-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OjmQQnTJmrrEUusoOTacTEY2qbZZvt5Q98iKgLxD8aAlQtTsfI4xjKVvmRIECY8G hDQE6v/91dCd2jPEoVMcqw== 0000950136-97-000144.txt : 19970222 0000950136-97-000144.hdr.sgml : 19970222 ACCESSION NUMBER: 0000950136-97-000144 CONFORMED SUBMISSION TYPE: SC 13E4 PUBLIC DOCUMENT COUNT: 7 FILED AS OF DATE: 19970214 SROS: NONE SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: VERNITRON CORP CENTRAL INDEX KEY: 0000206030 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 111962029 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: SC 13E4 SEC ACT: 1934 Act SEC FILE NUMBER: 005-06258 FILM NUMBER: 97533843 BUSINESS ADDRESS: STREET 1: 645 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2125937900 MAIL ADDRESS: STREET 1: 645 MADISON AVENUE STREET 2: 645 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: VERNITRON CORP CENTRAL INDEX KEY: 0000206030 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 111962029 STATE OF INCORPORATION: DE FISCAL YEAR END: 1228 FILING VALUES: FORM TYPE: SC 13E4 BUSINESS ADDRESS: STREET 1: 645 MADISON AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2125937900 MAIL ADDRESS: STREET 1: 645 MADISON AVENUE STREET 2: 645 MADISON AVENUE CITY: NEW YORK STATE: NY ZIP: 10022 SC 13E4 1 SCHEDULE 13E-4 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 SCHEDULE 13E-4 Issuer Tender Offer Statement (Pursuant to Section 13(e)(1) of the Securities Exchange Act of 1934) AXSYS TECHNOLOGIES, INC. ------------------------ (Name of Issuer) AXSYS TECHNOLOGIES, INC. ------------------------ (Name of Person(s) Filing Statement) $1.20 Cumulative Exchangeable Redeemable Preferred Stock, Par Value $.01 Per Share --------------------------------------------------------- (Title of Class of Securities) 054615 20 8 ------------------------------------- (CUSIP Number of Class of Securities) Elliot N. Konopko Vice President Axsys Technologies, Inc. 645 Madison Avenue New York, New York 10022 (212) 593-7900 -------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notice and Communications on Behalf of Person(s) Filing Statement) February 14, 1997 ----------------------------------- (Date Tender Offer First Published, Sent or Given to Security Holders) Page 1 of __ pages Exhibit Index at Page __ 1 Calculation of Filing Fee - ------------------------------------------------------------------------------ Transaction valuation:(1) Amount of filing fee: $5,908,672. $1,181.73 - ------------------------------------------------------------------------------ 1. In accordance with Rule 240.0-11 (b)(2) and Rule 240.0-11 (a)(4) under the Securities Exchange Act of 1934, the filing fee was calculated based upon the liquidation preference of $8.00 per share of Preferred Stock, multiplied by 738,584 (the number of shares of Preferred Stock sought to be acquired pursuant to the exchange offer). [ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2) and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number, or the form or schedule and the date of its filing. 2 This Issuer Tender Offer Statement on Schedule 13E-4 (this "Statement") is being filed by Axsys Technologies, Inc. (formerly Vernitron Corporation), a Delaware corporation (the "Company"), and relates to the offer by the Company to holders of its $1.20 Cumulative Exchangeable Redeemable Preferred Stock (the "Preferred Stock"), upon and subject to the terms and conditions set forth in the Offering Circular, dated February 13, 1997 (the "Offering Circular"), being filed as Exhibit (a)(1) herein, of 0.75 shares of the Company's common stock (the "Common Stock") in exchange for each outstanding share of Preferred Stock (the "Exchange Offer"). Capitalized terms used but not otherwise defined herein have the meaning ascribed to such terms in the Offering Circular. Item 1. Security and Issuer. (a) The issuer of the securities to which this Statement relates is the Company. The principal executive offices of the Company are located 645 Madison Avenue, New York, New York 10022. (b) The information set forth in "Summary" and ""The Exchange Offer" in the Offering Circular is specifically incorporated herein by reference. (c) The information set forth in "Market and Trading Information" in the Offering Circular is specifically incorporated herein by reference. (d) This Statement is being filed by the Company. Item 2. Source and Amount of Funds or Other Consideration. (a) The information set forth in "Exchange Offer" in the Offering Circular is specifically incorporated herein by reference. 3 (b) No funds are, or expect to be, borrowed for the purpose of the Exchange Offer. Item 3. Purpose of the Tender Offer and Plans or Proposals of the Issuer or Affiliate. (a) - (j) The information set forth in "Background and Purposes of the Exchange Offer; Certain Effects" in the Offering Circular is specifically incorporated herein by reference. Item 4. Interest in Securities of the Issuer. The information set forth in "Security Ownership" in the Offering Circular is specifically incorporated herein by reference. Item 5. Contracts, Arrangements, Understandings or Relationships with respect to the Issuer's Securities. The information set forth in "Description of Capital Stock -- Common Stock Equivalents" is specifically incorporated herein by reference. Item 6. Persons Retained, Employed or To be Compensated. The information set forth in the "Exchange Offer" is specifically incorporated herein by reference. Item 7. Financial Information. (a)(1) The information set forth in Exhibit A to the Offering Circular is specifically incorporated herein by reference. (a)(2) The information set forth in Exhibit B to the Offering Circular is specifically incorporated herein by reference. (a)(3) Not applicable. 4 (a)(4) The information set forth under "Pro Forma Unaudited Financial Information" in the Offering Circular is specifically incorporated herein by reference. (b)(1) - (3) The information set forth under "Pro Forma Unaudited Financial Information" in the Offering Circular is specifically incorporated herein by reference. Item 8. Additional Information. (a) The information set forth in "Security Ownership" and "Description of Capital Stock -- Common Stock Equivalents" in the Offering Circular is specifically incorporated herein by reference. (b) Not applicable. (c) The information set forth in "Background and Purposes of the Exchange Offer; Certain Effects" in the Offering Circular is specifically incorporated herein by reference. (d) None. (e) Reference is made to the Offering Circular, which is specifically incorporated herein by reference. Item 9. Material to be Filed as Exhibits. (a)(i) Offering Circular dated February 13, 1997. (a)(ii) Form of Letter of Transmittal. (a)(iii) Letter to Brokers, Securities Dealers, Commercial Banks, Trust Companies and Other Nominees. (a)(iv) Letters to Clients. (a)(v) Form of Notice of Guaranteed Delivery. (a)(vi) Press release, dated February 12, 1997. (b) Not applicable. 5 (c) Not applicable. (d) Not applicable. (e) Not applicable. (f) Not applicable. SIGNATURE --------- After due inquiry and to the best of my knowledge and belief, the undersigned certifies that the information set forth in this statement is true, complete and correct. AXSYS TECHNOLOGIES, INC. By: /s/ Stephen W. Bershad --------------------------- Stephen W. Bershad Chairman and Chief Executive Officer Dated:February 14, 1997 6 EX-99.(A)(I) 2 OFFERING CIRCULAR DATED FEBRUARY 13, 1997 OFFERING CIRCULAR [AXSYS LOGO] OFFER TO EXCHANGE 0.75 Shares of Common Stock for Each Outstanding Share of Preferred Stock - ------------------------------------------------------------------------------- THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, MARCH 17, 1997, UNLESS EXTENDED. - ------------------------------------------------------------------------------- THE EXCHANGE OFFER IS NOT CONDITIONED ON ANY MINIMUM NUMBER OF SHARES BEING TENDERED. SEE "THE EXCHANGE OFFER -- CONDITIONS OF THE EXCHANGE OFFER." -------------------- Axsys Technologies, Inc. (formerly Vernitron Corporation), a Delaware corporation (the "Company"), hereby offers, upon the terms and subject to the conditions set forth in this Offering Circular (the "Offering Circular") and in the accompanying Letter of Transmittal, to exchange 0.75 shares (the "Exchange Consideration") of Common Stock, par value $.01 per share (the "Common Stock"), of the Company for each outstanding share of $1.20 Cumulative Exchangeable Redeemable Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Company (the "Exchange Offer"). The Company's credit agreement with its bank lenders prohibits the payment of cash dividends on, and the redemption of, its outstanding capital stock, including the Preferred Stock. As of the date of this Offering Circular, the amount of unpaid dividends on the Preferred Stock is $1.19 per share. Under the terms of the Certificate of Designation, Powers, Preferences and Rights of the Preferred Stock (the "Certificate of Designation"), unpaid dividends cumulate or accrue, without interest, but holders of Preferred Stock are entitled to cash dividends only when, as and if declared by the Board of Directors. In addition, the right to dividends is expressly subject to any prohibition on the payment of cash dividends imposed by the Company's credit agreements. The only remedy to which holders of the Preferred Stock are entitled in the event that cash dividends are not paid are certain limited class voting rights to elect two directors to the Board of Directors in the event that the Company fails to pay dividends for six quarterly periods. As of the date of this Offering Circular, the Company has failed to pay dividends for four quarters. Under the Certificate of Designation, the Company has no obligation to redeem the Preferred Stock and the Preferred Stock may remain outstanding indefinitely. There is currently no established trading market for the Preferred Stock. Prior to August 27, 1996, the Preferred Stock was quoted on the NASDAQ Small-Cap Market (the "NASDAQ Small-Cap Market"). On that date, the Preferred Stock was delisted from trading on the NASDAQ Small-Cap Market due to a failure to satisfy the National Association of Securities Dealers, Inc. requirement that there be at least two market makers in the Preferred Stock. During 1996, prior to delisting, the highest bid and trading prices of the Preferred Stock reported on the NASDAQ Small-Cap Market were $5-1/2 and $7 per share, respectively. The Common Stock is quoted on the NASDAQ National Market (the "NASDAQ National Market"). BASED ON THE CLOSING BID PRICE OF $15 PER SHARE OF COMMON STOCK REPORTED ON THE NASDAQ NATIONAL MARKET ON FEBRUARY 11, 1997, THE LAST TRADING DAY BEFORE THE ANNOUNCEMENT OF THE EXCHANGE OFFER, THE EXCHANGE CONSIDERATION OFFERED IN THE EXCHANGE OFFER FOR EACH SHARE OF PREFERRED STOCK REPRESENTS PREMIUMS OF 104% OVER THE HIGHEST REPORTED BID PRICE OF $5-1/2 PER SHARE FOR THE PREFERRED STOCK AND 61% OVER THE HIGHEST REPORTED TRADING PRICE OF $7 PER SHARE FOR THE PREFERRED STOCK IN 1996. No assurance can be given as to the prices at which the Common Stock might (Cover continued on following page) The date of this Offering Circular is February 13, 1997. be traded, or the trading volume of the Common Stock, following the consummation of the Exchange Offer. See "Market and Trading Information." For the year ended December 31, 1996, on a pro forma basis, assuming the Exchange Offer had been consummated on January 1, 1996, earnings per share applicable to the Common Stock would have increased between 5% and 18% (from $.74 per share to between $.78 and $.87 per share), depending on the number of shares exchanged for Common Stock pursuant to the Exchange Offer. See "Pro Forma Financial Information." As of the date of this Offering Circular, 738,584 shares of Preferred Stock are outstanding. Stephen W. Bershad, Chairman of the Board and Chief Executive Officer of the Company, beneficially owns 149,041 shares of Preferred Stock, representing approximately 20% of the outstanding shares of Preferred Stock, and 1,137,032 shares of Common Stock, representing approximately 44% of the outstanding shares of Common Stock. He has advised the Company that he intends to tender all of his shares of Preferred Stock pursuant to the Exchange Offer. See "Security Ownership." Holders of shares of Preferred Stock accepted for exchange will not receive any separate payment in respect of dividends not paid subsequent to February 22, 1996 (the last date on which dividends payable on the Preferred Stock were paid), on shares of Preferred Stock tendered and accepted for exchange. The Exchange Offer is being made by the Company in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended (the "Securities Act"), afforded by Section 3(a)(9) thereof. The Company therefore will not pay any commission or other remuneration to any broker, dealer, salesman or other person for soliciting tenders of the Preferred Stock. Regular employees of the Company, who will not receive additional compensation therefor, may provide information to holders of the Preferred Stock concerning the Exchange Offer. The Company has made no arrangements and has no understanding with any independent dealer, salesman or other person regarding the solicitation of tenders hereunder, and no person has been authorized by the Company to give any information or to make any representation in connection with the Exchange Offer other than those contained herein and, if given or made, such other information or representations must not be relied upon as having been authorized. The delivery of this Offering Circular shall not, under any circumstances, create any implication that the information herein is correct as of any time subsequent to the date hereof. The Exchange Offer is not being made to, nor will the Company accept tenders from, holders of the Preferred Stock in any jurisdiction in which the Exchange Offer or the acceptance thereof would not be in compliance with the securities or blue sky laws of such jurisdiction. (Cover continued on following page) ii THE BOARD OF DIRECTORS OF THE COMPANY HAS APPROVED THE EXCHANGE OFFER. HOWEVER, NEITHER THE COMPANY NOR ITS BOARD OF DIRECTORS MAKES ANY RECOMMENDATION TO SHAREHOLDERS AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING THEIR SHARES. EACH SHAREHOLDER MUST MAKE THE DECISION WHETHER TO TENDER SHARES AND, IF SO, HOW MANY SHARES. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. --------- TABLE OF CONTENTS PAGE Summary......................................1 Background and Purposes of the Exchange Offer; Certain Effects.....6 Pro Forma Unaudited Financial Information......................9 Selected Consolidated Financial Data............................13 Business....................................15 Management's Discussion and Analysis of Financial Condition and Results of Operations.................16 Properties..................................16 Legal Proceedings...........................16 Management..................................17 PAGE The Exchange Offer..........................17 Description of Preferred Stock..............23 Security Ownership..........................25 Description of Capital Stock................25 Market and Trading Information..............26 Certain Federal Income Tax Considerations........................28 Shareholder Proposals.......................29 Additional Information......................29 Incorporation of Certain Documents by Reference................................29 Company 1995 Form 10-K...............Exhibit A Company September 30, 1996 Form 10-Q..........................Exhibit B iii SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements, including the notes thereto, contained elsewhere or incorporated by reference in this Offering Circular. Capitalized terms used and not defined in this summary have the respective meanings ascribed to them elsewhere in this Offering Circular. THE COMPANY Axsys Technologies, Inc. (formerly Vernitron Corporation), a Delaware corporation (the "Company"), is a leading supplier of precision optical and positioning components and sub-systems. The Company also manufactures and distributes electrical connectors, precision bearings and other precision components. The principal executive offices of the Company are located at 645 Madison Avenue, New York, New York 10022, telephone number (212) 593-7900. RECENT DEVELOPMENTS On January 24, 1997, the Company reported preliminary results, subject to audit, for the fourth quarter and the year ended December 31, 1996. For the fourth quarter ended December 31, 1996, the Company reported sales of $26,523,000, and net income of $825,000, or $0.30 per share, compared with sales of $15,830,000, and a net loss of $(29,000), or $(0.01) per share, for the fourth quarter ended December 31, 1995. For the year ended December 31, 1996, the Company reported sales of $91,301,000, and net income of $2,008,000, or $0.74 per share, before an extraordinary charge of $173,000, or $0.06 per share, compared with sales of $65,213,000, and net income of $310,000, or $0.12 per share, for the year ended December 31, 1995. Book value per share of Common Stock at December 31, 1996 was $4.66, compared to book value per share of Common Stock of $3.38 at December 31, 1995. On April 25, 1996, the Company acquired all of the outstanding capital stock of Precision Aerotech, Inc. ("PAI"). On October 1, 1996, the Company acquired substantially all of the assets of Lockheed Martin Beryllium Corporation ("LMBC"). On December 11, 1996, the Company sold L&S Machine Company, Inc. ("L&S"), a subsidiary of PAI, because it did not fit the Company's long-term strategy of expanding its position in the precision optical scanning and positioning markets. The aggregate consideration paid for PAI was approximately $17,000,000. The Company sold L&S for a sales price of approximately $13,300,000, subject to a post-closing adjustment. The sales price included the assumption of approximately $1,800,000 in long-term capitalized leases. Cash proceeds of approximately $11,500,000 were used to pre-pay indebtedness under the Credit Agreement. The acquisition of PAI on April 25, 1996 was accounted for under the purchase method of accounting, and, accordingly, the results of operations and the purchase consideration paid for PAI have been included in the Company's consolidated financial statements since the date of acquisition. See note 3 of the Company September 30, 1996 Form 10-Q. L&S was accounted for as a net asset held for disposal as of the PAI acquisition date. The acquisition of LMBC was accounted for under the purchase method of accounting. PURPOSES AND EFFECTS OF THE EXCHANGE OFFER The purpose of the Exchange Offer is to eliminate or significantly reduce the Preferred Stock outstanding because of the substantial after-tax cost of the Preferred Stock. Under the terms of the Certificate of Designation, the Preferred Stock is entitled to a cumulative cash dividend of 15% per annum. Dividends on the Preferred Stock, including unpaid dividends, reduce the Company's net income applicable to the Common Stock and are not a deductible expense to the Company for income tax purposes. The purpose of the Exchange Offer is also to increase the number of shares of Common Stock available for trading on the NASDAQ National Market, which the Company believes will increase the liquidity of the Common Stock. The Exchange Offer is also intended to increase the liquidity of holders of Preferred Stock by offering them the opportunity to exchange their shares at a premium for shares of Common Stock, which is a more liquid security. The Company believes that the elimination or reduction in the number of outstanding shares of Preferred Stock resulting from the Exchange Offer will provide a number of benefits to the Company and holders of Common Stock and Preferred Stock. See "Background and Purposes of the Exchange Offer; Certain Effects -- Purposes and Effects of the Exchange Offer." Certain Effects on Non-Tendering Holders Under the terms of the Certificate of Designation, the Company, at its option, may redeem for cash the Preferred Stock, in whole or in part at any time, at a price equal to the liquidation preference of the Preferred Stock of $8 per share, plus any unpaid dividends at the time or redemption (the "Liquidation Preference Amount"), or 110% of fair value per share (as determined by the Board of Directors of the Company) of the Preferred Stock, plus any unpaid dividends at the time of redemption (the "Fair Value Amount"), which may be less than the Liquidation Preference Amount. If the number of shares of Preferred Stock remaining outstanding following the consummation of the Exchange Offer is sufficiently reduced, the Company may seek to obtain a waiver from its bank lenders under the Credit Agreement to permit a cash redemption of the Preferred Stock. Although the Board of Directors has not determined the Fair Value Amount, it could not exceed the Liquidation Preference Amount and it is likely that it would be less than the Liquidation Preference Amount. In determining the Fair Value Amount, the Board would likely take into account, among other factors, the terms of the Preferred Stock under the Certificate of Designation, including: (i) the fact that the Company has no obligation to redeem the Preferred Stock and the Preferred Stock may remain outstanding indefinitely; (ii) the facts that the Company has no obligation to pay cash dividends on the Preferred Stock if prohibited by its financing agreements, the Company is prohibited until April 2002 from paying cash dividends under the terms of the Credit Agreement, and any other financing agreement entered into thereafter or earlier to refinance the Credit Agreement is likely to prohibit the payment of cash dividends; (iii) the fact that, although unpaid dividends cumulate, they cumulate without interest; and (iv) the fact that the Certificate of Designation does not impose any restrictions on the incurrence of additional indebtedness by the Company. The Preferred Stock is currently registered under the Exchange Act. Under applicable law, if the Exchange Offer is consummated, the Company could apply to the Commission to terminate the registration of Preferred Stock under the Exchange Act if shares of Preferred Stock are not held by more than 300 holders of record. As of the date of this Offering Circular, there are 530 record holders of the Preferred Stock, and the Company believes that, as a result of the consummation of the Exchange Offer, it may be permitted to terminate the registration of the Preferred Stock. The Preferred Stock has no voting rights, except that, if at any time, dividends on the Preferred Stock are not paid for six quarters, the Company's Board of Directors will be increased by one-third (but not less than two directors) and the holders of the Preferred Stock will be entitled to elect the directors to fill such newly created directorships. In addition, the affirmative vote of the holders of at least a majority of the outstanding shares of Preferred Stock, voting as a class, is required for the authorization of changes, by amendment to the Company's Certificate of Incorporation or otherwise, to the terms and provisions of the Preferred Stock so as to adversely affect the rights and preferences of the Preferred Stock. NO RECOMMENDATION BY BOARD OF DIRECTORS The Board of Directors of the Company has approved the Exchange Offer. However, neither the Company nor its Board of Directors makes any recommendation to shareholders as to whether to tender or refrain from tendering their shares. Each shareholder must make the decision whether to tender shares and, if so, how many shares. Mr. Bershad abstained in the vote by the Board of Directors in determining the amount of the Exchange Consideration. INTENTION OF DIRECTORS AND OFFICERS Stephen W. Bershad, Chairman of the Board and Chief Executive Officer of the Company, beneficially owns 149,041 shares of Preferred Stock, representing approximately 20% of the outstanding shares of Preferred Stock, and 1,137,032 shares of Common Stock, representing approximately 44% of the outstanding shares of 2 Common Stock. He has advised the Company that he intends to tender all of his shares of Preferred Stock pursuant to the Exchange Offer. Other than Mr. Bershad, no director or officer of the Company owns shares of Preferred Stock. See "Security Ownership." ACCEPTANCE NOT MANDATORY Preferred shareholders are free to exchange or not exchange their shares of Preferred Stock for shares of Common Stock in the Exchange Offer and may tender all or some of their Preferred Stock by properly completing and delivering a Letter of Transmittal, together with their shares of Preferred Stock, to the Exchange Agent. No vote of the Preferred Stock shareholders is required in connection with the Exchange Offer. THE EXCHANGE OFFER The Exchange Offer....... 0.75 shares of Common Stock in exchange for each outstanding share of Preferred Stock. Conditions to Exchange Offer........... The Exchange Offer is not conditioned on any minimum number of shares being tendered. See "The Exchange Offer -- Conditions" for a statement of the conditions to the Company's obligation to accept and pay for shares of Preferred Stock tendered pursuant to the Exchange Offer. Dividends................ Dividends have not been paid on the Preferred Stock since February 22, 1996. As of the date of this offering Circular, the amount of unpaid dividends is $1.19 per share. HOLDERS OF SHARES OF PREFERRED STOCK ACCEPTED FOR EXCHANGE WILL NOT RECEIVE ANY DIVIDEND PAYMENT IN RESPECT OF DIVIDENDS UNPAID SUBSEQUENT TO FEBRUARY 22, 1996. NO SEPARATE PAYMENT IS BEING MADE IN RESPECT OF UNPAID DIVIDENDS ON SHARES OF PREFERRED STOCK TENDERED AND ACCEPTED FOR EXCHANGE IN THE EXCHANGE OFFER. See "The Exchange Offer -- Dividends on Preferred Stock." Fractional Shares........ Tendering record holders of shares of Preferred Stock whose shares are accepted for exchange will not receive fractional shares of Common Stock but instead will receive a cash payment in lieu thereof equal to each such holder's proportionate interest in the net proceeds (following the deduction of applicable transaction costs) from the sale by the Exchange Agent, on behalf of such holders, of shares of Common Stock representing the aggregate of such fractional shares of Common Stock reasonably promptly after the expiration of the Exchange Offer. See "The Exchange Offer -- Fractional Shares." Expiration Date.......... The "Expiration Date" of the Exchange Offer will be 5:00 p.m., New York City time, on Monday, March 17, 1997, unless the Exchange Offer is extended, in which case the term "Expiration Date" shall mean the time on the last date to which the Exchange Offer is extended. References herein to the "last Expiration Date" shall refer to the time on the last date to which the Exchange Offer is extended. See "The Exchange Offer -- Expiration Date; Extensions; Amendments." How To Tender in the Exchange Offer......... A holder electing to tender Preferred Stock in the Exchange Offer should either (i) complete and sign the Letter of Transmittal, have the signatures thereon guaranteed, if required by Instruction 4 thereof, and mail or deliver the Letter of Transmittal with the 3 Preferred Stock and any other required documents to the Exchange Agent at one of the addresses set forth on the back cover page of this Offering Circular, or effect a tender of Preferred Stock pursuant to the procedures for book-entry transfer as set forth under "The Exchange Offer -- How to Tender in the Exchange Offer," or (ii) request his broker, dealer, commercial bank, trust company or other nominee to effect the transaction for him. Holders will not be obligated to pay any brokerage commissions in connection with the Exchange Offer. Tendered Preferred Stock may be withdrawn at any time until the Expiration Date and, if not otherwise accepted for exchange by the Company, at any time after April 11, 1997. See "The Exchange Offer -- Withdrawal of Tenders." Acceptance of Preferred Stock and Delivery of Common Stock........... Subject to the satisfaction or waiver of all conditions of the Exchange Offer, the Company will accept for exchange all Preferred Stock validly tendered on or prior to the Expiration Date. The Common Stock will be delivered in exchange for the Preferred Stock accepted in the Exchange Offer promptly after acceptance on the Expiration Date. See "The Exchange Offer -- General." Federal Income Tax Considerations......... For a discussion of certain Federal income tax consequences of the Exchange Offer to tendering holders and to the Company, see "Certain Federal Income Tax Considerations." Common Stock............. There are 4,000,000 shares of Common Stock authorized for issuance, of which 2,568,940 shares are issued and outstanding on the date of this Offering Circular. In addition, options to acquire up to an additional 347,140 shares of Common Stock upon the exercise of Common Stock Equivalents are outstanding. The maximum number of shares of Common Stock offered for exchange by the Company in the Exchange Offer, 553,938, represents approximately 16% of the shares of Common Stock which would be outstanding at such date, after giving effect to the issuance of Common Stock in the Exchange Offer and assuming the exercise of all Common Stock Equivalents. See "Description of Capital Stock." Market and Trading Information ... There is currently no established trading market for the Preferred Stock. Prior to August 27, 1996, the Preferred Stock was quoted on the NASDAQ Small-Cap Market. During 1996, prior to delisting, the highest bid and trading prices of the Preferred Stock reported on the NASDAQ Small-Cap Market were $5-1/2 and $7.00 per share, respectively. The outstanding Common Stock is quoted on the NASDAQ National Market, and the Common Stock issuable in the Exchange Offer will be quoted on the NASDAQ National Market, subject to official notice of issuance, under the symbol "AXYS." On February 11, 1997, the last trading day before the announcement of the Exchange Offer, the closing bid quotation reported on the NASDAQ National Market for the Common Stock was $15 per share. NO ASSURANCE CAN BE GIVEN CONCERNING THE PRICES AT WHICH THE COMMON STOCK MIGHT BE 4 TRADED, OR THE TRADING VOLUME OF THE COMMON STOCK, FOLLOWING THE CONSUMMATION OF THE EXCHANGE OFFER. Quotations on the NASDAQ National Market and NASDAQ Small- Cap Market reflect interdealer prices, without retail mark-up, mark- down or commission, and may not necessarily represent actual transactions. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT INFORMATION WITH RESPECT TO THE COMMON STOCK AND, IF AVAILABLE, THE PREFERRED STOCK. See "Market and Trading Information". Exchange Agent; Further Information... ChaseMellon Shareholder Services, L.L.C. has been appointed as Exchange Agent for the Exchange Offer. Requests for additional copies of this Offering Circular, the Letter of Transmittal or any other documents furnished herewith should be directed to the Exchange Agent at its address and telephone number set forth on the back cover page of this Offering Circular. For further information concerning the Exchange Offer, contact Elliot Konopko, Vice President, Axsys Technologies, Inc., 645 Madison Avenue, New York, NY, 10022, telephone (212) 593-7900. 