-----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, QFcQWDy7WFEhMiQLm7Veu9+TDHT/XoGrAaGMihzfd1r7zF7Df8nSqwZJzkbK/QnR ayFrQJ8RN8gmnkIcxGFcdA== 0001047469-97-007763.txt : 19971216 0001047469-97-007763.hdr.sgml : 19971216 ACCESSION NUMBER: 0001047469-97-007763 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19971215 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: KOLLMORGEN CORP CENTRAL INDEX KEY: 0000056583 STANDARD INDUSTRIAL CLASSIFICATION: MOTORS & GENERATORS [3621] IRS NUMBER: 042151861 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: SEC FILE NUMBER: 333-42229 FILM NUMBER: 97738223 BUSINESS ADDRESS: STREET 1: RESERVOIR PL STREET 2: 1601 TRAPELO RD CITY: WALTHAM STATE: MA ZIP: 02154 BUSINESS PHONE: 6178905655 MAIL ADDRESS: STREET 1: RESERVOIR PLACE STREET 2: 1601 TRAPELO ROAD CITY: WALTHAM STATE: MA ZIP: 02154 FORMER COMPANY: FORMER CONFORMED NAME: KOLLMORGEN OPTICAL CORP DATE OF NAME CHANGE: 19670928 S-4 1 FORM S-4 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1997 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 KOLLMORGEN CORPORATION (Exact Name of Registrant as Specified in Its Charter) NEW YORK 3621 042151861 (State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer Incorporation or Organization) Classification Code Number) Identification Number)
RESERVOIR PLACE 1601 TRAPELO ROAD WALTHAM, MASSACHUSETTS 02154 (781) 890-5655 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) JAMES A. EDER, ESQ. VICE PRESIDENT, SECRETARY AND GENERAL COUNSEL KOLLMORGEN CORPORATION 968 FARMINGTON AVENUE, ROOM 208 WEST HARTFORD, CONNECTICUT 06107 (860) 232-3121 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service) COPIES TO: CREIGHTON O'M. CONDON, ESQ. LINDA C. QUINN, ESQ. SHEARMAN & STERLING 599 LEXINGTON AVENUE NEW YORK, NY 10022 (212) 848-4000 Approximate date of commencement of proposed sale to the public: AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT AND THE SATISFACTION OR WAIVER OF THE CONDITIONS TO THE CONSUMMATION OF THE PROPOSED MERGER DESCRIBED HEREIN. If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. ------------------------------ CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF PROPOSED PROPOSED AMOUNT OF SECURITIES TO BE AMOUNT TO MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION REGISTERED BE REGISTERED(1) PRICE PER SHARE OFFERING PRICE(2) FEE(3) Kollmorgen Common Stock, $2.50 par value... 7,712,140 shares Not Applicable $95,806,990 $28,263.06
(1) Based upon the estimated maximum number of shares of common stock, par value $2.50 per share, of the Registrant (the "Kollmorgen Common Stock") that the Registrant may be required to issue in the Proposed Merger (as defined herein), calculated as the product of (i) 12,694,880 (the sum of the aggregate number of shares of common stock, par value $1.00 per share, of Pacific Scientific Company (the "Pacific Scientific Common Stock") (A) outstanding according to Pacific Scientific's Form 10-Q for the period ended on September 26, 1997 (the "Form 10-Q") and (B) issuable upon the exercise of stock options as reported on the Form 10-Q), (ii) an exchange ratio of 1.215 shares of Kollmorgen Common Stock for each share of Pacific Scientific Common Stock computed on the basis of a Kollmorgen Common Stock per share price of $16.88 and (iii) .5, to reflect the fact that only half of the Pacific Scientific Common Stock will be exchanged in the Proposed Merger. (2) Estimated solely for the purpose of calculating the registration fee required by Section 6(b) of the Securities Act of 1933, as amended, and computed pursuant to Rule 457(f)(1) thereunder on the basis of the market value of the Pacific Scientific Common Stock to be exchanged in the Proposed Merger, which was computed, in accordance with Rule 457(c), as the product of (i) $15.0938, the average of the high and low prices of the Pacific Scientific Common Stock as reported on the New York Stock Exchange Composite Tape on December 9, 1997 and (ii) $6,347,440 (the product of (i) .5 (to reflect the fact that only half of the Pacific Scientific Common Stock will be exchanged in the Proposed Merger) and (ii) the sum of the aggregate number of shares of Pacific Scientific Common Stock (A) outstanding as reported outstanding in the Form 10-Q and (B) issuable upon the exercise of stock options reported outstanding in the Form 10-Q). (3) Pursuant to Rule 457(b), the registration fee is reduced by the $36,973.84 paid on November 25, 1997, upon the filing under the Securities Exchange Act of 1934 of preliminary copies of the Kollmorgen consent solicitation materials included herein. Accordingly, no additional fee is payable upon the filing of this Registration Statement. ------------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SUBJECT TO COMPLETION DATED DECEMBER 15, 1997 PRELIMINARY COPY CONSENT SOLICITATION STATEMENT/PRELIMINARY PROSPECTUS OF KOLLMORGEN CORPORATION INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. This consent solicitation statement/preliminary prospectus (this "Consent Solicitation Statement/ Prospectus") is being furnished to shareholders of Pacific Scientific Company, a California corporation ("Pacific Scientific"), by Kollmorgen Corporation, a New York corporation ("Kollmorgen"), in connection with the solicitation of consents from Pacific Scientific's shareholders (the "Solicitation"). Kollmorgen has proposed to enter into a business combination with Pacific Scientific (the "Proposed Combination") which Kollmorgen believes would offer exceptional benefits to the shareholders of both Kollmorgen and Pacific Scientific. See "Reasons for the Proposed Combination". To date, the Pacific Scientific Board of Directors (the "Pacific Scientific Board") has refused to enter into negotiations regarding the Proposed Combination. As a result, Kollmorgen is making the Solicitation to urge Pacific Scientific's shareholders to act by written consent to call a special meeting of Pacific Scientific shareholders in order to remove the entire Pacific Scientific Board and elect Kollmorgen's nominees to the Pacific Scientific Board. Kollmorgen expects that if they are elected, and subject to their fiduciary duties under applicable law, Kollmorgen's nominees would act to facilitate the consummation of the Offer and the Proposed Merger described below. Under applicable law, holders of 10% of the outstanding shares of Pacific Scientific common stock must give their consent in order to call a special meeting of shareholders. See "Consent Procedures--Action by Written Consent Requirements." AT THIS TIME KOLLMORGEN IS SOLICITING YOUR CONSENT TO CALL A SPECIAL MEETING OF PACIFIC SCIENTIFIC SHAREHOLDERS. KOLLMORGEN IS NOT CURRENTLY SEEKING YOUR PROXY FOR THE REMOVAL OF THE ENTIRE PACIFIC SCIENTIFIC BOARD OR THE ELECTION OF THE KOLLMORGEN NOMINEES TO THE PACIFIC SCIENTIFIC BOARD. AFTER THE SPECIAL MEETING OF PACIFIC SCIENTIFIC SHAREHOLDERS HAS BEEN CALLED, KOLLMORGEN WILL SEND YOU PROXY MATERIALS URGING YOU TO TAKE SUCH ACTIONS. KOLLMORGEN IS NOT CURRENTLY SOLICITING PROXIES FOR A VOTE ON THE PROPOSED MERGER. YOU MAY BE ASKED TO VOTE ON THE PROPOSED MERGER IN THE FUTURE. This Consent Solicitation Statement/Prospectus is first being furnished to Pacific Scientific's shareholders on or about December 15, 1997. This Consent Solicitation Statement/Prospectus also constitutes a preliminary prospectus with respect to the common stock, par value $2.50 per share, of Kollmorgen (the "Kollmorgen Common Stock") that will ultimately be issued in connection with the Proposed Combination. In furtherance of the Proposed Combination, on December 15, 1997, Kollmorgen delivered a letter to the Pacific Scientific Board in which Kollmorgen proposed the Proposed Combination and announced its intention to commence a tender offer for shares of common stock, par value $1.00 per share, of Pacific Scientific (the "Pacific Scientific Common Stock"), including the associated preferred stock purchase rights (the "Rights" and, together with the Pacific Scientific Common Stock, the "Pacific Scientific Common Shares"). (COVER CONTINUED ON NEXT PAGE) THE SECURITIES OFFERED HEREBY 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 CONSENT SOLICITATION STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. The date of this Consent Solicitation Statement/Prospectus is December 15, 1997. (CONTINUED FROM PREVIOUS PAGE) Also on December 15, 1997, Torque Corporation, a Delaware corporation and a wholly owned subsidiary of Kollmorgen ("Purchaser"), commenced a tender offer (the "Offer") and, in connection therewith, filed a Tender Offer Statement on Schedule 14D-1 (the "Tender Offer Statement") with the Securities and Exchange Commission (the "Commission"). The tender offer is being made for 6,347,241 Pacific Scientific Common Shares, or such greater or lesser number of Pacific Scientific Common Shares that, when added to the number of Pacific Scientific Common Shares owned by Kollmorgen and Purchaser, will constitute a majority of the Pacific Scientific Common Shares outstanding on a fully diluted basis (such number of Pacific Scientific Common Shares being the "Minimum Number"), at a price of $20.50 per Pacific Scientific Common Share, net to the seller in cash (the "Offer Price"). The tender offer is subject to the terms and conditions set forth in the Offer to Purchase dated December 15, 1997 (the "Offer to Purchase") and in the related Letter of Transmittal (the "Letter of Transmittal") which, as amended from time to time, together constitute the "Offer". The Offer is currently scheduled to expire at 12:00 midnight, New York City time, on Wednesday, January 14, 1998, unless extended (as such date may be extended, the "Expiration Date"). If more than the Minimum Number of Pacific Scientific Common Shares is tendered into the Offer, tendered shares will be purchased on a pro rata basis, resulting in all tendering shareholders receiving a mix of cash and Kollmorgen Common Stock in the Proposed Combination. Pacific Scientific shareholders may tender all, part or none of the Pacific Scientific Common Shares held by them. To the extent a shareholder's Pacific Scientific Common Shares are purchased in the Offer, such shareholder would not receive Kollmorgen Common Stock for such purchased shares) in the Proposed Merger (as described below) and consequently such shareholder would not have the opportunity to participate in the future growth of the combined company. Kollmorgen is seeking to negotiate with Pacific Scientific a definitive merger agreement providing for the Proposed Combination pursuant to which Pacific Scientific would, as soon as practicable following consummation of the Offer, consummate a merger or similar business combination with Kollmorgen, Purchaser or another direct or indirect subsidiary of Kollmorgen (the "Proposed Merger"). At the effective time of the Proposed Merger (the "Effective Time"), each Pacific Scientific Common Share then outstanding (other than Pacific Scientific Common Shares held by Pacific Scientific or any wholly owned subsidiary of Pacific Scientific and Pacific Scientific Common Shares owned by Kollmorgen, Purchaser or any other direct or indirect wholly owned subsidiary of Kollmorgen) would be converted into the right to receive $20.50 of Kollmorgen Common Stock. The exact number of shares of Kollmorgen Common Stock into which each Pacific Scientific Common Share will be converted will be determined by dividing $20.50 by the average, over the 20 consecutive trading days ending five days prior to the meeting of Pacific Scientific shareholders called for the purpose of voting on the Proposed Merger, of the daily average of the high and low per share sales prices of Kollmorgen Common Stock (weighted by sales volume). See "The Offer and the Proposed Merger". In the event that such average during such period is less than $15.19 or greater than $18.56, the exchange ratio would be fixed at 1.350 shares of Kollmorgen Common Stock or 1.104 shares of Kollmorgen Common Stock, respectively, per Pacific Scientific Common Share. In such event, Pacific Scientific shareholders could receive Kollmorgen Common Stock in the Proposed Merger with a value greater or less than $20.50. The Solicitation is being made to urge Pacific Scientific's shareholders to act by written consent to call a special meeting of Pacific Scientific shareholders (the "Special Meeting"), to be held on February 4, 1998 or, if later, on the thirty-sixth day following the date on which the requisite number of consents to call the Special Meeting are delivered to Pacific Scientific. At the Special Meeting, Kollmorgen will ask the Pacific Scientific shareholders to: (i) remove from office the entire Pacific Scientific Board; (ii) fill the newly created vacancies on the Pacific Scientific Board by electing six persons nominated by Kollmorgen (the "Kollmorgen Nominees") to the Pacific Scientific Board, who are expected to take such actions, subject to their fiduciary duties under applicable law, as may be necessary to consummate the Offer and the Proposed Merger; and (iii) repeal any and all provisions of the Pacific Scientific bylaws (the "Pacific Scientific Bylaws") that have not been duly filed by (COVER CONTINUED ON NEXT PAGE) (CONTINUED FROM PREVIOUS PAGE) Pacific Scientific with the Commission prior to August 11, 1997, including any and all amendments to the Pacific Scientific Bylaws adopted on or after December 15, 1997 (the "Bylaw Repeal Proposal"). Under applicable law, the record date (the "Record Date") for determining shareholders entitled to give consent to such actions is the date on which the first such consent is given. Kollmorgen intends to cause Purchaser, which is a shareholder of Pacific Scientific, to deliver its written consent to Pacific Scientific on December 15, 1997, thereby establishing December 15, 1997 as the Record Date. KOLLMORGEN URGES YOU TO COMPLETE AND RETURN THE ENCLOSED FORM OF CONSENT AS SOON AS POSSIBLE. CALLING A SPECIAL MEETING IS AN IMPORTANT STEP IN ENSURING THE CONSUMMATION OF THE PROPOSED COMBINATION. HOWEVER, YOU MUST SEPARATELY TENDER YOUR PACIFIC SCIENTIFIC COMMON SHARES PURSUANT TO THE OFFER IF YOU WISH TO PARTICIPATE IN THE OFFER. CALLING A SPECIAL MEETING WILL NOT CONSTITUTE A TENDER OF YOUR PACIFIC SCIENTIFIC COMMON SHARES PURSUANT TO THE OFFER OR OBLIGATE YOU TO TENDER YOUR PACIFIC SCIENTIFIC COMMON SHARES PURSUANT TO THE OFFER. THE SOLICITATION IS BEING MADE BY KOLLMORGEN AND NOT ON BEHALF OF THE BOARD OF DIRECTORS OF PACIFIC SCIENTIFIC. THE INFORMATION CONCERNING PACIFIC SCIENTIFIC CONTAINED IN THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS HAS BEEN TAKEN FROM OR IS BASED UPON DOCUMENTS AND RECORDS ON FILE WITH THE COMMISSION AND OTHER PUBLICLY AVAILABLE INFORMATION. KOLLMORGEN HAS NO KNOWLEDGE THAT WOULD INDICATE THAT STATEMENTS RELATING TO PACIFIC SCIENTIFIC CONTAINED IN THIS CONSENT SOLICITATION STATEMENT/ PROSPECTUS IN RELIANCE UPON PUBLICLY AVAILABLE INFORMATION ARE INACCURATE OR INCOMPLETE. KOLLMORGEN, HOWEVER, WAS NOT INVOLVED IN THE PREPARATION OF SUCH INFORMATION AND STATEMENTS, AND IS NOT IN A POSITION TO VERIFY, OR MAKE ANY REPRESENTATION WITH RESPECT TO THE ACCURACY OF, ANY SUCH INFORMATION OR STATEMENTS. If you have any questions, please call: [LOGO] WALL STREET PLAZA NEW YORK, NEW YORK 10005 BANKS AND BROKERS CALL COLLECT (212) 440-9800 OR CALL TOLL FREE (800) 223-2064 FAX (212) 440-9009 TABLE OF CONTENTS
PAGE ----------- SUMMARY................................................................................................... 1 THE PROPOSED COMBINATION................................................................................ 1 The Proposed Combination of Kollmorgen and Pacific Scientific......................................... 1 The Offer and the Proposed Merger..................................................................... 3 The Pacific Scientific Board's Unwillingness to Proceed with the Proposed Combination................. 4 Kollmorgen's Consent Solicitation..................................................................... 5 Consents Needed to Take Action........................................................................ 5 CERTAIN LITIGATION...................................................................................... 5 OTHER ITEMS TO CONSIDER WITH RESPECT TO THE OFFER AND PROPOSED MERGER................................... 5 Material Federal Income Tax Consequences.............................................................. 5 Dissenters' Rights.................................................................................... 6 Accounting Treatment.................................................................................. 6 Interest of Certain Persons in the Proposed Combination............................................... 6 Regulatory Approvals.................................................................................. 6 Subsequent Votes Relating to the Proposed Merger...................................................... 6 RISK FACTORS............................................................................................ 6 Integration of Kollmorgen and Pacific Scientific...................................................... 6 Operational Issues; Ability to Manage Growth.......................................................... 7 Increased Level of Indebtedness....................................................................... 7 Certain Federal Income Tax Consequences............................................................... 7 THE COMPANIES........................................................................................... 8 Kollmorgen and Purchaser.............................................................................. 8 Pacific Scientific.................................................................................... 8 Market Prices......................................................................................... 8 Comparative Per Share Data............................................................................ 9 FORWARD-LOOKING STATEMENTS.............................................................................. 10 SUMMARY SELECTED FINANCIAL DATA......................................................................... 11 SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION......................................................... 14 THE PROPOSED COMBINATION.................................................................................. 23 REASONS FOR THE PROPOSED COMBINATION...................................................................... 23 BACKGROUND OF THE OFFER AND THE PROPOSED MERGER........................................................... 25 THE SPECIAL MEETING....................................................................................... 29 Why You Should Consent to Call the Special Meeting...................................................... 29 CONSENT PROCEDURES........................................................................................ 30 Action by Consent....................................................................................... 30 Action by Written Consent Requirements.................................................................. 30 THE OFFER AND THE PROPOSED MERGER......................................................................... 30 Terms of the Offer and the Proposed Merger.............................................................. 30 Certain Litigation...................................................................................... 32 THE COMPANIES............................................................................................. 33 Kollmorgen.............................................................................................. 33 Purchaser............................................................................................... 33 Pacific Scientific...................................................................................... 33 FORWARD-LOOKING STATEMENTS................................................................................ 33
