)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,224 $ 2,551
Accrued expenses 1,123 1,353
Accrued management fees 324 313
Current portion of long-term debt (Note 4) 1,382 1,390
Income tax payable 344 109
-------- --------
Total current liabilities 5,397 5,716
Long-term debt, less current portion (Note 4) 8,634 7,322
-------- --------
14,031 13,038
Stockholders' equity:
Preferred stock, $0.01 par value,
authorized shares - 2,000,000, preferences,
limitations and relative rights to be establishe
the Board of Directors:
Series A, nonvoting, 150,000 authorized
shares, 67,838 and 68,517 issued and
outstanding shares (aggregate liquidation
preference of $678,380 and $685,170) 1 1
Common stock, $0.01 par value:
Class A, voting, 21,500,000 authorized shares
6,996,997 shares issued and outstanding 70 70
Class B, nonvoting, 1,500,000 authorized
shares, none issued or outstanding -- --
Additional paid-in capital 14,020 14,027
Warrants 169 169
Retained earnings (deficit) (2,587) (2,397)
-------- --------
Total stockholders' equity 11,673 11,870
-------- --------
Total liabilities and stockholders' equity $ 25,704 $ 24,908
-------- --------
-------- --------
</TABLE>
5
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<PAGE>
CRYENCO SCIENCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1997 FEBRUARY 29, 1996 FEBRUARY 28, 1997
------------------ ------------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Contract revenue $ 8,929 $ 6,191 $ 16,187 $ 12,838
Cost of revenue 7,193 5,045 13,139 10,087
----------- ----------- ----------- -----------
Gross profit 1,736 1,146 3,048 2,751
Selling, general and
administrative expenses 840 598 1,539 1,486
Research and development
expenses 229 169 431 330
Amortization expense 86 60 172 121
----------- ----------- ----------- -----------
Operating income 581 319 906 814
Other (income) expense:
Interest income -- -- (1) --
Interest expense 204 219 440 491
Other expense, net (1) (52) (5) (56)
----------- ----------- ----------- -----------
Income from operations before
income taxes and
extraordinary item 378 152 472 379
Income tax expense 139 56 174 140
----------- ----------- ----------- -----------
Income from operations before
extraordinary item 239 96 298 239
Extraordinary item (net of
income tax benefit of $54)
(Note 5) (93) -- (93) --
----------- ----------- ----------- -----------
Net income $ 146 $ 96 $ 205 $ 239
=========== =========== =========== ===========
Earnings per common and
common equivalent share
(Note 6)
Income from operations
before extraordinary item $ 0.03 $ 0.01 $ 0.03 $ 0.03
Extraordinary item (0.01) -- (0.01) --
----------- ----------- ----------- -----------
Net income $ 0.02 $ 0.01 $ 0.02 $ 0.03
=========== =========== =========== ===========
Weighted average number of
shares and common
equivalent shares outstanding 7,316,766 7,180,094 7,320,111 7,204,109
=========== =========== =========== ===========
</TABLE>
6
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<PAGE>
CRYENCO SCIENCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED SIX MONTHS ENDED
FEBRUARY 29, 1996 FEBRUARY 28, 1997
----------------- -----------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 205 $ 239
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 399 544
Amortization 378 154
Changes in operating assets and liabilities:
Accounts receivable (1,386) 419
Costs and estimated earnings in excess of
billings on uncompleted contracts 1,323 877
Inventories 287 (1,609)
Income taxes 93 (235)
Prepaid expenses and other assets (169) (62)
Accounts payable (735) 528
Accrued expenses 235 44
-------- --------
Net cash provided by operating activities 630 899
-------- --------
INVESTING ACTIVITIES
Purchases of property and equipment (380) (158)
Proceeds from sale of operating lease property -- 550
-------- --------
Net cash provided (used) by investing activities (380) 392
-------- --------
FINANCING ACTIVITIES
Payments of long-term debt (9,679) (15,781)
Borrowings 9,486 14,477
Dividends paid on preferred stock (44) (48)
-------- --------
Net cash (used) by financing activities (237) (1,352)
-------- --------
Net increase (decrease) in cash and cash equivalents 13 (61)
Cash and cash equivalents at beginning of period 632 111
-------- --------
Cash and cash equivalents at end of period $ 645 $ 50
-------- --------
-------- --------
Supplementary disclosure of cash flow information:
Cash paid for interest $ 377 $ 471
Cash paid for taxes 100 375
Supplementary disclosures of noncash financing activity:
Issuance of common stock in exchange for warrants
exercised $ 2 $ --
Issuance of preferred stock in consideration for dividen
payable -- 7
Equipment acquired and financed under capital leases 304 --
</TABLE>
7
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CRYENCO SCIENCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1997
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six months ended February 28,
1997 are not necessarily indicative of the results that may be expected for the
year ending August 31, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended August 31, 1996.