5 BACKGROUND AND PURPOSES OF THE EXCHANGE OFFER; CERTAIN EFFECTS PREFERRED STOCK ARREARAGES The Company's credit agreement with its bank lenders (the "Credit Agreement") prohibits the payment of cash dividends on, and the redemption of, its capital stock, including the Preferred Stock. As of the date of this Offering Circular, the amount of accrued and unpaid dividends on the Preferred Stock is $1.19 per share. Under the terms of the Certificate of Designation, Powers, Preferences and Rights of the Preferred Stock (the "Certificate of Designation"), unpaid dividends cumulate or accrue, without interest, but holders of Preferred Stock are entitled to cash dividends only when, as and if declared by the Board of Directors. In addition, the right to dividends is expressly subject to any prohibition on the payment of cash dividends imposed by the Company's credit agreements, such as the Credit Agreement. The only remedy to which holders of the Preferred Stock are entitled in the event that cash dividends are not paid are certain limited class voting rights to elect two directors to the Board of Directors in the event that the Company fails to pay dividends for six quarterly periods. As of the date of this Offering Circular, the Company has failed to pay dividends for four quarters. Under the Certificate of Designation, the Company has no obligation to redeem the Preferred Stock and the Preferred Stock may remain outstanding indefinitely. PURPOSES AND EFFECTS OF THE EXCHANGE OFFER The purpose of the Exchange Offer is to eliminate or significantly reduce the Preferred Stock outstanding because of the substantial after-tax cost of the Preferred Stock. Under the terms of the Certificate of Designation, the Preferred Stock is entitled to a cumulative cash dividend of 15% per annum. Dividends on the Preferred Stock, including unpaid dividends, reduce the company's net income applicable to the Common Stock and are not a deductible expense to the Company for income tax purposes. The purpose of the Exchange Offer is also to increase the number of shares of Common Stock available for trading on the NASDAQ National Market Tier of the NASDAQ Stock Market, Inc. (the "NASDAQ National Market"), which the Company believes will increase the liquidity of the Common Stock. The Exchange Offer is also intended to increase the liquidity of holders of Preferred Stock by offering them the opportunity to exchange their shares at a premium for shares of Common Stock, which is a more liquid security. There is currently no established trading market for the Preferred Stock. Prior to August 27, 1996, the Preferred Stock was quoted on the NASDAQ Small-Cap Market Tier of the NASDAQ Stock Market, Inc. (the "NASDAQ Small-Cap Market"). On that date, the Preferred Stock was delisted from trading on the NASDAQ Small-Cap Market due to a failure to satisfy the National Association of Securities Dealers, Inc. requirement that there be at least two market makers in the Preferred Stock. During 1996, prior to delisting, the highest bid and trading prices of the Preferred Stock reported on the NASDAQ Small-Cap Market were $5-1/2 and $7.00 per share, respectively. Under the terms of the Certificate of Designation, the Preferred Stock has a liquidation preference of $8 per share, plus unpaid dividends at the time of liquidation. Based on the closing bid price of $15 per share of Common Stock reported on the NASDAQ National Market on February 11, 1997, the last trading day before the announcement of the Exchange Offer, the Exchange Consideration offered in the Exchange Offer for each share of Preferred Stock represents premiums of 104% over the highest reported bid price of $5-1/2 per share for the Preferred Stock and 61% over the highest reported trading price of $7 per share for the Preferred Stock in 1996. The Board determined to offer a premium price in the Exchange Offer in order to provide an economic incentive to holders of the Preferred Stock to exchange their shares. There can be no assurance concerning the prices at which the Common Stock might be traded, or the trading volume of the Common Stock, following the consummation of the Exchange Offer. See "Market and Trading Information." The Company believes that the elimination or reduction in the number of outstanding shares of Preferred Stock resulting from the Exchange Offer will provide a number of benefits to the Company and holders of Common Stock and Preferred Stock, including the following: 1. Elimination of the Preferred Stock will increase earnings per share and book value per share applicable to the Common Stock. For the year ended December 31, 1996, on a pro forma basis, assuming the Exchange Offer had been consummated on January 1, 1996, earnings per share applicable to the Common Stock would have increased between 5% and 18% (from $.74 per share (before an extraordinary charge of $.06 per share related to the early 6 extinguishment of debt) to between $.78 and $.87 per share), depending on the number of shares exchanged for Common Stock pursuant to the Exchange Offer. The book value per share of Common Stock will increase from $5.09 to $5.67 per share, compared to $4.66 per share prior to the Exchange Offer at December 31, 1996. See "Pro Forma Unaudited Financial Information." 2. The issuance of Common Stock in the Exchange Offer will increase the number of shares of Common Stock available for trading on NASDAQ and the number of holders of Common Stock. A purpose of the Exchange Offer is to increase the number of shares of Common Stock available for trading on the NASDAQ National Market, or the float, which the Company believes will increase the liquidity of the Common Stock. 3. By offering holders of Preferred Stock the opportunity to exchange their shares for shares of Common Stock, which represents a more liquid investment than the Preferred Stock, the Company is providing liquidity to the holders of the Preferred Stock for their investment and an increased opportunity to dispose of their shares for cash if they should determine to do so. 4. By offering holders of Preferred Stock a common equity stake in the Company, the Company is providing the holders with an opportunity to participate in the potential long-term appreciation of the Company's business, which the Company expects will be enhanced by the improvement in its capital structure and increased financial flexibility as a result of the consummation of the Exchange Offer. The holders of the Preferred Stock will gain voting rights by exchanging their shares of Preferred Stock for Common Stock. 5. The consummation of the Exchange Offer will eliminate or substantially reduce the number of outstanding shares of Preferred Stock and, depending on the number of shares of Preferred Stock outstanding following the consummation of the Exchange Offer, may enhance the Company's ability to obtain a waiver under the Credit Agreement to permit the Company to cure Preferred Stock dividend arrearages or redeem for cash the remaining shares of Preferred Stock. See " - Certain Effects on Non-Tendering Holders." Subject to the terms of the Credit Agreement, the Company may in the future purchase shares of Common Stock or Preferred Stock in the open market, in private transactions, through tender offers or otherwise. However, Rule 13e-4 under the Exchange Act prohibits the Company from making any purchases of shares of Common Stock or Preferred Stock until 10 business days after the Expiration Date, other than pursuant to the Exchange Offer. Any share purchases the Company may choose to make may be on the same terms as, or on terms more or less favorable to shareholders than, the terms of the Exchange Offer. Any possible future purchases by the Company will depend on numerous factors, including the market price of the shares, the results of the Exchange Offer, the Company's business and financial condition and general economic and market conditions. The maximum number of shares of Common Stock offered for exchange by the Company in the Exchange Offer represents approximately 16% of the shares of Common Stock which would be outstanding after giving effect to the issuance of Common Stock in the Exchange Offer and assuming the exercise of all outstanding Common Stock Equivalents. Certain Effects on Non-Tendering Holders Under the terms of the Certificate of Designation, the Company, at its option, may redeem for cash the Preferred Stock, in whole or in part at any time, at a price equal to the liquidation preference of the Preferred Stock of $8 per share, plus any unpaid dividends at the time of redemption (the "Liquidation Preference Amount"), or 110% of fair value per share (as determined by the Board of Directors of the Company) of the Preferred Stock, plus any unpaid dividends at the time of redemption (the "Fair Value Amount"), which may be less than the Liquidation Preference Amount. See "Description of Preferred Stock." If the number of shares of Preferred Stock remaining outstanding following the consummation of the Exchange Offer is sufficiently reduced, the Company may seek to obtain a waiver under the Credit Agreement to permit a cash redemption of the Preferred Stock. Although the Board of Directors has not determined the Fair Value Amount, it could not exceed the Liquidation Preference Amount and it is likely that it would be less than the Liquidation Preference Amount. In determining the Fair Value Amount, the Board would likely take into account, among other factors, the terms of the Preferred Stock under the Certificate of Designation, including: (i) the fact that the Company has no obligation to redeem the Preferred Stock and the Preferred Stock may remain outstanding indefinitely, (ii) the facts that 7 the Company has no obligation to pay cash dividends on the Preferred Stock if prohibited by its financing agreements, the Company is prohibited until April 2002 from paying cash dividends under the terms of the Credit Agreement, and any other financing agreement entered into thereafter or earlier to refinance the Credit Agreement is likely to prohibit the payment of cash dividends; (iii) the fact that, although unpaid dividends cumulate, they cumulate without interest; and (iv) the fact that the Certificate of Designation does not impose any restrictions on the incurrence of additional indebtedness by the Company. See "Description of Preferred Stock". A determination to redeem the Preferred Stock following the consummation of the Exchange Offer will depend upon a number of factors, including, but not limited to, the ability of the Company to obtain a waiver of the prohibition on redemptions contained in the Credit Agreement, the number of shares of Preferred Stock to be redeemed, the financial condition and prospects of the Company, alternative uses for cash otherwise available to pay for a redemption and the impact of the use of cash to redeem the Preferred Stock on the Company's ability to achieve its long-term growth strategies. See "Business -- Acquisitions." The Preferred Stock is currently registered under the Exchange Act. Under applicable law, if the Exchange Offer is consummated the Company could apply to the Commission to terminate the registration of Preferred Stock under the Exchange Act if shares of Preferred Stock are not held by more than 300 holders of record. As of the date of this Offering Circular, there are 530 record holders of the Preferred Stock, and the Company believes that, as a result of the consummation of the Exchange Offer, the Company may be permitted to terminate the registration of the Preferred Stock. Shares of Common Stock issued for exchange in the Exchange Offer will be registered under the Exchange Act. The Preferred Stock has no voting rights, except that, if, at any time, dividends on the Preferred Stock are not paid for six quarters, the Company's Board of Directors will be increased by one-third (but not less than two directors) and the holders of the Preferred Stock will be entitled to elect the directors to fill such newly created directorships. In addition, the affirmative vote of the holders of at least a majority of the outstanding shares of Preferred Stock, voting as a class, is required for the authorization of changes, by amendment to the Company's Certificate of Incorporation or otherwise, to the terms and provisions of the Preferred Stock so as to adversely affect the rights and preferences of the Preferred Stock. See "Description of Capital Stock." NO RECOMMENDATION BY BOARD OF DIRECTORS The Board of Directors of the Company has approved the Exchange Offer. However, neither the Company nor its Board of Directors makes any recommendation to shareholders as to whether to tender or refrain from tendering their shares. Each shareholder must make the decision whether to tender shares and, if so, how many shares. Mr. Bershad abstained in the vote by the Board of Directors in determining the amount of the Exchange Consideration. 8 PRO FORMA UNAUDITED FINANCIAL INFORMATION The Pro Forma Unaudited Condensed Consolidated Statements of Operations for the years ended December 31, 1996 and 1995 and the nine months ended September 30, 1996 are based on the historical financial statements of the Company and have been prepared to give effect to the Exchange Offer as if it had been consummated on January 1, 1995. The Pro Forma Unaudited Condensed Consolidated Balance Sheets as of December 31, 1996 and September 30, 1996 are based on historical financial statements of the Company and have been prepared to give effect to the Exchange Offer as if it had become effective December 31, 1996 and September 30, 1996, respectively. The historical financial statements for the year ended December 31, 1996, from which the pro forma financial information for that period has been derived, are preliminary and subject to audit. The audited financial statements for that period are expected to be available by the end of March, 1997. The adjustments giving effect to the Exchange Offer assume that holders of 50% of the outstanding Preferred Stock elect to exchange each share of their Preferred Stock for 0.75 of a share of Common Stock. The pro forma financial information does not purport to be indicative of the results which would actually have been obtained had such transactions been completed as of the assumed dates and for the periods presented or which may be obtained in the future and should be read in conjunction with the Consolidated Financial Statements of the Company and the related notes appearing in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 (the "Company 1995 Form 10-K"), attached as Exhibit A to this Offering Circular, and the Company's Quarterly Report on Form 10-Q/A-1, for the quarter ended September 30, 1996 (the "Company September 30, 1996 Form 10-Q"), attached as Exhibit B to this Offering Circular. 9 PRO FORMA UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET (DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
December 31, 1996 September 30, 1996 ---------------------------- --------------------------- Pro Forma Pro Forma Historical Adjustment Pro Forma Historical Adjustment Pro Forma ---------- ---------- --------- ---------- ---------- --------- CURRENT ASSETS: ASSETS Cash $ 2,691 $ 2,691 $ 5,677 $ 5,677 Accounts receivable - net 13,801 13,801 13,269 13,269 Inventories - net 24,454 24,454 23,533 23,533 Other current assets 556 556 710 710 -------- -------- -------- -------- ------- -------- TOTAL CURRENT ASSETS 41,502 41,502 43,189 43,189 PROPERTY, PLANT AND EQUIPMENT - net 13,456 13,456 12,666 12,666 EXCESS OF COST OVER NET ASSETS ACQUIRED - net 6,415 6,415 6,466 6,466 NET ASSETS HELD FOR DISPOSAL - - 10,721 10,721 OTHER ASSET 506 506 499 499 -------- -------- ------- ------- ------- ------- TOTAL ASSETS $61,879 $61,879 $73,541 $73,541 ======== ======== ======= ======= ======= ======= LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 6,881 $ 50 (b) $ 6,931 $ 7,303 $ 50 (b) $ 7,353 Accrued expenses and other liabilities 6,751 6,751 8,504 8,504 Current portion of long-term debt and capital lease obligations 2,682 2,682 3,889 3,889 -------- -------- -------- -------- ------- -------- TOTAL CURRENT LIABILITIES 16,314 50 16,364 19,696 50 19,746 LONG-TERM DEBT & CAPITAL LEASES, less current portion 23,473 23,473 33,715 33,715 OTHER LONG-TERM LIABILITIES 2,505 2,505 2,314 2,314 DEFERRED INCOME 387 387 420 420 SHARESHOLDER'S EQUITY: $1.20 Cumulative Exchangeable Redeemable Preferred Stock Preferred Stock ($8 Per Share Liquidation Value) 5,909 (2,955) (a) 2,954 5,909 (2,955)(a) 2,954 Common Stock 26 3 (a) 29 26 3 (a) 29 Capital in Excess of Par 10,673 2,952 (a) 13,575 9,915 2,952 (a) 12,817 (50) (b) (50)(b) Retained Earnings 2,592 2,592 1,546 1,546 -------- -------- -------- -------- ------- -------- TOTAL COMMON SHAREHOLDERS' EQUITY 13,291 2,905 16,196 11,487 2,905 14,392 -------- -------- -------- -------- ------- ------- TOTAL SHAREHOLDERS' EQUITY 19,200 (50) 19,150 17,396 (50) 17,346 -------- -------- -------- -------- ------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $61,879 $ - $61,879 $73,541 $ - $73,541 ======== ======== ======== ======== ======= ======== BOOK VALUE PER COMMON SHARE $ 4.66 $ 5.33 $ 4.11 $ 4.80 ======== ======== ======== ========
10 PRO FORMA UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE DATA)
Preliminary Nine Months Year Ended December 31, 1996 Year Ended December 31, 1995 Ended September 30, 1996 -------------------------------- -------------------------------- ------------------------------ Pro Forma Pro Forma Pro Forma Historical Adjustments Pro Forma Historical Adjustments Pro Forma Historical Adjustments Pro Forma ---------- ----------- --------- ---------- ----------- --------- ---------- ----------- --------- NET SALES $91,301 $91,301 $65,213 $65,213 $64,778 $64,778 Cost of sales 67,483 67,483 47,973 47,973 48,011 48,011 Selling, general and administrative expenses 16,501 16,501 13,336 13,336 11,932 11,932 Amortization of intangible assets 210 210 209 209 157 157 -------- --------- --------- -------- --------- --------- -------- --------- --------- OPERATING INCOME 7,107 7,107 3,695 3,695 4,678 4,678 Interest expense 2,343 $ 5 (c) 2,348 1,994 $ 6 (c) 2,000 1,657 $ 4 (c) 1,661 Other expense (income) 18 18 252 252 (4) (4) -------- --------- --------- -------- --------- --------- -------- --------- --------- INCOME FROM OPERATIONS BEFORE TAXES AND EXTRAORDINARY ITEM 4,746 (5) 4,741 1,449 (6) 1,443 3,025 (4) 3,021 Charge in lieu of taxes 1,891 (2)(d) 1,889 565 (2)(d) 563 1,216 (2)(d) 1,214 -------- --------- --------- -------- --------- --------- -------- --------- --------- INCOME FROM OPERATIONS BEFORE EXTRAORDINARY ITEM 2,855 (3) 2,852 884 (4) 880 1,809 (2) 1,807 Extraordinary loss on early extinguishment of debt, net of tax benefit (173) (173) - - (173) (173) -------- --------- --------- -------- --------- --------- -------- --------- --------- NET INCOME 2,682 (3) 2,679 884 (4) 880 1,636 (2) 1,634 Preferred dividends 847 (424) (e) 423 574 (287)(e) 287 626 (313) (e) 313 -------- --------- --------- -------- --------- --------- -------- --------- --------- INCOME APPLICABLE TO COMMON SHAREHOLDERS' $ 1,835 $ 421 $ 2,256 $ 310 $ 283 $ 593 $ 1,010 $ 311 $ 1,321 ======== ========= ========= ======== ========= ========= ======== ========= ======== Net Income per common share: Earnings before extraordinary charge $ 0.74 $ 0.83 $ 0.12 $ 0.21 $ 0.44 $ 0.51 Extraordinary charge (0.06) (0.06) - - (0.06) (0.06) -------- --------- -------- --------- -------- --------- Total $ 0.68 $ 0.77 $ 0.12 $ 0.21 $ 0.38 $ 0.45 ======== ========= ======== ========= ======== ========= Weighted average common shares outstanding: 2,692 252 2,944 2,511 252 2,763 2,663 252 2,915 ======== ========= ========= ======== ========= ========= ======== ========= =========
11 NOTES TO PRO FORMA UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - ------------------------------------------------------------------------ (a) Assumes that holders of 50% of the outstanding shares of Preferred Stock elect to exchange each share of their Preferred Stock for 0.75 of a share of Common Stock. The effect of these assumptions is that Pro Forma earnings per share would be $.77 and $.21, compared to historical earnings per share of $.68 and $.12, for the years ended December 31, 1996 and 1995, respectively. For the nine months ended September 30, 1996, pro forma earnings per share would be $.45, compared to historical earnings per share of $.38. The assumptions used in the pro forma calculations represent the midpoint in the range of potential scenarios as to the percentage of Preferred Stock exchanged for Common Stock. Assuming that all of the holders of the outstanding Preferred Stock elect to exchange each of their shares of Preferred Stock for 0.75 of a share of the Company's Common Stock, pro forma earnings per share would be $.84 and $.29, for the years ended December 31, 1996 and 1995, respectively. For the nine months ended September 30, 1996, pro forma earnings per share would be $.52. Stephen W. Bershad, Chairman and Chief Executive Officer of the Company, has advised the Company that he intends to exchange all of his 149,041 shares of Preferred Stock for Common Stock at the exchange rate noted above. Assuming that no Preferred Stock shareholders, other than Mr. Bershad, elect to exchange their Preferred Stock, pro forma earnings per share would be $.71 and $.16, for the years ended December 31, 1996 and 1995, respectively. For the nine months ended September 30, 1996, pro forma earnings per share would be $.41. (b) Assumes the incurrence of $50,000 in costs relating to the exchange transaction. (c) Amount represents the additional interest expense to be incurred on the funds borrowed to pay the $50,000 of transaction costs noted in (b) above. (d) Amount represents the tax benefit on the incremental interest expense noted in (c) above. (e) Amount represents the elimination of dividends on the Preferred Stock exchanged for Common Stock pursuant to the assumptions noted in (a) above. 12 SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected consolidated financial data concerning the Company and its subsidiaries for the fiscal years ended December 31, 1996, 1995, 1994 and 1993 and the nine months ended September 30, 1996 and 1995. This selected financial data should be read in conjunction with the Company's consolidated financial statements and the notes thereto appearing in the Company 1995 Form 10-K and the Company September 30, 1996 Form 10-Q attached hereto. The data under the captions "Operating Data" and "Balance Sheet Data" for the fiscal years ended December 31, 1995, 1994 and 1993 have been derived from consolidated financial statements for those years which have been audited by Arthur Andersen LLP, independent auditors. The data for the quarters ended September 30, 1996 and 1995 are unaudited but, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation. The historical financial statements for the year ended December 31, 1996, from which the selected financial data for that period has been derived, are preliminary and subject to audit. The audited financial statements are expected to be available by the end of March, 1997. See "Business - Acquisitions."
Years Ended December 31, Nine Months Ended --------------------------------------- ------------------- 1996 1995 1994 1993 1996 1995 --------- --------- --------- --------- --------- --------- OPERATING DATA: Net sales $91,301 $65,213 $62,132 $58,649 $64,778 $49,383 Income (loss) from continuing operations before taxes and extraordinary item (1) 4,746 1,449 44 (3,856) 3,025 1,240 Income (loss) from discontinued operations (2,202) (670) Extraordinary gain (charge) (173) 5,856 (173) Net income (loss) 2,682 884 3,681 (4,526) 1,636 756 Preferred stock dividends (2) 847 574 355 375 626 417 Net income (loss) applied to common shareholders' equity 1,835 310 3,326 (4,901) 1,010 339 Net income (loss) per share: Continuing operations $ 0.74 $ 0.12 $(0.20) $(4.08) $ 0.44 $ 0.14 Discontinued operations (1.30) (0.65) Extraordinary item (0.06) 3.45 (0.06) --------- --------- --------- --------- --------- --------- Total $ 0.68 $ 0.12 $ 1.95 $(4.73) $ 0.38 $ 0.14 ========= ========= ========= ========= ========= ========= BALANCE SHEET DATA: Cash $ 2,691 $ 91 $ 27 $ 103 $ 5,677 $ 81 Working capital (3) 25,188 14,334 11,538 15,473 23,493 13,811 Total assets 61,879 40,485 42,197 47,261 73,541 40,272 Total assets less excess of cost over net assets acquired 55,464 33,861 35,365 40,220 67,075 33,596 Total debt 26,155 11,513 12,363 26,470 37,604 11,045 Shareholders' equity 19,200 14,745 13,269 5,076 17,396 14,564 OTHER DATA: EBITDA (4) $ 9,816 $ 5,065 $ 5,365 $ 3,621 $ 6,643 $ 3,953 Ratio of EBITDA to Interest 4.19 2.54 2.37 1.49 4.01 2.58
13 NOTES TO SELECTED CONSOLIDATED FINANCIAL DATA - --------------------------------------------- (1) Income from continuing operations before taxes for the years ended December 31, 1994 and 1993 reflect restructuring/inventory writedown charges of $1,315,000 and $3,500,000, respectively, related to the Company's Motion Control group. See Note 8 to the Company's 1995 financial statements appearing in the Company 1995 Form 10-K attached hereto. No such charges were incurred during the years ended December 31, 1996 and 1995 or during the nine month periods ended September 30, 1996 and 1995. (2) From August, 1991 through February 22, 1996, when the right to pay dividends in additional shares of Preferred Stock expired, the Company paid quarterly dividends on the Preferred Stock in additional shares at an annual rate of 15% based on the shares outstanding. Since February 22, 1996, the Company has not declared or paid any dividends on the Preferred Stock. The amount of unpaid dividends at December 31, 1996 was $1.02 per share. No dividends have been paid on Common Stock. The Credit Agreement prohibits the payment of cash dividends. (3) Net of the current portion of long-term debt of $2,682,000, $466,000, $442,000 and $1,200,000 at December 31, 1996, 1995, 1994 and 1993, respectively, and of $3,889,000 and $466,000 at September 30, 1996 and 1995, respectively. (4) EBITDA is income from continuing operations before interest, taxes, depreciation and amortization. EBITDA and the ratio of EBITDA to Interest are presented because together they are a widely accepted financial indicator of a Company's ability to incur and service debt. For purposes of such calculations, restructuring/inventory charges relating to the Company's Motion Control group (See Note (1) above) have been excluded due to their unusual nature. EBITDA should not be considered either in isolation from, or as an alternative to, GAAP operating income (or cash flow), as an indicator of operating performance. 14 BUSINESS GENERAL The Company is a leading supplier of precision optical and positioning components and sub-systems. The Company also manufactures and distributes electrical connectors, precision bearings and other precision components. The Company's businesses are organized into two product groups: the Motion Control Group and the Industrial Components Group. MOTION CONTROL GROUP The Motion Control Group designs and produces precision optical and positioning components and subsystems. The Company believes that the Group offers one of the broadest range of electromechanical components in the motion control industry. The Group operates through the Vernitron division and two subsidiaries of the Company, Speedring Systems, Inc. and Speedring, Inc. The Group's Vernitron division designs and manufactures a wide range of motors, position and speed feedback devices and pressure sensors, including actuators, scanners, direct drive DC torque motors, DC servo motors, AC synchronous motors, and rotary and linear feed back devices, such as resolvers, optical encoders, potentiometers and pressure sensors. The divisions' products are sold for use in industrial, medical, commercial, instrumentation and aerospace applications. The division's products are designed and manufactured in San Diego, California and St. Petersburg, Florida. Speedring Systems, Inc. designs and manufactures high performance airbearing scanners, for use in high-end pre-press image setting machines, semiconductor inspection equipment and military night vision systems, and high precision mirrors, for use in defense and space applications. Speedring Systems' products are designed and manufactured in Rochester Hills, Michigan. Speedring Inc. precision machines beryllium alloy and other exotic material components, for use in commercial satellite and military applications, and airbearings, for use in airbearing scanners and military guidance applications. Speedring Inc.'s operations are located in Cullman, Alabama. INDUSTRIAL COMPONENTS GROUP The Industrial Components Group's Beau Interconnect Systems division manufactures electrical and electronic terminal blocks and connector products through Beau Interconnect Systems. The Group's AST Bearings division distributes and services precision miniature ball bearings through AST Bearings. Beau Interconnect Systems designs and manufactures safety agency (e.g., UL) approved barrier terminal blocks from signal level to 50 ampere capacity. These products are used in a broad range of applications, such as industrial controls and automation, HVAC, security, power supplies and telecommunications. Beau also produces power connectors for frequent connect and disconnect applications, such as vending machines, coin changers and traffic controls. Beau's products are produced in an ISO 9001 facility located in Gilford, New Hampshire. AST Bearings distributes precision miniature ball bearings from three warehouses: Montville, New Jersey; Irvine, California; and Dallas, Texas. AST sells to original equipment manufacturers in a variety of industrial and commercial industries, such as machine tools, office automation and semiconductor processing equipment. In addition, AST sells to other distributors which service the maintenance, repair and operation marketplace. The Company believes that AST's sales channels, product knowledge, exclusive product sources and applications engineering experience differentiates it from its competitors. The Company believes that AST is the largest distributor of precision, miniature ball bearings in the United States. ACQUISITIONS It is the Company's policy to grow through internally generated growth of the Company's existing operations and acquisitions of businesses in similar and related product lines, and the Company has pursued and intends to continue 15 to pursue acquisitions as a component of its growth strategy. No assurance can be given that suitable acquisition candidates can be identified, purchased and financed on acceptable terms, or that future acquisitions, if completed, will be successful. The success of any completed acquisition will depend on the Company's ability to integrate effectively the acquired businesses into the Company, among other factors. The process of integrating acquired businesses may involve unforeseen difficulties and may require a disproportionate amount of management attention and Company resources. On April 25, 1996, the Company acquired all of the outstanding capital stock of Precision Aerotech, Inc. ("PAI"), the immediate parent company of Speedring Systems, Inc. and Speedring, Inc. On October 1, 1996, Speedring, Inc. acquired substantially all of the assets of Lockheed Martin Beryllium Corporation ("LMBC") and consolidated its operations at Speedring, Inc.'s facility in Cullman, Alabama. On December 11, 1996, the Company sold L&S Machine Co., Inc. ("L&S"), a wholly owned subsidiary of PAI, because it did not fit the Company's long-term strategy of expanding its position in the precision optical scanning and positioning markets. The aggregate consideration paid for PAI was approximately $17,000,000. The Company sold L&S for a sales price of approximately $13,300,000, subject to a post-closing adjustment. The sales price included the assumption of approximately $1,800,000 in long-term capitalized leases. Cash proceeds of approximately $11,500,000 were used to pre-pay indebtedness under the Credit Agreement. The acquisition of PAI on April 25, 1996 was accounted for under the purchase method of accounting, and, accordingly, the results of operations and the purchase consideration paid for PAI have been included in the Company's consolidated financial statements since the date of acquisition. See note 3 and the other provisions of the Company September 30, 1996 Form 10-Q. L&S was accounted for as a net asset held for disposal as of the PAI acquisition date. The acquisition of LMBC was accounted for under the purchase method of accounting. See also Item 1 of the Company 1995 Form 10-K. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS For Management's Discussion and Analysis of Financial Condition and Results of Operations for the years ended December 31, 1995 and 1994 and the quarter and nine month periods ended September 30, 1996 and September 30, 1995, see Item 7 of the Company 1995 Form 10-K and Item 2 of the Company September 30, 1996 Form 10-Q attached hereto. The increase in sales, operating income and net income in the fourth quarter and year ended December 31, 1996, over the results of operations reported for the fourth quarter and year ended December 31, 1995 are attributable to substantially the same factors described in Management's Discussion and Analysis of Financial Condition and Results of Operations for the quarter and nine month periods ended September 30, 1996 and September 30, 1995. PROPERTIES For a description of certain of the properties of the Company and its subsidiaries, see Item 2 of the Company 1995 10-K attached hereto. Speedring Systems leases a 29,000 square foot facility under a lease expiring in 1999 at an annual rate of $249,504, subject to annual adjustments for changes in the consumer price index. The lease contains three five-year renewal options at fair market value. Speedring Inc. operates in a 100,000 square foot facility which it owns. The Company believes that the current facilities of all of its operations are sufficient to accommodate projected growth in the near term and that additional facilities will be available as needed. LEGAL PROCEEDINGS The Company is a defendant in various lawsuits, none of which is expected to have a material adverse affect on the Company's financial position, liquidity or results of operations. 