PAGE ----------- UNAUDITED PRO FORMA FINANCIAL INFORMATION................................................................. 35 MATERIAL FEDERAL INCOME TAX CONSEQUENCES.................................................................. 44 Tax Consequences if the Offer and the Proposed Merger Do Not Qualify as a Reorganization or if the Proposed Merger is Treated as a Taxable Transaction................................................... 45 Tax Consequences if the Offer and the Proposed Merger Qualify as a Reorganization....................... 45 Taxation of Cash Received in Lieu of Fractional Shares.................................................. 46 Taxation of Capital Gains............................................................................... 46 Dividend Treatment -- Constructive Ownership Rules...................................................... 46 Transfer Taxes.......................................................................................... 48 Withholding............................................................................................. 48 COMPARISON OF THE RIGHTS OF HOLDERS OF KOLLMORGEN COMMON STOCK AND HOLDERS OF PACIFIC SCIENTIFIC COMMON STOCK................................................................................................... 48 Dividends............................................................................................... 49 Special Meetings of Shareholders; Quorum; Shareholder Action by Written Consent......................... 49 Certain Voting Rights................................................................................... 50 Size and Classification of the Board of Directors....................................................... 51 Election of Directors................................................................................... 51 Removal of Directors; Filling Vacancies on the Board of Directors....................................... 51 Amendment of Charter and Bylaws......................................................................... 52 Certain Business Combinations and Reorganizations....................................................... 52 Limitation on Directors' Liability...................................................................... 53 Indemnification of Officers and Directors; Insurance.................................................... 54 Rights Plans............................................................................................ 54 DISSENTERS' RIGHTS OF PACIFIC SCIENTIFIC SHAREHOLDERS..................................................... 55 SUBSEQUENT VOTES RELATING TO THE PROPOSED MERGER.......................................................... 56 Pacific Scientific Shareholder Votes Required........................................................... 56 Kollmorgen Shareholder Vote Required.................................................................... 56 Information Concerning the Special Meetings............................................................. 56 ACCOUNTING TREATMENT...................................................................................... 57 REGULATORY MATTERS........................................................................................ 57 MARKET PRICES AND DIVIDENDS............................................................................... 58 Market Price Data....................................................................................... 59 LEGAL MATTERS............................................................................................. 59 EXPERTS................................................................................................... 59 AVAILABLE INFORMATION..................................................................................... 60 MANAGEMENT AND ADDITIONAL INFORMATION..................................................................... 61 SOLICITATION OF CONSENTS.................................................................................. 61 SOURCES OF FUNDS.......................................................................................... 62 INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................................................... 62
PAGE ----------- SCHEDULE I INFORMATION CONCERNING DIRECTORS AND OFFICERS OF KOLLMORGEN AND CERTAIN REPRESENTATIVES OF KOLLMORGEN WHO MAY ALSO ASSIST IN THE SOLICITATION..................................................................... I-1 SCHEDULE II PACIFIC SCIENTIFIC COMMON SHARES HELD BY KOLLMORGEN, ITS DIRECTORS AND OFFICERS........................... II-1 SCHEDULE III CHAPTER 13 OF THE GENERAL CORPORATION LAW OF THE STATE OF CALIFORNIA...................................... III-1
SUMMARY The information below is qualified in its entirety by the more detailed information appearing elsewhere in this Consent Solicitation Statement/Prospectus, including the documents incorporated in this Consent Solicitation Statement/Prospectus by reference. The information below also includes forward-looking statements, including all statements about the operations and expected benefits of the companies combined and is subject to risks, uncertainties and other factors which could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. See "Summary--Forward-Looking Statements" and "Forward-Looking Statements". See "Risk Factors" in this Summary, for a discussion of certain factors, including integration, operational, leverage and tax matters, that should be considered in conjunction with the Proposed Combination. THE PROPOSED COMBINATION THE PROPOSED COMBINATION OF KOLLMORGEN AND PACIFIC SCIENTIFIC Kollmorgen believes that the Proposed Combination of Kollmorgen and Pacific Scientific is a unique opportunity for you and other Pacific Scientific shareholders to realize a premium for your shares and to participate in the future of one of the world's leading suppliers of electronic motion control solutions. The Pacific Scientific Board, however, has been unwilling to negotiate a business combination between Kollmorgen and Pacific Scientific and despite Kollmorgen's repeated attempts, refuses to allow you to consider sharing in Kollmorgen's vision. See "Background of the Offer and the Proposed Merger". Because the Pacific Scientific Board has denied you the opportunity to share in the rewards of the combined company, Kollmorgen is presenting this opportunity directly to you through the Offer and the Solicitation. In order to guarantee you the opportunity to express your own view on the future of Pacific Scientific, Kollmorgen is seeking your consent to call the Special Meeting. At the Special Meeting, Kollmorgen will ask you to remove the entire Pacific Scientific Board and replace it with new directors who will be committed to allowing you, the owners of Pacific Scientific, to make this important decision. In addition, Kollmorgen will propose a binding shareholder resolution to preclude or rescind any attempt that the Pacific Scientific Board may make to amend the Pacific Scientific Bylaws as part of the Pacific Scientific Board's continuing effort to prevent you from enjoying the benefits of the Proposed Combination. See "The Special Meeting". The financial benefits of the Proposed Combination, if consummated, will include: - A PREMIUM OF 33%. The purchase price of $20.50 per common share represents approximately a 33% premium over Pacific Scientific's closing share price of $15.44 on the New York Stock Exchange on Friday, December 12, 1997, and approximately a 37% premium over the average of the company's closing share price for the preceding 30 trading days. - IMMEDIATE CASH PAYMENT FOR HALF OF PACIFIC SCIENTIFIC'S CAPITAL STOCK. Half of Pacific Scientific's outstanding shares will be purchased for a cash payment of $20.50 per share if the Offer is successfully consummated. - CONTINUED PARTICIPATION IN THE FUTURE GROWTH OF THE COMBINED COMPANY. Because Pacific Scientific's shareholders have the ability to receive Kollmorgen Common Stock in the Proposed Merger, they will have the opportunity to participate in the future growth and success of the combined enterprise. Upon consummation of the Proposed Merger, Pacific Scientific shareholders will hold an equity stake of approximately 43% in the combined company, based upon an assumed market value for Kollmorgen Common Stock of $16.88 per share (the closing price of Kollmorgen Common Stock on December 12, 1997). - OPERATING AND REVENUE SYNERGIES. Based on public information, Kollmorgen management believes that the combined company can achieve more than $15 million of annual operating 1 synergies in 1999, rising to more than $20 million in 2000 and increasing thereafter. Management believes these synergies can be achieved principally from cost savings in selling and marketing expenses and consolidation of research and development, and expects to realize additional synergies from cross-selling opportunities, joint purchasing savings and reduction in corporate expenses. - AN ACCRETIVE TRANSACTION. Kollmorgen is confident that the Proposed Combination will be accretive to earnings per share in 1999, the first full year of operations of the combined company, and increasingly so thereafter, based upon the anticipated synergies described above. Kollmorgen expects that, due to the substantial non-recurring charges associated with the Proposed Combination (which are not currently quantifiable), consisting of restructuring charges and a charge for acquired in-process research and development, the Proposed Combination will be substantially dilutive in fiscal 1998. - COMMITTED FINANCING. Kollmorgen has entered into a binding commitment letter with Salomon Smith Barney and its affiliate Salomon Brothers Holding Company Inc in which Salomon Brothers Holding Company Inc has committed to provide, subject to certain conditions, what Kollmorgen believes is a conservatively financed secured bank facility to fully finance the transaction, including the refinancing of existing indebtedness and the provision of a working capital facility for the combined company. Kollmorgen believes that the combined company will achieve financial results superior to that which either company could achieve on a stand-alone basis and will offer customers superior products and services. Among the many advantages contributing to the combined company's ability to achieve these benefits are: - CREATION OF AN INDUSTRY LEADER. A merger of Kollmorgen and Pacific Scientific will establish the combined enterprise as a leader in high performance electronic motion control--one of the fastest-growing segments of the motors and controls business. In a fragmented industry, the combined enterprise will be better-positioned to comprehensively serve the needs of customers and take advantage of consolidation opportunities. - STRATEGIC AND OPERATIONAL FIT. Highly complementary motion control product lines will enable the combined company to become a full-service provider. The combined company will be well-positioned to capitalize on the complementary product lines and differing strengths of Kollmorgen and Pacific Scientific, enabling it to offer a broader array of products and support services to an expanded customer base. In addition, the combined company would take advantage of cost savings and efficiencies resulting from economies of scale in research and development, marketing, production and sourcing. - ENHANCED CAPABILITY TO TAP FOREIGN MARKETS. The increased size and global scope of the combined company will enable it to more effectively market its products to customers around the world. Kollmorgen has already established a local presence in Germany, France, Israel, India, China and elsewhere. The combined enterprise will be well-positioned to build on this foundation, particularly in Europe and the Pacific Rim. Kollmorgen believes that the combined company will be able to expand its customer base and offer international on-site product support to customers, while conducting more effective and cost-efficient research and development, marketing, production and sourcing. - MANAGEMENT TEAM WITH PROVEN TRACK RECORD. Kollmorgen's management has delivered year over year growth in sales and operating income from continuing operations from 1994 through 1996, and will do so again in 1997. During that same period, sales from continuing operations increased by 12% over the comparable prior period. Kollmorgen has achieved this 2 by focusing on its core operations. Kollmorgen also believes that its management has maximized its returns from non-strategic operations. In addition, Kollmorgen's management has considerable expertise in managing debt, having reduced Kollmorgen's debt and preferred stock obligations by more than 40% during the past three fiscal years and transitioned from fully-secured to unsecured credit arrangements. - ENHANCED GROWTH OPPORTUNITIES. Kollmorgen believes that the combined enterprise will be well-positioned, strategically, operationally and financially, to aggressively pursue attractive opportunities for external and internal growth. Kollmorgen is confident that the combined company's increased size and scope will enable it to be a leader in the accelerating consolidation of the motion control industry and raise its visibility in the business and financial communities. THE OFFER AND THE PROPOSED MERGER On December 9, 1997, Kollmorgen delivered a letter to the Chief Executive Officer of Pacific Scientific outlining the Proposed Combination. To date, Pacific Scientific has declined to enter into negotiations concerning a business combination with Kollmorgen. Consequently, on December 15, 1997, Kollmorgen delivered a letter to the Pacific Scientific Board again proposing the Proposed Combination and simultaneously commenced the Offer and the Solicitation. The Offer is being made for 6,347,241 Pacific Scientific Common Shares, or such greater or lesser number of Pacific Scientific Common Shares that, when added to the number of Pacific Scientific Common Shares owned by Kollmorgen and Purchaser, will constitute the Minimum Number of Pacific Scientific Common Shares, at a price of $20.50 per Pacific Scientific Common Share, net to the seller in cash. The Offer is subject to the terms and conditions set forth in the Offer to Purchase and in the Letter of Transmittal. Kollmorgen is seeking to negotiate with Pacific Scientific a definitive merger agreement providing for the Proposed Combination pursuant to which Pacific Scientific would, as soon as practicable following consummation of the Offer, consummate the Proposed Merger. At the Effective Time, each Pacific Scientific Common Share then outstanding (other than Pacific Scientific Common Shares held by Pacific Scientific or any subsidiary of Pacific Scientific and Pacific Scientific Common Shares owned by Kollmorgen, Purchaser or any other direct or indirect wholly owned subsidiary of Kollmorgen) will be converted into the right to receive $20.50 of Kollmorgen Common Stock. The exact number of shares of Kollmorgen Common Stock into which each Pacific Scientific Common Share will be converted will be determined by dividing $20.50 by the average, over the 20 consecutive trading days ending five days prior to the meeting of Pacific Scientific shareholders called for the purpose of voting on the Proposed Merger, of the daily average of the high and low per share sales prices of Kollmorgen Common Stock (weighted by sales volume) (the "Average Kollmorgen Share Price"). In the event that the Average Kollmorgen Share Price during such period is less than $15.19 or greater than $18.56, the exchange ratio would be fixed at 1.350 shares of Kollmorgen Common Stock or 1.104 shares of Kollmorgen Common Stock, respectively, per Pacific Scientific Common Share. In such event, Pacific Scientific shareholders could receive Kollmorgen Common Stock in the Proposed Merger with a value of greater or less than $20.50. The following table illustrates the calculation of the number of shares of Kollmorgen Common Stock to be issued in the Proposed Merger at various assumed values for the Average Kollmorgen Share Price. 3 FOR ILLUSTRATIVE PURPOSES ONLY
VALUE OF KOLLMORGEN STOCK ISSUED PER PACIFIC SCIENTIFIC HYPOTHETICAL KOLLMORGEN STOCK PRICE EXCHANGE RATIO SHARE - ------------------------------------- ----------------- ----------------------- $ 20.25 1.104 x $ 22.36 19.41 1.104 21.43 18.56 1.104 20.50 17.72 1.157 20.50 16.88(1) 1.215 20.50 16.03 1.279 20.50 15.19 1.350 20.50 14.34 1.350 19.36 13.50 1.350 18.23
- ------------------------ 1. Represents the closing price of shares of Kollmorgen Common Stock on the NYSE on December 12, 1997. In the event that the Proposed Merger is consummated, shares of Pacific Scientific Common Stock will cease to be listed on the New York Stock Exchange (the "NYSE"). As of December 9, 1997, directors and officers of Kollmorgen and their affiliates were beneficial owners of an aggregate of approximately 801,007 shares of Kollmorgen Common Stock (representing 8% of the total then outstanding). Based upon publicly filed information with the Commission, there is no indication that directors and officers of Pacific Scientific and their affiliates were beneficial owners of more than five percent of the Kollmorgen Common Stock. See "--Consents Needed to Take Action" for beneficial ownership of Pacific Scientific Common Stock by Kollmorgen and by directors and officers of Kollmorgen and Pacific Scientific and their respective affiliates. THE PACIFIC SCIENTIFIC BOARD'S UNWILLINGNESS TO PROCEED WITH THE PROPOSED COMBINATION To date, the Pacific Scientific Board has been unwilling to negotiate a business combination between Kollmorgen and Pacific Scientific despite repeated attempts by Kollmorgen to do so. Pacific Scientific maintains certain barriers intended to make it difficult for Pacific Scientific shareholders to approve a business combination not endorsed by the Pacific Scientific Board. Nevertheless, the Pacific Scientific shareholders have the power to determine Pacific Scientific's future by acting by written consent to call the Special Meeting in order to remove the current Pacific Scientific directors. Because Kollmorgen believes the business rationale for the Proposed Combination is so compelling, Kollmorgen has decided to approach Pacific Scientific shareholders directly with the Proposed Combination through the Offer and the Solicitation. To support the Proposed Combination, Pacific Scientific shareholders must give their consent to call the Special Meeting in order for shareholders to have an opportunity to vote to remove the entire Pacific Scientific Board and elect the Kollmorgen Nominees in its place. Kollmorgen expects that if they are elected and subject to their fiduciary duties under applicable law, Kollmorgen's nominees would take certain actions to facilitate the consummation of the Proposed Combination, including redeeming the Rights or otherwise rendering them inapplicable to the Proposed Combination and approving the Proposed Combination (if required) pursuant to Article Fifth of the Pacific Scientific Charter (as defined below). For additional information concerning the discussions between Kollmorgen and Pacific Scientific relating to the Proposed Combination, see "Background of the Offer and the Proposed Merger". 