2. ACCOUNTS RECEIVABLE
Certain amounts presented in Accounts receivable, affiliates at August
31, 1996 have been reclassified to Accounts receivable, trade at February 28,
1997, due to an ownership change in Applied LNG Technologies USA, LLC ("ALT").
During the quarter the Company sold its 49% interest in ALT to an affiliate of
Golden Spread Energy, Inc., the 51% owner in ALT, for $49,000.
3. INVENTORIES
Inventories (in thousands) consisted of the following:
<TABLE>
<CAPTION>
AUGUST 31, FEBRUARY 28,
1996 1997
------ -----
<S> <C> <C>
Raw Materials $ 3,344 $ 3,395
Finished goods and work-in-process 1,139 2,877
------- -------
4,483 6,272
Less reserve for obsolescence (150) (330)
------- -------
$ 4,333 $ 5,942
------- -------
------- -------
</TABLE>
8
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<PAGE>
4. LONG-TERM DEBT
Long-term debt (in thousands) at February 28, 1997 is comprised of the
following:
<TABLE>
<S> <C>
Note payable bearing interest at 14%, subordinated
unsecured. Interest and principal payments of $275,000
are payable quarterly $1,150
Term loan maturing December 31, 1998 bearing interest
at the reference rate (as defined in the loan agreement)
plus 3/4% (9.0% at February 28, 1997) payable monthly
Principal payments of $12,806 are payable monthly 538
Revolving credit facility maturing December 31, 1998
bearing interest at the reference rate (as defined in the loan
agreement) plus up to an additional 1.0% depending upon
financial performance (8.75% at February 28, 1997) 6,596
Other 428
------
8,712
Less current portion 1,390
------
$7,322
------
------
</TABLE>
The Company must comply with certain financial covenants in connection
with its long-term debt, including the maintenance of certain financial ratios
and restrictions on dividends.
9
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5. EXTRAORDINARY ITEM - EARLY EXTINGUISHMENT OF DEBT
As a result of the early retirement of the Chemical Bank debt and the
partial payment on The CIT Group/Equity Investments, Inc. note, the Company
recognized an extraordinary expense of $93,000 (net of the related tax benefit
of $54,000) for the write down of deferred financing expenses related to these
debts during the three months ended February 29, 1996.
6. EARNINGS PER SHARE
Net earnings per share is computed using the weighted average number of
shares of common stock outstanding for the period. When dilutive, stock options
and warrants are included as share equivalents using the treasury stock method.
In calculating net earnings per share, preferred dividends of $23,916 and
$47,568 reduced the net earnings available to common stockholders for the three
months and six months ended February 28, 1997, respectively. Fully diluted net
earnings per common share is not significantly different from primary net
earnings per common share.
10
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Quarterly Report on Form 10-Q contains certain forward-looking
statements that involve risks and uncertainties. Discussions containing such
forward-looking statements may be found in the materials set forth below in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Company's actual results could differ materially from those
anticipated in the forward-looking statements.
Results of Operations - Three and Six Months Ended
February 29, 1996 and February 28, 1997
Contract revenue decreased 30.7% to $6.2 million for the three months
ended February 28, 1997 from $8.9 million for the three months ended February
29, 1996. Contract revenue for the first six months of the 1997 fiscal year
decreased 20.7% to $12.8 million from $16.2 million for the same period of the
preceding year. The quarterly decrease is the result of decreases in revenues
from industrial gas and LNG trailers, MRI cryostats and components, and LNG
fueling stations, which decreased $2.6 million, $837,000 and $340,000,
respectively, over the corresponding period in the prior year. The Company does
not believe that these decreases are indicative of a long-term trend. These
decreases were offset somewhat by increased revenues from TVAC'r' intermodal
containers and large horizontal storage tanks, which increased $699,000 and
$525,000, respectively, over the corresponding 1996 period. For the six month
period the decrease was primarily the result of the decrease in revenues from
industrial gas and LNG trailers, MRI cryostats and components, and LNG fueling
stations, which decreased $3.1 million, $1.1 million and $538,000, respectively,
over the corresponding six month period in the prior year. These decreases were
offset somewhat by increased revenues from TVAC'r' intermodal containers, spares
and special cryogenic equipment, which increased $1.0 million, $191,000 and
$136,000, respectively, over the corresponding 1996 period.