16 MANAGEMENT For information concerning management of the Company, see Part III of the Company 1995 Form 10K attached. THE EXCHANGE OFFER THE EXCHANGE OFFER Upon the terms and subject to the conditions set forth in this Offering Circular and in the accompanying Letter of Transmittal, the Company is offering in the Exchange Offer to issue 0.75 shares of Common Stock, $.01 par value of share, of the Company for each outstanding share of $1.20 Cumulative Exchangeable Redeemable Preferred Stock of the Company (the "Preferred Stock"). This Offering Circular and the Letter of Transmittal are first being mailed to holders on or about February 14, 1997. GENERAL As of the date of this Offering Circular, February 13, 1997, a total of 738,584 shares of Preferred Stock are outstanding. The Company shall be deemed to have accepted validly tendered Preferred Stock in the Exchange Offer when, as and if the Company has given oral or written notice thereof to the Exchange Agent. The Exchange Agent will act as agent for tendering holders of Preferred Stock for the purpose of receiving the Common Stock from the Company. The Common Stock will be delivered in exchange for Preferred Stock accepted in the Exchange Offer promptly after acceptance on the Expiration Date. The Company's obligation to accept Preferred Stock for exchange is subject to the satisfaction of the conditions set forth below under "--Conditions." Holders of Preferred Stock who tender in the Exchange Offer will not be required to pay brokerage commissions or fees or, subject to the instructions in the Letter of Transmittal, transfer taxes with respect to the exchange of Preferred Stock for Common Stock pursuant to the Exchange Offer. The Company will pay all charges and expenses, other than certain applicable taxes, in connection with the Exchange Offer. See "--Fees and Expenses." EXPIRATION DATE; EXTENSIONS; AMENDMENTS The term "Expiration Date" shall mean 5:00 p.m., New York City time, on Monday, March 17, 1997, unless the Company, in its sole discretion, extends the Exchange Offer, in which case the term "Expiration Date" shall mean the time on the last date to which the Exchange Offer is extended. References herein to the "last Expiration Date" shall refer to the time on the last date to which the Exchange Offer is extended. In order to extend the Expiration Date, the Company will notify the Exchange Agent of any extension by oral or written notice and will make a public announcement thereof, each prior to 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Such announcement may state that the Company is extending the Exchange Offer for a specified period or on a daily basis. The Company expressly reserves the right, in its sole discretion, at any time and from time to time, to (i) delay accepting any Preferred Stock, to extend the Exchange Offer or to terminate the Exchange Offer and not accept Preferred Stock not previously accepted if any of the conditions set forth herein under " -- Conditions" shall exist or shall have occurred and shall not have been waived or satisfied by the Company, by giving oral or written notice of such delay, extension or termination to the Exchange Agent, or (ii) waive any such condition or amend the terms of the Exchange Offer in any respect. Any such delay in acceptance, extension, termination, amendment 17 or waiver will be followed as promptly as practicable by public announcement thereof. If the Exchange Offer is amended in a manner determined by the Company to constitute a material change, the Company will promptly disclose each amendment in a manner reasonably calculated to inform the holders of such amendment and the Company will extend each such amended Exchange Offer for a period which the Company in its discretion deems appropriate, depending upon the significance of the amendment and the manner of disclosure to holders of the Preferred Stock, if such amended Exchange Offer would otherwise expire during such period. Any such extension shall be in compliance with the applicable rules and regulations of the Securities and Exchange Commission (the "Commission"). Subject to applicable law (including Rule 13e-4(e)(2) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which requires that material changes be promptly disseminated to holders in a manner reasonably calculated to inform them of such change) and without limiting the manner in which the Company may choose to make a public announcement, if any, of any extension, amendment, waiver or termination of the Exchange Offer, the Company shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by making a timely release to the Dow Jones News Service. If, prior to the Expiration Date, the Purchaser should decide to decrease the number of shares of Preferred Stock being sought or to increase or decrease the consideration being offered in the Exchange Offer and, at the time notice of any such decrease in the number of shares of Preferred Stock being sought or of such decrease or increase in the consideration being offered is first published, sent or given to holders of such shares, the Exchange Offer is scheduled to expire at any time earlier than the period ending on the tenth business day from and including the date that such notice is first so published, sent or given, the Exchange Offer will be extended at least until the expiration of such ten business day period. For purposes of the Exchange Offer, a "business day" means any day, other than a Saturday, Sunday or federal holiday, and consists of the time period from 12:01 a.m. through 12:00 midnight, New York City time. DIVIDENDS ON PREFERRED STOCK Holders of shares of Preferred Stock accepted for exchange will not receive any separate payment in respect of dividends unpaid subsequent to February 22, 1997 (the date the last dividend payable on the Preferred Stock was paid), on shares of Preferred Stock tendered and accepted for exchange. As of the date of this Offering Circular, the amount of unpaid dividends on shares of Preferred Stock is $1.19 per share. HOW TO TENDER IN THE EXCHANGE OFFER A holder electing to tender Preferred Stock in the Exchange Offer should either (i) complete and sign the Letter of Transmittal or a facsimile thereof and mail or otherwise deliver the completed Letter of Transmittal, or such facsimile, together with certificates for shares of Preferred Stock, and any other required documents to the Exchange Agent at one of its addresses set forth on the back cover page of this Offering Circular or effect the tender of Preferred Stock pursuant to the procedure for book-entry transfer as set forth below, or (ii) request his broker, dealer, commercial bank, trust company or other nominee to effect the transaction for him. The term "holder" with respect to the Preferred Stock means any person in whose name shares of Preferred Stock are registered on the books of the Company or any other person who has obtained a properly completed stock power from the registered holder. In order for a tender of Preferred Stock to constitute a valid tender, holders should complete and deliver the Letter of Transmittal to the Exchange Agent on or prior to the Expiration Date. TENDERS -- GENERAL The tender by a holder of Preferred Stock pursuant to one of the procedures set forth herein will constitute an agreement between such holder and the Company in accordance with the terms and subject to the conditions set forth herein and in the Letter of Transmittal. 18 The method of delivery of the Preferred Stock and Letter of Transmittal and all other required documents to the Exchange Agent is at the election and risk of each holder. Except as otherwise provided herein, such delivery will be deemed made only when actually received by the Exchange Agent. INSTEAD OF EFFECTING DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. NO DOCUMENTS SHOULD BE SENT TO THE COMPANY OR THE TRANSFER AGENT FOR THE PREFERRED STOCK. The Exchange Agent will make a request promptly after the date of this Offering Circular to establish accounts with respect to the Preferred Stock at the Depository Trust Company ("DTC"), and the Philadelphia Depository Trust Company ("PHILADEP", and together with DTC, collectively referred to as the "Book Entry Transfer Facilities") for the purpose of facilitating the Exchange Offer. Any financial institution that is a participant in any of the Book Entry Transfer Facilities systems may make book entry delivery of the Preferred Stock by causing DTC or PHILADEP to transfer such Preferred Stock into the Exchange Agent's account in accordance with such Book Entry Transfer Facility's procedure for such transfer. Although delivery of Preferred Stock may be effected through book entry transfer into the Exchange Agent's account at DTC or PHILADEP, the Letter of Transmittal (or facsimile thereof), with any required signature guarantees and any other required documents, must, in any case, be transmitted to and received or confirmed by the Exchange Agent at one of its addresses at set forth on the back cover of this Offering Circular prior to 5:00 p.m., New York City time, on the Expiration Date. DELIVERY OF DOCUMENTS TO A BOOK ENTRY TRANSFER FACILITY IN ACCORDANCE WITH ITS PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. Any beneficial holder whose shares of Preferred Stock are registered in the name of his broker, dealer, commercial bank, trust company or other nominee and who wishes to tender Preferred Stock should contact such registered holder promptly and instruct such registered holder to tender Preferred Stock on his behalf. If such beneficial holder wishes to tender Preferred Stock on his own behalf, such beneficial holder must either make appropriate arrangements to register ownership of the Preferred Stock in such holder's name or obtain a properly completed stock power from the registered holder reflecting the change in ownership. The transfer of record ownership of Preferred Stock may take considerable time and, depending on when such transfer is requested, may not be accomplished prior to the Expiration Date. Signatures on each Letter of Transmittal must be guaranteed unless the shares of Preferred Stock delivered pursuant thereto are delivered (i) by a registered holder of Preferred Stock who has not completed the boxes on the Letter of Transmittal entitled "Special Issuance and Delivery Instructions" or (ii) for the account of an Eligible Institution (as defined below). In the event that signatures are required to be guaranteed, such guarantees must be by a firm that is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or by a commercial bank or trust company having an office in the United States (an "Eligible Institution"). If the Letter of Transmittal is signed by a person other than the registered holder, such certificate(s) must be endorsed or accompanied by appropriate stock powers bearing the signature of the registered holder or holders exactly as the name or names appeared on the certificate(s). If the Letter of Transmittal or any other certificates, stock powers or proxies are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company of their authority to so act must be submitted. All questions as to the validity, form, eligibility (including time of receipt), acceptance, withdrawal and revocation of tendered Preferred Stock will be resolved by the Company, whose determination will be final and binding. The Company reserves the absolute right to reject any and all tenders and withdrawals of Preferred Stock that are not in proper form or the acceptance of which would, in the opinion of the Company or counsel for the Company, be unlawful. The Company also reserves the right to waive any irregularities or conditions of tender as to particular shares of Preferred Stock. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in the Letter of Transmittal) will be final and binding. Unless waived, any 19 irregularities in connection with tenders and withdrawals of Preferred Stock must be cured within such time as the Company shall determine. Neither the Company nor the Exchange Agent shall be under any duty to give notification of defects in such tenders, withdrawals, deliveries or revocations or shall incur any liability for failure to give such notification. Tenders and withdrawals of Preferred Stock will not be deemed to have been made until such irregularities have been cured or waived. Any shares of Preferred Stock received by the Exchange Agent that are not properly tendered or delivered and as to which the irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders of Preferred Stock unless otherwise provided in the Letter of Transmittal as soon as practicable following the Expiration Date. Although it does not expect to do so, in the event the Company should increase the consideration offered for the Preferred Stock in the Exchange Offer, such increased consideration will be paid to all holders whose shares of Preferred Stock are accepted in the Exchange Offer, including those shares of Preferred Stock tendered before the announcement of the increase. GUARANTEED DELIVERY PROCEDURES If a holder of Preferred Stock desires to tender shares of Preferred Stock and the certificate(s) representing such shares are not immediately available, or time will not permit such holder's certificate(s) or other required documents to reach the Exchange Agent before 5:00 p.m., New York City time, on the Expiration Date, or if such holder cannot complete the procedure for book-entry transfer on a timely basis, a tender may be effected if: (a) the tender is made through an Eligible Institution; and (b) prior to 5:00 p.m., New York City time on the Expiration Date, the Exchange Agent receives from such Eligible Institution a properly completed and duly executed Notice of Guaranteed Delivery (by telegram, telex, facsimile transmission, mail or hand delivery) setting forth the name and address of the holder of Preferred Stock and the number of shares of Preferred Stock to be delivered, stating that the delivery is being made thereby and guaranteeing that within five New York Stock Exchange trading days after the Expiration Date, the certificate(s) representing the Preferred Stock, the Letter of Transmittal and any other documents required thereby will be deposited by the Eligible Institution with the Exchange Agent; and (c) the certificate(s) for all tendered Preferred Stock, or a confirmation of a book entry transfer of such Preferred Stock into the Exchange Agent's applicable account at a Book-Entry Transfer Facility as described above, the Letter of Transmittal, and all other documents required thereby are received by Exchange Agent within five New York Stock Exchange trading days after the Expiration Date. WITHDRAWAL OF TENDERS Tenders of shares of Preferred Stock may be withdrawn at any time until the Expiration Date and, if not otherwise accepted for exchange by the Company, at any time after April 11, 1997. Any holder of Preferred Stock who has tendered Preferred Stock or who succeeds to the record ownership of Preferred Stock in respect of which such tender previously had been given, may withdraw such Preferred Stock by delivery of a written notice of withdrawal. To be effective, a written or facsimile transmission notice of withdrawal must (i) be timely received by the Exchange Agent at one of its addresses specified on the back cover of this Offering Circular before the Expiration Date, (ii) specify the name of the registered holder of the shares of Preferred Stock to be withdrawn, (iii) contain the certificate number(s) shown on the particular certificate(s) evidencing the shares of Preferred Stock to be withdrawn and the number of shares of Preferred Stock to be withdrawn, and (iv) be signed by the registered holder of such Preferred Stock in the same manner as the original signature on the Letter of Transmittal (including any required signature guarantees) or be accompanied by documents of transfer sufficient to have the transfer agent for the Preferred Stock register the transfer of such Preferred Stock into the name of the person withdrawing Preferred Stock. The signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution unless such shares of Preferred Stock have been tendered (i) by a registered holder of Preferred Stock who has not completed the boxes on the Letter of Transmittal entitled "Special Issuance and Delivery Instructions" or (ii) for the account of an Eligible Institution. If the shares of Preferred Stock to be withdrawn have been delivered or otherwise identified to the Exchange Agent, a signed 20 notice of withdrawal is effective immediately upon receipt of written or facsimile transmission notice of withdrawal even if physical release is not yet effected. Any shares of Preferred Stock which have been tendered for exchange but which are not exchanged will be returned to the holder thereof without cost to such holder as soon as practicable following the Expiration Date. Properly withdrawn shares of Preferred Stock may be retendered at any time prior to the Expiration Date by following one of the procedures described under "--How to Tender in the Exchange Offer." FRACTIONAL SHARES Tendering record holders of shares of Preferred Stock whose shares are accepted for exchange will not receive fractional shares of Common Stock but instead will receive a cash payment in lieu thereof equal to each such holder's proportionate interest in the net proceeds (following the deduction of applicable transaction costs) from the sale by the Exchange Agent, on behalf of such holders, of shares of Common Stock, or, at the option of the Company, cash provided by the Company, representing the aggregate of such fractional shares of Common Stock reasonably promptly after the expiration of the Exchange Offer. No interest will be paid on cash payments made to tendering record holders of Preferred Stock in lieu of fractional shares of Common Stock. The treatment of any fractional shares of Common Stock to which beneficial owners may otherwise be entitled will depend on the arrangements between such beneficial owners and the nominee record holder of such shares, and neither the Company nor the Exchange Agent will have involvement with such arrangements. In light of the amount of the Exchange Consideration, many beneficial owners will be subject to the particular arrangements between such beneficial owners and the nominee record holders of such shares. Based upon the number of shares of Common Stock currently outstanding and issuable in the Exchange Offer and trading volumes, the Company does not believe that Common Stock trading volumes or prices will be materially affected by the implementation of such fractional share arrangements. CONDITIONS Notwithstanding any other provisions of the Exchange Offer, the Company shall not be required to accept for exchange or exchange shares of Preferred Stock tendered pursuant to the Exchange Offer, and may terminate or amend the Exchange Offer and may postpone the acceptance for exchange of, and exchange of, shares of Preferred Stock tendered, if any time on or after the date of this Offering Circular and prior to the acceptance for exchange of any shares of Preferred Stock, any of the following conditions shall occur: (a) there shall have been instituted, pending or threatened any action or proceeding before any court or governmental, administrative or regulatory authority or agency, domestic or foreign, (i) challenging or seeking to make illegal, materially delay or otherwise directly or indirectly restrain or prohibit or make materially more costly the Exchange Offer, or the acceptance for exchange of, or exchange of, any shares of Preferred Stock by the Company, or seeking to obtain material damages in connection with any transaction contemplated by the Exchange Offer, (ii) seeking to impose or confirm limitations on the ability of any stockholder of the Company or any affiliate of any stockholder of the Company to exercise effectively full rights of ownership of any shares of Common Stock or Preferred Stock; (iii) seeking to require divestiture by any stockholder of the Company or any affiliate of any stockholder of the Company of any shares of Common Stock or Preferred Stock; or (iv) that otherwise is or is reasonably likely to be materially adverse to the business, operations, properties, condition (financial or otherwise), assets or liabilities or prospects of the Company and its subsidiaries taken as a whole; (b) there shall have been any action taken, or any statute, rule, regulation, legislation, interpretation, judgment, order or injunction enacted, entered, enforced, promulgated, amended, issued or deemed applicable to (i) the Company or any subsidiary or affiliate of the Company or (ii) any transaction contemplated by the Exchange Offer, by any legislative body, court, government or governmental, administrative or regulatory authority or agency, domestic or foreign, that is or is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (iv) of paragraph (a) above; 21 (c) there shall have occurred any change, condition, event or development that is or is reasonably likely to be materially adverse to the business, operations, properties, condition (financial or otherwise), assets or liabilities or prospects of the Company and its subsidiaries taken as a whole; or (d) there shall have occurred (i) any general suspension of, or limitation on prices for, trading in securities on the NASDAQ National Market or any national securities exchange, (ii) any decline, measured from the date of this Offering Circular in the Standard & Poor's 500 Index by an amount in excess of 25%, (iii) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States by New York or federal banking authorities, (iv) any limitation (whether or not mandatory) by any government or governmental, administrative or regulatory authority or agency, domestic or foreign, on, or other event that, in the judgment of the Company, might affect, the extension of credit by banks or other lending institutions, (v) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States or any material escalation thereof, or (vi) in the case of any of the foregoing existing on the date of this Offering Circular, a material acceleration or worsening thereof; which, in the sole judgment of the Company in any such case, and regardless of the circumstances giving rise to any such condition, makes it inadvisable to proceed with such acceptance for exchange or exchange. The foregoing conditions are for the sole benefit of the Company and may be asserted by the Company regardless of the circumstances giving rise to such condition or may be waived by the Company in whole or in part at any time and from time to time in its sole discretion. The failure by the Company at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right; the waiver of any such right with respect to particular facts and circumstances shall not be deemed a waiver with respect to any other facts and circumstances; and each such right shall be deemed an ongoing right that may be asserted at any time and from time to time. If any of the conditions listed above is not satisfied, the Company may (i) refuse to accept any Preferred Stock and return all tendered Preferred Stock to exchanging and tendering holders, (ii) extend the Exchange Offer and retain all Preferred Stock tendered prior to the expiration of the Exchange Offer, subject to withdrawal rights of tendering holders of Preferred Stock described herein, or (iii) waive or amend certain of such unsatisfied conditions with respect to the Exchange Offer and accept all properly tendered Preferred Stock. If such waiver or amendment constitutes a material change to the Exchange Offer, the Company will promptly disclose such waiver in a manner reasonably calculated to inform holders of Preferred Stock of such waiver or amendment, and the Company will extend the Exchange Offer for a period which the Company in its discretion deems appropriate, depending on the significance of the waiver or amendment and the manner of disclosure to holders of Preferred Stock. EXCHANGE AGENT ChaseMellon Shareholder Services, L.L.C. has been appointed as Exchange Agent for the Exchange Offer. Questions and requests for assistance may be directed to the Exchange Agent at one of its addresses and telephone number set forth on the back cover page of this Offering Circular. FEES AND EXPENSES The expenses of soliciting tenders of Preferred Stock will be borne by the Company. The principal solicitation is being made by mail; however, additional solicitations may be made by telegraph, telephone or in person by officers and regular employees of the Company, who will not receive additional compensation. Arrangements may also be made with brokerage houses and other custodians, nominees and fiduciaries to forward the material regarding the Exchange Offer to the beneficial owners of Preferred Stock. The Company will reimburse such forwarding agents for reasonable out-of-pocket expenses incurred by them, but no compensation will be paid for their services. The total cash expenditures to be incurred by the Company in connection with the Exchange Offer including printing, accounting and legal fees and the fees and expenses of the Exchange Agent are estimated to be approximately $50,000. 22 DESCRIPTION OF PREFERRED STOCK The following summary of the terms of the Preferred Stock and junior subordinated debentures exchangeable, at the option of the Company, for the Preferred Stock (the "Junior Debentures") does not purport to be complete and is subject, and qualified in its entirety by reference, to all of the provisions of the Certificate of Designation, and the Indenture relating to the Junior Debentures available in the manner set forth under "Additional Information." PREFERRED STOCK GENERAL. There are 738,584 shares of Preferred Stock outstanding. Assuming 80% acceptance of the Exchange Offer by the holders of Preferred Stock, 147,717 shares of Preferred Stock will be outstanding. The Preferred Stock ranks junior in right of payment to all indebtedness of the Company and all capital stock ranking senior to the Preferred Stock. The terms of the Preferred Stock do not restrict the incurrence of indebtedness by the Company or the issuance by the Company of any class or series of capital stocks, whether or not senior to the Preferred Stock. DIVIDENDS. Each share of Preferred Stock bears cumulative dividends, at the rate of $1.20 per annum, payable quarterly, when, as and if declared by the Board of Directors. All dividends not paid in cash, whether or not declared, cumulate, without interest, until declared and paid, which declaration and payment may be for all or part of the then accumulated dividends. As of January 31, 1997, the amount of unpaid dividends is $1.13 per share. No cash dividends have ever been paid on the Preferred Stock. Prior to February 22, 1996, the Company was entitled to pay, and paid, dividends in additional shares of Preferred Stock. Payment of cash dividends on the Preferred Stock are prohibited by the Credit Agreement and will likely be subject to certain restricted payments provisions contained in the Company's financing agreements entered into hereafter. See "Background and Purposes of the Exchange Offer - Certain Effects." The Preferred Stock provides that so long as any shares of the Preferred Stock are outstanding, the Company may not declare, pay or set apart for payment any dividend on the Common Stock or any other class of capital stock of the Company ranking junior to the Preferred Stock (the "Junior Securities") or make any payment on account of, or set apart for payment money for a sinking or other similar fund for, the purchase, redemption or other retirement of any of the Junior Securities or any warrants, options or rights to acquire any of the Junior Securities or make any distribution in respect thereof, either directly or indirectly, and whether in cash, obligations or shares of the Company, or other property (other than distributions or dividends in Junior Securities to the holders of Junior Securities), and may not permit any corporation or other entity directly or indirectly controlled by the Company to purchase or redeem any of the Junior Securities or any warrants, options or rights to acquire any of the Junior Securities, if there are any unpaid dividends on the Preferred Stock. The foregoing restrictions do not prevent the payment of any dividend within sixty days after the date of declaration thereof if at such date of declaration such payment complied with the provisions the Certificate of Designation or involved the expenditure of up to an aggregate of $300,000 for Permitted Employee Redemptions. "Permitted Employee Redemption" means any purchase or redemption by the Company or any of its subsidiaries of Junior Securities (or warrants, options or rights to acquire any Junior Securities) from any officer or employee (or former officer or employee) of the Company or any of its subsidiaries. REDEMPTION AND EXCHANGE. The Preferred Stock is redeemable (subject to the legal availability of funds and any restrictions contained in the Company's financing agreements), at the option of the Company, in whole or in part at any time, at a redemption price of either $8.00 per share, together with all accrued and unpaid dividends to the redemption date, or 110% of Fair Value Per Share (as defined), together with all accrued but unpaid dividends to the redemption date. The Fair Value Per Share on any date of determination is the average of the daily closing prices per share of Preferred Stock for the 10 consecutive New York Stock Exchange trading days commencing 15 New York Stock Exchange trading days before such date. The closing price for each day shall be the last sale price regular way or, in case no such sale takes place on such day, the closing bid price regular way on such day, in either case on the New York Stock Exchange Composite Tape, or, if the Preferred Stock is not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the Preferred Stock is listed 23 or admitted to trading, or if the Preferred Stock is not listed or admitted to trading on any national securities exchange, the average of the highest reported bid and lowest reported asked prices as furnished by the National Association of Securities Dealers, Inc. through NASDAQ or a similar organization if NASDAQ is no longer reporting such information. If the Preferred Stock is not reported on NASDAQ or any such similar organization, Fair Value Per Share shall mean the fair value per share of the Preferred Stock as determined by the Board of Directors of the Company. Optional redemptions of the Preferred Stock are subject to restricted payment provisions in the Credit Agreement. The Preferred Stock is not reported on NASDAQ or any such similar organization and, accordingly, the determination of Fair Value Per Share would be made by the Board of Directors of the Company. The Board of Directors has not determined Fair Value Per Share, which may be less than $8.00 per share. See "Background and Purposes of the Exchange Offer; Certain Effects -- Purposes and Effects of the Exchange Offer -- Certain Effects on Non-Tendering Holders." The Preferred Stock is exchangeable (subject to the legal availability of funds) on any dividend payment date in whole or in part (in minimum increments of $500,000), at the option of the Company, for Junior Debentures in an amount equal to the sum of the aggregate liquidation preference of all shares of the Preferred Stock being exchanged into Junior Debentures. The Company has no present intention to exercise its option to cause shares of Preferred Stock to be exchanged for Junior Debentures in the foreseeable future. The Company may not exchange any shares of Preferred Stock unless (a) no event of default exists under any of the Company's financing agreements and (b) the exchange is allowed under the provisions of the Company's financing agreements. If only a portion of the outstanding shares of Preferred Stock are to be exchanged for Junior Debentures, either the number of shares to be redeemed will be allocated among all holders proportionately, or holders whose shares are to be redeemed will be selected by lot. If the latter selection procedure were followed, some holders may have all their shares exchanged for Junior Debentures, while other holders may not have any of their shares of Preferred Stock exchanged. A partial exchange could have adverse effects on the liquidity of the market for the Preferred Stock or Junior Debentures, as well as the market prices for such securities. In the event such exchange would result in the issuance of a Junior Debenture in a principal amount which is less than $8.00 or which is not an integral multiple of $8.00, the Company may pay to persons otherwise entitled to fractional principal amounts of Junior Debentures a payment in cash in lieu thereof equal to the fractional principal amount each such person would have otherwise been entitled to receive in Junior Debentures. NO VOTING RIGHTS. The Preferred Stock has no voting rights, except that, if at any time dividends on the Preferred Stock are not paid for six quarters, the Company's Board of Directors will be increased by one-third (but not less than two directors) and the holders of Preferred Stock will be entitled to elect the directors to fill such newly created directorships. In addition, the affirmative vote of the holders of at least a majority of the outstanding shares of Preferred Stock, voting separately as a class, will be required for the authorization of changes, by amendment to the Company's Certificate of Incorporation or otherwise, to the terms and provisions of the Preferred Stock so as to adversely affect the rights and preferences of the Preferred Stock. LIQUIDATION PREFERENCE. Upon any voluntary or involuntary liquidation, dissolution or winding up of the Company, holders of Preferred Stock will be entitled to receive $8.00 per share, plus any accrued and unpaid dividends, before any distribution is made on any Junior Securities. JUNIOR DEBENTURES The Junior Debentures, if and when issued, will represent unsecured subordinated general obligations of the Company and will be issued in registered form only, without coupons, pursuant to an Indenture (the "Indenture"). The Company has no present intention to issue the Junior Debentures in the foreseeable future. Prior to the issuance of the Junior Debentures, the Indenture will be qualified under the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The terms of the Junior Debentures will include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act as in effect on the date of the Indenture. 