4 KOLLMORGEN'S CONSENT SOLICITATION Because of the Pacific Scientific Board's unwillingness to undertake the Proposed Combination, Kollmorgen is soliciting consents from Pacific Scientific's shareholders to act by written consent to call the Special Meeting. At the Special Meeting, Kollmorgen will ask the Pacific Scientific shareholders to: (i) remove from office the entire Pacific Scientific Board; (ii) fill the newly created vacancies by electing to the Pacific Scientific Board the Kollmorgen Nominees, who are expected to take such actions as may be necessary, subject to their fiduciary duties under applicable law, to undertake the Proposed Combination by means of the Offer and the Proposed Merger; and (iii) approve a shareholder resolution to repeal any and all provisions of the Pacific Scientific Bylaws that have not been duly filed with the Commission by Pacific Scientific prior to August 11, 1997, including any and all amendments to the Pacific Scientific Bylaws adopted on or after December 15, 1997, in order to rescind any actions taken by the Pacific Scientific Board to amend the Pacific Scientific Bylaws to create new obstacles to the consummation of the Proposed Combination. See "The Proposed Combination", "The Special Meeting--Why You Should Consent to Call the Special Meeting". CONSENTS NEEDED TO TAKE ACTION Under California law and the Pacific Scientific Bylaws, the consent of the holders of 10% of the Pacific Scientific Common Stock outstanding and entitled to vote is necessary to call the Special Meeting. For additional information concerning the consent process, see "Consent Procedures". As of December 15, 1997, directors and officers of Kollmorgen and their affiliates were beneficial owners of an aggregate of approximately 210 Pacific Scientific Common Shares (less than one percent of the total then outstanding). According to Pacific Scientific's Proxy Statement dated March 14, 1997 (the "Pacific Scientific 1997 Proxy Statement"), as of February 28, 1997, directors and officers of Pacific Scientific and their affiliates were beneficial owners of an aggregate of approximately 687,812 Pacific Scientific Common Shares (approximately 5.4% of the total then outstanding). CERTAIN LITIGATION On December 15, 1997, Kollmorgen commenced litigation against Pacific Scientific and the Pacific Scientific Board in the United States District Court for the Central District of California seeking, among other things, an order (i) declaring that failure to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger or to approve the Offer and the Proposed Merger for purposes of Article Fifth of Pacific Scientific's Articles of Incorporation ("Article Fifth") would constitute a breach of the Pacific Scientific Board's fiduciary duties to Pacific Scientific shareholders under California law, (ii) invalidating the Rights or compelling the Pacific Scientific Board to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger, (iii) compelling the Pacific Scientific Board to approve the Offer and the Proposed Merger for purposes of Article Fifth and (iv) enjoining the Pacific Scientific Board from taking any actions to interfere with the Offer, the Solicitation or the Proposed Merger. OTHER ITEMS TO CONSIDER WITH RESPECT TO THE OFFER AND PROPOSED MERGER MATERIAL FEDERAL INCOME TAX CONSEQUENCES For a discussion of the material tax consequences of the Offer and the Proposed Merger, see "Material Federal Income Tax Consequences". 5 DISSENTERS' RIGHTS California law provides for rights of dissenting shareholders in certain business combinations to receive fair value for their shares. Pacific Scientific shareholders will not have dissenters' rights as a result of the Offer. However, they may have certain dissenters' rights in connection with the Proposed Merger. See "Dissenters' Rights of Pacific Scientific Shareholders". ACCOUNTING TREATMENT The Offer and the Proposed Merger will be accounted for under the purchase method of accounting. See "Accounting Treatment". INTEREST OF CERTAIN PERSONS IN THE PROPOSED COMBINATION Kollmorgen is not aware of any interests in the Proposed Combination that its directors and executive officers have, other than their interests as Kollmorgen shareholders. REGULATORY APPROVALS Consummation of the Offer will be subject to several conditions, including the expiration or termination of any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and the receipt, on terms satisfactory to Kollmorgen, of any consent, approval, permit or authorization of any other governmental authority. See "The Offer and the Proposed Merger--Terms of the Offer and the Proposed Merger--HSR Condition" and "Regulatory Matters". SUBSEQUENT VOTES RELATING TO THE PROPOSED MERGER At the Special Meeting, Pacific Scientific shareholders will be asked to remove the entire Pacific Scientific Board, elect the Kollmorgen Nominees to fill the vacancies created thereby and approve the Bylaw Repeal Proposal. If a definitive merger agreement relating to the Proposed Merger is approved by the Pacific Scientific Board (either before or after the incumbent Pacific Scientific Board has been replaced at the Special Meeting) and the Board of Directors of Purchaser, the merger agreement must be approved by the Pacific Scientific shareholders at another meeting of Pacific Scientific shareholders. The Solicitation is not seeking a vote on the Proposed Merger. In addition, the issuance of the Kollmorgen Common Stock to be issued in the Proposed Merger will require the approval of the Kollmorgen shareholders. See "Subsequent Votes Relating to the Proposed Merger". RISK FACTORS INTEGRATION OF KOLLMORGEN AND PACIFIC SCIENTIFIC The success of the combined company in achieving anticipated synergies and achieving attractive operating results will depend upon the ability of Kollmorgen and Pacific Scientific to integrate successfully the operations of the two companies, which have previously operated independently. There can be no assurance that the operations will be integrated without encountering difficulties or that the benefits expected from such integration will be realized at the anticipated levels or within the anticipated time periods; such benefits may be higher or lower and may be realized within a shorter or longer period of time. The anticipated synergies are expected to result principally from cost savings in selling and marketing expenses and consolidation of research and development, as well as from cross-selling opportunities, joint purchasing savings and reduction in corporate expenses. The anticipated cost savings and increased revenues have been developed solely by the management of Kollmorgen and are based on Kollmorgen's best judgments and knowledge of Pacific Scientific's operations derived from publicly available information together with Kollmorgen's knowledge and experience in the motor and motion 6 control industry and awareness of industry trends. These anticipated synergies are necessarily based upon several estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the control of either Kollmorgen or Pacific Scientific, and upon assumptions with respect to future business decisions that are subject to change. Accordingly, after Kollmorgen is permitted access to Pacific Scientific's non-public current business plans and operations, Kollmorgen's expectations for cost savings and potential revenue enhancement might be higher or lower. OPERATIONAL ISSUES; ABILITY TO MANAGE GROWTH Kollmorgen's past acquisitions have consisted primarily of selected operations acquisitions. While Kollmorgen believes that the integration of Pacific Scientific's operations into Kollmorgen upon consummation of the Proposed Combination will not present any significant difficulty and will proceed efficiently and on a timely basis, the challenges of combining two businesses the size of Kollmorgen and Pacific Scientific may result in some unanticipated difficulties that could result in the diversion of management's attention and other resources for an extended period of time and could have an adverse effect on the results of operations of the combined company. In addition, the combined company's ability to manage future growth will depend upon its ability to monitor operations, control costs, maintain effective quality controls and combine the respective company's technical and accounting systems, the failure of which may result in higher operating expenses. INCREASED LEVEL OF INDEBTEDNESS Kollmorgen anticipates that the Proposed Combination will be financed through the use of a secured bank credit facility. The financing of the Proposed Combination will substantially increase Kollmorgen's current level of indebtedness. In the event of a downturn in the combined company's industry or the economy generally, or in the event of a lower than expected performance in the combined company's operations, this level of indebtedness may interfere with the successful implementation of the combined company's strategy, including the successful integration and expansion of its operations. Kollmorgen expects that if the combined company were to seek to raise additional debt after the consummation of the Proposed Combination, any such debt would not receive an investment grade rating. CERTAIN FEDERAL INCOME TAX CONSEQUENCES It is possible, although the determination cannot be made with certainty at this time, that the Offer and the Proposed Merger, if consummated as currently anticipated and assuming certain requirements are satisfied, will be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. In the event of reorganization treatment, then, in general, the receipt of cash by a Pacific Scientific shareholder in exchange for Pacific Scientific Common Shares pursuant to the Offer would be a taxable transaction, but the receipt of Kollmorgen Common Stock in exchange for Pacific Scientific Common Shares in the Proposed Merger would not be taxable to the exchanging Pacific Scientific shareholder. If, however, the Proposed Merger does not qualify as a reorganization, the exchange of Pacific Scientific Common Shares for Kollmorgen Common Stock would be a taxable exchange. There can be no assurance that the requirements for reorganization treatment will be satisfied and neither Kollmorgen nor Purchaser is obligated to undertake to qualify the Offer and the Proposed Merger as a reorganization. Further, if as matters develop reorganization treatment is not certain, Kollmorgen may change the form of effecting the Proposed Merger to ensure that the Proposed Merger will not be taxable to Pacific Scientific. In the event of such a change, however, the exchange of Pacific Scientific Common Shares for Kollmorgen Common Stock in the Proposed Merger will be taxable to exchanging Pacific Scientific shareholders. See "Material Federal Income Tax Consequences". 7 EACH SHAREHOLDER OF PACIFIC SCIENTIFIC IS URGED TO CONSIDER THAT THE OFFER AND THE PROPOSED MERGER CONSIDERATION WILL BE FULLY OR PARTIALLY TAXABLE TO SUCH SHAREHOLDER IN EVALUATING THE VALUE OF THAT CONSIDERATION. THE COMPANIES KOLLMORGEN AND PURCHASER Kollmorgen believes it is one of the major worldwide manufacturers of high performance electronic motion control components and systems. Kollmorgen's products include brushless, permanent magnet motors and associated electronic servo amplifiers and controllers. Kollmorgen also manufacturers integrated electromechanical actuators, periscopes, as well as stabilized weapons control systems for ground vehicles and naval vessels. These products and systems are manufactured by Kollmorgen in the United States, France, Germany, Israel, India, Vietnam and the People's Republic of China, and are sold around the world to the commercial and industrial and aerospace and defense markets. Kollmorgen is a New York corporation. Its executive offices are located at Reservoir Place, 1601 Trapelo Road, Waltham, Massachusetts 02154, and its telephone number is (781) 890-5655. Purchaser, a wholly owned subsidiary of Kollmorgen, was formed in December 1997 solely for the purpose of effecting the Offer and the Proposed Merger. Purchaser's executive offices are located at Reservoir Place, 1601 Trapelo Road, Waltham, Massachusetts 02154, and its telephone number is (781) 890-5655. PACIFIC SCIENTIFIC According to the Pacific Scientific Annual Report on Form 10-K for the fiscal year ended December 27, 1996 (the "Pacific Scientific 1996 Form 10-K"), Pacific Scientific manufactures and sells electrical equipment and safety equipment. The electrical equipment segment produces: electric motors and generators and related motion control devices such as controllers and drivers, electronic instruments for particle measurement, electromechanical and electronic controls for use mainly by electric utilities, including the controls for street and highway lighting and electronic ballasts for fluorescent lights. The safety equipment segment produces: fire detection and suppression equipment, personnel safety restraints, mechanical and electromechanical flight control components and pyrotechnics. This segment also provides service for products already delivered to customers. These products are used mainly in commercial and military aircraft and vehicles, but are also used in a variety of other commercial and industrial applications. Pacific Scientific is a California corporation. Its principal executive offices are located at 620 Newport Center Drive, Suite 700, Newport Beach, California 92660, and its telephone number is (714) 720-1714. MARKET PRICES The Kollmorgen Common Stock is listed on the NYSE under the symbol "KOL", and the Pacific Scientific Common Stock is listed on the NYSE under the symbol "PSX". The following table sets forth the closing price per share of the Kollmorgen Common Stock and the Pacific Scientific Common Stock, as reported on the Dow Jones News Service as of December 12, 1997, the last trading day before Kollmorgen publicly announced its intention to make the offer and the last trading day prior to the date of this Consent Solicitation Statement/Prospectus.
MARKET PRICES PER SHARE ----------------------------- PACIFIC KOLLMORGEN SCIENTIFIC COMMON COMMON STOCK STOCK ----------- ---------------- December 12, 1997................................................................. $ 16.88 $ 15.44
8 COMPARATIVE PER SHARE DATA Set forth below are income applicable to common shares and book value applicable to common shares of Kollmorgen and Pacific Scientific on both an historical and a pro forma combined basis. The pro forma data presented below is not necessarily indicative of actual results that would have occurred or of future expected results. Kollmorgen management expects to achieve operating cost savings and synergies as a result of the Proposed Combination. However, no adjustment has been included in the unaudited pro forma data for expected operating cost savings and synergies. Pro forma combined income applicable to common shares is derived from the unaudited pro forma combined information, which gives effect to the Proposed Combination as if the Proposed Combination had occurred at January 1, 1996, combining the results of Kollmorgen and Pacific Scientific for the periods presented. Book values applicable to common shares for Pacific Scientific and for the pro forma combined presentation are based upon outstanding common shares at the end of the periods presented, adjusted in the case of the pro forma combined presentation to include the shares of Kollmorgen Common Stock to be issued in the Proposed Merger. Pro forma book value data is presented as though the Proposed Combination had occurred at September 30, 1997. The information set forth below should be read in conjunction with the respective audited and unaudited historical consolidated financial statements of Kollmorgen and Pacific Scientific incorporated by reference elsewhere herein and the "Unaudited Pro Forma Financial Information" appearing elsewhere herein. Because the number of Pacific Scientific Common Shares to be converted in the Proposed Merger will not be known until five days prior to the completion of the Proposed Merger, actual Pacific Scientific equivalent per share data cannot be computed at this time. Hypothetical Pacific Scientific equivalent per share data is presented below using the closing sale price of a share of Kollmorgen Common Stock on December 10, 1997 and a resulting hypothetical exchange ratio of 1.2.
NINE MONTHS ENDED PACIFIC SCIENTIFIC SEPTEMBER 30, 1997 KOLLMORGEN/ EQUIVALENTS ------------------------------------ PACIFIC ------------------------ PACIFIC SCIENTIFIC EXCHANGE EXCHANGE KOLLMORGEN SCIENTIFIC PRO FORMA RATIO OF RATIO OF COMMON STOCK COMMON STOCK COMBINED .6(B) 1.2(C) ----------------- ----------------- ------------- ----------- ----------- Earnings per share................... $ 1.87(a) $ 0.73 $ 0.02 $ 0.01 $ 0.02 Dividends per share, net............. $ 0.06 $ 0.09 $ 0.10 $ 0.06 $ 0.12 Book value per share at end of period............................. $ 4.19 $ 8.31 $ 9.79 $ 5.87 $ 11.75
YEAR ENDED PACIFIC SCIENTIFIC DECEMBER 31, 1996 KOLLMORGEN/ EQUIVALENTS ------------------------------------ PACIFIC ------------------------ PACIFIC SCIENTIFIC EXCHANGE EXCHANGE KOLLMORGEN SCIENTIFIC PRO FORMA RATIO OF RATIO OF COMMON STOCK COMMON STOCK COMBINED .6(B) 1.2(C) ----------------- ----------------- ------------- ----------- ----------- Earnings (loss) per share............ $ 0.86 $ 0.01 $ (0.74) $ (0.44) $ (0.89) Dividends per share, net............. $ 0.08 $ 0.12 $ 0.13 $ 0.08 $ 0.16 Book value per share at end of period............................. $ 2.23 $ 8.76
(a) The earnings per share includes a non-recurring charge for acquired in-process research and development and non-recurring income related to the disposition of Kollmorgen's equity interest in a joint venture. Those amounts have been eliminated from the pro forma presentation. 9 (b) The hypothetical Pacific Scientific equivalent per share data was calculated by multiplying the pro forma combined per share data by .6, or half of the hypothetical exchange ratio of 1.2, to reflect the assumption that half of the outstanding Pacific Scientific Common Shares will be exchanged for stock in the Proposed Combination. (c) The hypothetical Pacific Scientific equivalent per share data was calculated by multiplying the pro forma combined per share data by the hypothetical exchange ratio of 1.2, to illustrate the case in which a Pacific Scientific Shareholder does not tender shares pursuant to the Offer and, accordingly, receives all stock in the Proposed Combination. FORWARD-LOOKING STATEMENTS Kollmorgen has made forward-looking statements in this document and in documents to which it has referred you. These statements are subject to risks and uncertainties, and there can be no assurance that such statements will prove to be correct. Actual results may differ materially. Forward-looking statements include assumptions as to how Kollmorgen and Pacific Scientific may perform in the future. Among other matters, the forward-looking statements include, without limitation, the information about the business, strategy, plans and objectives, operations, planned capital expenditures, management, forecasted operating results and operating statistics and potential financial condition, revenue enhancements, cost savings and accretion to earnings and pro forma financial information, with respect to the combined company, and the information concerning the Proposed Combination. You will find many of these statements in, among others, the following sections: - "The Proposed Combination" - "Reasons for the Proposed Combination" - "Pro Forma Combined Financial Data" All discussions of the operations of the combined companies include forward-looking statements. Also, words like "believes", "expects", "anticipates" or similar expressions introduce forward-looking statements. You should understand that the following important factors, in addition to those discussed elsewhere in this Consent Solicitation Statement/Prospectus and in the documents which Kollmorgen incorporates by reference, could affect the future results of Kollmorgen and Pacific Scientific and could cause those results to differ materially from those expressed in such forward-looking statements. Such factors include those discussed under "Risk Factors" as well as: materially adverse changes in U.S. and international economic conditions, in Kollmorgen's industry and in the markets served by Kollmorgen and Pacific Scientific; lower than expected revenues from the sale of its existing products and services because of changes in product demand and market acceptance; the effect of competitive products, development of new technologies and pricing from large, multi-national motion technology competitors (both current and emerging), many of which have greater financial, technical, marketing and other resources; unanticipated increases in cost of raw materials and product development costs; moderating growth rates in commercial lines of business; lack of market acceptance of new products because of lower than expected levels of customer demand, technological difficulties in these newly introduced products, or the timeliness of these product introductions; unanticipated reduction in existing utility customers' requirements for engineering services; increased working capital needs; unexpected capital expenditure requirements; difficulty in obtaining favorable financing arrangements either due to an unfavorable institutional lending environment or the inability to obtain financing because of leverage; the inability to achieve expected synergies; fluctuations in foreign currency exchange rates; and a significant delay in the expected completion of the Proposed Merger. See "Forward Looking Statements". 