Gross profit for the three months ended February 28, 1997 decreased
34.0% to $1.1 million, or 18.5% of contract revenue, from $1.7 million, or 19.4%
of contract revenue, for the three months ended February 29, 1996. Gross profit
for the first six months of the 1997 fiscal year decreased 9.7% to $2.8 million,
or 21.4% of contract revenue, from $3.0 million, or 18.8% of contract revenue,
for the same period of the previous year. The gross profit decrease for the
quarter was the result of the reduced revenues combined with losses on LNG
fueling station sales and unabsorbed manufacturing overhead expenses due to the
reduced level of shop activity. For the six month period the decrease was
primarily due to the reduced revenues and increased warranty costs, which were
offset somewhat by the increased gross profit percentage.
Selling, general and administrative expenses decreased 28.8% to $598,000
for the three months ended February 28, 1997 from $840,000 for the three months
ended February 29, 1996, and increased as a percentage of contract revenue to
9.7% from 9.4% during the same period. Selling, general and administrative
expenses for the first six months of fiscal 1997 decreased 3.4% to $1.49
million, or 11.6% of contract revenue, from $1.54 million, or 9.5% of contract
revenue,
11
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in the corresponding period in the prior year. The quarterly decrease is
primarily due to the unaccrued reimbursement for sales expenses related to
Applied LNG Technologies USA, LLC. Research and development costs decreased to
$169,000 for the three months ended February 28, 1997 from $229,000 for the
three months ended February 29, 1996, and to $330,000 for the first six months
of fiscal 1997 compared to $431,000 for the comparable period of the prior year.
This decrease is primarily the result of the decrease in expenditures for new
LNG products, which is partially offset by increased expenditures for the
Company's TADOPTR development. Amortization expense decreased to $60,000 for the
three months ended February 28, 1997 from $86,000 for the three months ended
February 29, 1996, and to $121,000 for the first six months of fiscal 1997
compared to $172,000 for the comparable period of the prior year due to the
completion of the organization cost amortization in the prior year.
Interest expense for the three months ended February 28, 1997 increased
7.4% to $219,000 from $204,000 for the three months ended February 29, 1996 and
increased 11.6% to $491,000 for the first six months of the 1997 fiscal year
from $440,000 for the same period of the preceding year. This increase is
primarily due to increased levels of borrowing. Other non-operating items
resulted in income of $52,000 for the three months ended February 28, 1997,
compared to income of $1,000 in the comparable period of 1996, and income of
$56,000 in the first six months of this year compared to income of $5,000 for
the first six months of the 1996 fiscal year. The increase in income for both
periods is attributable to the $49,000 profit on the sale of the Company's
interest in Applied LNG Technologies USA, LLC.
Income tax expense decreased to $56,000 for the three months ended
February 28, 1997 from $139,000 for the three months ended February 29, 1996 and
to $140,000 for the first six months of the fiscal year from $174,000 for the
first six months of the prior year. The expense in both years is the result of
taxable income for the periods and estimated annual tax rates.
The resulting net income decreased to $96,000 for the three months ended
February 28, 1997 from $146,000 for the corresponding prior year period, and
increased to $239,000 for the six months ended February 28, 1997 from $205,000
for the corresponding six month period of the prior year. This change is the
result of the cumulative effect of the above factors.
Liquidity and Capital Resources
At February 28, 1997 the Company's working capital was $9.8 million,
which represented a current ratio of 2.7 to 1. Also, the Company's outstanding
indebtedness under the Credit Agreement with FBS Business Finance Corporation
("FBS") was $7.1 million, of which $538,000 represented term indebtedness and
$6.6 million represented revolving indebtedness. At February 28, 1997 the
Company's outstanding indebtedness to The CIT Group/Equity Investments, Inc. was
$1.2 million which represented subordinated indebtedness.
Cash flow from operations for the six months ended February 28, 1997
resulted in cash provided in the amount of $899,000 compared to cash provided of
$630,000 in the same period
12
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of the prior year. In the current year, cash was provided primarily by the net
income and by decreases in accounts receivable and costs and estimated earnings
in excess of billings on uncompleted contracts and an increase in accounts
payable. These increases in cash were somewhat offset by cash used for increased
inventories. In the six months ended February 29, 1996 cash was provided
primarily by net income and non-cash expenses.
The Company believes that its existing capital resources, together with
cash flow from future operations will be sufficient to meet its short term
working capital needs. Additional financing may be required for future expansion
of operations.
13
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PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
The Company held its annual meeting of stockholders on January 23, 1997.
The matters submitted to a vote of the Company's stockholders were (i) the
election of five directors and (ii) ratification of the appointment of Ernst &
Young LLP as independent auditors for the 1997 fiscal year.