24 SECURITY OWNERSHIP The Company knows of no person who, as of the date of this Offering Circular, beneficially owns more than 5% of the Common Stock outstanding, except for Mr. Bershad (1,137,032 outstanding shares of Common Stock and 12,600 Common Stock Equivalents), Lehman Electric Inc., an affiliate of Lehman Brothers, Inc., an investment banking firm (463,741 outstanding shares of Common Stock), Victor A. Morgenstern, a private investor (181,800 outstanding shares of Common Stock) and the Axsys Technologies, Inc. 401(k) Plan (231,202 outstanding shares of Common Stock). Elliot N. Konopko and Raymond F. Kunzmann, executive officers of the Company, are co-trustees of the Axsys Technologies, Inc. 401(k) Plan (the "401(k) Plan"). Banque Paribas and an affiliate collectively beneficially own 288,540 Common Stock Equivalents. Mr. Bershad owns 149,041 shares of Preferred Stock. To the knowledge of the Company, none of its executive officers has engaged in any sale or purchase transaction with respect to Common Stock or Preferred Stock during the 40 business days immediately preceding the date of this Offering Circular, except that the 401(k) Plan purchased 2,000 and 1,500 shares of Common Stock on December 12, 1996 and January 6, 1997 at prices of $10-1/8 per share and $10-1/2 per share, respectively. Mr. Bershad has advised the Company that he intends to tender all of his shares of Preferred Stock (149,041 shares) pursuant to the Exchange Offer. As a result, Mr. Bershad will own 1,248,812 shares of Common Stock, which, depending on the number of shares of Preferred Stock tendered by other holders pursuant to the Exchange Offer, will represent between approximately 40% and 46% of the shares of Common Stock outstanding immediately following the consummation of the Exchange Offer. Following the consummation of the Exchange Offer, Mr. Bershad will continue to be in a position to exercise effective control over the Company. DESCRIPTION OF CAPITAL STOCK CAPITAL STOCK The authorized capital stock of the Company consists of 4,000,000 shares of Common Stock and 4,000,000 shares of preferred stock, $.01 par value per share ("Company Preferred Stock"). As of the date of this Offering Circular, there are issued and outstanding 2,568,940 shares of Common Stock and 738,584 shares of Preferred Stock. Shares of Preferred Stock accepted in the Exchange Offer will have the status of authorized and unissued shares of Company Preferred Stock, undesignated as to class or series, and may be redesignated and reissued as part of any class or series of Company Preferred Stock other than the Preferred Stock. Although the Company does not presently intend to issue any shares of Company Preferred Stock, the Company may issue one or more series of Company Preferred Stock in the future that will have preference over the Common Stock and/or the Preferred Stock with respect to the payment of dividends and upon liquidation, dissolution or winding-up of the Company or otherwise. Each share of Common Stock has one vote on all matters on which shareholders of the Company are entitled to vote, including the election of directors. Holders of Common Stock are entitled to participate ratably in any distribution of assets to shareholders in liquidation after the payment in full of all preferential amounts to which holders of any class of Company Preferred Stock are or may be entitled, have no redemption or conversion rights and have no preemptive or other subscription rights. Holders of the Common Stock may take action without a meeting only by the unanimous written consent of holders entitled to vote thereon. The Company has never paid cash dividends on its Common Stock and does not anticipate paying any cash dividends in the foreseeable future. The Company's policy is to retain earnings for the foreseeable future for reinvestment in its businesses. In addition, the Credit Agreement contains provisions which prohibit payment by the Company of dividends or distributions on the Common Stock. Future dividends, if any, will be declared at the discretion of the Board of Directors. 25 ChaseMellon Shareholder Services, L.L.C., the Exchange Agent, is also the registrar and transfer agent for the Common Stock and Preferred Stock. COMMON STOCK EQUIVALENTS Options or warrants to acquire shares of Common Stock ("Common Stock Equivalents") have been granted to certain key employees of the Company under the Company's Long-Term Stock Incentive Plan (38,600 Common Stock Equivalents in the aggregate), to Banque Paribas and an affiliate of Banque Paribas (288,540 Common Stock Equivalents in the aggregate) and to an affiliate of Donaldson, Lufkin Jenrette Securities Corporation (20,000 Common Stock Equivalents). The terms of the Common Stock Equivalents are summarized in Part III of the Company 1995 Form 10-K attached hereto. CHANGE IN PREFERENCE AND PRIORITY; CHANGE IN VOTING RIGHTS; CERTAIN LIMITATIONS The Preferred Stock has preference over the Common Stock with respect to the payment of dividends and upon liquidation, dissolution or winding-up of the Company. If the Exchange Offer is consummated, the Preferred Stock owned by holders who elect to exchange their shares in the Exchange Offer will be converted into Common Stock and holders of Preferred Stock will thereby relinquish their preference with respect to the payment of dividends and upon liquidation, dissolution or winding-up of the Company and will have no preference of any kind, the same as all other holders of Common Stock. Shares of Preferred Stock outstanding after the Exchange Offer will have priority over the Common Stock with respect to the payment of dividends and upon liquidation, dissolution or winding-up of the Company under certain circumstances. In any liquidation or reorganization of the Company under the United States Bankruptcy Code, the Common Stock, as equity securities of the Company, would not represent bankruptcy claims ranking prior to other equity securities (including the Preferred Stock) and would rank below all debt claims, such as claims by the lenders under the Credit Agreement. All preferred stock claims, such as the Preferred Stock, would rank below all debt claims. MARKET AND TRADING INFORMATION Prior to August 27, 1996, the Preferred Stock was quoted and traded on the NASDAQ Small-Cap Market. There is currently no established trading market for the Preferred Stock. From time to time there have been, and may be in the future, indications of interest in respect of the Preferred Stock appearing in the OTC Bulletin Board and/or "pink sheets." The following table sets forth for the calendar periods indicated the high and low bid prices per share for the Preferred Stock as reported by the National Association of Securities Dealers, Inc. (the "NASD"): HIGH LOW 1995: ---- --- First Quarter...................... $4 $3-3/8 Second Quarter..................... 4-1/2 3-3/4 Third Quarter...................... 5 4-1/2 Fourth Quarter..................... 5 4-3/4 HIGH LOW 1996: ---- --- First Quarter...................... $5-1/2 $4-7/8 Second Quarter..................... 5-1/2 5 Third Quarter...................... 5-1/2 5-1/2 Through August 26, 1996............ 5-1/2 4-7/8 26 The Common Stock is quoted and traded on the NASDAQ National Market under the symbol "AXYS". Prior to December 11, 1996, the Common Stock was quoted and traded on the NASDAQ Small-Cap Market. The following table sets forth for the calendar periods indicated the high and low bid prices per share for the Common Stock as reported by the NASD. Per share prices have been adjusted to reflect a one-for-five reverse split of the Common Stock on July 25, 1996. HIGH LOW 1995: ---- --- First Quarter...................... $4-3/8 $3-1/8 Second Quarter..................... 5 3-3/4 Third Quarter...................... 8-1/8 5 Fourth Quarter..................... 6-7/8 5 HIGH LOW 1996: ---- --- First Quarter...................... $ 5 $4-3/8 Second Quarter..................... 10-5/8 4-3/8 Third Quarter...................... 9-3/8 6-1/4 Fourth Quarter..................... 10 9 HIGH LOW 1997: ---- --- Through February 12, 1997........... $16-1/4 $10 On February 11, 1997, the last full day the Common Stock traded before the announcement of the Exchange Offer, the closing bid price reported on the NASDAQ National Market for the Common Stock was $15 per share. On February 12, 1997, the last full day the Common Stock traded prior to the mailing of this Offering Circular, the closing bid price reported on the NASDAQ National Market for the Common Stock was $15 per share. No dividends have been paid on the Common Stock. The shares of Common Stock issuable in connection with the Exchange Offer have been accepted for quotation on the NASDAQ National Market, subject to official notice of issuance. THERE CAN BE NO ASSURANCE CONCERNING THE PRICES AT WHICH THE COMMON STOCK MIGHT BE TRADED OR THE TRADING VOLUME OF THE COMMON STOCK FOLLOWING THE EXCHANGE OFFER. Quotations on the NASDAQ National Market and the NASDAQ Small-Cap Market reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not necessarily represent actual transactions. STOCKHOLDERS ARE URGED TO CONTACT THEIR BROKERS AND OBTAIN CURRENT INFORMATION WITH RESPECT TO THE COMMON STOCK AND, IF AVAILABLE, THE PREFERRED STOCK. 27 CERTAIN FEDERAL INCOME TAX CONSIDERATIONS Set forth below is a summary of the material Federal income tax considerations applicable to the Company and to holders whose Preferred Stock is tendered and accepted in the Exchange Offer if the Exchange Offer is consummated. This summary does not discuss all aspects of Federal income taxation that may be relevant to a particular holder of Preferred Stock in light of his personal investment circumstances or to certain types of holders of Preferred Stock subject to special treatment under the Federal income tax laws (for example, life insurance companies, tax-exempt organizations, foreign corporations and individuals who are not citizens or residents of the United States) and does not discuss any aspect of state, local or foreign taxation. The discussion with respect to exchanging or non-tendering holders is limited to those who have held the Preferred Stock as "capital assets" and who will hold the Common Stock as "capital assets" (generally, property held for investment) within the meaning of Section 1221 of the Code. The summary is based upon laws, regulations, rulings and decisions now in effect and upon proposed regulations, all of which are subject to change (possibly with retroactive effect) by legislation, administrative action or judicial decision. THE SUMMARY IS NOT BASED UPON A LEGAL OPINION OF TAX COUNSEL. THE FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER ARE COMPLEX. THE SUMMARY IS INCLUDED HEREIN FOR GENERAL INFORMATION ONLY. EACH HOLDER OF PREFERRED STOCK SHOULD CONSULT SUCH HOLDER'S TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES TO SUCH HOLDER OF THE EXCHANGE OFFER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL, FOREIGN AND OTHER TAX LAWS. EXCHANGE OF PREFERRED STOCK FOR COMMON STOCK General. An exchange of Preferred Stock for Common Stock pursuant to the Exchange Offer will constitute a recapitalization under Section 368(a)(1)(E) of the Code. Except as provided below with respect to unpaid dividends, a holder who exchanges Preferred Stock for Common Stock will not recognize any gain or loss on the exchange. The Common Stock received by such a holder will have an initial tax basis equal to the adjusted tax basis of the Preferred Stock exchanged therefor. The Common Stock will have a holding period that includes the period during which the holder held the Preferred Stock exchanged therefor. However, holders of Preferred Stock who exchange their shares for Common Stock pursuant to the Exchange Offer will recognize ordinary income in the amount of the unpaid dividends on the Expiration Date. Assuming the Expiration Date is not extended, that amount would be $1.30 per share. Treatment of Non-exchanging holders. The Exchange Offer will not result in the recognition of income, gain or loss to holders of Preferred Stock who do not participate in the Exchange Offer SALE OR EXCHANGE OF COMMON STOCK In general, subject to the stock redemption rules of Section 302 of the Code, the sale, exchange or redemption of the Common Stock received in the Exchange Offer will result in capital gain or loss equal to the difference between the amount realized and the holder's adjusted tax basis in the Common Stock immediately before such sale, exchange or redemption. TAX CONSEQUENCES TO THE COMPANY Section 382 of the Code limits the use of net operating loss carryovers by a corporation that has been subject to an "ownership change." The taxable income of such a corporation which is available for offset by pre-ownership change net operating loss carryovers is limited each year to the long term tax-exempt rate (published monthly by the Internal Revenue Service) multiplied by the value of the equity of the corporation on the date immediately preceding an ownership change. Similar limitations apply in respect of carryovers of other beneficial tax attributes. 28 The Company believes that an ownership change will not occur as a result of the consummation of the Exchange Offer and that it will therefore have full utilization of its net operating loss carryovers to offset future taxable income. SHAREHOLDER PROPOSALS Any holder of Common Stock who wishes to present a proposal for inclusion in the Company's proxy statement for the next annual meeting of shareholders must comply with the rules and regulations of the Securities and Exchange Commission (the "Commission") then in effect. Such proposal must be received by the Secretary of the Company at 645 Madison Avenue, New York, New York, 10022 no later than December 16, 1997 in order to be considered for inclusion in the Company's next annual meeting proxy statement. ADDITIONAL INFORMATION The Company has filed a Schedule 13E-4 Issuer Tender Offer Statement (the "Schedule 13E-4") with the Commission with respect to the Exchange Offer. As permitted by the rules and regulations of the Commission, this Offering Circular omits certain information and exhibits contained in the Schedule 13E-4. Such additional information and exhibits can be inspected at and obtained from the Commission in the manner set forth below or from the Company at no cost. For further information with respect to the securities offered hereby and the Company, reference is made to the Schedule 13E-4 and the exhibits thereto. Statements contained in this Offering Circular as to the terms of any contract or other document are not necessarily complete, and, in each case, reference is made to the copy of each such contract or other document that has been filed as an exhibit to the Schedule 13E-4, each such statement being qualified in all respects by such reference. The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in accordance therewith, files periodic reports and other information with the Commission. Such reports and other information filed with the Commission, as well as the Schedule 13E-4, can be inspected and copied at the public reference facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511; and 7 World Trade Center, New York, New York 10048. Copies of such material may also be obtained by mail, upon payment of the Commission's customary charges, from the Public Reference Section of the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a Web site on the World Wide Web at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. Copies of the Certificate of Designation and the Indenture may also be obtained from the Company upon request to the Company at its principal executive offices. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Company 1995 Form 10-K and the Company September 30, 1996 Form 10-Q attached hereto and previously filed with the Commission by the Company pursuant to the Exchange Act are incorporated by reference in this Offering Circular and made a part hereof. Any statement contained in a document incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Offering Circular of which it is a part to the extent that a statement contained herein modifies, supersedes or replaces such statement. Any statements modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Offering Circular. 29 EXHIBIT A TO OFFERING CIRCULAR =============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------- FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 COMMISSION FILE NO.: 0-16182 VERNITRON CORPORATION (Exact name of registrant as specified in its charter) DELAWARE 11-1962029 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 645 MADISON AVENUE NEW YORK, NEW YORK 10022 (Address of principal executive offices) (Zip Code) (212) 593-7900 (Registrant's telephone number, including area code) SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: Common Stock, par value $.01 per share $1.20 Cumulative Exchangeable Redeemable Preferred Stock, par value $.01 per share SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) 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]. Aggregate market value of the voting stock held by non-affiliates of the registrant as of the close of business on February 28, 1996. $6,103,000 Common Stock outstanding at February 28, 1996: 12,659,957 shares. =============================================================================== PART I ITEM 1. BUSINESS GENERAL Vernitron Corporation (the "Company"), incorporated in New York in 1959 and reincorporated in Delaware in 1968, is primarily engaged in the design, manufacture and sale of high performance electromagnetic components and sub-systems and electrical/electronic terminal blocks and connectors, and the distribution and service of precision ball bearings. The Company's products are manufactured primarily for use in high reliability applications in the aerospace, defense, communications, medical equipment, office equipment and industrial markets. BUSINESS OF THE COMPANY The Company operates in three manufacturing plants and three distribution facilities located in the United States in one business segment, electromechanical components and sub-systems, which is organized into two product groups: the Motion Control group and the Industrial Components group. The Company also uses contract production capacity in Mexico. The Motion Control and Industrial Components groups accounted for 38% and 62%, respectively, of the Company's consolidated net sales of $65.2 million in 1995. (see Management's Discussion and Analysis of Financial Condition and Results of Operations for three year sales comparisons). MOTION CONTROL GROUP. The Motion Control group designs, manufactures and sells high performance electromagnetic components and sub-systems. The group's products generally involve a high degree of interactive applications engineering to meet each customer's unique requirements for reliability and accuracy under demanding and often hostile environmental or shock conditions, such as space flight or industrial automation. Average unit prices generally exceed $100 and range upward to more than $1,000 with individual purchase orders generally covering small unit quantities. Approximately 54% and 12% of current bookings by this group are for U.S. and foreign government defense applications, respectively. The remainder of the business is spread over a variety of commercial aerospace, industrial automation and instrumentation applications. A large percentage of the defense business is used in or to support tactical missile programs, shipboard instruments and infrared night vision systems. The Motion Control group offers one of the broadest range of electromechanical components in the motion control industry. The group's product offerings include prime movers or motors ("motors"), position and speed feedback devices, and pressure sensors. The motor products consist of AC motors, stepper motors, brush and brushless DC torque motors and brush and brushless custom DC servo motors. These motors are used in applications that require precise speed control, large torque, small size or low power consumption such as computer disk drives, laser scanners in high-speed printers and bar code readers, missile guidance systems, industrial controls, aircraft instrumentation and controls, and robotics. The position and speed feedback devices consist of resolvers, synchros, tachometers, optical encoders and potentiometers. These devices measure linear or angular position and speed and have applications in the guidance systems of ships, aircraft and missiles, as well as in ground based radar, medical and printing equipment and industrial control systems. The pressure sensors are used to measure static or dynamic air, hydraulic or other pressure and have applications in machine tools, HVAC, transportation and aircraft flight controls. The Motion Control group's breath of component product offerings positions it to provide a single solution to their customer's often diverse motion control requirements. These capabilities also enable the Motion Control group to provide higher level solutions in the form of sub-systems which integrate and package various motors, feedback devices and pressure sensors with gears or optics, electronic devices and controls. Sub-system products include, among others, laser scanners, robotic arm actuators, aircraft actuators and air data computers. In 1995, sub-systems represented approximately 14% of the Motion Control group's sales. INDUSTRIAL COMPONENTS GROUP. The Industrial Components group manufactures electrical/electronic terminal 2 blocks and connector products and distributes and services precision miniature ball bearings. The group's products are almost always sold as components and require a minimum amount of specialized application engineering. Average unit selling prices range from $1 to $3 and individual purchase orders generally cover large unit quantities. Substantially all of the Industrial Components group sales are to domestic commercial and industrial markets. The Industrial Components group's electrical/electronic terminal blocks and connector product line focuses mainly on safety agency approved barrier terminal blocks in the .5 amp to 50 amp range. These terminal blocks are used in a broad range of power applications, including telecommunications, power supplies, security and fire alarms and industrial controls. This product line also includes power connectors for frequent connect/disconnect applications, such as vending machines and coin changers. The Industrial Components group also distributes precision miniature ball bearings from three warehouse locations - Montville, New Jersey, Irvine, California and Dallas, Texas - to bearing distributors and to end users in a variety of industries, including manufacturers of computer equipment, medical equipment and a variety of other precision instruments. MARKETING. The Company's products are sold directly to original equipment manufacturers and U.S. Government agencies and contractors, and through a network of manufacturers' representatives and distributors. DOMESTIC AND FOREIGN SALES. The following table sets forth, for each of the last three fiscal years, information concerning the Company's domestic and foreign net sales and operating income from continuing operations and identifiable assets (dollars in thousands):
FISCAL YEARS ------------------------------ 1995 1994 1993 --------- --------- -------- Net sales: USA....................................... $57,402 $57,752 $53,668 Foreign................................... 7,811 4,380 4,981 --------- --------- -------- $65,213 $62,132 $58,649 ========= ========= ======== Export sales as a % of total sales: 12.0% 7.0% 8.5% ========= ========= ======== Operating income (loss): USA....................................... $ 3,155 $ 3,363 $ 1,969 Foreign................................... 540 314 183 Restructuring/inventory writedown charges (USA)................................ - (1,315) (3,500) --------- --------- -------- $ 3,695 $ 2,362 $(1,348) ========= ========= ======== Identifiable assets: USA...................................... $40,485 $42,197 $47,261 ========= ========= ========
COMPETITION. The Company competes primarily on the basis of its ability to design and engineer its products to meet performance specifications set by its customers, most of whom are original equipment manufacturers who purchase component parts or sub-systems for inclusion in their end products. Quality, customer service and competitive pricing are also critical success factors. There are a limited number of competitors in each of the markets for the various types of electromechanical components and sub-systems and electrical/electronic terminal blocks and connector products manufactured and sold by the Company. These competitors, especially those in electromechanical components and sub-systems, are typically focused on a smaller number of product offerings than the Company and are often well entrenched. Some of these competitors have substantially greater resources than the Company. The Company believes, however, that the breath of its electromagnetic component product offering provides it with a competitive advantage over its sub-system competitors in terms of performance and cost. Reductions in Government defense spending have resulted in shrinking markets for certain electromechanical components and increased competition for the remaining business. 3 There are numerous competitors in markets to which we distribute precision ball bearings. These competitors, who vary in size, include other bearing distributors as well as bearing manufacturers. CUSTOMERS. There is no customer or group of affiliated customers to which sales during the fiscal year ended December 31, 1995 were in the aggregate 10% or more of the Company's consolidated net sales, and there is no customer, the loss of which would have a material adverse effect on the Company's operations taken as a whole. In fiscal 1995, the Company had aggregate sales, both military and non-military, of approximately $3.0 million directly to the U.S. Government, including its agencies and departments. These sales accounted for approximately 5% of total net sales in 1995 as compared to 6% in 1994 and 5% in 1993. Approximately 13% of net sales in 1995 were derived from subcontracts with U.S. Government contractors as compared to 18% in 1994 and 21% in 1993. The majority of these contracts may be subject to termination at the convenience of the Government, and certain of them may also be subject to renegotiation. Currently, the Company is not aware of any termination or renegotiation of such contracts which would have a material adverse effect on its business. Because approximately 18% of the Company's business is derived directly from contracts with the U.S. Government or agencies or departments thereof, or indirectly through subcontracts with U.S. Government contractors, the Company's results of operations could be materially affected by changes in Government expenditures for products using component parts it produces. However, the Company believes that its exposure to such risk may be lessened by the conventional tactical nature of the programs it participates in as well as the broad number and diversity of its product applications and the strength of its engineering capabilities. BACKLOG; SEASONALITY. As of December 31, 1995 and December 31, 1994, the Company had a backlog of orders of $28.0 million and $23.0 million, respectively. Management believes that a substantial portion of the backlog of orders at December 31, 1995 will be shipped during fiscal 1996. Bookings and shipments, while subject to fluctuation due to the build-to-order nature of a substantial portion of the Company's business, are not subject to significant seasonal variations. PRODUCT DEVELOPMENT. The Company develops new electromechanical components and sub-systems and improves existing products in order to keep pace with the technological advances which generally characterize its markets. During fiscal 1995, 1994, and 1993, combined Company and customer sponsored engineering expense associated with product development, before customer reimbursement, was $1.2 million, $1.2 million and $1.3 million, respectively. In general, the Company recovers from customers between a quarter and a third of such engineering expense. RAW MATERIALS; OTHER SUPPLIERS. There is no one supplier whose delivery of raw materials or other products is material to the operations of the Company. While several divisions use substantial amounts of cobalt, silver and copper in certain of their products, the Company has not experienced any serious difficulty in obtaining adequate supplies. PATENTS, TRADEMARKS AND LICENSES. The Company's business is not dependent on any patent or trademark. ENVIRONMENTAL REGULATIONS. The Company does not believe that its compliance with federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to the protection of the environment has or will have any material effect upon its capital expenditures, earnings or competitive position. There can be no assurance, however, (i) that changes in federal, state or local laws or regulations, changes in regulatory policy or the discovery of unknown problems or conditions will not in the future require substantial expenditures, or (ii) as to the extent of the Company's liabilities, if any, for past failures, if any, to comply with applicable environmental laws, regulations and permits. EMPLOYEES. The Company employs approximately 550 persons, all in the United States. Approximately 35 of such employees are subject to union contracts. The Company considers its relations with its employees to be satisfactory. There has been no significant interruption of operations due to labor disputes. WORKING CAPITAL PRACTICES. The markets in which the Company competes are not characterized by any unusual inventory or collection practices. 4 ITEM 2. PROPERTIES The Company leases its executive office, located at 645 Madison Avenue, New York, New York. The principal plants and other materially important properties at December 31, 1995 are: OWNED OR TYPE OF SQUARE LEASED; LOCATION FACILITY FOOTAGE EXPIRATION - -------- -------- ------- ---------- St. Petersburg, FL Industrial 52,500 Owned San Diego, CA Industrial 60,100 Leased; 2000 Montville, NJ Industrial 76,200 Leased; 1999 Gilford, NH Industrial 84,250 Owned Irvine, CA Industrial 7,800 Leased; 2000 All of the facilities owned by the Company are subject to mortgages or security interests which secure the Company's obligations under its revolving credit facility or industrial development bonds (see Note 4 to the Financial Statements). The Company believes that its properties are suitable and adequate for its operations. ITEM 3. LEGAL PROCEEDINGS The Company is a defendant in various lawsuits, none of which is expected to have a material adverse affect on the Company's financial position, liquidity or results of operations. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. 5 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Common Stock is traded on the National Association of Securities Dealers Automated Quotation Small-Cap Market ("NASDAQ") under the symbol VRNT. The following table sets forth the range of high and low bid prices for the fiscal quarters indicated as quoted on NASDAQ:
1995 1994 -------------------- --------------- High Low High Low ---- --- ---- --- Fiscal Years Ended December 31: First Quarter $ 3/4 $ 5/8 $ 5/8 $ 5/8 Second Quarter 1 3/4 1 1/8 5/8 Third Quarter 1 5/8 1 1 11/16 Fourth Quarter 1 3/8 1 3/4 5/8
The high and low market price information presented above is based on real-time sales. On March 1, 1996, the high and low bid price was $7/8. On March 1, 1996, the approximate number of holders of record of the Common Stock was 1,000. The Company did not pay cash dividends on the Common Stock during the three fiscal years ended December 31, 1995. The Company's policy is to retain earnings for the foreseeable future. The Company's credit facility prohibits the payment of cash dividends. 6 ITEM 6. SELECTED FINANCIAL DATA The following selected financial data for the five fiscal years presented below is derived from the audited Financial Statements of the Company as adjusted to reflect the discontinuance of the Electronic Components group (see Note 2 to the Financial Statements). The data should be read in conjunction with the Financial Statements and the related Notes thereto included elsewhere herein.
YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (Dollars in thousands, except per share data) Net sales $65,213 $62,132 $58,649 $62,912 $67,091 Operating income (loss) 3,695 2,362 (1,348) 1,595 1,936 Interest expense ....... 1,994 2,264 2,437 2,597 3,371 Income (loss) from continuing operations 884 27 (3,856) (1,042) (1,335) Net income (loss) from continuing operations per common share ..... 0.02 (0.04) (0.82) (0.23) (0.39) Total assets ........... 40,485 42,197 47,261 52,247 54,479 Total debt (1)(2) ...... 11,513 12,363 26,470 26,920 28,836 Shareholders' Equity (2) 14,745 13,269 5,076 9,603 9,463
(1) Includes short-term debt and current portion of long-term debt of $466,000 in 1995, $442,000 in 1994 $1,200,000 in 1993, $1,000,000 in 1992 and $2,130,000 in 1991. (2) On July 20, 1994, the Company repurchased its senior bank debt at a discount and recorded a pretax gain of $9.6 million (see Note 4 to the Financial Statements). 7 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Net sales by product group from continuing operations for the past three years are presented in the table below. In 1994, the Company adopted a plan to dispose of its Electronic Components business which, together with the Industrial Components business, was previously reported as part of the Precision Components product group (see Note 2 to the Financial Statements). As a result, the net sales and results of operations of the discontinued product group have been excluded from the table and the discussion which follow.