10 SUMMARY SELECTED FINANCIAL DATA The following table represents the selected historical statement of operations and balance sheet data of Kollmorgen. The financial data presented below as of and for each of the years in the period 1992 to 1996 have been audited by Coopers & Lybrand L.L.P., independent accountants and have been derived from Kollmorgen's Annual Reports on Form 10-K for the years ended December 31, 1996 and 1993. The financial data as of and for the nine months ended September 30, 1996 and 1997 have been derived from the unaudited financial statements of Kollmorgen in Kollmorgen's Quarterly Reports for each of the nine months ended September 30, 1996 and 1997. In the opinion of management, the unaudited financial statements have been prepared on a basis consistent with the audited financial statements and contain all adjustments, consisting only of normal recurring adjustments (except for the charge for acquired research and development, and the gain on sale of joint venture interest), necessary to present fairly the information set forth therein. The operating results for the nine months ended September 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. Kollmorgen's selected historical financial data should be read in conjunction with, and are qualified in their entirety by reference to, the historical financial statements (and related notes) of Kollmorgen which are incorporated by reference herein. See "Available Information" and "Incorporation of Certain Documents by Reference". Kollmorgen reports quarterly and annual earnings results using methods required by generally accepted accounting principles. Kollmorgen prepares its financial statements on the basis of a fiscal year beginning on January 1 and ending on December 31. SELECTED HISTORICAL FINANCIAL DATA OF KOLLMORGEN (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED FISCAL YEAR ENDED DECEMBER 31, SEPTEMBER 30, (AUDITED) (UNAUDITED) ----------------------------------------------------- -------------------- 1992 1993 1994 1995 1996 1996 1997 --------- --------- --------- --------- --------- --------- --------- STATEMENT OF OPERATIONS DATA: Net Sales.................................. $ 194,859 $ 185,538 $ 191,771 $ 228,655 $ 230,424 $ 169,658 $ 163,054 Cost of Sales.............................. 129,151 121,286 124,627 152,614 152,928 112,749 113,590 --------- --------- --------- --------- --------- --------- --------- Gross Profit............................... 65,708 64,252 67,144 76,041 77,496 56,909 49,464 --------- --------- --------- --------- --------- --------- --------- Selling and Marketing Expense.............. 25,471 24,708 27,753 29,412 27,570 20,601 15,003 General and Administrative Expense......... 23,425 21,973 21,491 22,435 24,348 18,256 17,412 Research and Development Expense........... 10,645 9,338 10,843 13,178 12,143 9,024 7,249 Restructuring and other costs.............. 10,000 -- -- -- -- -- -- Acquired Research and Development.......... -- -- -- -- -- -- 11,391 --------- --------- --------- --------- --------- --------- --------- Income (loss) Before interest, minority interest and taxes....................... (3,833) 8,233 7,057 11,016 13,435 9,028 (1,591) Other (income) expense..................... 5,664 4,329 3,821 3,859 5,045 3,765 2,868 --------- --------- --------- --------- --------- --------- --------- Income (loss) before minority interest and income taxes............................. (9,497) 3,904 3,236 7,157 8,390 5,263 (4,459) Minority interest.......................... -- -- -- -- 514 418 222 Income tax benefit (provision)............. 772 848 815 -- -- -- (1,978) Joint Venture: Equity in Earnings....................... -- -- -- -- -- -- 1,430 Gain on Sale of Investment, Net of Income Taxes.................... -- -- -- -- -- -- 24,321 --------- --------- --------- --------- --------- --------- --------- Net income (loss).......................... $ (8,725) $ 4,752 $ 4,051 $ 7,157 $ 8,904 $ 5,681 $ 19,536 --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- --------- Net income available to common shareholders............................. $ (11,055) $ 2,428 $ 1,727 $ 2,509 $ 8,619 $ 5,396 $ 19,536 Earnings (loss) per common share--fully diluted.................................. $ (1.14) $ 0.25 $ 0.18 $ 0.26 $ 0.86 $ 0.54 $ 1.87 Number of shares used in calculating earnings per share....................... 9,627 9,632 9,642 9,670 10,042 10,082 10,444 BALANCE SHEET DATA: Total Assets............................... $ 149,568 $ 134,008 $ 138,201 $ 147,474 $ 141,330 $ 138,965 $ 142,144 Total Debt................................. $ 56,170 $ 53,524 $ 53,991 $ 49,808 $ 65,541 $ 69,194 $ 44,775 Redeemable Preferred Stock(a).............. $ 22,282 $ 22,407 $ 22,532 $ 25,506 $ -- $ -- $ -- Cash Dividends............................. $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.08 $ 0.06 Common Stock Outstanding at Par Value...... $ 26,861 $ 26,875 $ 26,891 $ 26,904 $ 26,914 $ 26,912 $ 26,919 Total Shareholders' Equity................. $ 8,074 $ 7,585 $ 9,880 $ 11,297 $ 21,779 $ 16,321 $ 41,911
- -------------------------- (a) The Preferred Stock at December 31, 1995 is presented at its liquidation value of $22,750 plus the 10% premium of $2,756. (Refer to Kollmorgen's Annual Report on Form 10-K) See accompanying notes 11 KOLLMORGEN CORPORATION NOTES TO SELECTED HISTORICAL FINANCIAL DATA (1) Effective December 31, 1996, Kollmorgen combined its Macbeth division with the Color Control Systems business of Gretag AG and received 48% of the shares in the Swiss holding company which controls the two businesses (the "Joint Venture"). Accordingly, at December 31, 1996, and through the second quarter of 1997, the Macbeth division was not consolidated in Kollmorgen's financial statements, but instead Kollmorgen accounted for its interest in the Joint Venture using the equity method. Effective June 17, 1997, Kollmorgen agreed, pursuant to a firm underwriting agreement, to sell approximately 88% of its interest in the Joint Venture as part of an initial public offering on the Swiss stock exchange. On June 25, 1997 Kollmorgen sold approximately 88% of its interest in the Joint Venture, receiving approximately $38 million. Subsequently in August, 1997, Kollmorgen sold the remaining shares to the underwriter, receiving approximately $4.0 million in cash. Kollmorgen's financial statements reflect a gain in the second quarter of 1997 of approximately $24 million on the sale of its shares in the Joint Venture. The gain is net of $2 million in income taxes and utilization of net operating loss and other tax credit carryforwards. Refer to Note 2 of the 1996 financial statements contained in Kollmorgen's Annual Report on Form 10-K for the year ended December 31, 1996 for additional information. (2) Effective April 2, 1997, Kollmorgen agreed to purchase all of the remaining shares of Servotronix Ltd. ("Servotronix") for cash of $6.4 million and through the issuance of 257,522 shares of Kollmorgen Common Stock. The shares not yet purchased are a liability of Kollmorgen in the amount of $1.8 million at September 30, 1997. Accordingly, Kollmorgen has accounted for the purchase of Servotronix as if 100% of the shares were purchased on April 2, 1997. (3) Effective June 10, 1997, Kollmorgen entered into a binding agreement to purchase all of the shares of Fritz A. Seidel Elektro-Automatik GmbH ("Seidel"). Accordingly, Kollmorgen consolidated the balance sheet of Seidel as of June 30, 1997. Effective in the third quarter of 1997, the results of operations for Seidel are consolidated in Kollmorgen's financial statements. (4) In connection with the acquisitions of Servotronix and Seidel, Kollmorgen has allocated the purchase price to the assets acquired, both tangible and intangible, and any excess of the purchase price over the assets acquired has been classified as goodwill. A portion of the purchase price has been allocated to in-process research and development for products which are not yet feasible and the value of the in-process research and development of $10.5 million was expensed as acquired research and development in the second quarter of 1997. Also included in acquired research and development was a charge of approximately $0.9 million for technology acquired unrelated to the Servotronix and Seidel acquisitions. 12 The following table represents the selected historical statement of operations and balance sheet data of Pacific Scientific. The financial data presented below as of and for the fiscal year ended December 25, 1992, have been derived from the condensed consolidated statements of income, condensed consolidated balance sheets and other financial data of Pacific Scientific in Pacific Scientific's 1996 Annual Report to Shareholders. The Financial Data presented below as of and for the fiscal year ended December 31, 1993 have been derived from the audited consolidated financial statements of Pacific Scientific in Pacific Scientific's Annual Report on Form 10-K for the fiscal year ended December 29, 1995. The financial data presented below as of and for each of the fiscal years ended December 30, 1994, December 29, 1995 and December 27, 1996 have been derived from the audited consolidated financial statements of Pacific Scientific in Pacific Scientific's Annual Report on Form 10-K for the fiscal year ended December 27, 1996. The balance sheet data as of September 27, 1996 have been derived from the unaudited financial statements of Pacific Scientific in Pacific Scientific's Quarterly Report on Form 10-Q for the nine months ended September 27, 1996. The statement of operations data for the nine months ended September 27, 1996 and the financial data as of and for the nine months ended September 26, 1997 have been derived from the unaudited financial statements of Pacific Scientific in Pacific Scientific's Quarterly Report on Form 10-Q for the nine months ended September 26, 1997. The operating results for the nine months ended September 26, 1997 are not necessarily indicative of the results that may be expected for the year ending December 26, 1997. Pacific Scientific's selected historical financial data should be read in conjunction with, and are qualified in their entirety by reference to, the historical financial statements (and related notes) of Pacific Scientific which are incorporated by reference herein. See "Available Information" and "Incorporation of Certain Documents by Reference". Pacific Scientific reports quarterly and annual earnings results using methods required by generally accepted accounting principles. Pacific Scientific prepares its financial statements on the basis of a fiscal year beginning the day following the end of the prior fiscal year and ending on the last Friday in December. SELECTED HISTORICAL FINANCIAL DATA OF PACIFIC SCIENTIFIC (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS FISCAL YEAR ENDED(1) ENDED (AUDITED) (UNAUDITED) ----------------------------------------------------- ------------------------ DEC. 25, DEC. 31, DEC. 30, DEC. 29, DEC. 27, SEPT. 27, SEPT. 26, 1992 1993 1994 1995 1996 1996 1997 --------- --------- --------- --------- --------- ----------- ----------- STATEMENT OF OPERATIONS DATA: Net Sales.......................... $ 183,308 $ 206,609 $ 247,683 $ 284,812 $ 294,779 $ 217,114 $ 227,744 Costs and Expenses: Cost of Sales.................. 124,462 140,463 164,941 186,224 203,074 146,349 154,428 Selling, Marketing, General and Administrative............... 40,072 44,569 51,967 59,519 63,569 45,018 47,397 Research and Development....... 9,487 9,911 11,793 15,750 15,974 10,955 9,880 Cost of Solium Restructuring and Other Charges............ -- -- -- -- 7,500 -- -- --------- --------- --------- --------- --------- ----------- ----------- Operating Income................... 9,287 11,666 18,982 23,319 4,662 14,792 16,039 Other Income (Expense), Net........ (887) (525) (2,240) (3,229) (4,362) (2,068) (1,630) --------- --------- --------- --------- --------- ----------- ----------- Income Before Income Taxes......... 8,400 11,141 16,742 20,090 300 12,724 14,409 Income Taxes....................... (3,069) (3,858) (6,481) (7,340) (131) (4,975) (5,384) Loss from Discontinued Operations....................... -- -- -- -- -- (8,725) (13,563) Cumulative Effect of Change in Accounting Principle............. -- 1,060 -- -- -- -- -- --------- --------- --------- --------- --------- ----------- ----------- Net Income (Loss).................. $ 5,331 $ 8,343 $ 10,261 $ 12,750 $ 169 $ (976) $ (4,538) --------- --------- --------- --------- --------- ----------- ----------- --------- --------- --------- --------- --------- ----------- ----------- Net Income (Loss) Per Share (fully diluted)......................... $ 0.45 $ 0.70 $ 0.83 $ 1.01 $ 0.01 $ (0.08) $ (0.36) BALANCE SHEET DATA(2) Total Assets....................... $ 141,614 $ 168,588 $ 180,635 $ 225,018 $ 229,490 $ 227,459 $ 220,800 Long-Term Debt..................... $ 29,206 $ 44,840 $ 42,936 $ 63,719 $ 83,108 $ 83,379 $ 70,187 Common Stock Outstanding at Par Value............................ $ 11,664 $ 11,780 $ 11,922 $ 12,071 $ 12,195 $ 12,171 $ 12,382 Total Stockholders' Equity......... $ 73,332 $ 81,977 $ 92,773 $ 106,486 $ 106,810 $ 105,707 $ 102,865
- -------------------------- (1) Statements of Operations for the fiscal years presented do not include the operating results of Solium as a Discontinued Operation as this information was not publicly available (refer to Pacific Scientific Current Report on Form 8-K dated April 21, 1997). (2) Balance sheet data at September 27, 1996 and for the fiscal years presented do not include the Solium business as a Discontinued Operation as this information was not publicly available. 13 SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION KOLLMORGEN PRO FORMA ADJUSTED HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
SEIDEL SERVOTRONIX KOLLMORGEN JANUARY 1, 1997 JANUARY 1, 1997 PRO FORMA KOLLMORGEN TO JUNE 9, 1997 TO APRIL 1, 1997 PRO FORMA ADJUSTED HISTORICAL HISTORICAL(A) HISTORICAL(A) ADJUSTMENTS HISTORICAL ----------- ---------------- ----------------- ------------ ----------- Revenues.................................. $ 163,054 $ 9,591 $ 543 $ 173,188 Cost of Revenues.......................... 113,590 6,622 329 120,541 ----------- ------- ----- ----------- Gross Margin.............................. 49,464 2,969 214 52,647 Operating Expenses: Sales, Marketing, General and Administrative........................ 32,131 1,734 95 33,960 Research and Development................ 7,249 334 125 7,708 Acquired Research and Development....... 11,391 -- -- $ (11,391)(b) -- Amortization of Goodwill................ 284 -- -- 242(c) 526 ----------- ------- ----- ------------ ----------- Operating Income (Loss)................... (1,591) 901 (6) 11,149 10,453 Other Income (Expense), Net............... (2,646) (32) 6 816(d) (1,856) ----------- ------- ----- ------------ ----------- Income (Loss) Before Taxes................ (4,237) 869 -- 11,965 8,597 Provision for Income Taxes................ (1,978) -- -- (335)(e) (3,095) (782)(e) ----------- ------- ----- ------------ ----------- Net Income (Loss) from Continuing Operations before Investment in Joint Venture................................. (6,215) 869 -- 10,848 5,502 Joint Venture: Equity in Earnings...................... 1,430 -- -- (1,430)(d) -- Gain on Sale of Investment, Net of Taxes................................. 24,321 -- -- (24,321)(d) -- ----------- ------- ----- ------------ ----------- Net Income................................ $ 19,536 $ 869 $ -- $ (14,903) $ 5,502 ----------- ------- ----- ------------ ----------- ----------- ------- ----- ------------ ----------- Net Income per Share-- Fully Diluted........................... $ 1.87 -- -- $ 0.53 Weighted Average Number of Common Shares Outstanding............................. 10,444 -- -- 10,444
- ------------------------ Note: The accompanying notes are an integral part of these pro forma adjusted historical consolidated financial statements. 14 KOLLMORGEN PRO FORMA ADJUSTED HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
KOLLMORGEN'S KOLLMORGEN MACBETH FRENCH PRO FORMA KOLLMORGEN SEIDEL SERVOTRONIX DIVISION INSTRUMENT PRO FORMA ADJUSTED HISTORICAL HISTORICAL(A) HISTORICAL(A) HISTORICAL(F) GROUP(G) ADJUSTMENTS HISTORICAL ---------- ------------- -------------- --------------- ------------- ----------- ---------- Revenues............... $230,424 $ 19,179 $ 2,566 $(32,104) $ (932) $219,133 Cost of Revenues....... 152,928 13,346 1,307 (15,819) (848) 150,914 ---------- ------------- -------------- --------------- ------------- ---------- Gross Margin........... 77,496 5,833 1,259 (16,285) (84) 68,219 Operating Expenses: Sales, Marketing, General and Administrative..... 51,918 4,107 365 (10,027) (822) 45,541 Research and Development........ 12,143 822 813 (2,744) (364) 10,670 Amortization of Goodwill........... -- -- -- -- -- $ 701(c) 701 ---------- ------------- -------------- --------------- ------------- ----------- ---------- Operating Income (Loss)............... 13,435 904 81 (3,514) 1,102 (701) 11,307 Other Income (Expense), Net.................. (4,531) (133) (81) 120 -- 1,593(d) (3,032) ---------- ------------- -------------- --------------- ------------- ----------- ---------- Income (Loss) Before Taxes................ 8,904 771 -- (3,394) 1,102 892 8,275 Provision for Income Taxes................ -- -- -- -- -- (478)(e) (2,317) (1,839)(e) ---------- ------------- -------------- --------------- ------------- ----------- ---------- Net Income (Loss)...... 8,904 771 -- (3,394) 1,102 (1,425) 5,958 Preferred Dividends.... (285) -- -- -- -- (285) ---------- ------------- -------------- --------------- ------------- ----------- ---------- Income Available to Common Shareholders......... $ 8,619 $ 771 $-- $ (3,394) $ 1,102 $ (1,425) $ 5,673 ---------- ------------- -------------- --------------- ------------- ----------- ---------- ---------- ------------- -------------- --------------- ------------- ----------- ---------- Net Income per Share-- Fully Diluted........ $ 0.86 -- -- -- -- -- $ 0.56 Weighted Average Number of Common Shares Outstanding.......... 10,042 -- -- -- -- -- 10,042