The Company's stockholders re-elected the entire Board of Directors
consisting of Alfred Schechter, Jerome L. Katz, Russell R. Haines, Burton J.
Ahrens and Ajit G. Hutheesing.
The Company's stockholders ratified the Board of Director's appointment
of Ernst & Young LLP as the Company's independent auditors for the 1997 fiscal
year by a vote of 5,521,430 for, 55,851 against and 10,450 abstaining.
14
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit Description of Exhibits
------- -----------------------
<C> <S>
3.1 Restated Certificate of Incorporation of the Company,
incorporated by reference to Exhibit 3.1 to the Company's
Registration Statement on Form S-2, File No. 33-48738, filed on
June 19, 1992 (the "S-2 Registration Statement").
3.2 By-laws of the Company, incorporated by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-1, File No.
33-7532, filed on July 25, 1986.
3.3 Certificate of Amendment to the Restated Certificate of
Incorporation of the Company, incorporated by reference to
Exhibit 3.3 to the Company's Annual Report on Form 10-K for the
fiscal year ended August 31, 1995 (the "1995 Annual Report").
3.4 Certificate of Designation, Preferences and Rights of the Series
A Preferred Stock of the Company, incorporated by reference to
Exhibit 3.4 to the Company's 1995 Annual Report.
3.5 Corrected Certificate of Amendment of Restated Certificate of
Incorporation of the Company, incorporated by reference to
Exhibit 3.5 to the Company's 1995 Annual Report.
4.1 See Article Fourth of the Restated Certificate of Incorporation,
as amended and corrected, of the Company (Exhibit 3.5 hereof),
incorporated by reference to Exhibit 4.1 to the Company's 1995
Annual Report.
4.2 Forms of Common Stock and Class B Common Stock certificates of
the Company, incorporated by reference to Exhibit 4.3 of the
Company's Registration Statement on Form S-4, File No. 33-43782,
filed on December 19, 1991.
</TABLE>
15
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<TABLE>
<C> <S>
4.3 Registration Rights Agreement dated as of August 30, 1991 among
Cryenco Holdings, Inc. ("CHI"), The CIT Group/Equity Investments,
Inc. ("CIT"), Chemical Bank and the Investors named therein,
incorporated by reference to Exhibit 4.3 to the Company's 1995
Annual Report.
4.4 Warrant Agreement dated as of August 30, 1991 between Chemical
Bank, CHI and the Company, incorporated by reference to Exhibit
4.4 to the Company's 1995 Annual Report.
4.5 Letter Agreement dated April 15, 1992 among the Company, CIT and
Chemical Bank relating to the Warrants referred to herein at
Exhibits 4.8 and 4.9, incorporated by reference to Exhibit 4.9 to
the S-2 Registration Statement.
4.6 Letter Agreement dated August 12, 1992 between the Company and
Chemical Bank relating to the Warrants referred to herein at
Exhibit 4.8, incorporated by reference to Exhibit 4.6 to the
Company's 1995 Annual Report.
4.7 Letter Agreement dated August 12, 1992 between the Company and
CIT relating to the Warrants referred to herein at Exhibit 4.9,
incorporated by reference to Exhibit 4.7 to the Company's 1995
Annual Report.
4.8 Warrants issued to Chemical Bank each dated April 27, 1992,
incorporated by reference to Exhibit 4.8 to the Company's 1995
Annual Report.
4.9 Warrants issued to CIT each dated April 27, 1992, incorporated by
reference to Exhibit 4.9 to the Company's 1995 Annual Report.
4.10 Warrant issued to Dain Bosworth Incorporated dated August 20,
1992, incorporated by reference to Exhibit 4.12 to the S-2
Registration Statement.
4.11 Warrant Agreement dated as of March 12, 1993 between the Company
and Alfred Schechter, incorporated by reference to Exhibit 4.11
to the Company's 1995 Annual Report.
4.12 Warrant Agreement dated as of March 12, 1993 between the Company
and Don M. Harwell, incorporated by reference to Exhibit 4.12 to
the Company's 1995 Annual Report.
</TABLE>
16
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<PAGE>
<TABLE>
<C> <S>
4.13 Warrant Agreement dated as of March 12, 1993 between the Company
and Mezzanine Capital Corporation Limited ("MCC"), incorporated
by reference to Exhibit 4.13 to the Company's 1995 Annual Report.
4.14 Warrant issued to Alfred Schechter dated March 12, 1993,
incorporated by reference to Exhibit 4.14 to the Company's 1995
Annual Report.