1995 1994 1993 ---- ---- ---- (DOLLARS IN THOUSANDS) Motion Control .......... $24,750 $26,052 $26,648 Industrial Components ... 40,463 36,080 32,001 ------ ------ ------ Net Sales .............. $65,213 $62,132 $58,649 ====== ====== ======
1995 VS. 1994 Net sales increased by $3.1 million, or 5%, in 1995, compared to 1994. The Motion Control group's sales declined by $1.3 million, or 5%, in 1995, as compared to 1994, primarily as a result of lower shipments of synchros due to reduced Government spending on spare parts. The conditions which resulted in these lower synchro sales are not expected to worsen in 1996 although there can be no assurance that this will be the case. The Industrial Components group's sales increased in 1995 by $4.4 million, or 12%, as compared to 1994. Sales of bearings and terminal blocks/connectors were up by 15% and 8%, respectively, primarily due to new and increased activity with original equipment manufacturers and the growing acceptance of new and/or enhanced products offered by the group. The Company's backlog at December 31, 1995 of $28.0 million was $5.0 million, or 22%, higher than 1994 year-end backlog, while bookings in 1995 of $70.2 million were $9.0 million, or 15%, higher than 1994. The higher backlog was primarily due to an increase of backlog in the Motion Control group of $3.5 million resulting from the award of a large U.S. Government sub-contract for tactical weapon components and favorable industrial and defense related bookings resulting from a more focused approach to the European market. The Industrial Components group's backlog increased $1.5 million, due primarily to increased bookings from original equipment manufacturers. Operating income in 1995 of $3.7 million was substantially the same as the prior year, after excluding the restructuring/inventory writedown charges of $1.3 million in 1994. The gross margin earned on the incremental sales volume ($.7 million) and cost reductions in the Motion Control group resulting from restructuring actions completed during 1994 ($.7 million), were offset by an unfavorable sales mix in both business groups ($1.0 million) and higher material costs in the Industrial Components group ($.2 million). Overall, gross margins on sales was 26.4% in 1995, as compared to 27.7% in 1994. Selling, general and administrative expense, as a percentage of sales, declined to 20.5% in 1995 from 21.5% in 1994. Selling, general and administrative expense of $13.3 million in 1995 was substantially the same as the prior year. Interest expense declined by $.3 million in 1995 as a result of lower average borrowings due primarily to the repurchase of the Company's bank indebtedness at a discount (see Note 4 to the Financial Statements). This was partially offset by higher interest rates. 8 At December 31, 1995, the Company had approximately $13 million of net operating loss carryforwards available to reduce future taxable income. 1994 VS. 1993 Net sales increased by $3.5 million, or 6%, in 1994, compared to 1993. The Motion Control group's sales declined by $.6 million, or 2%, in 1994, as compared to 1993, primarily as a result of lower shipments of AC motors and potentiometers ($2.5 million) due largely to lower U.S. and foreign government bookings and lower bookings for certain technologically mature product applications. These lower shipments were partially offset by higher shipments of resolvers ($.8 million), due to the timing of certain large orders received in 1993, and higher electromagnetic sub-system shipments ($1.0 million) due to new product introductions. The lower U.S. and foreign government bookings were due primarily to reductions in defense spending for the Company's products and the timing of various Government programs. New business initiatives are ongoing which are designed to identify additional opportunities for all Motion Control products using both traditional and alternative product applications in the military/aerospace, industrial and commercial market. The Company believes, although it can not be assured, that these initiatives, along with new product introductions, will lessen the impact of continued reductions in defense spending and the reduced demand for certain technologically mature products. The Industrial Components group's sales increased in 1994 by $4.1 million, or 13%, as compared to 1993. Sales of bearings were up by $2.9 million, or 16%, reflecting sales to new customers and an improvement in general economic conditions. Sales of connector products rose by $1.2 million, or 9%, principally as a result of sales to new customers in the OEM market, higher sales of Eurostyle connectors and an improvement in general economic conditions. The Company's backlog at December 31, 1994 of $23.0 million was $1.0 million, or 4% lower, than 1993 year-end, while bookings of $61.2 million were substantially the same as the prior year. The lower backlog was primarily due to a reduction of backlog in the Motion Control group of $1.9 million resulting from lower bookings in resolvers ($1.7 million), primarily due to timing as several large orders received in 1993 did not repeat in 1994, and potentiometers ($1.4 million), primarily due to lower U.S. Government and foreign bookings. These lower bookings were partially offset by higher bookings of electromagnetic sub-systems ($.7 million) due to new product introductions. The Industrial Components group's backlog increased $1.0 million due primarily to increased bookings in the bearings product line resulting from an improvement in general economic conditions. Operating income, excluding restructuring/inventory writedown charges of $1.3 million and $3.5 million in 1994 and 1993, respectively, was $3.7 million in 1994, as compared to $2.2 million in 1993, representing a $1.5 million increase. This increase was primarily due to the gross margin earned on the incremental sales volume ($1.3 million) and improved profit margins in the Motion Control product group resulting from restructuring actions taken in 1993 ($.8 million), which were partially offset by higher selling, general and administrative expenses ($.4 million). Gross margins were 27.7% in 1994, up from 26.1% in 1993. Selling, general and administrative expense, as a percentage of sales, declined to 21.5% in 1994 from 22.1% in 1993. Selling, general and administrative expense was up by $.4 million in 1994 as a result of increased expenses related to the relocation of Motion Control's potentiometer and pressure transducer product lines from the Company's Deer Park, New York facility to St. Petersburg, Florida ($.5 million) and the reinstatement of certain profit sharing provisions ($.4 million). These incremental costs were partially offset by efficiencies resulting from the aforementioned Motion Control restructuring initiated in 1993 ($.5 million). In 1993, the Company recorded a $3.5 million charge related to the restructuring of the Motion Control group, of which $2.3 million was related to the write-down of certain slow-moving and excess raw material inventory related to wire wound potentiometer products. As part of this restructuring, the Company also announced its intention to close and sell the Deer Park, New York facility. In 1994, the Company recorded an additional $1.3 million charge related to this restructuring, $1.0 million of which is to provide additional inventory reserves to reflect slower turnover of the aforementioned raw material inventory than was anticipated in the 1993 charge 9 calculation. The carrying value of this raw material inventory, after the additional $1.0 million reserve, was $1.5 million. The remaining $.3 million of the 1994 charge is to adjust the carrying amount of the Deer Park, New York facility held for disposal in connection with the restructuring to reflect current market values. Interest expense declined by $.2 million in 1994 as a result of lower average borrowings due primarily to the repurchase of the Company's bank indebtedness at a discount (see Note 4 to the Financial Statements). This was partially offset by higher interest rates. LIQUIDITY AND CAPITAL RESOURCES Cash used in operations was $1.0 million in 1995 as compared to cash provided by operations of $1.4 million and $.8 million in 1994 and 1993, respectively. This increase in use of cash was primarily due to a $2.0 million investment in inventory to support the higher sales level of the Industrial Components group and the significant increase in the year-end backlog of the Motion Control group, as well as reductions in accounts payable and accrued expenses, and other long-term liabilities of $1.3 million and $.9 million, respectively. Cash provided by investing activities was $1.9 million in 1995 as compared to cash used in investing activities of $.2 million and $.4 million in 1994 and 1993, respectively. This cash was generated primarily from the sale of assets of $2.9 million which is comprised of $1.5 million from the sale of assets of the Electronic Components business discontinued during 1994 (see Note 2 to the Financial Statements) and $1.4 million from the sale of an idle facility in Deer Park, New York (see Note 8 to the Financial Statements). Partially offsetting these sale proceeds was capital expenditures of $1.0 million. Overall, the Company reduced borrowings under its $17.5 million credit facility by $.9 million. The Company had no material commitments for capital expenditures as of December 31, 1995. It is anticipated that capital expenditures in 1996 could range from $1.5 million to $2.0 million as compared to the $1.0 million expended in 1995. Working capital requirements are determined by a number of factors including sales, bookings, backlog and projected growth. The Company believes that its $17.5 million credit facility and cash generated from operations will be sufficient to meet its future capital expenditure and working capital requirements and required debt amortization. In February, 1996, the Company entered into a definitive merger agreement to acquire Precision Aerotech, Inc. Completion of the transaction is subject to the satisfaction of customary conditions, including the receipt of all necessary financing by the Company. The Company expects that its new financing arrangements (which would replace its current credit facility) and cash generated from the combined operations will be sufficient to meet the future capital expenditure and working capital requirements of the combined companies and required debt amortization under its new credit facility (see Note 10 to the Financial Statements). 10 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this Item is included in Item 14(a) of this Report. ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. See Item 14(b) of this Report. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The name, age and principal occupation of each nominee, the nominee's length of service as a director of the Company, the names of the other public companies of which the nominee is a director and certain other biographical information are set forth below. STEPHEN W. BERSHAD, 54 Chairman of the Board and Chief Executive Officer of the Company since December 1986. Prior to joining the Company, he was a Managing Director of Lehman Brothers and its predecessors, investment banking firms, where he held a series of senior management positions. Mr. Bershad is a director of EMCOR Group, Inc. ANTHONY J. FIORELLI, JR., 66 President, Strategic Management Consulting Services, Inc., a management consulting firm, since December 1985. Prior to that time, Mr. Fiorelli was President and Chief Executive Officer of General Defense Corporation, a diversified engineering and manufacturing company. Mr. Fiorelli has been a director of the Company since February 1988. ELIOT M. FRIED, 63 Mr. Fried has been a Managing Director of Lehman Brothers and its predecessors, investment banking firms, since 1991. Prior to that time he was Senior Executive Vice President of Lehman Brothers. Currently, he is Co-Chairman of Lehman Brother's Investment Committee. Mr. Fried is a director of American Marketing Industries, Inc., Bridgeport Machines, Inc., Energy Ventures, Inc., Lear Seating Corporation, Sun Distributors, L.P. and Walter Industries Inc. Mr. Fried has served as a Director of the Company since 1994. The Board of Directors met four times during 1995. The Audit Committee, the Compensation Committee and the Stock Incentive Plan Committee are the standing committees of the Board. The Audit Committee reviews internal and external audit procedures of the Company. Mr. Fiorelli is a member of the Audit Committee. The Compensation Committee oversees compensation policies of the Company. Its members are Messrs. Bershad and Fiorelli. The Stock Incentive Plan Committee administers the Vernitron Corporation Long-Term Stock Incentive Plan. Mr. Fiorelli is a member of the Stock Incentive Plan Committee. The Audit Committee and the Compensation Committee met once in 1995. Each director attended all meetings of the Board and of the Committees on which the director served. The compensation of directors is fixed by the Board of Directors. Directors who are not employees of the Company receive meeting fees of $2,500 for each Board meeting attended and $1,000 for each committee meeting attended other than in connection with a Board meeting. Directors are reimbursed for travel and other expenses incurred in the performance of their duties. 11 ITEM 11. EXECUTIVE COMPENSATION Summary Compensation Table The following table shows the compensation paid to the Company's executive officers for services in all capacities for the three years ended December 31, 1995:
LONG TERM ANNUAL COMPENSATION COMPENSATION ------------------------------------ ---------------- ALL OTHER BONUS OTHER ANNUAL OPTIONS COMPENSATION NAME AND PRINCIPAL POSITION YEAR SALARY ($) ($)(1) COMPENSATION (# OF SHARES)(2) ($)(3) - --------------------------- ---- ---------- ------ ------------ ---------------- ------------ Stephen W. Bershad.............. 1995 262,500 100,000 - - 9,633 Chairman of the Board and 1994 262,500 150,000 - 21,000 10,810 Chief Executive Officer 1993 262,500 - - - 3,385 Elliot N. Konopko (4)........... 1995 175,000 40,000 - - 7,271 Vice President, General 1994 175,000 55,000 - 15,000 6,318 Counsel and Secretary 1993 175,000 - - - 3,338 Raymond F. Kunzmann (5)......... 1995 135,000 45,000 - - 5,517 Vice President-Finance 1994 120,000 28,000 - 20,000 2,721 and Controller
- --------------------- (1) Reflects payments under the Company's bonus plan, which is described in the "Compensation Committee Report on Executive Compensation" below. (2) Reflects awards under the Company's Long-Term Stock Incentive Plan, which is described under "Stock Incentive Plan" below. (3) Reflects matching contributions under the Company's 401(K) Plan, described under 401(K) Plan on page 6 of this proxy statement, and payments under the Company's executive health insurance plan. Vernitron's executive health insurance plan, which covers only executive officers, provides for the reimbursement of deductible and coinsurance amounts and certain medical expenses not covered under Vernitron's basic medical plans. (4) Mr. Konopko has been Vice President, General Counsel and Secretary of the Company since March 1990. (5) Raymond F. Kunzmann was elected Vice President-Finance and Controller on June 2, 1994. Prior to that time, he was Group Controller at Mannesmann Capital Corporation, a diversified manufacturing company, from January 1994 until May 31, 1994, and was Controller and held other positions at Lear Siegler, Inc., a diversified manufacturing/service company, from January 1987 until December 1993. 401(K) PLAN Vernitron currently maintains a 401(K) Salary Reduction Plan (the "401(K) Plan") which is intended to qualify under Sections 401(a) and 401(K) of the Internal Revenue Code. All employees who are not members of collective bargaining groups and who are 21 years of age or older are eligible to participate in the 401(K) Plan on the first calendar day of the month immediately following the month in which they complete 1,000 hours of service. All eligible executive officers have elected to participate in the 401(K) Plan. Eligible employees electing to participate in the 401(K) Plan may defer a portion of their compensation on a pre-tax basis, by contributing a percentage thereof to the 401(K) Plan. The minimum contribution is not less than 3% of annual gross pay. The maximum is prescribed by the Tax Reform Act of 1986. The limit for 1995 was $9,240 and will be $9,500 in 1996. The Company made a matching contribution in Common Stock of the Company in respect of each employee's 3% contribution in 1995. Eligible employees who elect to participate in the 401(K) Plan and whose employment began prior to December 1, 1988 are 100% vested in the Company's matching contribution when made. Eligible employees whose employment began on and after December 1, 1988 are vested in the Company's matching contribution according to the following schedule: less than 1 year of service - 0%; 1 12 year of service - 20%; 2 years of service - 40%; 3 years of service - 60%; 4 years of service - 80%; and 5 years of service - 100%. STOCK INCENTIVE PLAN The Vernitron Corporation Long-Term Stock Incentive Plan (the "Incentive Plan") was approved by the stockholders in 1991. The Incentive Plan is administered by the Stock Incentive Plan Committee (the "Committee"). The Committee selects participants from among those executives and other key employees of the Company and its subsidiaries who are in a position to contribute materially to the success of the Company and determines the amounts, times, forms, terms and conditions of grants. Grants may be in the form of options to purchase shares of Common Stock, stock appreciation rights, restricted stock and performance units (collectively, "stock incentives"). Grants may be made for up to 450,000 shares of Common Stock of the Company in the aggregate. Stock appreciation rights may be granted on a "free-standing" basis or in conjunction with all or a portion of the shares covered by an option. Stock incentive awards are subject to such provisions as the Committee determines and may be exercised at one time or in such installments and at such prices over the balance of the exercise period as determined by the Committee. Each stock incentive is exercisable in whole or in part, prior to its cancellation or termination, by written notice to the Company. If any option is being exercised, such notice must be accompanied by payment in full of the purchase price in cash or, if acceptable to the Committee, shares of Company Common Stock or partly in cash and partly in such shares. Stock incentives are not transferable except by will or by laws of descent and distribution. In general, each stock incentive will terminate upon the earlier of (i) the date fixed by the Committee when the stock incentive is granted or (ii) unless determined otherwise by the Committee, termination of employment other than for cause, to the extent the stock incentive was then exercisable, up to 90 days after the participant's termination of employment. In the event of death or termination due to disability, the stock incentive may be exercised to the extent then exercisable for up to one year thereafter. If a participant's employment is terminated for cause, however, his or her ability to exercise any stock incentive is terminated. The Company may make loans to such participants as the Committee, in its discretion, may determine in connection with the exercise of options in an amount up to the exercise price of the option plus any applicable withholding taxes. In no event may any such loan exceed the fair market value, at the date of exercise, of the shares covered by the option exercised. Under the Incentive Plan, the Committee may determine, in the event of a change of control of the Company, that all stock incentives which have not terminated and which are then held by any participant will become immediately exercisable. Any such determination by the Committee may be set forth in an applicable option agreement or by resolution of the Committee. Options outstanding under the Incentive Plan to acquire up to 117,000 shares were granted prior to 1994, including to Stephen W. Bershad (42,000 shares) and Elliot N. Konopko (30,000 shares). Options outstanding under the Incentive Plan to acquire up to an additional 101,000 shares were granted in 1994 to certain new and current employees, including to Stephen W. Bershad (21,000 shares), Elliot N. Konopko (15,000 shares) and Raymond F. Kunzmann (20,000 shares). All options are exercisable to the extent of 40% thereof within one year from the date of grant and an additional 30% each year thereafter. All options are incentive stock options. All options terminate seven years after the date of grant and are exercisable at $0.75 per share, except that Mr. Bershad's options terminate five years after grant and are exercisable at $0.83 per share. 13 COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION The Compensation Committee of the Board of Directors has furnished the following report on executive compensation. Under the supervision of the Compensation Committee of the Board of Directors, the Company has developed and implemented compensation policies which seek to enhance the profitability of the Company, and thus shareowner value, by aligning closely the financial interests of the Company's senior managers with those of its shareowners. In furtherance of these goals, the Company relies to a large degree on annual bonus and longer-term stock incentive compensation to attract and retain executive officers and other key employees and to motivate them to perform to the full extent of their abilities. Both types of incentive compensation are not guaranteed and are variable and closely tied to corporate, business unit and individual performance in a manner designed to encourage a sharp and continuing focus on building profitability and shareowner value. The annual bonus and stock incentive compensation is more closely tied to the Corporation's success in achieving significant financial and other performance-oriented goals. The Committee considers the total compensation (earned or potentially available) of each of the executive officers and the other senior managers in establishing each element of compensation. Eligible persons must be employed by the Company at the time bonus compensation is awarded. In evaluating the performance and setting the incentive compensation of the Chief Executive Officer, the Committee has taken note of management's success in improving sales, operating income, bookings and backlog and in repositioning the Company for growth in its served markets. In its review of other senior management performance and compensation for 1995, the Committee has also taken into account management's consistent commitment to the long-term success of the Company through development of new or improved products and the implementation of significant cost reductions, resulting in increased efficiencies and continued debt reduction. Based on its evaluation of these factors, the Committee believes that the senior management of the Company is dedicated to achieving significant improvements in long-term financial performance and that the compensation policies the Committee has implemented and administered have contributed to achieving this management focus. During each fiscal year, the Committee considers the desirability of recommending to the Long-Term Stock Incentive Committee granting senior executives, including executive officers, awards under the Incentive Plan, which provides the flexibility to grant longer-term incentives in a variety of forms, including performance units, stock options, stock appreciation rights and restricted stock. For 1995 the Committee determined not to recommend the grant of additional awards under the Incentive Plan. Members of the Compensation Committee Stephen W. Bershad Anthony J. Fiorelli, Jr. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION Mr. Bershad, a member of the Compensation Committee, is Chairman of the Board and Chief Executive Officer of the Company. STOCK PRICE PERFORMANCE GRAPH The information in the foregoing report and the following graph shall not be incorporated by reference (by any general statement incorporating this proxy statement by reference or otherwise) into any prior or future filing under the Exchange Act or the Securities Act of 1933, except to the extent the Company specifically incorporates this information by reference, and shall not otherwise be deemed filed under such Acts. The following graph shows the value of a $100 investment in Common Stock from August 30, 1991 through June 14, 1996, as of the dates indicated, compared with the value of a similar investment in the NASDAQ Non-Financial Stock Index and the S&P High Technology Composite Index at such times. The NASDAQ Non- 14 Financial Stock Index is an index comprising all non-financial common shares traded on the NASDAQ National Market and the NASDAQ Small-Cap Market. The S&P High Technology Composite Index is an index comprising common shares of companies in the aerospace/defense, communications equipment, electronics and office equipment and supplies industries. Both the NASDAQ Non-Financial Stock Index and the S&P High Technology Composite Index are calculated on a total return basis to include the reinvestment of dividends. The Common Stock was first quoted on NASDAQ on August 14, 1991. [GRAPHICS OMITTED]
8/31/91 12/27/91 6/30/92 12/31/92 6/30/93 12/31/93 6/30/94 12/30/94 6/30/95 12/29/95 6/14/96 ------- -------- ------- -------- ------- -------- ------- -------- ------- -------- ------- VERNITRON COMMON STOCK $100 $ 88 $ 91 $ 91 $ 91 $ 38 $ 59 $ 35 $ 50 $ 54 $100 NASDAQ NON- FINANCIAL INDEX $100 $114 $104 $124 $129 $143 $126 $137 $171 $189 $229 S&P HIGH TECHNOLOGY COMPOSITE INDEX $100 $ 93 $100 $103 $115 $126 $124 $144 $196 $207 $239
(1) On July 20, 1994 the Company issued an additional 7,352,942 shares of Common Stock to existing stockholders at $0.34 per share pursuant to a rights offering of Common Stock. Prior to the rights offering, there were 5,185,070 shares of Common Stock outstanding. 15 AGREEMENTS WITH DIRECTORS AND OFFICERS The Company has entered into indemnification agreements with its directors and certain officers in order to induce them to continue to serve as directors and officers of the Company, indemnifying them for any and all liabilities incurred by them arising out of their service as directors or officers, other than liabilities arising out of conduct which has been determined in a final adjudication to constitute bad faith or a knowing violation of law or receipt by such person of an improper personal benefit. The rights to indemnification under such agreements are in addition to any rights to indemnification contained in the Company's Certificate of Incorporation or By-Laws, which provide for indemnification under certain circumstances. The Company has agreed to pay Messrs. Konopko and Kunzmann up to one year's base compensation and certain other benefits in the event of termination by the Company other than for cause. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth the number of shares of Common Stock beneficially owned by the Company's directors individually, and by all directors and officers as a group, as of April 30, 1996:
SHARES EXERCISABLE TOTAL OWNED STOCK SHARES DIRECTLY OR OPTION BENEFICIALLY PERCENT INDIRECTLY (1) SHARES (2) OWNED OF CLASS -------------- ------------ ------------ -------- Stephen W. Bershad................. 5,685,157 50,400 5,735,557 44.8% Anthony J. Fiorelli, Jr.(3)........ 69,245 -- 69,245 -- Eliot M. Fried (4)................. -- -- -- -- Directors and Executive Officers as a group (5 persons)............. 5,754,402 86,400 5,840,802 45.5% - --------------
(1) Does not include 1,066,099 shares of Common Stock owned by the Vernitron Corporation 401(K) Plan (the "401(K) Plan") as of April 30, 1996. Elliot N. Konopko and Raymond F. Kunzmann, who are executive officers of the Company, are the sole trustees of the 401(K) Plan and may be deemed to beneficially own such shares, although each of them disclaims beneficial ownership of such shares. Mr. Bershad owns 2,731,337 shares of Common Stock directly and 2,953,820 shares of Common Stock indirectly through SWB Holding Corporation, of which he is the sole shareholder and Chairman. (2) Shares covered by stock options exercisable on April 30, 1996, or within 60 days thereafter. (3) Less than 1% of the total Common Stock outstanding. (4) Eliot M. Fried is a Managing Director and a Co-Chairman of the Investment Committee of Lehman, which may be deemed to beneficially own 2,318,705 shares of Common Stock. See "Principal Stockholders" below. Mr. Fried disclaims beneficial ownership of such shares. Mr. Bershad also directly owns, as of April 30, 1996, 149,041 shares of $1.20 Cumulative Exchangeable Redeemable Preferred Stock, $.01 par value per share ("Preferred Stock"), of the Company, constituting approximately 20.2% of the outstanding shares of Preferred Stock. No other director or officer owns any shares of Preferred Stock. 16 The Company knows of no person who, as of April 30, 1996, beneficially owned more than five percent of the Common Stock outstanding, except for Mr. Bershad and except as set forth below. AMOUNT AND NAME AND ADDRESS NATURE OF PERCENT OF OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP CLASS ------------------- -------------------- ---------- Lehman Electric Inc. (1) 2,318,705 shares 18.2% World Financial Center 200 Vesey Street New York, NY 10285 Paribas Principal, Inc. (2) 776,388 shares 5.5% 787 Seventh Avenue New York, NY 10019 Banque Paribas (2) 666,312 shares 4.7% 787 Seventh Avenue New York, NY 10019 Victor A. Morgenstern 909,000 shares 7.1% 2 North LaSalle Street Chicago, IL 60602 Vernitron Corporation 401(K) Plan 1,164,879 shares 9.1% Vernitron Corporation 645 Madison Avenue New York, NY 10022 (1) Lehman Electric Inc., a Delaware corporation ("Lehman Electric"), is an investment vehicle. Lehman Brothers Inc., a Delaware corporation ("Lehman Brothers"), is a registered broker-dealer. Lehman Brothers Group Inc., a Delaware corporation ("Group"), is a holding company and parent of Lehman Electric. Lehman Brothers Holdings Inc., a Delaware corporation ("Holdings"), through its domestic and foreign subsidiaries, is a full line securities firm. It is the immediate parent of Lehman Brothers and Group. The foregoing entities (other than Lehman Brothers) may be deemed to beneficially own the 2,318,705 shares of Common Stock directly owned by Lehman Electric. In the ordinary course of its business on behalf of its customers, Lehman Brothers may purchase and sell shares of Common Stock. (2) Paribas Principal, Inc. ("PPI") is a New York corporation and Banque Paribas ("Paribas") is a banking corporation organized under the laws of the Republic of France which maintains branches in a number of jurisdictions, and which is acting through its Grand Cayman Branch in connection with its investment in the Company. The principal business of PPI, a wholly-owned subsidiary of Paribas and a small business investment company licensed by the Small Business Administration under the Small Business Administration under the Small Business Investment Act of 1958, as amended, is that of making debt and equity investments in "small concerns" (as defined under the regulations of the Small Business Administration). Paribas is a subsidiary of Compagnie Financiere de Paribas ("Compagnie Financiere"), a diversified holding company organized under the laws of the Republic of France. the operating subsidiaries of Compagnie Financiere de Paribas engage in a wide variety of banking, financial services, manufacturing, trading, development and related activities. Through its Grand Cayman Branch, which is licensed under the laws of the jurisdiction to engage in banking activities, Paribas engages in lending activities, acceptance of deposits, international trade financing trading activities. Paribas' beneficial ownership of 666,312 shares of Common Stock (all of which Paribas has the option to purchase pursuant to a Warrant issued to it) constitutes beneficial ownership of 4.7% of the total number of shares of outstanding Common Stock, and PPI's beneficial ownership of 776,388 shares of Common Stock (all of which PPI has the option to purchase pursuant to a Warrant issued to it) constitutes beneficial ownership of 5.5% of the total number of shares of outstanding Common Stock. Paribas may be deemed to be the beneficial owner of the shares of Common Stock of the Company owned by PPI and PPI may be deemed to be the beneficial owner of the shares of Common Stock of the Company owned by Paribas. 17 Paribas has the sole power to vote or to direct the vote of, and sole power to dispose or direct the disposition of, zero shares of Common Stock of the company. Pursuant to its Warrant, Paribas has the right to acquire 666,312 shares of Common Stock, as to which it neither has nor shares voting or dispositive power as of the date hereof. PPI has sole power to vote or to direct the vote of, and sole power to dispose or direct the disposition of, zero shares of Common Stock of the Company. Pursuant to its Warrant, PPI has the right to acquire 776,388 shares of Common Stock, as to which it neither has nor shares voting or dispositive power as of the date hereof. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS None, other than as set forth in Item 11 above. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A)(1) AND (2) FINANCIAL STATEMENTS See accompanying index to financial statements and schedule. (A)(3) EXHIBITS See accompanying index to Exhibits. (B) REPORTS ON FORM 8-K During the quarter ended December 31, 1995, the Company filed one report on Form 8-K dated December 18, 1995, which included a press release announcing the Company's signing of a letter of intent to acquire Precision Aerotech, Inc. 18 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: March 26, 1996* VERNITRON CORPORATION (REGISTRANT) By /s/ STEPHEN W. BERSHAD ---------------------------------- STEPHEN W. BERSHAD CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated this 26th day of March, 1996.* /s/ Stephen W. Bershad Chairman of the Board of ---------------------------- Directors and Chief Executive STEPHEN W. BERSHAD Officer /s/ Raymond F. Kunzmann Vice President - Finance, Controller ---------------------------- and Chief Financial Officer RAYMOND F. KUNZMANN /s/ Anthony J. Fiorelli, Jr. Director ---------------------------- ANTHONY J. FIORELLI, JR. /s/ Eliot M. Fried Director ---------------------------- ELIOT M. FRIED *Part III of this report was filed with the Securities and Exchange Commission by the Registrant on June 17, 1996, pursuant to the Securities Exchange Act of 1934, as the Registrant's proxy statement in respect of its Annual Meeting of Stockholders held on July 24, 1996. 19 ANNUAL REPORT ON FORM 10-K ITEM 8, ITEM 14(A)(1) AND (2) AND ITEM 14(D) INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE FINANCIAL STATEMENTS YEAR ENDED DECEMBER 31, 1995 VERNITRON CORPORATION FORM 10-K -- ITEM 14(A)(1) AND (2) AND ITEM 14(D) VERNITRON CORPORATION INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE The following financial statements of Vernitron Corporation are included in Item 8: Balance sheets -- December 31, 1995 and 1994..............................F-4 Statement of operations -- For the years ended December 31, 1995, 1994 and 1993............................................................F-6 Statement of cash flows -- For the years ended December 31, 1995, 1994 and 1993............................................................F-7 Statement of shareholders' equity -- For the years ended December 31, 1995, 1994 and 1993......................................................F-8 Notes to financial statements.............................................F-9 The following financial statement schedule of Vernitron Corporation is included in Item 14(d): Schedule II -- Valuation and qualifying accounts.........................F-17 All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable, and therefore have been omitted. F-2 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Vernitron Corporation: We have audited the accompanying balance sheets of Vernitron Corporation (a Delaware corporation) as of December 31, 1995 and 1994, and the related statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Vernitron Corporation as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statements and financial statement schedule is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. New York, New York March 21, 1996 F-3 VERNITRON CORPORATION BALANCE SHEETS (Dollars in thousands)