- ---------------------------------- Note: The accompanying notes are an integral part of these pro forma adjusted historical consolidated financial statements. 15 KOLLMORGEN NOTES TO PRO FORMA ADJUSTED HISTORICAL CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) A. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS On April 2, 1997, Kollmorgen acquired Servotronix Ltd. ("Servotronix"), a developer and manufacturer of motion control technology that is headquartered in Israel. On June 10, 1997, Kollmorgen acquired Fritz A. Seidel Elektro-Automatik GmbH ("Seidel"), a developer and manufacturer of motion control technology that is headquartered in Germany. Both acquisitions were accounted for as purchases and together, resulted in an in-process research and development charge of $11,391 in 1997. The pro forma adjusted historical consolidated statements of operations set forth the results of operations for the nine month period ended September 30, 1997 and the year ended December 31, 1996, as if the acquisitions by Kollmorgen of Seidel and Servotronix, and the disposal of Kollmorgen's Macbeth division ("Macbeth") had occurred at January 1, 1996. The pro forma adjusted historical consolidated statements of operations are intended for information purposes and are not necessarily indicative of actual results had the transactions occurred as of the date indicated above, nor do they purport to indicate the future results of operations. These pro forma adjusted historical consolidated statements of operations should be read in conjunction with the financial statements and notes thereto included in Kollmorgen's Annual Report on Form 10-K for the year ended December 31, 1996, Kollmorgen's Current Report on Form 8-K filed January 31, 1997 and Kollmorgen's Form 10-Q for the nine month period ended September 30, 1997. The pro forma adjusted historical consolidated statements of operations do not give effect to any potential cost savings and synergies that could result from the Servotronix and Seidel acquisitions. B. PRO FORMA ADJUSTMENTS TO PRO FORMA ADJUSTED HISTORICAL CONSOLIDATED STATEMENTS OF OPERATIONS (a) These columns represent the unaudited historical results of operations of Seidel and Servotronix for the period prior to Kollmorgen's acquisition. Upon acquisition these operations became part of Kollmorgen's historical financial statements. (b) This adjustment eliminates the charge for acquired in-process research and development costs recognized principally upon the acquisition of Seidel and Servotronix. Since these amounts are not continuing expenditures of Kollmorgen, they are deducted from the historical consolidated statement of operations to arrive at the Kollmorgen pro forma adjusted historical financial statements. (c) These adjustments reflect the goodwill amortization for the periods, assuming both acquisitions occurred at January 1, 1996. The goodwill resulting from the acquisitions of Seidel and Servotronix totaled $10,509 which reflects the aggregate excess purchase price over the fair value of net assets acquired and in-process research and development. Goodwill attributable to these acquisitions is being amortized over 15 years. For purposes of allocating the acquisition costs among the various assets acquired, the carrying value of the acquired assets approximated their fair value, with all the excess of such acquisition costs being attributed to in-process acquired research and development and goodwill. It is Kollmorgen's intention to continue to evaluate the acquired assets and, as a result, the allocation of the acquisition costs among the tangible and intangible assets acquired may change. All material intercorporate transactions were eliminated. 16 (d) Effective December 31, 1996, Kollmorgen contributed its Macbeth business to a joint venture for a 48% interest. The investment was accounted for under the equity method. In the second quarter of 1997, Kollmorgen sold its interest in the joint venture for a gain of $24,321 which has been eliminated as a pro forma adjustment. The $1,430 adjustment represents the elimination of Kollmorgen's proportionate earnings of the joint venture from the beginning of the period through the time of the sale. Kollmorgen used a portion of the proceeds from the sale of its interest in the joint venture to repay the outstanding balance of a $25 million term loan. Accordingly, interest expense related to this debt of $816 and $1,593, has been excluded from these pro forma statements of operations for the nine months ended September 30, 1997 and the year ended December 31, 1996, respectively. (e) These adjustments represent (i) the estimated income tax effect of the pro forma adjustments at the blended statutory rates of 36% and 28% for 1997 and 1996, respectively, and (ii) an increase in income tax provision that would have resulted from the full utilization of net operating loss carryforwards had the gain on sale of investment in Macbeth occurred at January 1, 1996. (f) This column represents the historical results of operations of Macbeth for the period prior to December 31, 1996, the effective date of Kollmorgen's contribution of that business to a joint venture, at which point those operations were accounted for on the equity method in Kollmorgen's historical financial statements. (g) In March 1996, Kollmorgen sold a portion of its instrumentation business located in France for its book value. This column represents the elimination of the results of this business for 1996. 17 KOLLMORGEN PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
KOLLMORGEN PRO FORMA PACIFIC ADJUSTED SCIENTIFIC PRO FORMA HISTORICAL HISTORICAL(A) ADJUSTMENTS PRO FORMA ----------- ---------------- ------------ ----------- Revenues.......................................... $ 173,188 $ 227,744 $ 400,932 Cost of Revenues.................................. 120,541 154,428 274,969 ----------- ---------------- ----------- Gross Margin...................................... 52,647 73,316 125,963 Operating Expenses: Sales, Marketing, General and Administrative.................... 33,960 47,397 81,357 Research and Development...................... 7,708 9,880 17,588 Amortization of Goodwill...................... 526 -- $ 8,537(b) 9,063 ----------- ---------------- ------------ ----------- Operating Income.................................. 10,453 16,039 (8,537) 17,955 Other Income (Expense), Net....................... (1,856) (1,630) (8,838)(c) (12,967) (643)(c) ----------- ---------------- ------------ ----------- Income Before Taxes............................... 8,597 14,409 (18,018) 4,988 Provision for Income Taxes........................ (3,095) (5,384) 3,792(d) (4,686) ----------- ---------------- ------------ ----------- Net Income from Continuing Operations............. $ 5,502 $ 9,025 $ (14,226) $ 302 ----------- ---------------- ------------ ----------- ----------- ---------------- ------------ ----------- Net Income per Share from Continuing Operations -- Fully Diluted................................... $ 0.53 $ 0.73 $ 0.02 Weighted Average Number of Common Shares Outstanding..................................... 10,444 12,443 (12,443)(e) 18,226 7,782(e)
- ------------------------ Note:The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. 18 KOLLMORGEN PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
KOLLMORGEN PRO FORMA PACIFIC ADJUSTED SCIENTIFIC PRO FORMA HISTORICAL HISTORICAL(F) ADJUSTMENTS PRO FORMA ----------- ------------ ------------ ----------- Revenues............................................... $ 219,133 $ 294,779 $ 513,912 Cost of Revenues....................................... 150,914 203,074 353,988 ----------- ------------ ----------- Gross Margin........................................... 68,219 91,705 159,924 Operating Expenses: Sales, Marketing, General and Administrative................................... 45,541 63,569 109,110 Research and Development........................... 10,670 15,974 26,644 Cost of Solium Restructuring and Other............. -- 7,500 7,500 Amortization of Goodwill........................... 701 -- $ 11,383(b) 12,084 ----------- ------------ ------------ ----------- Operating Income....................................... 11,307 4,662 (11,383) 4,586 Other Income (Expense), Net............................ (3,032) (4,362) (11,785)(c) (20,036) (857)(c) ----------- ------------ ------------ ----------- Income (Loss) Before Taxes............................. 8,275 300 (24,025) (15,450) Benefit (Provision) for Income Taxes................... (2,317) (131) 5,057(d) 2,609 ----------- ------------ ------------ ----------- Net Income (Loss)...................................... 5,958 169 (18,968) (12,841) Preferred Dividends.................................... (285) -- -- (285) ----------- ------------ ------------ ----------- Income Available to Common Shareholders......................................... $ 5,673 $ 169 $ (18,968) $ (13,126) ----------- ------------ ------------ ----------- ----------- ------------ ------------ ----------- Net Income (Loss) per Share -- Fully Diluted.............................................. $ 0.56 $ 0.01 $ (0.74) Weighted Average Number of Common Shares Outstanding... 10,042 12,457 (12,457)(e) 17,824 7,782(e)
- ------------------------ Note:The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. 19 KOLLMORGEN PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 (UNAUDITED) (IN THOUSANDS)
PACIFIC PRO FORMA KOLLMORGEN SCIENTIFIC ADJUSTMENTS PRO FORMA ----------- ---------------- ------------ ----------- Assets Current Assets: Cash and Cash Equivalents....................... $ 17,881 $ 3,174 $ 21,055 Accounts Receivable, Net........................ 41,367 51,078 92,445 Inventories..................................... 25,486 54,611 80,097 Deferred Income Taxes........................... -- 9,986 9,986 Other Current Assets............................ 6,385 6,946 13,331 ----------- ---------------- ----------- Total Current Assets............................ 91,119 125,795 216,914 Property and Equipment, Net......................... 26,006 49,411 75,417 Note Receivable..................................... -- 8,700 8,700 Investment in Joint Venture......................... 14,483 -- 14,483 Other Assets, Net................................... 10,536 36,894 $ 6,000(c) 53,430 Goodwill, Net....................................... -- -- 170,744(g) 170,744 ----------- ---------------- ------------ ----------- Total Assets........................................ $ 142,144 $ 220,800 $ 176,744 $ 539,688 ----------- ---------------- ------------ ----------- ----------- ---------------- ------------ ----------- Liabilities and Stockholders' Equity Current Liabilities: Accounts Payable and Accrued Liabilities........ $ 49,759 $ 22,874 $ 72,633 Other Current Liabilities....................... 13,153 13,908 27,061 Reserve for Discontinued Solium Operation....... -- 4,593 4,593 ----------- ---------------- ----------- Total Current Liabilities....................... 62,912 41,375 104,287 Long-Term Obligations............................... 37,249 76,560 $ 147,309(c) 261,118 Minority Interest................................... 72 -- -- 72 ----------- ---------------- ------------ ----------- Total Liabilities................................... 100,233 117,935 147,309 365,477 Stockholders' Equity................................ 41,911 102,865 132,300(h) 174,211 (102,865)(h) ----------- ---------------- ------------ ----------- Total Liabilities and Stockholders' Equity.......... $ 142,144 $ 220,800 $ 176,744 $ 539,688 ----------- ---------------- ------------ ----------- ----------- ---------------- ------------ -----------
- ------------------------ Note:The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. 20 KOLLMORGEN NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) A. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS The pro forma combined condensed consolidated financial statements are prepared assuming that Kollmorgen has merged with Pacific Scientific, a manufacturer of high-performance rotating electrical equipment, including motors, generators and alternators. The Proposed Combination will be effected through the exchange of approximately 7,782,000 shares of common stock of Kollmorgen and cash of $132,309, resulting in a total estimated purchase price, including other costs of approximately $15,000, of approximately $279,609. The shares of Kollmorgen common stock are assumed to be issued at a value of $17.00 per share which reflects the closing price of the Company's common stock as of December 10, 1997. This share price differs from the December 12, 1997 share price of $16.88 referred to elsewhere in the Consent Solicitation Statement/Prospectus. Application in these pro forma statements of the $16.88 per share value would not materially impact the pro forma values presented herein. The ultimate number of shares issued to acquire Pacific Scientific will be in the range of approximately 7,007,880 to 8,569,043 shares, dependent upon the 20-day average closing price of Kollmorgen Common Stock five days prior to closing. Kollmorgen has ascribed no value to Pacific Scientific's preferred stock purchase rights which will be acquired in the Proposed Combination. A change in the number of shares issued upon final consumation of the proposed transaction from the amounts assumed above would effect the pro forma net income per share for the periods presented. The transaction will be accounted for as a purchase. The pro forma combined condensed consolidated balance sheet includes the financial statements of Kollmorgen and Pacific Scientific at September 30, 1997, as if the Proposed Combination had occurred on that date. The pro forma combined condensed consolidated statements of operations set forth the results of operations for the nine month period ended September 30, 1997 and the year ended December 31, 1996 as if the Proposed Combination had occurred at January 1, 1996. The pro forma combined condensed consolidated financial statements are intended for information purposes and are not necessarily indicative of actual results had the Proposed Combination occurred as of the dates indicated above, nor do they purport to indicate the future consolidated financial position or future results of operations of the combined entity. Pacific Scientific's historical financial data was derived from Pacific Scientific's Annual Report on Form 10-K for the year ended December 27, 1996, and Pacific Scientific's Form 10-Q for the nine month period ended September 26, 1997. For Kollmorgen's pro forma adjusted historical financial data, see "Pro Forma Adjusted Historical Consolidated Statement of Operations" for the nine months ended September 30, 1997 and the year ended December 31, 1996 presented elsewhere herein. These combined condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in Kollmorgen's Annual Report on Form 10-K for the year ended December 31, 1996, Kollmorgen's Form 10-Q for the nine month period ended September 30, 1997, Pacific Scientific's Annual Report on Form 10-K for the year ended December 27, 1997 and Pacific Scientific's Form 10-Q for the nine month period ended September 26, 1997. B. PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (a) Pacific Scientific's statement of operations as presented on Form 10-Q for the nine months ended September 26, 1997, reflects a Loss from Discontinued Operations of $13,563, Net Loss of 21 $4,358, Loss per share on Discontinued Operations of $1.09 and Net Loss per share of $0.36. This pro forma statement reflects only results from continuing operations. (b) These pro forma adjustments reflect the amortization of goodwill assumed to be generated in the Proposed Combination over the estimated useful life of fifteen years on a straight-line basis. The ultimate allocation of the purchase price to the net assets acquired, goodwill, other intangible assets, liabilities assumed and incomplete technology is subject to final determination of their respective fair values. A determination of the fair value of incomplete technology, if any, is subject to a detailed analysis of the tangible and intangible assets related to in-process research and development on new products of Pacific Scientific. The value assigned to in-process research and development could result in a material charge to operations at consummation of the transaction and a corresponding reduction in the amounts to be amortized. There were no intercorporate transactions that required elimination. (c) The pro forma combined condensed consolidated balance sheet reflects Kollmorgen's securing a credit facility consisting of a $175,000 term loan and a $125,000 revolving credit facility (the "Loan") as if the issuance occurred on September 30, 1997. The term loan is payable over seven years. The Loan accrues interest at a rate of Libor plus 2%. At the date of the Proposed Combination, this interest rate is assumed to be 8%. The pro forma combined condensed consolidated statements of operations include the interest expense associated with the Loan, as if the issuance occurred at January 1, 1996, of $8,838 and $11,785, for the nine months ended September 30, 1997 and the year ended December 31, 1996, respectively. Under applicable pro forma rules, interest income associated with the proceeds from the Loan, which may partially offset the interest expense, is not included in the pro forma statements of operations. Estimated debt issuance costs of $6,000 for credit facility commitment fees have been included in other long-term assets and are being amortized over the term of the Loan. Amortization of debt issuance costs on the Loan for the nine months ended September 30, 1997 and the year ended December 31, 1996 are estimated to be $643 and $857, respectively. (d) This adjustment represents the estimated income tax effect of the pro forma adjustments using a combined U.S. federal and state statutory rate of 40% for both 1996 and the first nine months in 1997. (e) The pro forma adjustments reflect the exchange of Pacific Scientific's weighted average number of common shares outstanding of 12,443,000 and 12,457,000, for the nine months ended September 30, 1997 and the year ended December 31, 1996, respectively, and the issuance of Kollmorgen's common shares to be exchanged in the Proposed Combination of 7,782,000 assuming an exchange ratio of 1.2 shares of Kollmorgen Common Stock for one share of Pacific Scientific Common Stock for those shares outstanding as of September 26, 1997 not exchanged for cash. (f) The Pacific Scientific historical financial statements for 1996 included in these pro forma combined condensed consolidated financial statements include the results of operations of Pacific Scientific's Solium business which was discontinued in 1997. Had the pro forma financial statements been adjusted to exclude the Solium business, net sales would have decreased by $2,416, and pre-tax income would have increased by $14,541. (g) The pro forma adjustment reflects the excess purchase price over the fair value of net assets assumed to be acquired of $170,744. Estimated transaction related costs of $9,000 for investment banker fees, accounting and legal fees, and other various deal costs have been included in the determination of goodwill. For purposes of these pro forma financial statements, the fair value of the assets acquired is estimated to be equivalent to the historical financial statement balance as of the date of acquisition. The ultimate allocation of the purchase price to the net assets acquired, goodwill, other intangible assets, liabilities assumed and a charge for incomplete technology is subject to final determination of their respective fair values. (h) The pro forma combined condensed consolidated balance sheet reflects an increase for the value of 7,782 common shares at $17.00 per share assumed to be issued by Kollmorgen in the Proposed Merger to Pacific Scientific shareholders of $132,300, and an elimination of the net equity of Pacific Scientific of $102,865. 