4.15 Warrant issued to Don M. Harwell dated March 12, 1993,
incorporated by reference to Exhibit 4.15 to the Company's 1995
Annual Report.
4.16 Warrant issued to MCC dated March 12, 1993, incorporated by
reference to Exhibit 4.16 to the Company's 1995 Annual Report.
4.17 Letter Agreement dated as of June 9, 1993 between the Company and
Alfred Schechter with respect to the Exercise Price for the
Warrant referred to herein at Exhibit 4.14, incorporated by
reference to Exhibit 4.17 to the Company's 1995 Annual Report.
4.18 Letter Agreement dated as of June 9, 1993 between the Company and
Don M. Harwell with respect to the Exercise Price for the Warrant
referred to herein at Exhibit 4.15, incorporated by reference to
Exhibit 4.18 to the Company's 1995 Annual Report.
4.19 Letter Agreement dated as of June 9, 1993 between the Company and
MCC with respect to the Warrant referred to herein at Exhibit
4.16, incorporated by reference to Exhibit 4.19 to the Company's
1995 Annual Report.
4.20 Warrant issued to Chemical Bank dated November 24, 1993,
incorporated by reference to Exhibit 4.20 to the Company's 1995
Annual Report.
4.21 Warrant issued to CIT dated November 24, 1993, incorporated by
reference to Exhibit 4.21 to the Company's 1995 Annual Report.
</TABLE>
17
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<PAGE>
<TABLE>
<C> <S>
4.22 Warrant Agreement dated as of January 26, 1995 between the
Company and Alfred Schechter, incorporated by reference to
Exhibit 4.22 to the Company's 1995 Annual Report.
4.23 Warrant Agreement dated as of January 26, 1995 between the
Company and Don M. Harwell, incorporated by reference to Exhibit
4.23 to the Company's 1995 Annual Report.
4.24 Warrant Agreement dated as of January 26, 1995 between the
Company and MCC, incorporated by reference to Exhibit 4.24 to the
Company's 1995 Annual Report.
4.25 Warrant issued to Alfred Schechter dated January 26, 1995,
incorporated by reference to Exhibit 4.25 to the Company's 1995
Annual Report.
4.26 Warrant issued to Don M. Harwell dated January 26, 1995,
incorporated by reference to Exhibit 4.26 to the Company's 1995
Annual Report.
4.27 Warrant issued to MCC dated January 26, 1995, incorporated by
reference to Exhibit 4.27 to the Company's 1995 Annual Report.
4.28 See the Certificate of Designation, Preferences and Rights of the
Series A Preferred Stock of the Company (Exhibit 3.4 hereof),
incorporated by reference to Exhibit 4.28 to the Company's 1995
Annual Report.
4.29 Warrant Agreement dated as of June 8, 1994 between the Company
and Cryogenic TADOPTR Company, L.P. and the Form of Warrant
Certificate issued pursuant thereto, incorporated by reference to
Exhibit 4.29 to the Company's 1995 Annual Report.
4.30 Warrant Agreement dated as of December 20, 1994 between the
Company and The Edgehill Corporation, incorporated by reference
to Exhibit 4.30 to the Company's 1995 Annual Report.
</TABLE>
18
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<PAGE>
<TABLE>
<C> <S>
4.31 Warrant issued to The Edgehill Corporation dated as of December
20, 1994, incorporated by reference to Exhibit 4.31 to the
Company's 1995 Annual Report.
4.32 Registration Rights Agreement dated as of December 20, 1994 among
the Company, certain parties named therein and International
Capital Partners, Inc., incorporated by reference to Exhibit 4.32
to the Company's 1995 Annual Report.
4.33 Form of Warrant issued to each of International Capital Partners,
Inc. and the parties named in the Registration Rights Agreement
dated as of December 20, 1994 (Exhibit 4.32 hereof), incorporated
by reference to Exhibit 4.33 to the Company's 1995 Annual Report.
*27 Financial Data Schedule pursuant to Article 5 of Regulation S-X
filed with EDGAR filing only.
</TABLE>
- ----------------
* Filed herewith
(b) No reports on Form 8-K have been filed during the quarter ended February
28, 1997.
19
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CRYENCO SCIENCES, INC.
(Registrant)
By: /s/ Alfred Schechter
_____________________________
Alfred Schechter, Chairman
of the Board, Chief Executive
Officer and President
/s/ James A. Raabe
_____________________________
James A. Raabe,
Chief Financial Officer
April 11, 1997
20
STATEMENT OF DIFFERENCES
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The registered trademark symbol shall be expressed as .......................'r'
The section symbol shall be expressed as ...................................'SS'
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