DECEMBER 31, ------------------- 1995 1994 --------- -------- ASSETS CURRENT ASSETS: Cash .............................................................. $ 91 $ 27 Accounts receivable, net of allowance for doubtful accounts of $233 in 1995 and $345 in 1994 .................................... 8,525 9,293 Inventories, net .................................................. 16,544 14,527 Other current assets .............................................. 651 468 --------- -------- TOTAL CURRENT ASSETS ............................................. 25,811 24,315 NET PROPERTY, PLANT AND EQUIPMENT .................................. 7,603 7,990 EXCESS OF COST OVER NET ASSETS ACQUIRED, net of accumulated amortization of $836 in 1995 and $627 in 1994 ..................... 6,624 6,832 NET ASSETS HELD FOR DISPOSAL ....................................... -- 2,507 OTHER ASSETS ....................................................... 447 553 --------- -------- TOTAL ASSETS ..................................................... $40,485 $42,197 ========= ========
See notes to financial statements. F-4 VERNITRON CORPORATION BALANCE SHEETS (Dollars in thousands, except per share data)
DECEMBER 31, ------------------- 1995 1994 --------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable ................................................. $ 5,315 $ 6,394 Accrued expenses and other liabilities ........................... 5,696 5,941 Current portion of long-term debt ................................ 466 442 --------- -------- TOTAL CURRENT LIABILITIES ....................................... 11,477 12,777 LONG-TERM DEBT, less current portion ............................. 11,047 11,921 OTHER LONG-TERM LIABILITIES ...................................... 2,697 3,579 DEFERRED INCOME .................................................. 519 651 SHAREHOLDERS' EQUITY: $1.20 CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK, $.01 PAR VALUE: authorized 1,400,000 shares, issued and outstanding 781,642 shares in 1995 and 672,344 shares in 1994 ............... 8 7 COMMON STOCK,$.01 PAR VALUE: authorized 20,000,000 shares, issued and outstanding 12,604,107 in 1995 and 12,538,012 shares in 1994 ........................... 126 125 CAPITAL IN EXCESS OF PAR ......................................... 14,611 13,982 RETAINED EARNINGS (Reflects application of quasi- reorganization accounting principles as of December 31, 1991, eliminating a deficit of $14,094) ............................... (845) --------- -------- TOTAL SHAREHOLDERS' EQUITY ....................................... 14,745 13,269 --------- -------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ....................... $40,485 $42,197 ========= ========
See notes to financial statements. F-5 VERNITRON CORPORATION STATEMENT OF OPERATIONS (Dollars in thousands, except per share data)
YEARS ENDED DECEMBER 31, ------------------------------------- 1995 1994 1993 ------------ ----------- ----------- NET SALES .............................................. $ 65,213 $ 62,132 $ 58,649 Cost of Sales .......................................... 47,973 44,903 43,338 Selling, general and administrative expenses .......... 13,336 13,343 12,950 Restructuring/inventory writedown charges .............. 1,315 3,500 Amortization of intangible assets ...................... 209 209 209 ------------ ----------- ----------- OPERATING INCOME (LOSS) ................................ 3,695 2,362 (1,348) Interest expense ....................................... 1,994 2,264 2,437 Other expense .......................................... 252 54 71 ------------ ----------- ----------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE TAXES AND EXTRAORDINARY GAIN ................................ 1,449 44 (3,856) Charge in lieu of taxes ................................ 565 17 ------------ ----------- ----------- INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY GAIN ............................. 884 27 (3,856) DISCONTINUED OPERATIONS: Loss from operations, net of tax benefit of $92 in 1994 (143) (670) Loss on disposal, net of tax benefit of $1,317 in 1994 (2,059) ------------ ----------- ----------- INCOME (LOSS) BEFORE EXTRAORDINARY GAIN 884 (2,175) (4,526) Extraordinary gain on debt repurchase, net of charge in lieu of taxes of $3,744 in 1994 ....................... 5,856 ------------ ----------- ----------- NET INCOME (LOSS) ...................................... 884 3,681 (4,526) Preferred stock dividends .............................. 574 355 375 ------------ ----------- ----------- NET INCOME (LOSS) APPLICABLE TO COMMON SHAREHOLDERS .... $ 310 $ 3,326 $ (4,901) ============ =========== =========== NET INCOME (LOSS) PER COMMON SHARE: Continuing operations .................................. $ 0.02 $ (0.04) $ (0.82) Discontinued operations ................................ (0.26) (0.13) Extraordinary gain ..................................... 0.69 ------------ ----------- ----------- Total .................................................. $ 0.02 $ 0.39 $ (0.95) ============ =========== =========== Weighted average common shares outstanding ............. 12,555,368 8,509,003 5,185,070 ============ =========== ===========
See notes to financial statements. F-6 VERNITRON CORPORATION STATEMENT OF CASH FLOWS (Dollars in thousands)
YEARS ENDED DECEMBER 31, ---------------------------------- 1995 1994 1993 ---------- ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) ................................. $ 884 $ 3,681 $(4,526) Adjustments to reconcile net income (loss) to cash (used in) provided by operating activities: Extraordinary gain on debt repurchase, net ..... (5,856) Loss on disposal of discontinued operations, net 2,059 Utilization of pre quasi-reorganization tax benefits ........................................ 519 16 Depreciation and amortization .................... 1,622 1,742 1,732 (Increase) decrease in accounts receivable ...... 768 (970) 934 (Increase) decrease in inventories ............... (2,017) 682 2,019 (Increase) decrease in other current assets ..... (183) 498 449 Increase (decrease) in accounts payable, accrued expenses and other liabilities .................. (1,324) 349 10 Increase (decrease) in other long-term liabilities ..................................... (882) (461) 113 Other--net ....................................... (343) (349) 87 ---------- ---------- ---------- NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES .......................... (956) 1,391 818 ---------- ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures .............................. (1,026) (797) (381) Proceeds from sale of assets ...................... 2,896 605 ---------- ---------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES .......................... 1,870 (192) (381) ---------- ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings .......................... 69,614 45,665 3,900 Repayment of borrowings ........................... (70,464) (49,272) (4,350) Net proceeds from common stock rights offering ... 2,332 ---------- ---------- ---------- NET CASH USED IN FINANCING ACTIVITIES .......... (850) (1,275) (450) ---------- ---------- ---------- NET INCREASE (DECREASE) IN CASH ................ 64 (76) (13) CASH AT BEGINNING OF YEAR .......................... 27 103 116 ---------- ---------- ---------- CASH AT END OF YEAR ................................ $ 91 $ 27 $ 103 ========== ========== ==========
See notes to financial statements. F-7 VERNITRON CORPORATION STATEMENT OF SHAREHOLDERS' EQUITY (Dollars in thousands, except per share data)
PREFERRED STOCK COMMON STOCK CAPITAL RETAINED ------------------- ---------------------- IN EXCESS EARNINGS SHARES AMOUNT SHARES AMOUNT OF PAR (DEFICIT) --------- -------- ------------ -------- ----------- ------------ Balance at December 31, 1992 495,896 $5 5,185,070 $ 52 $ 9,546 $ -- Net Loss ....................... (4,526) Dividends (a) .................. 82,050 1 374 (375) Transfer to Capital in Excess of Par (b) .................... (375) 375 Other .......................... (1) --------- -------- ------------ -------- ----------- ---------- Balance at December 31, 1993 577,946 6 5,185,070 52 9,544 (4,526) --------- -------- ------------ -------- ----------- ---------- Net Income ..................... 3,681 Dividends (a) .................. 94,398 1 354 (355) Transfer to Capital in Excess of Par (b) .................... (355) 355 Common Stock rights offering .. 7,352,942 73 2,259 Amount realized from utilization of pre quasi-reorganization tax benefits ...................... 2,182 Other .......................... (2) --------- -------- ------------ -------- ----------- ---------- Balance at December 31, 1994 672,344 7 12,538,012 125 13,982 (845) --------- -------- ------------ -------- ----------- ---------- Net Income ..................... 884 Dividends (a) .................. 109,298 1 573 (574) Transfer to Capital in Excess of Par (b) .................... (535) 535 Contribution to 401(k) plan ... 58,095 1 66 Amount realized from utilization of pre quasi-reorganization tax benefits ...................... 519 Other .......................... 8,000 6 --------- -------- ------------ -------- ----------- ---------- Balance at December 31, 1995 781,642 $8 12,604,107 $126 $14,611 $ -- ========= ======== ============ ======== =========== ==========
- ------------ (a) Represents a 15% dividend paid in additional shares and valued at the average of the closing bid and ask price as of the dividend record date. The per share amounts of these dividends were $.70, $.57 and $.79 per share of Preferred Stock in 1993, 1994 and 1995, respectively. (b) Represents transfer of the excess of Preferred Stock dividends over available Retained Earnings. SEE NOTES TO FINANCIAL STATEMENTS. F-8 VERNITRON CORPORATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 (Dollars in thousands, except per share data) NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Revenue is recognized upon the shipment of product or when services are rendered. Inventories are priced at the lower of cost (principally first-in, first-out, or average) or market. Deferred financing costs are amortized ratably over the life of the corresponding debt or commitment. The excess of cost over net assets acquired is being amortized over thirty-five years using the straight-line method. The company continually reviews goodwill to assess recoverability from future operations using undiscounted cash flows. Impairments would be recognized in operating results if a permanent diminution in value occurred. Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is provided primarily by the straight-line method using estimated lives for buildings and improvements of 20 years and for machinery and equipment using estimated useful lives ranging from 3 to 8 years. Inter-division items and transactions have been eliminated in consolidation. Certain items in the 1994 and 1993 financial statements have been reclassified to conform to the 1995 presentation. Per share data is based upon the weighted average of common shares Outstanding during each period. outstanding common stock options or warrants have not been included in the 1995, 1994 or 1993 computation of per share data as they were deemed to have been anti-dilutive. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NOTE 2 - DISCONTINUED OPERATIONS In September 1994, the Company adopted a plan to dispose of all of its Electronic Components business which was comprised of the trimmer, transformer and microwave component product lines. The disposal has been accounted for as a discontinued operation and, accordingly, the related net assets and operating results have been reported separately from continuing operations. The Company's 1993 Statement of Operation has been restated to reflect continuing operations. The loss on disposal of the Electronic Components business for the year ended December 31, 1994 is comprised of the loss on disposal of the net assets of the business and operating losses until disposal. During 1994, the Company sold a portion of the assets of its Electronic Components business for $605. During 1995, the Company sold the remaining discontinued business assets for $1,500. F-9 VERNITRON CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 2 - DISCONTINUED OPERATIONS (CONT'D) Net assets held for disposal as of December 31, 1994 consisted of the following:
Inventory $ 1,992 Machinery & Equipment 365 Other current assets 59 Current liabilities (478) Reserve to write-down net assets held for disposal to net realizable value (1,065) --------- Net assets of discontinued operations 873 Idle facility (See Note 8) 1,634 --------- Net assets held for disposal $ 2,507 =========
Revenues applicable to the discontinued business for the years ended December 31, 1995, 1994 and 1993 were $290, $6,897 and $9,095, respectively. The loss from operations of the discontinued Electronic Components business from September 30, 1994 to December 31, 1994 and through the date of disposal in 1995, were $326 and $40, respectively, net of related tax benefits. These losses were charged to a reserve established in 1994 as part of the loss on disposal. NOTE 3 - SHAREHOLDERS' EQUITY COMMON STOCK - In July 1994, the Company completed a rights offering of Common Stock in which 7,352,942 shares were issued for gross proceeds of $2,500 ($2,332, net of expenses). PREFERRED STOCK - The certificate of designation setting forth the amended terms of the Company's $1.20 Cumulative Exchangeable Redeemable Preferred Stock provides for, among other things, (1) a liquidation preference of $8 per share, (2) an annual dividend of $1.20 per share, and (3) the ability to pay dividends thereon in additional shares instead of cash up to March 1, 1996. Under the certificate of designation, the right to receive cash dividends is expressly subject to, among other things, any provision contained from time to time in the Company's financing agreements prohibiting the payment of cash dividends. The Company's Senior Credit Facility prohibits the payment of cash dividends (see Note 4) and the financing agreements to be entered into by the Company in connection with the acquisition of Precision Aerotech, Inc. will contain a similar prohibition (see Note 10). The Company at its option may redeem the Preferred Stock at a price of $8.00 per share or an amount per share equal to the product of 1.1 and the average of the NASDAQ daily closing prices per share (defined in general to be the average of the highest reported bid and the lowest reported asked prices) for ten consecutive trading days, as defined, together with all accrued and unpaid dividends to the redemption date. Since August, 1991, the Company has paid quarterly dividends on the Preferred Stock in additional shares at an annual rate of 15% based on the shares outstanding. F-10 VERNITRON CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 4 - LONG-TERM DEBT
1995 1994 --------- --------- Credit Facility ........ $ 9,643 $10,493 Industrial Revenue Bond 1,870 1,870 --------- --------- 11,513 12,363 Less current portion .. 466 442 --------- --------- $11,047 $11,921 ========= =========
In July 1994, the Company obtained a new $15,000 four-year, senior secured credit facility (the "Senior Credit Facility"). The proceeds of the Senior Credit Facility along with the net proceeds of the rights offering (see Note 3) were used to repurchase the Company's bank indebtedness at a discount and to provide additional working capital. As a result of the repurchase of indebtedness, an extraordinary gain of $5,856, net of a charge in lieu of taxes of $3,744, was recorded. During 1995, the Company negotiated an amendment to the Senior Credit Facility increasing the amount that can be borrowed under the facility to $17,500, subject to availability based on the satisfaction of certain borrowing base formulas. As of December 31, 1995, $13,600 of the $17,500 credit facility was available to the Company. Borrowings under the Senior Credit Facility bear interest at a fluctuating rate per annum equal to the rate of interest publicly announced by Chemical Bank as its prime rate plus 2.5% (the prime rate was 8.5% at December 31, 1995). A commitment fee of .5% is payable on any unused amount of the Senior Credit Facility. The Senior Credit Facility contains certain restrictive covenants which, among other things, impose limitations with respect to the incurrence of additional liens, mergers, consolidations and specified sale of assets. In addition, the Senior Credit Facility prohibits the payment of cash dividends. Borrowings under the Senior Credit Facility are secured by substantially all of the assets of the Company. The Company had outstanding at December 31, 1995, industrial development revenue bonds (the "Bonds") in the amount of $1,870 secured by its Gilford, NH manufacturing facility which has a net carrying amount of approximately $2,200. The Bonds are payable in 2005. During 1994, the Bonds were remarketed and, as a result, a letter of credit securing repayment was released and the interest rate was converted from a floating rate to a fixed rate of 13% per annum. Scheduled debt maturities during the next five years, which are comprised solely of payment under the Company's Senior Credit Facility (as amended) are $466 (1996), $466 (1997) and $8,711 (1998). F-11 VERNITRON CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 5 - BALANCE SHEET INFORMATION The details of certain balance sheet accounts are as follows:
1995 1994 --------- --------- Inventories: Raw materials ................................. $ 7,203 $ 7,623 Work-in-process ............................... 5,293 6,098 Finished goods ................................ 9,255 8,532 --------- --------- 21,751 22,253 Less reserves ................................. 5,207 7,726 --------- --------- $16,544 $14,527 ========= ========= Net property, plant and equipment: Land .......................................... $ 600 $ 600 Buildings and improvements .................... 3,923 3,562 Machinery and equipment ....................... 8,155 7,490 --------- --------- 12,678 11,652 Less accumulated depreciation and amortization 5,075 3,662 --------- --------- $ 7,603 $ 7,990 ========= ========= Accrued expenses and other liabilities: Compensation and related benefits ............. $ 2,180 $ 2,180 Legal ......................................... 280 443 Other ......................................... 3,236 3,318 --------- --------- $ 5,696 $ 5,941 ========= =========
NOTE 6 - INCOME TAXES At December 31, 1995, the Company has net operating loss carryforwards of approximately $13,300 which expire in the years 2005 through 2009 and alternative minimum tax credit carryforwards of approximately $270. In addition, the Company has approximately $7,200 of previously unrecognized tax benefits, principally related to inventories. As the portion of the loss carryforwards and deferred tax benefits originating prior to the 1991 quasi-reorganization are realized, the corresponding tax effect will be credited to Capital in Excess of Par under quasi-reorganization accounting principles rather than reducing the Provision for Taxes. In 1995, $519 was credited to Capital in Excess of Par representing the utilization of such pre quasi-reorganization tax benefits to offset current year tax expense. As of December 31, 1995, $4,526 of the pre quasi-reorganization tax effected benefits remain unutilized. The utilization and realization of the carryforwards and future tax benefits will substantially reduce or eliminate the amount of cash taxes payable on taxable income in the future. The Company utilizes the liability method (SFAS No. 109) in accounting for income taxes. Income (loss) from continuing operations before taxes is from domestic sources only for each of the three years ended December 31, 1995. F-12 VERNITRON CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 6 - INCOME TAXES (CONT'D) The provision for taxes on income from continuing operations consists of:
1995 1994 1993 ------ ------ ------ Current taxes: U.S. Federal--charge in lieu of taxes ............................... $454 $14 $-- State and local ..................... 111 3 -- ------ ------ ------ 565 17 -- ------ ------ ------ Deferred taxes: U.S. Federal ........................ ------ ------ ------ $565 $17 $-- ====== ====== ======
The reasons for the difference between the provision for taxes and the amount computed by applying the statutory federal income tax rate to income (loss) before taxes are as follows:
1995 1994 1993 ------ ------ ---------- U.S. federal statutory rate ....................... 34% 34% 34% Computed expected tax provision (benefit) ........ $493 $ 15 $(1,539) Increase (decrease) in taxes resulting from: State and local taxes, net of federal tax benefit 72 2 Amortization of goodwill ......................... 71 71 71 Portion of loss not currently realizable ........ 1,468 Other ............................................ (71) (71) ------ ------ ---------- Actual tax provision .............................. $565 $ 17 $ -- ====== ====== ==========
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 used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities are as follows:
DECEMBER 31, ------------------- 1995 1994 -------- --------- Tax net operating loss carryforwards $ 4,794 $ 4,130 Inventory valuation differences .... 2,070 1,736 Other, net .......................... 389 1,057 -------- --------- Sub-total .......................... 7,253 6,923 Valuation allowance ................. (7,253) (6,923) -------- --------- Total deferred taxes ................ $ -- $ -- ======== =========
The net change in the valuation allowance in 1995 and 1994 was an increase of $330 and a decrease of $1,713, respectively. Total net federal, foreign and state and local income taxes paid (refunded), in 1995, 1994, and 1993 were $52, $(9), and $(8), respectively. F-13 VERNITRON CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 7 - PENSION ARRANGEMENTS The Company has two pension plans for which benefits and participation have been frozen. Pension benefits under these plans are generally based upon years of service and compensation. The Company's funding policy is to contribute amounts to these plans sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such additional amounts as the Company may determine to be appropriate from time to time. Multi-employer plans covering certain union members generally provided benefits of stated amounts for each year of service. During 1994, in connection with the restructuring of the Motion Control group (see Note 8), the employment of the union members participating in these multi-employer plans ended and, as a result, contributions to these plans ceased. As of December 31, 1995, there were no unpaid contributions to multi-employer plans. A summary of components of net periodic pension cost for the defined benefit plans and the total contribution charged to pension expense for the multi-employer plans follows:
1995 1994 1993 ------ ------ ------ Defined benefit plans: Service cost-benefits earned during the period $ -- $ -- $ -- Interest cost on projected benefit obligation 74 73 105 Actual return on plan assets .................. (25) 1 5 Net amortization and deferral ................. 17 (5) (10) ------ ------ ------ Net pension cost of defined benefit plans .... 66 69 100 Multi-employer plans .......................... 59 301 ------ ------ ------ Total pension expense ......................... $ 66 $128 $401 ====== ====== ======
Assumptions used in accounting for the defined benefit plans as of the plans' measurement dates were:
1995 1994 1993 ------ ------ ------ Weighted-average discount rate ............. 7.5% 7.5% 7.5% Expected long-term rate of return on assets 6.0% 6.0% 7.3%
F-14 NOTES TO FINANCIAL STATEMENTS VERNITRON CORPORATION NOTE 7 - PENSION ARRANGEMENTS, (CONT'D) The following table sets forth the funded status and amount recognized in the consolidated balance sheets for the Company's defined benefit pension plans.
1995 1994 1993 -------- -------- -------- Actuarial present value of benefit obligations: Vested benefit obligation ............................ $1,116 $1,026 $1,003 ======== ======== ======== Accumulated benefit obligation ....................... $1,116 $1,026 $1,003 ======== ======== ======== Projected benefit obligations ........................ $1,116 $1,026 $1,003 Less plan assets at fair market value ................ 231 32 35 -------- -------- -------- Projected benefit obligation in excess of plan assets 885 994 968 Unrecognized net gain ................................ 98 83 80 -------- -------- -------- Net pension liability recognized in the balance sheet $ 983 $1,077 $1,048 ======== ======== ========
Unrecognized net gains and losses are amortized over the average future service lives of participants. Plan assets are invested in a managed portfolio consisting primarily of equity securities. Under the Company's 401(k) plan, eligible employees may elect to contribute a percentage of their earnings which the Company has matched up to 3% of gross earnings based on the level of income. Company matching contributions were $325 in 1995 and $363 in 1994. The Company made no matching contribution in 1993. NOTE 8 - OTHER INFORMATION RESTRUCTURING PLAN - During 1993, the Company announced its plan to restructure its Motion Control group. The motion control business had been organized as two separate divisions. The plan consolidated the two divisions under a single operating management based in San Diego. In connection with the restructuring, the Company recorded a charge of $3,500. The charge included $2,300 for the write-down of slow moving and excess inventory to net realizable value. In addition, $1,200 was recorded for severance, early retirement, other employee-related benefits and other related charges. As part of the restructuring, the Company closed its Deer Park, New York facility. During 1994, the Company recorded an additional $1,315 charge related to this restructuring, $1,015 of which provided additional inventory reserves to reflect slower turnover of the inventory than was anticipated in the 1993 charge calculation. The remaining $300 of the 1994 charge was to adjust the carrying amount of the Deer Park, New York facility. In September 1995, the Company sold the idle Deer Park, New York facility for net proceeds of $1,401. Included in other expense, is a loss in the sale of this facility of $233. F-15 VERNITRON CORPORATION NOTES TO FINANCIAL STATEMENTS NOTE 8 - OTHER INFORMATION, (CONT'D) STOCK OPTIONS - Options to purchase up to 193,000 shares of Vernitron common stock, with exercise prices of $.75 - $.83 per share, have been issued to certain key employees of the Company. Of that amount, 133,900 options are vested, with the balance becoming vested as follows: 30,300 (1996) and 28,800 (1997). These options are exercisable for up to seven years from the date of grant. There are 249,000 shares available for future grant. INTEREST PAID - in 1995, 1994, and 1993 was $1,989, $1,883 and $2,168 respectively. NOTE 9 - COMMITMENTS AND CONTINGENCIES Future minimum payments, under noncancellable operating leases (exclusive of property expenses and net of sublease rental income), as of December 31, 1995, are as follows:
1996 ............... $1,399 1997 ............... 1,333 1998 ............... 1,088 1999 ............... 1,177 2000 ............... 139 2001 and thereafter 272 -------- $5,408 ========
Rent expense under such leases, net of sublease rental income, amounted to $1,539 in 1995, $1,379 in 1994 and $1,348 in 1993. In February 1990, the Company sold and leased back its San Diego, California facility under an operating lease. The Company has a deferred gain as of December 31, 1995 on this transaction of $519, which is being amortized to income over the ten year lease term as a reduction of annual rent expense. The Company is a defendant in various lawsuits, none of which is expected to have a material adverse effect on the Company's financial position or results of operations. NOTE 10 - SUBSEQUENT EVENTS In February 1996, the company entered into a definitive merger agreement to acquire Precision Aerotech, Inc. Precision Aerotech designs, manufactures and markets laser scanners, precision metal optics, high performance air bearings and precision machined parts sold predominantly in commercial markets. Precision Aerotech's sales for the twelve months ended January 31, 1996 were approximately $43.5 million. The definitive merger agreement contemplates the payment of $5 per share in cash for each outstanding share of common stock of Precision Aerotech and the repayment of Precision Aerotech's debt. It is expected that the purchase will require approximately $19 million in cash, all of which Vernitron expects will be financed with additional borrowings. Completion of the transaction is subject to the satisfaction of customary conditions, including receipt of all necessary financing by the Company. Shareholders owning 95% of Precision Aerotech's common stock have agreed to sell their shares to Vernitron and vote in favor of the merger. Subject to the foregoing, the acquisition is expected to close in the second quarter of 1996. F-16 VERNITRON CORPORATION SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (DOLLARS IN THOUSANDS)
- ---------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E COL. F - ---------------------------------------------------------------------------------------------- Additions ---------------------- Balance at Charged to Charged to Beginning Costs and Other Balance at Classification of Period Expenses Accounts Deductions End of Period -------------- ---------- ---------- ---------- ---------- ------------- Allowance for doubtful accounts - ------------------------------- Year ended December 31, 1995: $345 $106 $218(a) $233 Year ended December 31, 1994: $278 $124 $ 57(a) $345 Year ended December 31, 1993: $291 $ 40 $ 53(a) $278
- ---------------- (a) Uncollectible accounts written off, net of recoveries. F-17 EXHIBIT B TO OFFERING CIRCULAR - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------ FORM 10-QA-1 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED SEPTEMBER 30, 1996 COMMISSION FILE NUMBER 0-16182 ------------- AXSYS TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) DELAWARE 11-1962029 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 645 MADISON AVENUE NEW YORK, NEW YORK 10022 (Address of principal executive offices) (Zip Code) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 593-7900 Vernitron Corporation (former name, if changed since last report) ------------- 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 2,568,940 SHARES OF COMMON STOCK, $.01 PAR VALUE, WERE OUTSTANDING AS OF DECEMBER 20, 1996. - ------------------------------------------------------------------------------- VERNITRON CORPORATION INDEX On December 11, 1996, the Registrant sold its wholly-owned subsidiary, L&S Machine Co., Inc., which was acquired as part of its acquisition of Precision Aerotech, Inc., on April 25, 1996. Since the acquisition, the Registrant has included in its consolidated results of operations through September 30, 1996, sales, operating income and interest expense attributable to L&S of $5,955,000, $293,000 and $676,000, respectively. The Registrant is filing this amendment to its Quarterly Report on Form 10-Q for the period ended September 30, 1996 to report L&S as an asset held for disposal as of April 26, 1996. Accordingly, no gain will be recorded in connection with the sale of L&S. Earnings per share applicable to the Registrant's Common Stock, as originally reported, were $.08 and $.28 for the quarter and nine-month periods ended September 30, 1996, respectively. After giving effect to the amendment, earnings per share for the quarter and nine-month periods ended September 30, 1996 will be $.14 and $.38, respectively.