22 THE PROPOSED COMBINATION Kollmorgen believes that the Proposed Combination of Kollmorgen and Pacific Scientific is a unique opportunity for you and other Pacific Scientific shareholders to realize a premium for your shares and to participate in the future of one of the world's leading suppliers of electronic motion control solutions. The Proposed Combination, structured as the Offer and the Proposed Merger, would give you and other Pacific Scientific shareholders an up-front cash payment, together with a valuable, continuing equity stake in the combined company. Kollmorgen believes the Proposed Combination would be an excellent strategic and operational fit for Kollmorgen and Pacific Scientific, would increase combined pre-tax annual operating profits and create a leader in the motors and motion control industry, with a full range of products offered on a global basis, a management team with a proven record and a dedicated employee base. See "Reasons for the Proposed Combination". The Pacific Scientific Board, however, has been unwilling to negotiate a business combination between Kollmorgen and Pacific Scientific, and despite Kollmorgen's repeated attempts, refuses to allow you to consider sharing in Kollmorgen's vision. See "Background of the Offer and the Proposed Merger". Pacific Scientific instead maintains legal obstacles to the Proposed Combination which have the effect of repressing your voice in the future of your company. Because the Pacific Scientific Board has denied you the opportunity to share in the rewards of the combined company, Kollmorgen is presenting this opportunity directly to you through the Offer and the Solicitation. In order to guarantee you the opportunity to express your own view on the future of Pacific Scientific, Kollmorgen is seeking your consent to call the Special Meeting. At the Special Meeting, Kollmorgen will ask you to remove the entire Pacific Scientific Board and replace it with new directors who Kollmorgen expects will be committed, subject to their fiduciary duties under applicable law, to allowing you, the owners of Pacific Scientific, to make this important decision. In addition, Kollmorgen will propose a binding shareholder resolution to rescind any attempt that the Pacific Scientific Board has made or may make to amend the Pacific Scientific Bylaws as part of the Pacific Scientific Board's continuing effort to prevent you from enjoying the benefits of the Proposed Combination. See "The Special Meeting". REASONS FOR THE PROPOSED COMBINATION Kollmorgen believes that the combined company will offer customers superior products and services. Among the many advantages contributing to the combined company's ability to achieve these benefits are the following: - CREATION OF AN INDUSTRY LEADER. A merger of Kollmorgen and Pacific Scientific will establish the combined enterprise as a leader in high performance electronic motion control--one of the fastest-growing segments of the motors and controls business. In a fragmented industry, the combined enterprise will be better-positioned to comprehensively serve the needs of customers and take advantage of consolidation opportunities. - STRATEGIC AND OPERATIONAL FIT. Highly complementary motion control product lines will enable the combined company to become a full-service provider. The combined company will be well-positioned to capitalize on the complementary product lines and differing strengths of Kollmorgen and Pacific Scientific, enabling it to offer a broader array of products and support services to an expanded customer base. In addition, the combined company would take advantage of cost savings and efficiencies resulting from economies of scale in research and development, marketing, production and sourcing. - ENHANCED CAPABILITY TO TAP FOREIGN MARKETS. The increased size and global scope of the combined company will enable it to more effectively market its products to customers around the world. Kollmorgen has already established a local presence in Germany, France, Israel, India, China and elsewhere. The combined enterprise will be well-positioned to build on this foundation, particularly in Europe and the Pacific Rim. Kollmorgen believes that the combined company will 23 be able to expand its customer base and offer international on-site product support to customers, while conducting more effective and cost-efficient research and development, marketing, production and sourcing. - OPERATING AND REVENUE SYNERGIES. Based on public information, Kollmorgen management believes that the combined company can achieve more than $15 million of annual operating synergies in 1999, rising to more than $20 million in 2000 and increasing thereafter. Management believes these synergies can be achieved principally from cost savings in selling and marketing expenses and consolidation of research and development, and expects to realize additional synergies from cross-selling opportunities, joint purchasing savings and reduction in corporate expenses. - AN ACCRETIVE TRANSACTION. Kollmorgen believes that the Proposed Combination will be accretive to earnings per share in 1999, the first full year of operations of the combined company, and increasingly so thereafter, based upon the anticipated synergies described above. Kollmorgen expects that, due to the substantial non-recurring charges associated with the Proposed Combination (which are not currently quantifiable) consisting of restructuring charges and a charge for acquired in-process research and development, the Proposed Combination will be substantially dilutive in fiscal 1998. - MANAGEMENT TEAM WITH PROVEN TRACK RECORD. Kollmorgen's management has delivered year over year growth in sales and operating income from continuing operations from 1994 through 1996, and will do so again in 1997. Kollmorgen has achieved this by focusing on its core operations. Kollmorgen also believes that its management has maximized its returns from non-strategic operations. In addition, Kollmorgen's management has considerable expertise in managing debt, having reduced Kollmorgen's debt and preferred stock obligations by more than 40% during the past three fiscal years and transitioned from fully-secured to unsecured credit arrangements. - ENHANCED GROWTH OPPORTUNITIES. Kollmorgen believes that the combined enterprise will be well-positioned, strategically, operationally and financially, to aggressively pursue attractive opportunities for external and internal growth. Kollmorgen is confident that the combined company's increased size and scope will enable it to be a leader in the accelerating consolidation of the motion control industry and raise its visibility in the business and financial communities. See "Summary--Forward-Looking Statements" and "Unaudited Pro Forma Financial Information". It is Kollmorgen's current intention to integrate each company's motion control business and to conduct the businesses of each of Kollmorgen and Pacific Scientific on a combined basis following consummation of the Proposed Combination. In connection with the Proposed Combination, Kollmorgen has reviewed, and will continue to review, on the basis of publicly available information, various possible business strategies that it might consider in the event that Kollmorgen acquires control of Pacific Scientific. In addition, if and to the extent that Kollmorgen acquires control of Pacific Scientific or otherwise obtains access to the books and records of the Company, Parent and Purchaser intend to conduct a detailed review of Pacific Scientific and its assets, financial projections, corporate structure, dividend policy, capitalization, operations, properties, policies, management and personnel and consider and determine what, if any, changes would be desirable in light of the circumstances which then exist, with a view to optimizing Pacific Scientific's potential in conjunction with Kollmorgen's business. Such strategies could include, among other things, changes in the Pacific Scientific's business, corporate structure, marketing strategies, capitalization, management or dividend policy and changes to the Pacific Scientific Charter or the Pacific Scientific Bylaws. 24 BACKGROUND OF THE OFFER AND THE PROPOSED MERGER In the ordinary course of business, Kollmorgen analyzes a broad range of strategic alternatives, including possible business combinations with other companies in the motion control business. On August 21, 1996, Mr. Robert J. Cobuzzi, Kollmorgen's Senior Vice President and Chief Financial Officer, telephoned Mr. Richard V. Plat, who was at the time Pacific Scientific's Executive Vice President, Chief Financial Officer and Secretary, to engage in discussions regarding a possible transaction involving Kollmorgen and Pacific Scientific. Mr. Plat reacted negatively, suggesting that Pacific Scientific's common stock was undervalued by the market. Thereafter, as a matter of course, Kollmorgen continued to evaluate a wide array of strategic options. In the second quarter of 1997, Kollmorgen intensified its review of a possible business combination with Pacific Scientific. After several months of detailed review of the implications of a possible Kollmorgen-Pacific Scientific combination, on or about July 18, 1997, Mr. Gideon Argov, Kollmorgen's Chairman, President and Chief Executive Officer, telephoned Mr. Lester Hill, Pacific Scientific's Chairman, President and Chief Executive Officer, to suggest that they meet to discuss ways in which the companies might cooperate and the possibility of combining Kollmorgen and Pacific Scientific. Mr. Hill agreed and a meeting was arranged for the first week in August 1997. On August 1, 1997, Mr. Argov met with Mr. Hill in Newport Beach, California. Mr. Argov discussed the two companies and the motion control industry with Mr. Hill and proposed a merger of Kollmorgen and Pacific Scientific. The merger proposed by Mr. Argov would have been structured as a merger of equals transaction, and Mr. Argov indicated that the key executives of Kollmorgen and Pacific Scientific would become the senior executives of the combined company. Mr. Hill indicated that he needed more time to consider Mr. Argov's proposal. Mr. Argov and Mr. Hill agreed to speak again within the next few weeks. On or about August 13, 1997, Mr. Argov telephoned Mr. Hill to ask whether Mr. Hill had considered Mr. Argov's proposal. Mr. Hill responded that he had but that he needed more time to do so since Pacific Scientific was in the midst of a strategic planning process that was expected to last into September. Mr. Argov agreed to call Mr. Hill in early September. On or about September 15, 1997, Mr. Argov again telephoned Mr. Hill to ask whether Mr. Hill was ready to discuss a possible business combination. Mr. Hill again responded that he was not ready to discuss a possible business combination because of Pacific Scientific's ongoing strategic planning process. Mr. Argov and Mr. Hill agreed to speak again on October 15 or 16. On or about October 15, 1997, Mr. Argov attempted to telephone Mr. Hill, but Mr. Hill did not return Mr. Argov's calls. On October 21, 1997, Mr. Argov telephoned Mr. Hill and again proposed that Kollmorgen and Pacific Scientific commence discussions regarding a possible merger. Mr. Hill responded that he had thought about Mr. Argov's suggestion and discussed it with the Pacific Scientific Board and had concluded that it would not be in the best interests of Pacific Scientific. On October 22, 1997, Mr. Hill telephoned Mr. Argov to offer to sell Pacific Scientific's Automation Intelligence, Inc. business to Kollmorgen. Mr. Argov indicated that Kollmorgen would not be interested in acquiring only a small piece of the Pacific Scientific business. On December 9, 1997, Mr. Argov telephoned Mr. Hill to inform Mr. Hill that Mr. Argov was authorized by the Board of Directors of Kollmorgen (the "Kollmorgen Board") to make a proposal to acquire Pacific Scientific for $20.50 per share in cash and stock, and that Mr. Hill should expect to receive a letter from Mr. Argov making such a proposal. Mr. Argov reiterated Kollmorgen's belief that a combination of Pacific Scientific and Kollmorgen offered significant benefits to both companies' shareholders and expressed his hope that Mr. Hill and the Pacific Scientific Board would, once they had undertaken an informed review of Kollmorgen's proposal, support the proposed combination and open substantive discussions 25 with Kollmorgen. Mr. Hill promised to telephone Mr. Argov with a response to the proposal letter on Friday morning, December 12, 1997. Following that telephone call, Mr. Argov sent to Mr. Hill a letter outlining the contemplated terms of the Proposed Combination. On December 12, 1997, Mr. Hill failed to telephone Mr. Argov as previously agreed. Mr. Argov attempted to reach Mr. Hill by telephone without sucess. After the close of business on December 12, 1997, Mr. Argov received the following letter by telecopy: DEAR MR. ARGOV: I HAVE RECEIVED YOUR LETTER OF THE 9TH. I HAVE SHARED IT WITH THE BOARD OF DIRECTORS. WE WILL BE BACK TO YOU ONCE WE HAVE HAD THE CHANCE TO FULLY CONSIDER THE MATTER. BEST REGARDS, LESTER HILL On December 15, Mr. Argov sent to Mr. Hill the following letter: DEAR BUCK: IN AUGUST, YOU AND I MET TO DISCUSS WHAT WE AT KOLLMORGEN BELIEVE ARE THE COMPELLING MERITS OF A STRATEGIC BUSINESS COMBINATION OF KOLLMORGEN CORPORATION AND PACIFIC SCIENTIFIC COMPANY. WE EXPLORED A BROAD RANGE OF TOPICS RELATED TO SUCH A COMBINATION, ALL OF WHICH, MY COLLEAGUES ON THE KOLLMORGEN BOARD AND SENIOR MANAGEMENT TEAM FIRMLY BELIEVE, LEAD TO THE CONCLUSION THAT A STRATEGIC MERGER OF OUR TWO COMPANIES OFFERS SIGNIFICANT BENEFITS TO OUR RESPECTIVE SHAREHOLDERS, CUSTOMERS AND EMPLOYEES. ON DECEMBER 9, I AGAIN DESCRIBED FOR YOU, BOTH OVER THE PHONE AND IN MY LETTER OF THAT DATE, WHAT WE AT KOLLMORGEN BELIEVE ARE SOME OF THE COMPELLING STRATEGIC, OPERATIONAL AND FINANCIAL BENEFITS OF A BUSINESS COMBINATION OF OUR TWO COMPANIES AND THE EXTRAORDINARY VALUE THAT COMBINATION COULD REPRESENT FOR OUR RESPECTIVE SHAREHOLDERS. WE AT KOLLMORGEN WERE THUS QUITE DISAPPOINTED THAT IN AUGUST AND AGAIN IN DECEMBER YOU REFUSED TO NEGOTIATE OUR PROPOSAL FOR THIS BUSINESS COMBINATION. ACCORDINGLY, WE HAVE DECIDED TO PRESENT OUR OFFER DIRECTLY TO THE SHAREHOLDERS OF PACIFIC SCIENTIFIC, AND ARE TODAY PUBLICLY ANNOUNCING THAT WE ARE COMMENCING A TENDER OFFER TO ACQUIRE HALF OF PACIFIC SCIENTIFIC'S OUTSTANDING SHARES FOR $20.50 PER SHARE IN CASH. PURSUANT TO OUR PROPOSAL, FOLLOWING COMPLETION OF THE TENDER OFFER, KOLLMORGEN AND PACIFIC SCIENTIFIC WILL MERGE, AND EACH REMAINING SHARE OF PACIFIC SCIENTIFIC STOCK WILL BE EXCHANGED FOR KOLLMORGEN COMMON STOCK WITH A VALUE OF $20.50 PER SHARE, BASED ON THE AVERAGE PRICE OF KOLLMORGEN STOCK DURING THE TWENTY TRADING DAYS ENDING FIVE DAYS PRIOR TO THE MEETING OF PACIFIC SCIENTIFIC SHAREHOLDERS CALLED TO VOTE ON THE MERGER. THE VALUE OF THE STOCK CONSIDERATION WILL BE PROTECTED BY A COLLAR. AMONG THE KEY ASPECTS OF THE TRANSACTION WE PROPOSE ARE THE FOLLOWING: - A PREMIUM OF 33%. THE PURCHASE PRICE OF $20.50 PER COMMON SHARE REPRESENTS APPROXIMATELY A 33% PREMIUM OVER PACIFIC SCIENTIFIC'S CLOSING SHARE PRICE OF $15.44 ON THE NEW YORK STOCK EXCHANGE ON FRIDAY, DECEMBER 12, 1997, AND APPROXIMATELY A 37% PREMIUM OVER THE COMPANY'S CLOSING SHARE PRICE FOR THE PRECEDING 30 TRADING DAYS. - IMMEDIATE CASH PAYMENT FOR HALF OF PACIFIC SCIENTIFIC'S CAPITAL STOCK. HALF OF PACIFIC SCIENTIFIC'S OUTSTANDING SHARES WILL BE PURCHASED FOR A CASH PAYMENT OF $20.50 PER SHARE IF THE TENDER OFFER IS SUCCESSFULLY CONSUMMATED. - CONTINUED PARTICIPATION IN THE FUTURE GROWTH OF THE COMBINED COMPANY. BECAUSE PACIFIC SCIENTIFIC'S SHAREHOLDERS HAVE THE ABILITY TO RECEIVE KOLLMORGEN COMMON STOCK IN THE 26 PROPOSED MERGER, THEY WILL HAVE THE OPPORTUNITY TO PARTICIPATE IN THE FUTURE GROWTH AND SUCCESS OF THE COMBINED ENTERPRISE. UPON CONSUMMATION OF THE PROPOSED MERGER, PACIFIC SCIENTIFIC SHAREHOLDERS WILL HOLD AN EQUITY STAKE OF APPROXIMATELY 43% IN THE COMBINED COMPANY, BASED UPON AN ASSUMED MARKET VALUE FOR KOLLMORGEN COMMON STOCK OF $16.88 PER SHARE (THE CLOSING PRICE OF KOLLMORGEN COMMON STOCK ON DECEMBER 12, 1997). - OPERATING AND REVENUE SYNERGIES. BASED ON PUBLIC INFORMATION, KOLLMORGEN MANAGEMENT BELIEVES THAT THE COMBINED COMPANY CAN ACHIEVE MORE THAN $15 MILLION OF ANNUAL OPERATING SYNERGIES IN 1999, RISING TO MORE THAN $20 MILLION IN 2000 AND INCREASING THEREAFTER. MANAGEMENT BELIEVES THESE SYNERGIES CAN BE ACHIEVED PRINCIPALLY FROM COST SAVINGS IN SELLING AND MARKETING EXPENSES AND CONSOLIDATION OF RESEARCH AND DEVELOPMENT, AND EXPECTS TO REALIZE ADDITIONAL SYNERGIES FROM CROSS-SELLING OPPORTUNITIES, JOINT PURCHASING SAVINGS, AND REDUCTION IN CORPORATE EXPENSES. - AN ACCRETIVE TRANSACTION. KOLLMORGEN IS CONFIDENT THAT THE PROPOSED COMBINATION WILL BE ACCRETIVE TO EARNINGS PER SHARE IN 1999, THE FIRST FULL YEAR OF OPERATIONS OF THE COMBINED COMPANY, AND INCREASINGLY SO THEREAFTER, BASED UPON THE ANTICIPATED SYNERGIES DESCRIBED ABOVE. - COMMITTED FINANCING. KOLLMORGEN HAS ENTERED INTO A BINDING COMMITMENT LETTER WITH SALOMON SMITH BARNEY AND ITS AFFILIATE SALOMON BROTHERS HOLDING COMPANY INC IN WHICH SALOMON BROTHERS HOLDING COMPANY INC HAS COMMITTED TO PROVIDE, SUBJECT TO CERTAIN CONDITIONS, WHAT KOLLMORGEN BELIEVES IS A CONSERVATIVELY FINANCED SECURED BANK FACILITY TO FULLY FINANCE THE TRANSACTION, INCLUDING THE REFINANCING OF EXISTING INDEBTEDNESS AND THE PROVISION OF A WORKING CAPITAL FACILITY FOR THE COMBINED COMPANY. WE CONTINUE TO FIRMLY BELIEVE THAT CONSOLIDATION IN OUR INDUSTRY IS INEVITABLE, AND THAT NEITHER PACIFIC SCIENTIFIC NOR KOLLMORGEN CAN SIT BY IDLY WHILE COMPETITORS, MANY OF WHICH ARE MUCH LARGER THAN PACIFIC SCIENTIFIC AND KOLLMORGEN, CREATE THE INTERNATIONAL NETWORK AND BROAD PRODUCT OFFERINGS THAT OUR CUSTOMERS DEMAND AND DESERVE. KOLLMORGEN BELIEVES THAT THIS REALITY, COUPLED WITH THE NATURAL FIT OF OUR TWO COMPANIES, MAKES A KOLLMORGEN/PACIFIC SCIENTIFIC COMBINATION COMPELLING. KOLLMORGEN BELIEVES THAT THE COMBINED COMPANY WILL OFFER CUSTOMERS SUPERIOR PRODUCTS AND SERVICES. AMONG THE MANY ADVANTAGES CONTRIBUTING TO THE COMBINED COMPANY'S ABILITY TO ACHIEVE THESE GOALS WOULD BE: - CREATION OF AN INDUSTRY LEADER. A MERGER OF KOLLMORGEN AND PACIFIC SCIENTIFIC WILL ESTABLISH THE COMBINED ENTERPRISE AS A LEADER IN HIGH PERFORMANCE ELECTRONIC MOTION CONTROL--ONE OF THE FASTEST-GROWING SEGMENTS OF THE MOTORS AND CONTROLS BUSINESS. IN A FRAGMENTED INDUSTRY, THE COMBINED ENTERPRISE WILL BE BETTER POSITIONED TO COMPREHENSIVELY SERVE THE NEEDS OF CUSTOMERS AND TAKE ADVANTAGE OF CONSOLIDATION OPPORTUNITIES. - STRATEGIC AND OPERATIONAL FIT. HIGHLY COMPLEMENTARY MOTION CONTROL PRODUCT LINES WILL ENABLE THE COMBINED COMPANY TO BECOME A FULL-SERVICE PROVIDER. THE COMBINED COMPANY WILL BE WELL-POSITIONED TO CAPITALIZE ON THE COMPLEMENTARY PRODUCT LINES AND DIFFERING STRENGTHS OF KOLLMORGEN AND PACIFIC SCIENTIFIC ENABLING IT TO OFFER A BROADER ARRAY OF PRODUCTS AND SUPPORT SERVICES TO AN EXPANDED CUSTOMER BASE. IN ADDITION, THE COMBINED COMPANY WOULD TAKE ADVANTAGE OF COST SAVINGS AND EFFICIENCIES RESULTING FROM ECONOMIES OF SCALE IN RESEARCH AND DEVELOPMENT, MARKETING, PRODUCTION AND SOURCING. - ENHANCED CAPABILITY TO TAP FOREIGN MARKETS. THE INCREASED SIZE AND GLOBAL SCOPE OF THE COMBINED COMPANY WILL ENABLE IT TO MORE EFFECTIVELY MARKET ITS PRODUCTS TO CUSTOMERS AROUND THE WORLD. KOLLMORGEN HAS ALREADY ESTABLISHED A LOCAL PRESENCE IN GERMANY, FRANCE, ISRAEL, INDIA, CHINA AND ELSEWHERE. THE COMBINED ENTERPRISE WILL BE WELL-POSITIONED TO BUILD ON THIS FOUNDATION, PARTICULARLY IN EUROPE AND THE PACIFIC RIM. KOLLMORGEN BELIEVES THAT THE COMBINED 27 COMPANY WILL BE ABLE TO EXPAND ITS CUSTOMER BASE AND OFFER INTERNATIONAL ON-SITE PRODUCT SUPPORT TO CUSTOMERS, WHILE CONDUCTING MORE EFFECTIVE AND COST-EFFICIENT RESEARCH AND DEVELOPMENT, MARKETING, PRODUCTION AND SOURCING. - MANAGEMENT TEAM WITH PROVEN TRACK RECORD. KOLLMORGEN'S MANAGEMENT HAS DELIVERED YEAR OVER YEAR GROWTH IN SALES AND OPERATING INCOME FROM CONTINUING OPERATIONS FROM 1994 THROUGH 1996, AND WILL DO SO AGAIN IN 1997. KOLLMORGEN HAS ACHIEVED THIS BY FOCUSING ON ITS CORE OPERATIONS. KOLLMORGEN ALSO BELIEVES THAT ITS MANAGEMENT HAS MAXIMIZED ITS RETURNS FROM NON-STRATEGIC OPERATIONS. IN ADDITION, KOLLMORGEN'S MANAGEMENT HAS CONSIDERABLE EXPERTISE IN MANAGING DEBT, HAVING REDUCED KOLLMORGEN'S DEBT AND PREFERRED STOCK OBLIGATIONS BY MORE THAN 40% DURING THE PAST THREE FISCAL YEARS AND TRANSITIONED FROM FULLY-SECURED TO UNSECURED CREDIT ARRANGEMENTS. - ENHANCED GROWTH OPPORTUNITIES. KOLLMORGEN BELIEVES THAT THE COMBINED ENTERPRISE WILL BE WELL-POSITIONED, STRATEGICALLY, OPERATIONALLY AND FINANCIALLY, TO AGGRESSIVELY PURSUE ATTRACTIVE OPPORTUNITIES FOR EXTERNAL AND INTERNAL GROWTH. KOLLMORGEN IS CONFIDENT THAT THE COMBINED COMPANY'S INCREASED SIZE AND SCOPE WILL ENABLE IT TO BE A LEADER IN THE ACCELERATING CONSOLIDATION OF THE MOTION CONTROL INDUSTRY, AND RAISE ITS VISIBILITY IN THE BUSINESS AND FINANCIAL COMMUNITIES. WE BELIEVE THAT THE PROPOSED COMBINATION IS A BOLD, EXCITING INITIATIVE FOR PACIFIC SCIENTIFIC, KOLLMORGEN, AND THE SHAREHOLDERS, CUSTOMERS AND EMPLOYEES OF BOTH COMPANIES. WE ARE FIRMLY COMMITTED TO PURSUING THIS MATTER AND ARE CONVINCED THAT YOUR SHAREHOLDERS WILL STRONGLY SUPPORT OUR PROPOSAL. ALTHOUGH IT IS CLEAR TO US THAT YOU HAVE NOT UP TO NOW GIVEN ADEQUATE CONSIDERATION TO A KOLLMORGEN/PACIFIC SCIENTIFIC COMBINATION, IT IS OUR SINCERE HOPE THAT YOU WILL TAKE THIS OPPORTUNITY TO DO SO. YOUR SHAREHOLDERS DESERVE NO LESS THAN YOUR PROMPT AND FULL CONSIDERATION OF OUR PROPOSAL AND THE OPPORTUNITY