PAGE ---- PART I. FINANCIAL INFORMATION - ------------------------------ Item 1. Financial Statements (Unaudited): Condensed Consolidated Statements of Operations - Quarter Ended September 30, 1996 and 1995 3 Condensed Consolidated Statements of Operations - Nine Months Ended September 30, 1996 and 1995 4 Condensed Consolidated Balance Sheets - September 30, 1996 and December 31, 1995 5 Condensed Consolidated Statements of Cash Flows- Nine Months Ended September 30, 1996 and 1995 6 Notes to Condensed Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION - --------------------------- Item 6. Exhibits and Reports on Form 8-K 14 SIGNATURES 14 - ----------
2 PART 1. FINANCIAL INFORMATION ITEM I. FINANCIAL STATEMENT VERNITRON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, dollars in thousands, except per share data)
QUARTER ENDED SEPTEMBER 30, ----------------------- 1996 1995 ----------- ---------- Net Sales .......................................... $ 24,233 $ 15,633 Cost of sales ...................................... 18,121 11,806 Selling, general and administrative expenses ...... 4,430 2,848 Amortization of intangible assets .................. 55 53 ----------- ---------- Operating income ................................... 1,627 926 Interest expense ................................... 615 497 Other (income) expense ............................. 9 234 ----------- ---------- Income before taxes ................................ 1,003 195 Charge in lieu of taxes ............................ 396 76 ----------- ---------- Net income ......................................... 607 119 Preferred stock dividends .......................... 221 159 ----------- ---------- Net income (loss) applicable to common shareholders $ 386 $ (40) =========== ========== Earnings (loss) per share .......................... $ 0.14 $ (0.02) =========== ========== Weighted average common shares outstanding ........ 2,757,746 2,508,155 =========== ==========
See notes to condensed consolidated financial statements. 3 VERNITRON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited, dollars in thousands, except per share data)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1996 1995 ----------- ---------- Net Sales .................................................... $ 64,778 $ 49,383 Cost of sales ................................................ 48,011 36,230 Selling, general and administrative expenses ................. 11,932 9,973 Amortization of intangible assets ............................ 157 157 ----------- ---------- Operating income ............................................. 4,678 3,023 Interest expense ............................................. 1,657 1,534 Other (income) expense ....................................... (4) 249 ----------- ---------- Income before taxes and extraordinary item ................... 3,025 1,240 Charge in lieu of taxes ...................................... 1,216 484 ----------- ---------- Income before extraordinary item ............................. 1,809 756 Extraordinary loss on early extinguishment of debt, net of tax benefit ................................................. (173) -- ----------- ---------- Net income ................................................... 1,636 756 Preferred stock dividends .................................... 626 417 ----------- ---------- Net income applicable to common shareholders ................. $ 1,010 $ 339 =========== ========== Earnings per share: Earnings before extraordinary charge ........................ $ 0.44 $ 0.14 Extraordinary charge ........................................ (0.06) -- ----------- ---------- $ 0.38 $ 0.14 =========== ========== Weighted average common shares outstanding ................... 2,662,650 2,507,789 =========== ==========
See notes to condensed consolidated financial statements. 4 VERNITRON CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands)
SEPTEMBER 30, DECEMBER 31, 1996 1995 --------------- -------------- (UNAUDITED) ASSETS CURRENT ASSETS Cash ........................................................ $ 5,677 $ 91 Accounts receivable - net .................................. 13,269 8,525 Inventories - net .......................................... 23,533 16,544 Other current assets ........................................ 710 651 --------------- -------------- TOTAL CURRENT ASSETS ....................................... 43,189 25,811 PROPERTY, PLANT AND EQUIPMENT - net ......................... 12,666 7,603 EXCESS OF COST OVER NET ASSETS ACQUIRED - net ............... 6,466 6,624 NET ASSETS HELD FOR DISPOSAL ................................. 10,721 OTHER ASSETS ................................................. 499 447 --------------- -------------- TOTAL ASSETS ............................................... $73,541 $40,485 =============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable ............................................ $ 7,303 $ 5,315 Accrued expenses and other liabilities ...................... 8,504 5,696 Current portion of long-term debt and capital lease obligations ................................................ 3,889 466 --------------- -------------- TOTAL CURRENT LIABILITIES .................................. 19,696 11,477 LONG-TERM DEBT & CAPITAL LEASES, less current portion ....... 33,715 11,047 OTHER LONG-TERM LIABILITIES .................................. 2,314 2,697 DEFERRED INCOME .............................................. 420 519 SHAREHOLDERS' EQUITY: Preferred Stock, issued and outstanding 738,584 shares in 1996 and 781,642 shares in 1995 ............................ 7 8 Common Stock, issued and outstanding 2,561,920 shares in 1996 and 2,520,821 shares in 1995 .......................... 26 25 Capital in Excess of Par .................................... 15,817 14,712 Retained Earnings ........................................... 1,546 -- --------------- -------------- TOTAL SHAREHOLDERS' EQUITY ................................. 17,396 14,745 --------------- -------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................. $73,541 $40,485 =============== ==============
See notes to condensed consolidated financial statements. 5 VERNITRON CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited, dollars in thousands)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------- 1996 1995 ---------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income ........................................... $ 1,636 $ 756 Adjustments to reconcile net income to cash provided by (used in) operating activities: Extraordinary loss, net .............................. 173 -- Realization of net operating loss carryforward ...... 877 436 Depreciation and amortization ........................ 1,961 1,179 Increase in current assets, other than cash ......... (1,857) (1,085) Decrease in current liabilities ...................... (928) (1,158) Decrease in long-term liabilities .................... (508) (615) Other - net ......................................... (641) (343) ---------- ---------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES .. 713 (830) ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures ................................. (1,141) (727) Acquisition of business, net of cash acquired ....... (4,728) -- Proceeds from sale of assets ......................... 206 2,929 ---------- ---------- NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES .. (5,663) 2,202 ---------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from borrowings ............................. 62,786 51,831 Repayment of borrowings .............................. (51,830) (53,149) Redemption of preferred stock odd lot shares ........ (420) -- ---------- ---------- NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .. 10,536 (1,318) NET INCREASE IN CASH .................................. 5,586 54 CASH AT BEGINNING OF PERIOD ........................... 91 27 ---------- ---------- CASH AT END OF PERIOD ................................. $ 5,677 $ 81 ========== ==========
See notes to condensed consolidated financial statements. 6 VERNITRON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands) NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements include Vernitron Corporation and its subsidiaries (the "Company"). These 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 considered necessary for a fair presentation (consisting of normal recurring accruals) have been included. Operating results for the quarter and nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995 and the Company's Current Reports on Form 8-K. Certain reclassifications have been made to previously reported financial statements to conform to current classifications. Earnings per share data for the periods were computed by dividing net income applicable to common shareholders by the weighted average number of shares of common stock outstanding during such periods. The calculation of weighted average number of shares assumes the conversion of those common stock equivalents which have a dilutive effect on earnings for the period presented. Common stock equivalents consist of warrants issued in connection with the Company's new credit facility (see Note 5) and employee stock options. NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION
NINE MONTHS ENDED SEPTEMBER 30, ------------------ 1996 1995 -------- -------- Cash paid for: Interest $1,395 $1,446 ======== ======== Income Taxes $ 441 $ 55 ======== ======== Non-cash investing and financing activities: $ Equipment acquired under capital leases $ 590 -- ======== ========
NOTE 3 - ACQUISITION OF PRECISION AEROTECH, INC. On April 25, 1996, the Company completed its previously announced acquisition of Precision Aerotech, Inc. ("PAI"). Pursuant to the Agreement and Plan of Merger dated February 16, 1996, each outstanding share of common stock of PAI was canceled and converted into the right to receive $5.00 per share in cash. Based on 789,208 shares of PAI Common Stock outstanding immediately prior to the acquisition, the aggregate consideration paid therefor was $3.9 million. In addition, the Company repaid $12 million of borrowings under PAI term loans. Precision Aerotech designs, manufactures and markets laser scanners, precision metal optics, high performance air bearings and precision machined parts sold predominantly in commercial markets. 7 VERNITRON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands) The acquisition has been accounted for under the purchase method of accounting and, accordingly, the results of operations of PAI have been included in the accompanying consolidated financial statements since the date of acquisition. The cost of the acquisition has been allocated on the basis of the estimated fair market value of the assets acquired and liabilities assumed. During the acquisition process, the Company determined that L&S Machine Company, Inc., ("L&S") a wholly-owned subsidiary of PAI which manufactures structural components for the aerospace industry, did not fit its long-term strategy and would be subsequently sold. As a result, L&S has been accounted for as a net asset held for disposal as of the PAI acquisition date. The portion of the PAI acquisition cost allocated to this asset represents the net proceeds expected to be realized upon sale, which includes an amount for estimated results of operations of the L&S business during the holding period. Through September 30, 1996, L&S had sales and operating income of $5,955 and $293, respectively. In addition, the amount of interest expense attributable to L&S through September 30, 1996 was $676. Summarized below are the unaudited pro forma results of operations of the Company as if PAI had been acquired at the beginning of the periods presented:
PRO FORMA NINE MONTHS ENDED SEPTEMBER 30, -------------------- 1996 1995 --------- --------- Net sales $74,280 $69,029 Income before extraordinary item 1,830 1,137 Net income 1,657 1,137 Earnings per share: Income before extraordinary item 0.45 0.29 Net income 0.39 0.29
The pro forma financial information presented above is not necessarily indicative of either the results of operations that would have occurred had the acquisition taken place at the beginning of the periods presented or the future operating results of the combined companies. Pro forma income before extraordinary item and net income for the nine months ended September 30, 1996 include certain special charges totaling approximately $400. NOTE 4 - INVENTORIES Inventories have been determined generally by lower of cost (first-in, first-out or average) or market. Inventories consist of:
SEPTEMBER 30, DECEMBER 31, 1996 1995 --------------- -------------- Raw materials $ 8,812 $ 7,203 Work-in-process 10,437 5,293 Finished goods 9,904 9,255 --------------- -------------- 29,153 21,751 Less reserves 5,620 5,207 --------------- -------------- $23,533 $16,544 =============== ==============
8 VERNITRON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands) NOTE 5 - LONG-TERM DEBT In order to obtain the funds necessary to finance the Company's acquisition of PAI (see Note 3), to refinance PAI's and the Company's existing debt and pay the fees and expenses related to the acquisition and refinancing, Vernitron entered into a Credit Agreement, dated April 25, 1996 (and subsequently amended as of September 25, 1996), between the Company, the various banks named therein and Banque Paribas, as agent, providing for borrowings under a $37 million senior secured credit facility (the "Credit Facility"). The Credit Facility is comprised of (i) a term loan in the principal amount of $14 million maturing in four years, (ii) a term loan in the principal amount of $12 million maturing in six years and (iii) a revolving credit line in an aggregate principal amount of up to the lesser of $11 million or the borrowing base in effect from time to time, maturing in four years. The Credit Facility contains certain provisions and covenants which, among other things, impose limitations with respect to the incurrence of additional liens and indebtedness, mergers, consolidations and specified sales of assets, and requires the Company to meet certain financial tests including minimum levels of earnings and net worth and various other financial ratios. In addition, the Credit Facility prohibits the payment of cash dividends. The cumulative dividends in arrears on the Company's Preferred Stock as of September 30, 1996 was $536. In connection with the acquisition and financing and before giving effect to the one-for-five reverse stock split (see Note 6), the Company granted to Banque Paribas a warrant (the "Banque Paribas Warrant") to acquire up to 666,312 shares of Common Stock at an exercise price of $.01 per share and a warrant to an affiliate of Banque Paribas, Paribas Principal, Inc., (the "Paribas Principal Warrant"), to acquire up to 776,388 shares of Common Stock at an exercise price of $1.25 per share. In connection therewith, the parties entered into a Warrant Purchase Agreement containing customary terms and conditions. The Company also authorized the granting to an affiliate of Donaldson, Lufkin & Jenrette Securities Corporation of a warrant (the "Donaldson Lufkin Jenrette Warrant") to acquire up to 100,000 shares of Common Stock at an exercise price of $1.25 per share. Adjusted to give effect to the reverse stock split, the Banque Paribas Warrant entitles the holder thereof to acquire up to 133,263 shares of at an exercise price of $.05 per share, the Paribas Principal Warrant entitles the holder thereof to acquire up to 155,278 shares at an exercise price of $6.25 per share and the Donaldson Lufkin & Jenrette Warrant entitles the holders thereof to acquire up to 20,000 shares at an exercise price of $6.25 per share. NOTE 6 - COMMON STOCK On July 25, 1996, the Company completed a one-for-five reverse stock split of its $0.01 par value common stock following approval of the reverse stock split by the Company's stockholders at the Company's 1996 Annual Meeting of Stockholders. In conjunction with the split, the Company's Certificate of Incorporation has been amended to reduce the number of shares of Common Stock authorized for issuance to 4,000,000. The reverse stock split reduced the number of shares of common stock outstanding from 12,758,737 to 2,552,195. The stated par value of each share was not changed from $0.01. All earnings per share data presented in this report has been restated to reflect the reverse stock split. 9 VERNITRON CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (Dollars in thousands) NOTE 7 - OTHER INFORMATION
SEPTEMBER 30, DECEMBER 31, 1996 1995 --------------- -------------- Allowance for doubtful accounts $ 394 $ 278 =============== ============== Accumulated depreciation and amortization of property, plant and equipment $6,802 $5,075 =============== ============== Accumulated amortization of excess of cost over net assets acquired $ 994 $ 836 =============== ==============
10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands) RESULTS OF OPERATIONS On April 25, 1996, the Company completed its acquisition of PAI. The acquisition has been accounted for under the purchase method of accounting and, accordingly, the results of PAI's continuing product lines have been included in the Condensed Consolidated Statements of Operations since the date of acquisition. Net sales from the continuing PAI product lines are included in the Motion Control product group. Net sales by product group were as follows:
QUARTER ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------- -------------------- 1996 1995 1996 1995 --------- --------- --------- --------- Motion Control $13,998 $ 5,634 $32,098 $18,681 Industrial Components 10,235 9,999 32,680 30,702 --------- --------- --------- --------- Net Sales $24,233 $15,633 $64,778 $49,383 ========= ========= ========= =========
QUARTER ENDED SEPTEMBER 30, 1996 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 1995 Net sales for the third quarter of 1996 increased by $8.6 million or 55%, compared to the same period in 1995. The acquisition of pai accounted for $7.6 million of the increase. The Motion Control group's sales (electromagnetic components and subsystems, laser scanners, precision metal optics and high performance air bearings) increased in 1996 by $8.4 million, or 149%, as compared to 1995. The acquisition of PAI accounted for $7.6 million of the increase. Bookings for the group were $13.9 million in the third quarter of 1996, an increase of $9.2 million, or 196%, compared to the comparable quarter in 1995. The acquisition of PAI resulted in an increase in bookings of $8.8 million. The nature of the Motion Control group's bookings results in an uneven pattern from quarter to quarter and does not necessarily reflect overall business trends. Backlog at September 30, 1996, was $38.3 million, compared to $16.1 million at December 31, 1995. of the $38.3 million backlog at September 30, 1996, $24.1 million relates to the PAI product lines. The Industrial Components group's sales (bearings and connectors) increased in 1996 by $.2 million, or 2%, compared to 1995. Bookings for the group were $10 million, a decrease of $.4 million, or 4%, compared to 1995, primarily as a result of lower bookings in the bearing product line reflecting a softening of orders from original equipment manufacturers. Backlog at September 30, 1996 was $10.8 million, compared to $11.9 at December 31, 1995. Operating income was $1.6 million in 1996, as compared to $.9 million in 1995, representing a $.7 million increase. This increase was primarily due to the higher sales volume. Gross margin on sales was 25.2% in 1996 as compared to 24.5% in 1995. Selling, general and administrative expenses increased by $1.6 million in 1996 primarily due to the acquisition of PAI. Selling, general and administrative expenses as a percentage of sales was 18% in both 1996 and 1995. 11 Interest expense increased by $.1 million in 1996 as a result of higher average borrowings due to the acquisition of PAI. The effect of the higher average borrowings was substantially offset by the reduction of interest expense attributed to net assets held for disposal (see Note 3 to the Condensed Consolidated Financial Statements) and the effect of lower interest rates resulting from a lower prime rate and more favorable terms under the Company's new credit facility (see Note 5 to the Condensed Consolidated Financial Statements). NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1995 Net sales for the first nine months of 1996 increased by $15.4 million, or 31% compared to the same period in 1995. The acquisition of PAI accounted for $13.4 million of the increase. The Motion Control group's sales (electromagnetic components and sub-systems, laser scanners, precision metal optics and high performance air bearings) increased in 1996 by $13.4 million, or 72%, as compared to 1995. The acquisition of PAI accounted for substantially all of the increase in sales. Bookings for the group were $31.4 million in 1996, an increase of $12.1 million or 63%, compared to 1995. The acquisition of PAI resulted in an increase in bookings of $14.6 million while the remaining product lines in the group had a decrease in bookings of $2.5 million this decrease is primarily due to lower European orders for industrial resolvers and lower government spare parts orders for potentiometers. The nature of the Motion Control group's bookings results in an uneven pattern from quarter to quarter and does not necessarily reflect overall business trends. The Industrial Components group's sales (bearings and connectors) increased in 1996 by $2 million, or 6%, compared to 1995. Sales of bearings were up by 13%, reflecting increased business with original equipment manufacturers. Industrial Component's bookings were $31.7 million, a decrease of $.3 million, or 1%, compared to 1995. Operating income was $4.7 million in 1996, as compared to $3 million in 1995, representing a $1.7 million increase. This increase was primarily due to the higher sales volume partially offset by an unfavorable sales mix of lower margin products in the Motion Control group. Gross margin on sales was 25.9% in 1996, as compared to 26.6% in 1995. Selling, general and administrative expenses increased by $2.0 million in 1996 primarily due to the acquisition of PAI. Selling, general and administrative expenses as a percentage of sales decreased to 18% in 1996, compared to 20% in 1995. Interest expense increased $.1 million in the first nine months of 1996 as a result of higher average borrowings due to the acquisition of PAI. The effect of the higher average borrowings was substantially offset by the reduction of interest expense attributed to net assets held for disposal (see Note 3 to the Condensed Consolidated Financial Statements) and the effect of lower interest rates resulting from a lower prime rate and the more favorable terms under the Company's new credit facility (see Note 5 to the Condensed Consolidated Financial Statements). LIQUIDITY AND CAPITAL RESOURCES Cash provided by operations was $.7 million in 1996 as compared to cash used of $.8 million in 1995. This improvement was primarily due to higher cash earnings in the current year partially offset by an increased level of investment in working capital. Cash used in investing activities was $5.7 million in 1996 as compared to cash provided of $2.2 million in 1995. During the second quarter of 1996 the Company acquired PAI (see Note 3 to the Condensed Consolidated Financial Statements). During the first nine months of 1995, $2.9 million was generated from the sale of assets of the Electronics Components business which was discontinued during 1994 and from the sale of its idle Deer Park, New York facility. Cash provided by financing activities was $10.5 million in 1996 as compared to cash used of $1.3 million in 1995. The increase is primarily due to the borrowings used to fund the aforementioned acquisition of PAI (see Note 3 to the Condensed Consolidated Financial Statements) and an unusually high cash balance at the end of the quarter due to the timing of cash receipts and reductions of borrowing under the Company's revolving credit line. 12 The Company had no material commitments for capital expenditures as of September 30, 1996. As discussed in Note 5 to the Condensed Consolidated Financial Statements, the Company entered into a new $37 million senior secured credit facility in connection with its acquisition of PAI. The Company believes this new credit facility and cash generated from the combined operations will be sufficient to meet the future capital expenditure and working capital requirements of the combined companies and required debt amortization under its new credit facility. 13 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 3: Amendment to Articles of Incorporation Exhibit 10: Amendment No. 1 to Bank Credit Agreement Exhibit 27: Financial Data Schedule (for SEC use only). Exhibit 99: Press release, dated October 7, 1996. b) Reports on Form 8-K None. 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. Date: December 20, 1996 VERNITRON CORPORATION By: /s/ Stephen W. Bershad ------------------------------------ Stephen W. Bershad Chief Executive Officer By: /s/ Raymond F. Kunzmann ------------------------------------- Raymond F. Kunzmann Vice President - Finance, Controller and Chief Financial Officer 14 Facsimile copies of the Letter of Transmittal will be accepted. Letters of Transmittal, certificates for the Preferred Stock and any other required documents should be sent by each holder or his broker, dealer commercial bank, trust company or other nominee to the Exchange Agent at one of the addresses as set forth below: The Exchange Agent for the Exchange Offer is: CHASEMELLON SHAREHOLDER SERVICES, L.L.C. By Facsimile By Hand or By Mail: Transmission Overnight Courier: ChaseMellon Shareholder (For Eligible ChaseMellon Shareholder Services Institutions Only) Services Reorganization Department (201) 329-8936 Reorganization Department Midtown Station 120 Broadway - 13th Fl. P.O. Box 798 Confirm Facsimile New York, NY 10271 New York, NY 10018 by Telephone: (For Confirmation Only) (201) 296-4764 -------------------- EX-99.(A)(II) 3 FORM OF LETTER OF TRANSMITTAL - -------------------------------------------------------------------------------- AXSYS TECHNOLOGIES, INC. (formerly Vernitron Corporation) Letter of Transmittal in Respect of its Offer to Exchange 0.75 Shares of Common Stock Par Value $.01 Per Share for Each Share of its $1.20 Cumulative Exchangeable Redeemable Preferred Stock Pursuant to its Offering Circular dated February 13, 1997 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, MARCH 17, 1997, UNLESS EXTENDED ------------------ TENDERS OF SHARES OF PREFERRED STOCK MAY BE WITHDRAWN AT ANY TIME UNTIL THE EXPIRATION DATE, AND IF NOT OTHERWISE ACCEPTED BY THE COMPANY, AT ANY TIME AFTER APRIL 11, 1997. TO: CHASEMELLON SHAREHOLDER SERVICES, LLC, THE EXCHANGE AGENT
By Hand or Overnight Delivery: By Facsimile: By Mail: ChaseMellon Shareholder Services, L.L.C. (201) 329-8936 ChaseMellon Shareholder Svcs., L.L.C. Reorganization Department Reorganization Department 120 Broadway - 13th Fl. Confirmation by Telephone to: Midtown Station New York, NY 10271 (201) 296-4764 P.O. Box 798 New York, NY 10018
Delivery of this instrument to an address, or transmission of instructions via a facsimile number, other than as set forth above will not constitute a valid delivery. The undersigned acknowledges receipt of the Offering Circular, dated February 13, 1997 (the "Offering Circular"), of Axsys Technologies, Inc. (the "Company") and this Letter of Transmittal, which together constitute the Company's offer (the "Exchange Offer") to exchange 0.75 shares of Common Stock, par value $.01 per share (the "Common Stock"), of the Company for each outstanding share of $1.20 Cumulative Exchangeable Redeemable Preferred Stock, par value $.01 per share (the "Preferred Stock"), of the Company. This Letter of Transmittal is to be used (i) if certificates for shares of Preferred Stock are to be physically delivered to the Exchange Agent herewith, or (ii) if tenders of shares are to be made by book-entry transfer to one of the accounts maintained by the Exchange Agent at The Depository Trust Company ("DTC") or the Philadelphia Depository Trust Company ("PHILADEP") (together with DTC, sometimes collectively referred to herein as the "Book Entry Transfer Facilities" and sometimes individually referred to herein as a "Book Entry Transfer Facility") pursuant to the procedures set forth in the Offering Circular under the caption "The Exchange Offer - Tenders - General," or (iii) if tenders of shares are to be made according to the guaranteed delivery procedures set forth in the Offering Circular under the caption "The Exchange Offer - Guaranteed Delivery Procedures". Capitalized terms used herein and not otherwise defined herein shall have the respective meanings assigned to them in the Offering Circular. HOLDERS MUST COMPLETE THE TABLE IN BOX ONE AND SIGN IN BOX TWO TO TENDER SHARES OF PREFERRED STOCK. HOLDERS WHO WISH TO TENDER THEIR SHARES OF PREFERRED STOCK MUST, AT A MINIMUM, COMPLETE COLUMNS (1) THROUGH (3) IN THE TABLE IN BOX ONE AND COMPLETE AND SIGN WHERE SIGNATURES ARE REQUIRED (BOX TWO). If only those columns are completed, the holder of Preferred Stock will be deemed to have tendered for exchange, all Preferred Stock listed in the table in Box One unless otherwise indicated in the space provided at the top of Box One. If a holder of Preferred Stock wishes to tender less than all of such Preferred Stock, column (4) must be completed in full, and such holder should refer to Instruction 5. ______________________________________________________________________________ NOTE: SIGNATURE(S) MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Holders of Preferred Stock who wish to tender with respect to their Preferred Stock and (i) whose shares of Preferred Stock are not immediately available, or (ii) who cannot deliver their shares of Preferred Stock, or any other documents required hereby prior to the Expiration Date, or (iii) who cannot complete the procedure for book-entry transfer on a timely basis, must tender with respect to their Preferred Stock according to the guaranteed delivery procedures set forth in the Offering Circular under "The Exchange Offers - Guaranteed Delivery Procedures." See Instruction 2. ____ CHECK HERE IF TENDERED SHARES OF PREFERRED STOCK ARE ENCLOSED HEREWITH. ____ CHECK HERE IF TENDERED SHARES OF PREFERRED STOCK ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC OR PHILADEP AND COMPLETE THE FOLLOWING: Name of Tendering Institution __________________________________________ DTC/PHILADEP Account Number __________________________________________ Transaction Code Number __________________________________________ ____ CHECK HERE IF TENDERED SHARES OF PREFERRED STOCK ARE BEING DELIVERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) __________________________________________ Date of Execution of Notice of Guaranteed Delivery _______________________ Window Ticket Number (if available) ________________________________________ Name of Institution which Guaranteed Delivery ____________________________ DTC/PHILADEP Account Number (If delivered by book-entry transfer) ___________ _______________________________________________________________________________
________________________________________________________________________________________________________________________________ BOX ONE _________________________________________________________________________________________________________________________________ DESCRIPTION OF PREFERRED STOCK _________________________________________________________________________________________________________________________________ (1) (2) (3) (4) _________________________________________________________________________________________________________________________________ Certificate Number(s) Number of Shares of Name(s) and Address(es) of Registered Holder(s) (Attach list, if Aggregate Preferred Stock (See Note below)* (Please fill in, if Blank) necessary) Number of Shares Tendered(a) _________________________________________________________________________________________________________________________________ -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- -------------------------------------------------------------------- Total: - ---------------------------------------------------------------------------------------------------------------------------------- * Any beneficial holder whose shares of Preferred Stock are registered in the name of his broker, dealer, commercial bank, trust company or other nominee and who wishes to tender shares of Preferred Stock should contact such registered holder promptly and instruct such registered holder to tender Preferred Stock on his behalf. If such beneficial holder wishes to tender shares of Preferred Stock on his own behalf, such beneficial holder must, prior to completing and executing this Letter of Transmittal and delivering his Preferred Stock, either make appropriate arrangements to register ownership of the Preferred Stock in such holder's name or obtain a properly completed stock power from the registered holder reflecting the change in ownership. The transfer of record ownership of Preferred Stock may take considerable time and, depending on when such transfer is requested, may not be accomplished prior to the Expiration Date. (a) Need not be completed by holders who wish to tender all shares of Preferred Stock listed in column (3). - ----------------------------------------------------------------------------------------------------------------------------------
2 Ladies and Gentlemen: In accordance with the terms and subject to the conditions set forth in the Offering Circular, the undersigned hereby tenders to the Company the above-described number of shares of Preferred Stock. Subject to, and effective upon acceptance for exchange of the shares of Preferred Stock tendered herewith, the undersigned hereby exchanges, assigns and transfers to, or upon the order of, the Company all right, title and interest in and to all the shares of Preferred Stock that are being tendered hereby and that are being accepted for exchange pursuant to the Exchange Offer, and irrevocably constitutes and appoints the Exchange Agent the true and lawful agent and attorney-in-fact of the undersigned with respect to such Preferred Stock (with full knowledge that the Exchange Agent also acts as agent for the Company), with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (a) deliver certificates for such shares of Preferred Stock or transfer ownership of such shares of Preferred Stock on the account books maintained by the Exchange Agent at the Book Entry Transfer Facilities, together with, in either case, all accompanying evidences of transfer and authenticity, to or upon the order of the Company, (b) present such shares of Preferred Stock for transfer on the books of the Company, and (c) receive all benefits and otherwise exercise all rights of beneficial ownership of such Preferred Stock, all in accordance with the terms of the Exchange Offer. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, exchange, assign and transfer the shares of Preferred Stock tendered hereby, and that when the same are accepted for exchange by the Company, the Company will acquire good and unencumbered title thereto, free and clear of all liens, restrictions charges and encumbrances and such shares of Preferred Stock shall not be subject to any adverse claims. The undersigned will, upon request, execute and deliver any additional documents deemed by the Exchange Agent or the Company to be necessary or desirable to complete the exchange, assignment and transfer of the shares of Preferred Stock tendered hereby. Shares of Preferred Stock properly tendered and not withdrawn will be accepted as soon as practicable after the satisfaction or waiver of all conditions to the Exchange Offer. Tenders of shares of Preferred Stock may be withdrawn at any time until the Expiration Date and, if not otherwise accepted by the Company, at any time after April 11, 1997, by delivery of a notice of withdrawal or revocation to the Exchange Agent. See "The Exchange Offer - Withdrawal of Tenders" in the Offering Circular. The Exchange Offer is subject to a number of conditions, each of which may be waived or modified by the Company, as more particularly set forth in the Offering Circular. The undersigned recognizes that as a result of such conditions the Company may not be required to exchange any of the Preferred Stock tendered hereby. In such event, shares of Preferred Stock not exchanged will be returned to the undersigned at the address shown below the undersigned's signature(s) unless otherwise indicated under "Special Delivery Instructions." THE UNDERSIGNED UNDERSTANDS THAT THE UNDERSIGNED WILL BE DEEMED TO HAVE WAIVED THE RIGHT TO RECEIVE ANY DIVIDENDS ON THE PREFERRED STOCK WHICH ARE UNPAID AT THE TIME OF THE EXPIRATION DATE. All authority conferred or agreed to be conferred herein shall survive the death or incapacity of the undersigned, and any obligation of the undersigned hereunder shall be binding upon the heirs, executors, administrators, legal and personal representatives, successors in interest and assigns of the undersigned. The undersigned understands that tenders of shares of Preferred Stock pursuant to any of the procedures described in the Offering Circular and in this Letter of Transmittal will constitute a binding agreement between the undersigned and the Company upon the terms and subject to the conditions of the Exchange Offer. Unless otherwise indicated herein under "Special Issuance and Delivery Instructions," please issue the certificates for the shares of Common Stock and return any Preferred Stock not tendered or not accepted for exchange, in the name(s) of the undersigned at the address set forth above under "Description of Preferred Stock" in Box One. In the event that the Special Issuance and Delivery Instructions are completed, please issue the certificates for the shares of Common Stock, and/or return such certificates for shares of Preferred Stock and/or the certificates for the shares of Common Stock, to the person or persons so indicated. Holders tendering Preferred Stock by book-entry transfer may request that any shares of Preferred Stock not accepted for exchange be returned by crediting such account maintained at the Book Entry Transfer Facilities as such holder may designate by making an appropriate entry under "Special Issuance and Delivery Instructions." The undersigned recognizes that the Company has no obligation pursuant to the "Special Issuance and Delivery Instructions" to make arrangements for the transfer of any Preferred Stock from the name of the registered holder(s) thereof if the Company does not accept for exchange any of the Preferred Stock so tendered. 3 - ------------------------------------------------------------------------------ SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS (SEE INSTRUCTIONS 1, 7 AND 8) To be completed ONLY if (i) certificates for the shares of Preferred Stock (if any) not tendered or not accepted for exchange are to be delivered to and issued in the name of someone other than the person whose signature appears on the face of this Letter of Transmittal or (ii) if shares of Preferred Stock tendered by book-entry transfer which are not accepted for exchange are to be returned by credit to an account maintained at a Book Entry Transfer Facility. Issue and Mail: (check appropriate box(es)): ____ Shares of Common Stock to: ____ Shares of Preferred Stock to: Name: ------------------------------------------------------------------------ (Please Print) Address: ---------------------------------------------------------------------- - ------------------------------------------------------------------------------ - ------------------------------------------------------------------------------ (Include Zip Code) - ------------------------------------------------------------------------------ (Tax Identification or Social Security Number) CREDIT UNEXCHANGED PREFERRED STOCK TENDERED BY BOOK-ENTRY TRANSFER TO THE BOOK ENTRY TRANSFER FACILITY ACCOUNT SET FORTH BELOW: - ------------------------------------------------------------------------------ (DTC/PHILADEP Account Number) - ------------------------------------------------------------------------------ 4 BOX TWO - ------------------------------------------------------------------------------ SIGN HERE WHETHER OR NOT SHARES OF PREFERRED STOCK ARE BEING PHYSICALLY TENDERED HEREBY (PLEASE COMPLETE) - ---------------------------------- ----------------------------------------- Signature of Registered Holder Signature of Registered Holder or Authorized Signatory or Authorized Signatory (If more than one) - --------------------------------- ------------------------------------------ Type or Print Name Type or Print Name Dated:______________, 19 Dated:___________, 19 - -------------------------------- ------------------------------------------ Type or Print Name Type or Print Name Dated:______________, 19 Dated:____________, 19 Tax Identification or Social Security No(s): ---------------------------------- Must be signed by registered holder(s) exactly as name(s) appear(s) on certificate(s) for Preferred Stock or on a security position listing or by person(s) authorized to become registered holder(s) by certificates and documents transmitted herewith. If signature is by a trustee, executor, administrator, guardian, attorney-in fact, officer of a corporation, agent or other person acting in a fiduciary or representative capacity, please provide the following information and see Instruction 6. Name Address - -------------------------------- ----------------------------------------- - -------------------------------- ------------------------------------------ Please Print Include Zip Code Area Code and Tel. No. ------------------------------------------ Capacity (Full Title) ---------------------------------------------------------- GUARANTEE OF SIGNATURE(S) (IF REQUIRED - SEE INSTRUCTIONS 1 AND 6) Name of Firm: ------------------------------------------------------------------ Authorized Signature: ---------------------------------------------------------- Title: ------------------------------------------------------------------------- Dated: ------------------------------------------------------------------, 19 (Please complete Substitute Form W-9 in Box Three of this Letter of Transmittal) - ------------------------------------------------------------------------------- 5