TO REALIZE THE FULL BENEFITS OF THIS PROPOSED COMBINATION. WE ARE CERTAIN THAT ONCE YOU HAVE UNDERTAKEN AN INFORMED REVIEW OF OUR PROPOSAL, YOU WILL SHARE IN OUR VISION AND WILL SUPPORT A COMBINATION OF OUR TWO COMPANIES. WE CONTINUE TO BE INTERESTED IN PROCEEDING WITH THIS TRANSACTION ON A FRIENDLY AND EXPEDITIOUS BASIS SO THAT YOUR SHAREHOLDERS, AS WELL AS OURS, CAN BEGIN TO RECEIVE PROMPTLY THE BENEFITS OF OUR OFFER. IN ORDER TO ENSURE THAT YOUR SHAREHOLDERS ARE PERMITTED TO CHOOSE FREELY TO ACCEPT OUR OFFER, WE ARE ALSO ANNOUNCING TODAY OUR INTENTION TO SOLICIT CONSENTS TO CALL A SPECIAL MEETING OF PACIFIC SCIENTIFIC'S SHAREHOLDERS TO REMOVE THE INCUMBENT MEMBERS OF PACIFIC SCIENTIFIC'S BOARD OF DIRECTORS AND ELECT OUR NOMINEES TO THE BOARD. SUBJECT TO THEIR FIDUCIARY DUTIES, IF ELECTED WE EXPECT OUR NOMINEES WOULD AMEND THE PACIFIC SCIENTIFIC RIGHTS PLAN OR REDEEM THE RIGHTS TO ENABLE THE CONSUMMATION OF THE PROPOSED TRANSACTION, APPROVE THE PROPOSED TRANSACTION IF REQUIRED UNDER PACIFIC SCIENTIFIC'S CHARTER, AND TAKE ALL OTHER ACTIONS NECESSARY TO REMOVE ANY IMPEDIMENTS TO YOUR SHAREHOLDERS' ABILITY TO ACCEPT OUR OFFER. WE ALSO INTEND TO SUBMIT A PROPOSAL DESIGNED TO PREVENT THE CURRENT BOARD FROM TAKING ANY ACTIONS TO FRUSTRATE THE ABILITY OF PACIFIC SCIENTIFIC'S SHAREHOLDERS TO DETERMINE THE FUTURE OF THEIR COMPANY. WE ARE ALSO TODAY COMMENCING LITIGATION AGAINST PACIFIC SCIENTIFIC AND THE PACIFIC SCIENTIFIC BOARD IN THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA SEEKING TO ASSURE PACIFIC SCIENTIFIC'S SHAREHOLDERS THE RIGHT TO REPLACE THE PACIFIC SCIENTIFIC BOARD AND AN OPPORTUNITY TO ACCEPT OUR OFFER AND PROPOSED MERGER. WE URGE THE PACIFIC SCIENTIFIC BOARD OF DIRECTORS TO FACILITATE THE PROPOSED TRANSACTION AND REMOVE ALL OBSTACLES TO THE REALIZATION OF EXCEPTIONAL VALUE BY YOUR SHAREHOLDERS. AS INDICATED ABOVE, OUR PREFERENCE IS TO PROCEED WITH THE PROPOSED TRANSACTION ON A FRIENDLY BASIS AND WITH THE SUPPORT OF PACIFIC SCIENTIFIC'S MANAGEMENT AND BOARD OF DIRECTORS. ACCORDINGLY, WE AND OUR 28 ADVISORS REMAIN READY AND WILLING TO MEET WITH YOU AND YOUR ADVISORS AT ANY TIME TO DISCUSS OUR PROPOSAL AND COMMENCE THE NEGOTIATION OF DEFINITIVE DOCUMENTATION FOR THE TRANSACTION. WE LOOK FORWARD TO HEARING FROM YOU. VERY TRULY YOURS, GIDEON ARGOV CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER CC: MEMBERS OF THE BOARD OF DIRECTORS OF PACIFIC SCIENTIFIC COMPANY Later that same day, Kollmorgen commenced the Offer and the Solicitation and filed definitive consent solicitation materials and a related registration statement with the Commission. Also on December 15, 1997, Kollmorgen commenced litigation against Pacific Scientific and the Pacific Scientific Board in the United States District Court for the Central District of California seeking, among other things, an order (i) declaring that failure to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger or to approve the Offer and the Proposed Merger for purposes of Article Fifth would constitute a breach of the Pacific Scientific Board's fiduciary duties to Pacific Scientific shareholders under California law, (ii) invalidating the Rights or compelling the Pacific Scientific Board to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger, (iii) compelling the Pacific Scientific Board to approve the Offer and the Proposed Merger for purposes of Article Fifth and (iv) enjoining the Pacific Scientific Board from taking any actions to interfere with the Offer, the Solicitation or the Proposed Merger. THE SPECIAL MEETING In order to facilitate the Proposed Combination, Kollmorgen will be soliciting consents to call the Special Meeting in order to remove the entire Pacific Scientific Board, fill the vacancies created thereby with the Kollmorgen Nominees and approve the Bylaw Repeal Proposal. The Kollmorgen Nominees are expected to take all actions as may be necessary, subject to their fiduciary duties under applicable law, to facilitate the Proposed Combination by means of the Offer and the Proposed Merger. The Bylaw Repeal Proposal would repeal any and all provisions of the Pacific Scientific Bylaws, that have not been duly filed by Pacific Scientific with the Commission prior to August 11, 1997, including any and all amendments to the Pacific Scientific Bylaws adopted on or after December 15, 1997. The Bylaw Repeal Proposal is intended to rescind any actions taken by the Pacific Scientific Board as part of its efforts to create obstacles to the Proposed Combination, including the Offer and the Proposed Merger. Kollmorgen is furnishing to Pacific Scientific shareholders along with this Consent Solicitation Statement/ Prospectus a Form of Consent (pursuant to Article III, Sections 3 and 10 of the Pacific Scientific Bylaws and Chapter 13 of the California General Corporation Law (the "CGCL")) for use in giving your consent to call the Special Meeting. The Special Meeting will be held on February 4, 1998 or, if later, on the thirty-sixth day following the date on which the requisite number of consents to call the Special Meeting are delivered to Pacific Scientific. After the Special Meeting has been called, Kollmorgen will solicit proxies from you in support of its proposals by sending you a proxy statement and a proxy card for use therewith. WHY YOU SHOULD CONSENT TO CALL THE SPECIAL MEETING Kollmorgen believes that the Proposed Combination would offer benefits to the shareholders of both Pacific Scientific and Kollmorgen, but to date, the Pacific Scientific Board has been unwilling to 29 negotiate a business combination between the two companies. Nevertheless, Pacific Scientific shareholders have the power to determine Pacific Scientific's future by removing the current Pacific Scientific directors at the Special Meeting. By delivering a consent in favor of calling the Special Meeting, Pacific Scientific shareholders can choose a new direction for their company and take the first step towards the creation of a new board of directors which is expected, subject to its fiduciary duties, to be committed to creating immediate and long-term value for the Pacific Scientific shareholders through the realization of the Proposed Combination. CONSENT PROCEDURES ACTION BY CONSENT Pursuant to Section 701 of the CGCL, the Record Date for the determination of shareholders entitled to give consent to the proposed actions is the date on which the first such consent is given. Each outstanding share of Pacific Scientific Common Stock as of the Record Date will entitle the holder thereof to one vote by written consent. The consent of Pacific Scientific Common Shares represented by a Form of Consent that is returned properly signed will be given in accordance with the instructions indicated on that Form of Consent. If a Form of Consent is signed and returned without instructions, the consent of such Pacific Scientific Common Shares will be given "FOR" calling the Special Meeting. Shareholders of Pacific Scientific may revoke their consents by delivering a written notice of revocation to Kollmorgen in care of Georgeson & Company Inc. ("Georgeson") at the address set forth on the back cover of this Consent Solicitation Statement/Prospectus. Although a revocation is effective if delivered to the Secretary of Pacific Scientific, Kollmorgen requests that either the original or photostatic copies of all revocations be mailed or faxed to Kollmorgen in care of Georgeson at the address of facsimile number set forth on the back of this Consent Solicitation Statement/Prospectus so that Kollmorgen will be aware of all revocations and can more accurately determine if and when consents have been received from enough holders of Pacific Scientific Common Stock to call the Special Meeting. ACTION BY WRITTEN CONSENT REQUIREMENTS Pursuant to Section 600 of the CGCL and the Pacific Scientific Bylaws, the consent of the holders of not less than 10% of the votes entitled to be cast by the holders of shares of Pacific Scientific Common Stock outstanding and entitled to vote will be necessary to call the Special Meeting. THE OFFER AND THE PROPOSED MERGER TERMS OF THE OFFER AND THE PROPOSED MERGER On December 9, 1997, Kollmorgen delivered a letter to the Chief Executive Officer of Pacific Scientific outlining the Proposed Combination. To date Pacific Scientific has declined to enter into negotiations concerning a business combination with Kollmorgen. Consequently, on December 15, 1997, Kollmorgen delivered a letter to the Pacific Scientific Board again proposing the Proposed Combination and commenced the Offer and the Solicitation. The Offer is being made for 6,347,241 Pacific Scientific Common Shares, or such greater or lesser number of Pacific Scientific Common Shares that, when added to the number of Pacific Scientific Common Shares owned by Kollmorgen and Purchaser, would constitute the Minimum Number of Pacific Scientific Common Shares, at a price of $20.50 per Pacific Scientific Common Share, net to the seller in cash. The Offer is subject to the terms and conditions set forth in the Offer to Purchase and in the Letter of Transmittal, copies of which can be obtained by contacting from Georgeson at the address set forth on the back cover hereof. 30 Kollmorgen is seeking to negotiate with Pacific Scientific a definitive merger agreement providing for the Proposed Combination pursuant to which Pacific Scientific would, as soon as practicable following consummation of the Offer, consummate the Proposed Merger. At the Effective Time, each Pacific Scientific Common Share then outstanding (other than Pacific Scientific Common Shares held by Pacific Scientific or any wholly owned subsidiary of Pacific Scientific and Pacific Scientific Common Shares owned by Kollmorgen, Purchaser or any other direct or indirect wholly owned subsidiary of Kollmorgen) will be converted into the right to receive $20.50 of Kollmorgen Common Stock. The exact number of shares of Kollmorgen Common Stock into which each Pacific Scientific Common Share will be converted will be determined by dividing $20.50 by the Average Kollmorgen Share Price. In the event that the Average Kollmorgen Share Price during such period is less than $15.19 or greater than $18.56, the exchange ratio would be fixed at 1.350 shares of Kollmorgen Common Stock or 1.104 shares of Kollmorgen Common Stock, respectively, per Pacific Scientific Common Share. In such event, Pacific Scientific shareholders could receive Kollmorgen Common Stock in the Proposed Merger with a value of greater or less than $20.50. In the event that the Proposed Merger is consummated, shares of Pacific Scientific Common Stock will cease to be listed on the NYSE. Subject to the terms and conditions of the Proposed Merger and in accordance with the CGCL and the Delaware General Corporation Law, Pacific Scientific will be merged with and into Purchaser. Purchaser will be the surviving corporation in the Proposed Merger, and will continue its corporate existence under Delaware law. Kollmorgen reserves the right to cause Purchaser to amend the Offer and/or the Proposed Merger (including amending the number of Pacific Scientific Common Shares to be purchased, the purchase price therefor, the proposed merger consideration and the surviving entity in the Proposed Merger) at any time, including upon entering into a merger agreement with Pacific Scientific, or to negotiate a merger agreement with Pacific Scientific in connection with a merger not involving a tender offer pursuant to which Purchaser would terminate the Offer and the Pacific Scientific Common Shares would, upon consummation of such merger, be converted into cash and Kollmorgen Common Stock in such amounts as are negotiated by Kollmorgen and Pacific Scientific; provided, however, that Kollmorgen has no intention of reducing the consideration paid to Pacific Scientific shareholders below that being offered in the Offer and the Proposed Merger. Consummation of the Offer is subject to the fulfillment of a number of conditions, including, without limitation, the following: MINIMUM CONDITION. Consummation of the Offer is conditioned upon there being validly tendered and not withdrawn prior to the expiration of the Offer at least the Minimum Number of Pacific Scientific Common Shares (the "Minimum Condition"). Purchaser reserves the right (subject to the applicable rules and regulations of the Commission), which it currently has no intention of exercising, to waive or reduce the Minimum Condition and to elect to purchase, pursuant to the Offer, fewer than the Minimum Number of Pacific Scientific Common Shares. HSR CONDITION. Consummation of the Offer is conditioned upon the expiration or termination of any applicable waiting periods under the HSR Act (the "HSR Condition"). On December 15, 1997, Kollmorgen filed with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division") Premerger Notification and Report Forms under the HSR Act with respect to the Offer. Accordingly, Kollmorgen anticipates that the waiting period under the HSR Act applicable to the Offer will expire at 11:59 p.m., New York City time, on December 30, 1997, unless such waiting period is earlier terminated by the FTC and the Antitrust Division or extended by a request from the FTC or the Antitrust Division for additional information or documentary material prior to the expiration of the waiting periods. FINANCING CONDITION. Consummation of the Offer is conditioned upon Kollmorgen and Purchaser obtaining, prior to the expiration of the Offer, on terms satisfactory to Kollmorgen, in its sole discretion, 31 sufficient financing to enable consummation of the Offer and the Proposed Merger (the "Financing Condition"). Kollmorgen has entered into a binding commitment letter, dated December 9, 1997, with Salomon Smith Barney and its affiliate Salomon Brothers Holding Company Inc in which Salomon Brothers Holding Company Inc has committed, subject to the conditions set forth therein, to provide such financing, consisting of a fully secured financing in the syndicated loan market in the principal amount of $300 million. RIGHTS CONDITION. Consummation of the Offer is conditioned upon Purchaser being satisfied, in its sole discretion, that the Rights have been redeemed or invalidated or are otherwise inapplicable to the Offer and the Proposed Merger (the "Rights Condition"). The Rights are described in the Pacific Scientific Current Report on Form 8-K filed on February 16, 1996, and a brief summary of the Rights is provided below. Kollmorgen expects that, if elected, and subject to their fiduciary duties under applicable law, the Kollmorgen Nominees would cause the Pacific Scientific Board to amend the Rights Agreement or redeem the Rights, or otherwise act to ensure that the Rights Condition is satisfied. ARTICLE FIFTH CONDITION. Consummation of the Offer is conditioned upon Purchaser being satisfied, in its sole discretion, that the Offer and the Proposed Merger have been approved (if necessary) for purposes of Article Fifth or Article Fifth, has been invalidated or is otherwise satisfied with respect to the Offer and the Proposed Merger (the "Article Fifth Condition"). Kollmorgen expects that, if elected, and subject to their fiduciary duties under applicable law, the Kollmorgen Nominees would cause the Pacific Scientific Board to approve the Offer and the Proposed Merger for purposes of Article Fifth. KOLLMORGEN SHAREHOLDER APPROVAL CONDITION. Consummation of the Offer is conditioned upon the approval of shareholders of Kollmorgen of the issuance of the Kollmorgen Common Stock to be issued in the Proposed Merger. Kollmorgen intends to hold a special meeting of its shareholders on or about January 28, 1998 for the purpose of approving the issuance of Kollmorgen Common Stock in the Proposed Merger. See "Subsequent Votes Relating to the Proposed Merger--Kollmorgen Shareholder Vote Required". The foregoing is only a summary of certain principal terms and conditions of the Offer and is qualified in its entirety by reference to the Offer to Purchase, which can be obtained by contacting Georgeson at the address set forth on the back cover hereof. CERTAIN LITIGATION On December 15, 1997, Kollmorgen commenced litigation against Pacific Scientific and the Pacific Scientific Board in the United States District Court for the Central District of California seeking, among other things, an order (i) declaring that failure to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger or to approve the Offer and the Proposed Merger for purposes of Article Fifth would constitute a breach of the Pacific Scientific Board's fiduciary duties to Pacific Scientific shareholders under California law, (ii) invalidating the Rights or compelling the Pacific Scientific Board to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger, (iii) compelling the Pacific Scientific Board to approve the Offer and the Proposed Merger for purposes of Article Fifth, and (iv) enjoining the Pacific Scientific Board from taking any actions to interfere with the Offer, the Solicitation or the Proposed Merger. 32 THE COMPANIES KOLLMORGEN Kollmorgen believes it is one of the major worldwide manufacturers of high performance electronic motion control components and systems. Kollmorgen's products include brushless, permanent magnet motors and associated electronic servo amplifiers and controllers. Kollmorgen also manufacturers integrated electromechanical actuators and periscopes, as well as stabilized weapons control systems for ground vehicles and naval vessels. These products and systems are manufactured by Kollmorgen in the United States, France, Germany, Israel, India, Vietnam and the People's Republic of China, and are sold around the world by Kollmorgen's separate sales and marketing organizations for each of the commercial and industrial and aerospace and defense markets. Kollmorgen's commercial and industrial products are sold to original equipment manufacturers of machine tools, robotics, electronic, semi-conductor and automation equipment, packaging and textile machinery, medical instruments and equipment, office automation and computer peripherals. Kollmorgen's aerospace and defense products include components and systems for secondary flight controls, utility actuators, airborne power conversion equipment, radar pedestals, weapons directors, periscopes and missiles. A wholly owned subsidiary of Kollmorgen, Proto-Power Corporation, provides engineering services to domestic fossil and nuclear electric companies and independent power producers. PURCHASER Purchaser, a wholly owned subsidiary of Kollmorgen, was formed in December 1997 by Kollmorgen solely for the purpose of effecting the Offer and the Proposed Merger and has not carried on any activities other than in connection with the Offer and the Proposed Merger. PACIFIC SCIENTIFIC According to the Pacific Scientific 1996 Form 10-K, Pacific Scientific manufactures and sells the products of two segments -- electrical equipment and safety equipment. The electrical equipment segment produces: electric motors and generators and related motion control devices such as controllers and drivers; electronic instruments for particle measurement; electromechanical and electronic controls for use mainly by electric utilities, including the controls for street and highway lighting and electronic ballasts for fluorescent lights. The safety equipment segment produces: fire detection and suppression equipment; personnel safety restraints; mechanical and electromechanical flight control components; and pyrotechnics. This segment also provides service for products already delivered to customers. These products are used mainly in commercial and military aircraft and vehicles, but are also used in a variety of other commercial and industrial applications. FORWARD-LOOKING STATEMENTS This Consent Solicitation Statement/Prospectus, the Registration Statement on Form S-4 of which the Consent Solicitation Statement/Prospectus forms a part (the "Registration Statement"), exhibits thereto and the information incorporated by reference therein contain forward-looking statements which involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Among other matters, the