BOX THREE - ---------------------------------------------------------------------------------------------------------------------------------- PAYER'S NAME: CHASEMELLON SHAREHOLDER SERVICES - ---------------------------------------------------------------------------------------------------------------------------------- SUBSTITUTE Part I - Taxpayer Identification Number - For All Accounts. (Enter taxpayer identification number in the appropriate box. ---------------------- FORM W-9 For most individuals, this is your social security number. Social Security Number If you do not have a number, see How to Obtain a TIN in the or Department of the Treasury enclosed Guidelines.) Internal Revenue Service --------------------- Note: If the account is in more than one name, see the chart Employer on the enclosed Guidelines to determine what number to give. Identification Number Payer's Request for Taxpayer Identification Number ---------------------------------------------------------------------------------------------------- Part II - For Payees Exempt From Backup Withholding (see enclosed Guidelines) - ---------------------------------------------------------------------------------------------------------------------------------- Certification - Under penalties of perjury, I certify that: (1) The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and (2) I am not subject to backup withholding either because I have not been notified by the Internal Revenue Service ("IRS") that I am subject to backup withholding as a result of a failure to report all interest or dividends, or the IRS has notified me that I am no longer subject to backup withholding. - ---------------------------------------------------------------------------------------------------------------------------------- Signature ______________________________________________________ Date ____________________________ , 1997 - ---------------------------------------------------------------------------------------------------------------------------------- NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 20% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. - ----------------------------------------------------------------------------------------------------------------------------------
INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER 1. GUARANTEE OF SIGNATURES. Except as otherwise provided below, all signatures on this Letter of Transmittal must be guaranteed by a firm that is a member of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc., or by a commercial bank or trust company having an office in the United States (each an "Eligible Institution"). SIGNATURES ON THIS LETTER OF TRANSMITTAL NEED NOT BE GUARANTEED (A) IF THIS LETTER OF TRANSMITTAL IS SIGNED BY THE REGISTERED HOLDER(S) OF THE PREFERRED STOCK TENDERED HEREWITH AND SUCH HOLDER(S) HAS/HAVE NOT COMPLETED THE INSTRUCTION ENTITLED "SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS" ON THIS LETTER OF TRANSMITTAL OR (B) IF SUCH SHARES OF PREFERRED STOCK ARE TENDERED FOR THE ACCOUNT OF AN ELIGIBLE INSTITUTION. SEE INSTRUCTION 6. 2. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR PREFERRED STOCK; GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be used (i) if certificates for shares of Preferred Stock are to be physically delivered to the Exchange Agent herewith, or (ii) if tenders are to be made by book-entry transfer to the accounts maintained by the Exchange Agent at one of the Book Entry Transfer Facilities pursuant to the procedure set forth in the Offering Circular, or (iii) if tender of shares are to be made according to the guaranteed delivery procedures set forth in the Offering Circular. Certificates for all physically delivered shares of Preferred Stock, or confirmation of any book-entry transfer, as well as a properly completed and duly executed copy of this Letter of Transmittal or a facsimile thereof, and any other documents required by this Letter of Transmittal must be received by the Exchange Agent at one of its addresses set forth on the front page of this Letter of Transmittal prior to the Expiration Date. Holders of shares of Preferred Stock who wish to tender their shares of Preferred Stock and (i) whose certificates representing shares of Preferred Stock are not immediately available, or (ii) who cannot deliver their shares of Preferred Stock or any other documents required hereby prior to the Expiration Date or (iii) who cannot complete the procedure for book-entry transfer on a timely basis, must tender their shares of Preferred Stock according to the guaranteed delivery procedures set forth in the Offering Circular under "The Exchange Offer - Guaranteed Delivery Procedures." Pursuant to such procedures: (a) such tender must be made by or through an Eligible Institution; (b) a properly completed and duly executed Notice of Guaranteed Delivery substantially in the form provided by the Company must be received by the Exchange Agent prior to the Expiration Date; and (c) the certificates for all physically tendered shares of Preferred Stock in proper form for transfer, or a confirmation of a book- 6 entry transfer, as well as a properly completed and duly executed Letter of Transmittal and any other required documents, must be received by the Exchange Agent within five New York Stock Exchange trading days following the Expiration Date, all as provided under the caption "The Exchange Offer - Guaranteed Delivery Procedures" in the Offering Circular. The method of delivery of this Letter of Transmittal, shares of Preferred Stock and all other required documents to the Exchange Agent is at the election and risk of the tendering holder. Except as otherwise provided herein and in the Offering Circular, such delivery will be deemed made only when actually received by the Exchange Agent. INSTEAD OF EFFECTING DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. In all cases, sufficient time should be allowed to assure timely delivery. No documents should be sent to the Company or the Transfer Agent for the Preferred Stock. All questions as to the validity, form, eligibility (including time of receipt), acceptance and withdrawal of tendered shares of Preferred Stock will be resolved by the Company, whose determination will be final and binding. The Company reserves the absolute right to reject any or all tenders and withdrawals of shares of Preferred Stock that are not in proper form or the acceptance of which would, in the opinion of the Company or its counsel, be unlawful. The Company reserves the right to waive any irregularities or conditions of tender as to particular shares of Preferred Stock. The Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions in this Letter of Transmittal) will be final and binding. No alternative, conditional or contingent tenders will be accepted. Unless waived, any defects or irregularities in connection with tenders and withdrawals of Preferred Stock must be cured within such time as the Company shall determine. Neither the Company, the Exchange Agent, nor any other person shall be under any duty to give notice of any defects or irregularities in tenders, nor shall any of them incur any liability for failure to give any such notice. Tenders and withdrawal of shares of Preferred Stock will not be deemed to have been made until all defects and irregularities have been cured or waived. Any shares of Preferred Stock received by the Exchange Agent that are not properly tendered or delivered and as to which the irregularities have not been cured or waived will be returned by the Exchange Agent to the tendering holders of Preferred Stock unless otherwise provided in the Letter of Transmittal as soon as practicable following the Expiration Date. 3. INADEQUATE SPACE. If the space provided under "Description of Preferred Stock" is inadequate, the number of shares of Preferred Stock being tendered and the certificate numbers (if available) should be listed on a separate schedule attached hereto. 4. WITHDRAWALS OF TENDERS. Tenders of shares of Preferred Stock may be withdrawn at any time until the Expiration Date and, if not otherwise accepted for exchange by the Company, at any time after April 11, 1997. Any holder of Preferred Stock who has tendered Preferred Stock, who succeeds to the record ownership of Preferred Stock in respect of which a tender has previously been given, may withdraw such Preferred Stock by delivery of a written notice of withdrawal. To be effective, a written or facsimile transmission notice of withdrawal must (i) be timely received by the Exchange Agent at one of its addresses or facsimile numbers specified above before the Expiration Date, (ii) specify the name of the registered holder of the shares of Preferred Stock to be withdrawn, (iii) contain the certificate number(s) shown on the particular certificate(s) evidencing the shares of Preferred Stock to be withdrawn, and the number of shares of Preferred Stock to be withdrawn, and (iv) be signed by the registered holder of such Preferred Stock in the same manner as the original signature on this Letter of Transmittal (including any required signature guarantees), or be accompanied by documents of transfer sufficient to have the transfer agent for the Preferred Stock register the transfer of such Preferred Stock into the name of the person withdrawing the shares of Preferred Stock. The signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution unless such shares of Preferred Stock have been tendered (i) by a registered holder of Preferred Stock who has not completed the boxes on this Letter of Transmittal entitled "Special Issuance and Delivery Instructions" or (ii) for the account of an Eligible Institution. If the shares of Preferred Stock to be withdrawn have been delivered or otherwise identified to the Exchange Agent, a signed notice of withdrawal is effective immediately upon receipt of proper written or facsimile transmission notice of withdrawal even if physical release is not yet effected. Any shares of Preferred Stock which have been tendered for exchange but which are not exchanged will be returned to the holder thereof without cost to such holder as soon as practicable following the Expiration Date. Properly withdrawn shares of Preferred Stock may be retendered at any time prior to the Expiration Date by following one of the procedures described under the caption "The Exchange Offer - How to Tender in the Exchange Offer," in the Offering Circular. 5. PARTIAL TENDERS. If tenders are to be made with respect to less than the entire number of any shares of Preferred Stock evidenced by any one share certificate, fill in the number of shares of Preferred Stock which are tendered, represented by such certificate in column (4) of Box One above, "Description of Preferred Stock." THE ENTIRE NUMBER OF SHARES OF PREFERRED STOCK WILL BE DEEMED TO HAVE BEEN TENDERED UNLESS OTHERWISE INDICATED. In the case of partial tenders, new certificates representing shares of Preferred Stock in fully registered form for the remainder of the shares of Preferred Stock represented by the certificate for which such partial tender is made will be sent to the person(s) signing this Letter of Transmittal, unless otherwise indicated in the appropriate boxes on this Letter of Transmittal, as promptly as practicable after the expiration or termination of the Exchange Offer. 6. SIGNATURES ON THIS LETTER OF TRANSMITTAL; STOCK POWERS. The signature(s) of the registered holder(s) on this Letter of Transmittal signature page (page 2) must correspond with the name(s) as written on the face of the certificate for the shares of Preferred Stock without alteration, enlargement or any change whatsoever. 7 (a) If any shares of the Preferred Stock are held of record by two or more persons, all such persons must sign this Letter of Transmittal. (b) If any shares of the Preferred Stock are registered in different names, it will be necessary to complete, sign and submit as many separate Letters of Transmittal and any necessary accompanying documents as there are different registrations. (c) If this Letter of Transmittal is signed by the registered holder(s) of the Preferred Stock, no endorsements of Preferred Stock or separate stock powers are required, unless shares of Preferred Stock not exchanged or the certificates for shares of Common Stock are to be issued in the name of, or delivered to, any person other than the registered holder(s). Signatures on any such Preferred Stock or stock powers must be guaranteed by an Eligible Institution (unless signed by an Eligible Institution). (d) If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Preferred Stock, such Preferred Stock must be endorsed or accompanied by appropriate stock powers and, in either case, signed exactly as the name(s) of the registered holder(s) appear(s) on such Preferred Stock. Signatures on any such Preferred Stock or stock powers must be guaranteed by an Eligible Institution (unless signed by an Eligible Institution). (e) If this Letter of Transmittal or any certificates or stock powers are signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation, agent or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and, unless waived by the Company, proper evidence satisfactory to the Company and the Exchange Agent of the authority of such person to so act must be submitted with this Letter of Transmittal. 7. TRANSFER TAXES. The Company will pay or cause to be paid all transfer taxes, if any, with respect to the exchange and transfer of any Preferred Stock to it pursuant to the Exchange Offer. If, however, (i) certificates for the shares of Common Stock or any shares of Preferred Stock not exchanged are to be issued in the name of, or delivered to, any person other than the registered holder(s), or (ii) if a transfer tax is imposed for any reason other than the transfer or sale of Preferred Stock to the Company pursuant to the Exchange Offer, the amount of any transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) will be payable by the tendering holder(s). Unless satisfactory evidence of the payment of such taxes, or exemption therefrom, is submitted herewith, the amount of such transfer taxes will be billed directly to the tendering holder(s). EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF TRANSMITTAL. 8. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If (i) certificates for shares of Common Stock or (ii) certificates for shares of any Preferred Stock not exchanged are to be issued or delivered in the name of a person other than the person(s) signing this Letter of Transmittal, the appropriate boxes on this Letter of Transmittal should be completed. Holders tendering shares of Preferred Stock by book-entry transfer may request that shares of Preferred Stock not exchanged be credited to such accounts maintained at one of the Book Entry Transfer Facility as such holder may designate. 9. WAIVER OF CONDITIONS. Except as otherwise provided in the Offering Circular, the Company reserves the absolute right to waive any of the specified conditions of the Exchange Offer, as described in the Offering Circular under the caption "The Exchange Offer - Conditions." 10. MUTILATED, LOST, STOLEN OR DESTROYED SHARES OF PREFERRED STOCK. Any holder whose shares of Preferred Stock have been mutilated, lost, stolen or destroyed should immediately contact the Exchange Agent at the address indicate above for further instructions. 11. REQUESTED FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance may be directed to the Exchange Agent at its address and telephone number set forth above. IMPORTANT. THIS LETTER OF TRANSMITTAL OR A MANUALLY SIGNED FACSIMILE COPY HEREOF (TOGETHER WITH CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE EXCHANGE AGENT, PRIOR TO THE EXPIRATION DATE. 8 EX-99.(A)(III) 4 LETTER TO BROKERS, DEALERS AXSYS TECHNOLOGIES, INC. (formerly Vernitron Corporation) OFFER TO EXCHANGE 0.75 SHARES OF COMMON STOCK PAR VALUE $.01 PER SHARE FOR EACH OUTSTANDING SHARE OF PREFERRED STOCK PURSUANT TO ITS OFFERING CIRCULAR DATED FEBRUARY 13, 1997 THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, MARCH 17, 1997, UNLESS EXTENDED February 13, 1997 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: Axsys Technologies, Inc. (formerly Vernitron Corporation), a Delaware corporation (the "Company"), is offering (the "Exchange Offer"), upon the terms and subject to the conditions set forth in the enclosed Offering Circular, dated February 13, 1997 (the "Offering Circular") and the enclosed Letter of Transmittal to exchange 0.75 shares of its Common Stock, $0.01 par value per share (the "Common Stock"), of the Company for each outstanding share of its $1.20 Cumulative Exchangeable Redeemable Preferred Stock, par value $.01 per share (the "Preferred Stock"). Consummation of the Exchange Offer is subject to a number of conditions which are described in the Offering Circular and which may be waived by the Company. We are asking you to contact your clients for whom you hold shares of Preferred Stock registered in your name or in the name of your nominee or who hold shares of Preferred Stock registered in their own names. The Company will not pay any fees or commissions to any broker or dealer or other person for soliciting tenders of Preferred Stock pursuant to the Exchange Offer. You will be reimbursed for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. The Company will pay or cause to be paid all transfer taxes, if any, applicable to the transfer and exchange of Preferred Stock to it or its order, except as otherwise provided in Instruction 7 of the Letter of Transmittal. For your information and for forwarding to your clients for whom you hold Preferred Stock registered in your name or in the name of your nominee or who hold Preferred Stock registered in their own names we are enclosing the following documents: 1. The Offering Circular; 2. A Letter of Transmittal (to be used to accept the Exchange Offer); 3. A form of letter which may be sent to your clients for whose accounts you hold Preferred Stock registered in your name or the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Exchange Offer; 4. A Gray Notice of Guaranteed Delivery; 5. The Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 6. A return envelope addressed to ChaseMellon Shareholder Services, the Exchange Agent. WE URGE YOU TO CONTACT YOUR CLIENTS AS SOON AS POSSIBLE. The Exchange Offer will expire at 5:00 p.m., New York City time, on Monday, March 17, 1997, unless extended. The time and date of such expiration, as such may be extended pursuant to the procedures described in the Offering Circular, is referred to as the "Expiration Date." To participate in the Exchange Offer, Preferred Stock or confirmation of any book-entry transfer into the Exchange Agent's account at the Depository Trust Company, the Philadelphia Depository Trust Company accompanied by a duly executed and properly completed Letter of Transmittal (or facsimile thereof), together with any other required documents, must be delivered to the Exchange Agent as indicated in the Letter of Transmittal and the Offering Circular prior to the Expiration Date. Holders of Preferred Stock who wish to tender their Preferred Stock and (i) whose shares of Preferred Stock are not immediately available, (ii) who cannot deliver their shares of Preferred Stock, or any other documents required by the Letter of Transmittal prior to the Expiration Date, or (iii) who cannot complete the procedure for book-entry transfer on a timely basis, must tender their Preferred Stock according to the guaranteed delivery procedures set forth in the Offering Circular under "The Exchange Offer -- Guaranteed Delivery Procedures." Any inquiries you may have with respect to the Exchange Offer or requests for additional copies of the above documents should be addressed to the Exchange Agent at its address or telephone number set forth on the back cover page of the Offering Circular. Very truly yours, AXSYS TECHNOLOGIES, INC. NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR ANY PERSON AS AN AGENT OF THE COMPANY, OR THE EXCHANGE AGENT, OR AN AFFILIATE OF THE COMPANY, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY REPRESENTATION ON BEHALF OF ANY OF THEM WITH RESPECT TO THE EXCHANGE OFFER NOT MADE IN THE OFFERING CIRCULAR OR THE LETTER OF TRANSMITTAL. EX-99.(A)(IV) 5 LETTER TO CLIENTS AXSYS TECHNOLOGIES, INC. (formerly Vernitron Corporation) OFFER TO EXCHANGE 0.75 SHARES OF COMMON STOCK PAR VALUE $.01 PER SHARE FOR EACH OUTSTANDING SHARE OF PREFERRED STOCK THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, MARCH 17, 1997, UNLESS EXTENDED To Our Clients: Enclosed for your consideration are an Offering Circular dated February 13, 1997 (the "Offering Circular"), and a form of Letter of Transmittal relating to the offer (the "Exchange Offer") of Axsys Technologies, Inc. (formerly Vernitron Corporation), a Delaware corporation (the "Company"), to exchange 0.75 shares of its Common Stock, $0.01 par value per share (the "Common Stock") of the Company for each outstanding share of its $1.20 Cumulative Exchangeable Redeemable Preferred Stock, par value $.01 per share (the "Preferred Stock"). Consummation of the Exchange Offer is subject to a number of conditions which are described in the Offering Circular and which may be waived by the Company. The Exchange Offer is not conditional on any minimum number of shares being tendered. This material is being forwarded to you as the beneficial owner of Preferred Stock held by us in your account but not registered in your name. A TENDER OF SUCH PREFERRED STOCK MAY ONLY BE MADE BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. Accordingly, we request instructions as to whether you wish us to tender for exchange any or all shares of Preferred Stock held by us for your account, pursuant to the terms and conditions set forth in the enclosed Offering Circular and the related Letter of Transmittal. Your instructions to us should be forwarded as promptly as possible in order to permit us to tender your shares of Preferred Stock on your behalf in accordance with the provisions of the Exchange Offer. THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, MARCH 17, 1997, UNLESS EXTENDED BY THE COMPANY. Tenders of shares of Preferred Stock may be withdrawn at any time until the Expiration Date and if not otherwise accepted for exchange by the Company, at any time after April 11, 1997. We urge you to read the enclosed Offering Circular carefully before instructing us to tender your Preferred Stock. If you wish to have us tender any or all of your shares of Preferred Stock, please so instruct us by completing, executing, detaching and returning to us the attached instruction form. THE ACCOMPANYING FORM OF LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND MAY NOT BE USED BY YOU TO TENDER YOUR PREFERRED STOCK. INSTRUCTIONS The undersigned acknowledge(s) receipt of your letter enclosing the Offering Circular and the Letter of Transmittal relating to the offer by the Company to exchange Common Stock for Preferred Stock. This will instruct you to tender the number of shares of Preferred Stock indicated below( or, if no amount is indicated below, the full number of shares of such Preferred Stock) which are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in such Offering Circular and related Letter of Transmittal. Number of shares of Preferred Stock to be tendered: (1) ------------- - -------- (1) I/we understand that if I/we sign without indicating a lesser amount in the space above, the entire number of shares of Preferred Stock held by you for my/our account will be tendered. SIGN HERE Signature(s)__________________________________________________________ Name(s)________________________________________________________________ Address(es)____________________________________________________________ Zip Code Area Code and Telephone No.(s)________________________________________ Taxpayer Identification or Social Security No.(s)_____________________________________________ Dated___________________________________________________________________ EX-99.(A)(V) 6 FORM OF NOTICE OF GUARANTEED DELIVERY AXSYS TECHNOLOGIES, INC. (formerly Vernitron Corporation) OFFER TO EXCHANGE 0.75 SHARES OF COMMON STOCK PAR VALUE $.01 PER SHARE FOR EACH SHARE OF ITS $1.20 CUMULATIVE EXCHANGEABLE REDEEMABLE PREFERRED STOCK NOTICE OF GUARANTEED DELIVERY THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON MONDAY, MARCH 17, 1997, UNLESS EXTENDED As set forth in the Offering Circular, dated February 13, 1997 (the "Offering Circular"), under "the Exchange Offer - guaranteed Delivery Procedure," this form or one substantially equivalent hereto must be used to accept the Exchange Offer (as defined below) of Axsys Technologies, Inc. (formerly Vernitron Corporation), a Delaware corporation (the "Company"), if certificates for shares of its $1.20 Cumulative Exchangeable Redeemable Preferred Stock (the "Preferred Stock") are not immediately available or if the procedure for book-entry transfer cannot be completed on a timely basis or time will not permit such certificates or other required documents to reach the Exchange Agent prior to the Expiration Date (as defined in the Offering Circular). Such forms may be delivered by hand or transmitted by telegram, telex, facsimile transmission or mail to the Exchange Agent prior to the Expiration Date. TO: CHASEMELLON SHAREHOLDER SERVICES, L.L.C., THE EXCHANGE AGENT By Hand or Overnight By Facsimile: By Mail: Delivery: (201) 329-8936 ChaseMellon Shareholder ChaseMellon Shareholder Services Services Reorganization Department Reorganization Department Midtown Station 120 Broadway - 13th Fl. P.O. Box 798 New York, NY 10271 New York, NY 10018 Confirmation byTelephone to: (201) 296-4764 DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OR TRANSMISSION OF INSTRUCTION VIA FACSIMILE NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THIS FORM IS NOT TO BE USED TO GUARANTEE SIGNATURES. The Eligible Institution which completes this form must communicate the guarantee to the Exchange Agent and must deliver the Letter of Transmittal and certificates for Preferred Stock to the Exchange Agent within the time period shown herein. Failure to do so could result in a financial loss to such Eligible Institution. Ladies and Gentlemen: The undersigned hereby tenders to the Company, upon the terms and conditions set forth in the Offering Circular and related Letter of Transmittal (which constitute the "Exchange Offer"), receipt of which is hereby acknowledged, _______________ shares of Preferred Stock pursuant to the guaranteed delivery procedure described in the Offering Circular. (PROCEDURE TYPE OR PRINT ALL INFORMATION BELOW) Preferred Stock Signatures(s):__________________ Certificate No(s). (if available): ________________________________ _____________________________ Number of shares of Preferred Name(s) of Record Holders(s): Stock: ________________________________ _____________________________ Address(es):___________________ CHECK IF PREFERRED STOCK WILL BE TENDERED BY BOOK- ________________________________ ENTRY TRANSFER. Zip Code ___ The Depositary Trust Area Code and Tel. No.(s):____ Company _____________________________ ___ Philadelphia Depositary Trust Company Dated:________________________ Name of Tendering Institution: _____________________________ Account Number:_______________ GUARANTEE (DO NOT USE FOR SIGNATURE GUARANTEE) The undersigned, a member firm of a registered national securities exchange or a member of the National Association of Securities Dealers, Inc. or a commercial bank or trust company having an office in the United States, hereby guarantees (a) that the above named person(s) "own(s)" the Preferred Stock tendered hereby within the meaning of Rule 10b-4 under the Securities Exchange Act of 1934, as amended (b) that such tender of Preferred Stock complies with Rule 10b-4 and (c) that delivery to the Exchange Agent of certificates representing the Preferred Stock tendered hereby, or delivery of such Preferred Stock pursuant to the procedure for book-entry transfer, in either case together with a properly completed and duly executed Letter of Transmittal (or manually signed facsimile thereof properly completed and duly executed) and any other required documents will be received by the Exchange Agent no later than five New York Stock Exchange trading days after the Expiration Date. _____________________________ _____________________________ Name of Firm Authorized Signature _____________________________ _____________________________ Address Title _____________________________ _____________________________ Zip Code Name: Please type or print Area Code & Tel. No. ________ Dated:__________________, 19 NOTE: DO NOT SEND PREFERRED STOCK CERTIFICATES WITH THIS FORM. CERTIFICATES MUST BE SENT WITH THE LETTER OF TRANSMITTAL. EX-99.(A)(VI) 7 PRESS RELEASE DATED FEBRUARY 12, 1997 FOR IMMEDIATE RELEASE CONTACT: Elliot Konopko Axsys Technologies, Inc. (212) 593-7900 AXSYS TECHNOLOGIES ANNOUNCES COMMON STOCK EXCHANGE OFFER FOR ITS PREFERRED STOCK New York, New York, February 12, 1997 -- Axsys Technologies, Inc. (NASDAQ National Market: AXYS) announced today that its Board of Directors approved an exchange offer for all outstanding shares of its $1.20 cumulative exchangeable redeemable preferred stock. The Company will offer to exchange 0.75 newly issued shares of its Common Stock for each outstanding share of preferred stock. There are currently outstanding 2,568,940 shares of common stock plus warrants and options to acquire up to an additional 347,140 shares of common stock. The Company previously announced preliminary 1996 fully diluted earnings per share of $.74 applicable to the common stock, before an extraordinary charge of $.06 per share related to the early extinguishment of debt. On a pro forma basis, assuming the exchange offer had been consummated on January 1, 1996, earnings per share applicable to the Common Stock in 1996 would have increased between 5% and 18% (from $.74 per share to between $.78 and $.87 per share), depending on the number of shares exchanged for common stock pursuant to the exchange offer. There is currently no established trading market for the Preferred Stock. Prior to August 27, 1996, the Preferred Stock was quoted on the NASDAQ Small-Cap Market. On that date, the Preferred Stock was delisted from trading on the NASDAQ Small-Cap Market due to a failure to satisfy the National Association of Securities Dealers, Inc. requirement that there be at least two market makers in the Preferred Stock. During 1996, prior to delisting, the highest bid and sales prices of the Preferred Stock reported on the NASDAQ Small-Cap Market were $5.50 and $7 per share, respectively. The preferred stock has a liquidation preference of $8 per share, plus unpaid dividends at the time of liquidation. The closing bid and last sales prices yesterday of the Common Stock reported on the NASDAQ National Market were $15 and $16 per share, respectively. Stephen W. Bershad, Chairman of the Board and Chief Executive Officer of the Company, beneficially owns 149,041 shares of Preferred Stock, representing approximately 20% of the outstanding shares of Preferred Stock, and 1,137,032 shares of Common Stock, representing approximately 44% of the outstanding shares of Common Stock He has advised the Company that he intends to tender all of his shares of Preferred Stock pursuant to the Exchange Offer. Holders of shares of preferred stock accepted for exchange will not receive any separate payment in respect of dividends not paid subsequent to February 22, 1996, the last date on which dividends payable on the Preferred Stock were paid. Unpaid dividends are $1.13 per share at January 31, 1997. The Company intends to file with the Securities and Exchange Commission and mail to stockholders shortly exchange offer documents setting forth the terms of the exchange offer. The Exchange Offer will commence upon filing and mailing and will be held open for 20 business days, unless extended. This press release does not constitute an offer to sell or the solicitation of an offer to buy securities, which will be made only by the exchange offer documents. Axsys Technologies is a leading supplier of precision optical and positioning components and sub-systems. The Company also manufactures and distributes electrical connectors, precision bearings and other precision components. -----END PRIVACY-ENHANCED MESSAGE-----