forward-looking statements include, without limitation, the information about the business, strategy, plans and objectives, operations, planned capital expenditures, management, forecasted operating results and operating statistics and potential financial condition, revenue enhancements, cost savings and accretion to earnings and pro forma financial information, with respect to the combined company, and the information concerning the Proposed Combination. All discussions of the operations of the combined companies include forward-looking statements. Forward-looking statements also include, without limitation, those preceded or followed by or that 33 include the words "may", "believes", "expects", "anticipates" or the negation thereof, or similar expressions. All forward-looking statements included in this Consent Solicitation Statement/Prospectus and, the Registration Statement, exhibits and information incorporated by reference, are based on the information available to Kollmorgen on the date of this Consent Solicitation Statement/Prospectus and in the case of the information incorporated by reference on the basis of information available to Kollmorgen on the date of the documents in which such forward-looking statements are contained. Kollmorgen undertakes no obligation publicly to update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. The forward-looking statements are subject to a number of factors that could cause actual results to differ materially from Kollmorgen's current expectation, all of which are difficult to predict accurately and many of which are beyond the control of Kollmorgen. Certain factors, in addition to other factors not listed herein or discussed in the information incorporated by reference herein, could cause the actual results to differ materially from those expressed or implied in the forward-looking statements made herein. Such factors include those discussed under "Risk Factors" as well as: materially adverse changes in U.S. and international economic conditions, in Kollmorgen's industry and in the markets served by Kollmorgen and Pacific Scientific; lower than expected revenues from the sale of its existing products and services because of changes in product demand and market acceptance; the effect of competitive products, development of new technologies and pricing from large, multinational motion technology competitors (both current and emerging), many of which have greater financial, technical, marketing and other resources; unanticipated product development costs; moderating growth rates in commercial lines of business; lack of market acceptance of new products because of lower than expected levels of customer demand, technological difficulties in these newly introduced products, or the timeliness of these product introductions; unanticipated reduction in existing utility customers' requirements for engineering services; increased working capital needs; unexpected capital expenditure requirements; difficulty in obtaining favorable financing arrangements either due to an unfavorable institutional lending environment or the inability to obtain financing because of leverage; the inability to achieve expected synergies; fluctuations in foreign currency exchange rates; and a significant delay in the expected completion of the Proposed Merger. All subsequent written or oral forward-looking statements attributable to Kollmorgen or to persons acting on its behalf are qualified in their entirety by the preceding cautionary statements. 34 UNAUDITED PRO FORMA FINANCIAL INFORMATION KOLLMORGEN PRO FORMA ADJUSTED HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
Seidel Servotronix January 1, 1997 January 1, 1997 Kollmorgen to to Pro Forma Kollmorgen June 9, 1997 April 1, 1997 Pro Forma Adjusted Historical Historical(a) Historical(a) Adjustments Historical ----------- --------------- ----------------- ----------- ----------- Revenues.................. $ 163,054 $ 9,591 $ 543 $ 173,188 Cost of Revenues.......... 113,590 6,622 329 120,541 ----------- ------- ----- ----------- Gross Margin.............. 49,464 2,969 214 52,647 Operating Expenses: Sales, Marketing, General and Administrative........ 32,131 1,734 95 33,960 Research and Development........... 7,249 334 125 7,708 Acquired Research and Development........... 11,391 -- -- $ (11,391)(b) -- Amortization of Goodwill.............. 284 -- -- 242(c) 526 ----------- ------- ----- ----------- ----------- Operating Income (Loss)... (1,591) 901 (6) 11,149 10,453 Other Income (Expense), Net..................... (2,646) (32) 6 816(d) (1,856) ----------- ------- ----- ----------- ----------- Income (Loss) Before Taxes................... (4,237) 869 -- 11,965 8,597 Provision for Income Taxes................... (1,978) -- -- (335)(e) (3,095) (782)(e) ----------- ------- ----- ----------- ----------- Net Income (Loss) from Continuing Operations before Investment in Joint Venture........... (6,215) 869 -- 10,848 5,502 Joint Venture: Equity in Earnings...... 1,430 -- -- (1,430)(d) -- Gain on Sale of Investment, Net of Taxes................. 24,321 -- -- (24,321)(d) -- ----------- ------- ----- ----------- ----------- Net Income................ $ 19,536 $ 869 $ -- $ (14,903) $ 5,502 ----------- ------- ----- ----------- ----------- ----------- ------- ----- ----------- ----------- Net Income per Share-- Fully Diluted........... $ 1.87 -- -- $ 0.53 Weighted Average Number of Common Shares Outstanding............. 10,444 -- -- 10,444
- ------------------------ Note: The accompanying notes are an integral part of these pro forma adjusted historical consolidated financial statements. 35 KOLLMORGEN PRO FORMA ADJUSTED HISTORICAL CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
KOLLMORGEN'S KOLLMORGEN MACBETH FRENCH PRO FORMA KOLLMORGEN SEIDEL SERVOTRONIX DIVISION INSTRUMENT PRO FORMA ADJUSTED HISTORICAL HISTORICAL(A) HISTORICAL(A) HISTORICAL(F) GROUP(G) ADJUSTMENTS HISTORICAL ------------ ----------- ------------- -------------- ----------- ------------- ------------ Revenues................. $ 230,424 $ 19,179 $ 2,566 $ (32,104) $ (932) $ 219,133 Cost of Revenues......... 152,928 13,346 1,307 (15,819) (848) 150,914 ------------ ----------- ------------- -------------- ----------- ------------ Gross Margin............. 77,496 5,833 1,259 (16,285) (84) 68,219 Operating Expenses: Sales, Marketing, General and Administrative....... 51,918 4,107 365 (10,027) (822) 45,541 Research and Development.......... 12,143 822 813 (2,744) (364) 10,670 Amortization of Goodwill............. -- -- -- -- -- $ 701(c) 701 ------------ ----------- ------------- -------------- ----------- ------------- ------------ Operating Income (Loss)................. 13,435 904 81 (3,514) 1,102 (701) 11,307 Other Income (Expense), Net.................... (4,531) (133) (81) 120 -- 1,593(d) (3,032) ------------ ----------- ------------- -------------- ----------- ------------- ------------ Income (Loss) Before Taxes.................. 8,904 771 -- (3,394) 1,102 892 8,275 Provision for Income Taxes.................. -- -- -- -- -- (478)(e) (2,317) (1,839)(e) ------------ ----------- ------------- -------------- ----------- ------------- ------------ Net Income (Loss)........ 8,904 771 -- (3,394) 1,102 (1,425) 5,958 Preferred Dividends...... (285) -- -- -- -- (285) ------------ ----------- ------------- -------------- ----------- ------------- ------------ Income Available to Common Shareholders.... $ 8,619 $ 771 $ -- $ (3,394) $ 1,102 $ (1,425) $ 5,673 ------------ ----------- ------------- -------------- ----------- ------------- ------------ ------------ ----------- ------------- -------------- ----------- ------------- ------------ Net Income per Share - Fully Diluted.......... $ 0.86 -- -- -- -- -- $ 0.56 Weighted Average Number of Common Shares Outstanding............ 10,042 -- -- -- -- -- 10,042
- ------------------------ Note: The accompanying notes are an integral part of these pro forma adjusted historical consolidated financial statements. 36 KOLLMORGEN NOTES TO PRO FORMA ADJUSTED HISTORICAL CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) A. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS On April 2, 1997, Kollmorgen acquired Servotronix, a developer and manufacturer of motion control technology that is headquartered in Israel. On June 10, 1997, Kollmorgen acquired Seidel, a developer and manufacturer of motion control technology that is headquartered in Germany. Both acquisitions were accounted for as purchases and together, resulted in an in-process research and development charge of $11,391 in 1997. The pro forma adjusted historical consolidated statements of operations set forth the results of operations for the nine-month period ended September 30, 1997 and the year ended December 31, 1996, as if the acquisitions by Kollmorgen of Seidel and Servotronix, and the disposal of Macbeth had occurred at January 1, 1996. The pro forma adjusted historical consolidated statements of operations are intended for information purposes and are not necessarily indicative of actual results had the transactions occurred as of the date indicated above, nor do they purport to indicate the future results of operations. These pro forma adjusted historical consolidated statements of operations should be read in conjunction with the financial statements and notes thereto included in Kollmorgen's Annual Report on Form 10-K for the year ended December 31, 1996, Kollmorgen's Current Report on Form 8-K filed January 31, 1997 and Kollmorgen's Form 10-Q for the nine-month period ended September 30, 1997. The pro forma adjusted historical consolidated statements of operations do not give effect to any potential cost savings and synergies that could result from the Servotronix and Seidel acquisitions. B. PRO FORMA ADJUSTMENTS TO PRO FORMA ADJUSTED HISTORICAL CONSOLIDATED STATEMENTS OF OPERATIONS (a) These columns represent the unaudited historical results of operations of Seidel and Servotronix for the period prior to Kollmorgen's acquisition. Upon acquisition these operations became part of Kollmorgen's historical financial statements. (b) This adjustment eliminates the charge for acquired in-process research and development costs recognized principally upon the acquisition of Seidel and Servotronix. Since these amounts are not continuing expenditures of Kollmorgen, they are deducted from the historical consolidated statement of operations to arrive at the Kollmorgen pro forma adjusted historical financial statements. (c) These adjustments reflect the goodwill amortization for the periods, assuming both acquisitions occurred at January 1, 1996. The goodwill resulting from the acquisitions of Seidel and Servotronix of $10,509 which reflects the aggregate excess purchase price over the fair value of net assets acquired and in-process research and development. Goodwill attributable to these acquisitions is being amortized over 15 years. For purposes of allocating the acquisition costs among the various assets acquired, the carrying value of the acquired assets approximated their fair value, with all the excess of such acquisition costs being attributed to in-process acquired research and development and goodwill. It is Kollmorgen's intention to continue to evaluate the acquired assets and, as a result, the allocation of the acquisition costs among the tangible and intangible assets acquired may change. All material intercorporate transactions were eliminated. 37 KOLLMORGEN NOTES TO PRO FORMA ADJUSTED HISTORICAL CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA) (CONTINUED) B. PRO FORMA ADJUSTMENTS TO PRO FORMA ADJUSTED HISTORICAL CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) (d) Effective December 31, 1996, Kollmorgen contributed its Macbeth business to a joint venture for a 48% interest. The investment was accounted for under the equity method. In the second quarter of 1997, Kollmorgen sold its interest in the joint venture for a gain of $24,321, which has been eliminated as a pro forma adjustment. The $1,430 adjustment represents the elimination of Kollmorgen's proportionate earnings of the joint venture from the beginning of the period through the time of the sale. Kollmorgen used a portion of the proceeds from the sale of its interest in the joint venture to repay the outstanding balance of a $25 million term loan. Accordingly, interest expense related to this debt of $816 and $1,593, has been excluded from these pro forma statements of operations for the nine months ended September 30, 1997 and the year ended December 31, 1996, respectively. (e) These adjustments represent (i) the estimated income tax effect of the pro forma adjustments at the blended statutory rates of 36% and 28% for 1997 and 1996, respectively, and (ii) an increase in income tax provision that would have resulted from the full utilization of net operating loss carryforwards had the gain on sale of investment in Macbeth occurred at January 1, 1996. (f) This column represents the historical results of operations of Macbeth for the period prior to December 31, 1996, the effective date of Kollmorgen's contribution of that business to a joint venture, at which point those operations were accounted for on the equity method in Kollmorgen's historical financial statements. (g) In March 1996, Kollmorgen sold a portion of its instrumentation business located in France for its book value. This column represents the elimination of the results of this business for 1996. 38 KOLLMORGEN PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
KOLLMORGEN PRO FORMA PACIFIC ADJUSTED SCIENTIFIC PRO FORMA HISTORICAL HISTORICAL(A) ADJUSTMENTS PRO FORMA ----------- ---------------- ------------ ----------- Revenues.......................................... $ 173,188 $ 227,744 $ 400,932 Cost of Revenues.................................. 120,541 154,428 274,969 ----------- ---------------- ----------- Gross Margin...................................... 52,647 73,316 125,963 Operating Expenses: Sales, Marketing, General and Administrative.... 33,960 47,397 81,357 Research and Development........................ 7,708 9,880 17,588 Amortization of Goodwill........................ 526 -- $ 8,537(b) 9,063 ----------- ---------------- ------------ ----------- Operating Income.................................. 10,453 16,039 (8,537) 17,955 Other Income (Expense), Net....................... (1,856) (1,630) (8,838)(c) (12,967) (643)(c) ----------- ---------------- ------------ ----------- Income Before Taxes............................... 8,597 14,409 (18,018) 4,988 Provision for Income Taxes........................ (3,095) (5,384) 3,792(d) (4,686) ----------- ---------------- ------------ ----------- Net Income from Continuing Operations............. $ 5,502 $ 9,025 $ (14,226) $ 302 ----------- ---------------- ------------ ----------- ----------- ---------------- ------------ ----------- Net Income per Share from Continuing Operations - Fully Diluted $ 0.53 $ 0.73 $ 0.02 Weighted Average Number of Common Shares Outstanding..................................... 10,444 12,443 (12,443 (e) 18,226 7,782 (e)
- ------------------------ Note: The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. 39 KOLLMORGEN PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1996 (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
KOLLMORGEN PRO FORMA PACIFIC ADJUSTED SCIENTIFIC PRO FORMA HISTORICAL HISTORICAL(F) ADJUSTMENTS PRO FORMA ----------- ------------ ------------ ----------- Revenues.............................................. $ 219,133 $ 294,779 $ 513,912 Cost of Revenues...................................... 150,914 203,074 353,988 ----------- ------------ ----------- Gross Margin.......................................... 68,219 91,705 159,924 Operating Expenses: Sales, Marketing, General and Administrative.................................. 45,541 63,569 109,110 Research and Development.......................... 10,670 15,974 26,644 Cost of Solium Restructuring and Other............ -- 7,500 7,500 Amortization of Goodwill.......................... 701 -- $ 11,383(b) 12,084 ----------- ------------ ------------ ----------- Operating Income...................................... 11,307 4,662 (11,383) 4,586 Other Income (Expense), Net........................... (3,032) (4,362) (11,785)(c) (20,036) (857)(c) ----------- ------------ ------------ ----------- Income (Loss) Before Taxes............................ 8,275 300 (24,025) (15,450) Benefit (Provision) for Income Taxes.................. (2,317) (131) 5,057(d) 2,609 ----------- ------------ ------------ ----------- Net Income (Loss)..................................... 5,958 169 (18,968) (12,841) Preferred Dividends................................... (285) -- -- (285) ----------- ------------ ------------ ----------- Income Available to Common Shareholders........................................ $ 5,673 $ 169 $ (18,968) $ (13,126) ----------- ------------ ------------ ----------- ----------- ------------ ------------ ----------- Net Income (Loss) per Share -- Fully Diluted............................................. $ 0.56 $ 0.01 $ (0.74) Weighted Average Number of Common Shares Outstanding.................................. 10,042 12,457 (12,457)(e) 17,824 7,782(e)
- ------------------------ Note: The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. 40 KOLLMORGEN PRO FORMA COMBINED CONDENSED CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997 (UNAUDITED) (IN THOUSANDS)
PACIFIC PRO FORMA KOLLMORGEN SCIENTIFIC ADJUSTMENTS PRO FORMA ----------- ---------------- ------------ ----------- ASSETS Current Assets: Cash and Cash Equivalents........................ $ 17,881 $ 3,174 $ 21,055 Accounts Receivable, Net......................... 41,367 51,078 92,445 Inventories...................................... 25,486 54,611 80,097 Deferred Income Taxes............................ -- 9,986 9,986 Other Current Assets............................. 6,385 6,946 13,331 ----------- ---------------- ----------- Total Current Assets............................. 91,119 125,795 216,914 Property and Equipment, Net........................ 26,006 49,411 75,417 Note Receivable.................................... -- 8,700 8,700 Investment in Joint Venture........................ 14,483 -- 14,483 Other Assets, Net.................................. 10,536 36,894 $ 6,000(c) 53,430 Goodwill, Net...................................... -- -- 170,744(g) 170,744 ----------- ---------------- ------------ ----------- Total Assets....................................... $ 142,144 $ 220,800 $ 176,744 $ 539,688 ----------- ---------------- ------------ ----------- ----------- ---------------- ------------ ----------- LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts Payable and Accrued Liabilities......... $ 49,759 $ 22,874 $ 72,633 Other Current Liabilities........................ 13,153 13,908 27,061 Reserve for Discontinued Solium Operation........ -- 4,593 4,593 ----------- ---------------- ----------- Total Current Liabilities........................ 62,912 41,375 104,287 Long-Term Obligations.............................. 37,249 76,560 $ 147,309(c) 261,118 Minority Interest.................................. 72 -- -- 72 ----------- ---------------- ------------ ----------- Total Liabilities.................................. 100,233 117,935 147,309 365,477 Stockholders' Equity............................... 41,911 102,865 132,300(h) 174,211 (102,865)(h) ----------- ---------------- ------------ ----------- Total Liabilities and Stockholders' Equity......... $ 142,144 $ 220,800 $ 176,744 $ 539,688 ----------- ---------------- ------------ ----------- ----------- ---------------- ------------ -----------
- ------------------------ Note: The accompanying notes are an integral part of these pro forma combined condensed consolidated financial statements. 41 KOLLMORGEN NOTES TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) A. PRO FORMA BASIS OF PRESENTATION AND ADJUSTMENTS The pro forma combined condensed consolidated financial statements are prepared assuming that Kollmorgen has merged with Pacific Scientific, a manufacturer of high-performance rotating electrical equipment, including motors, generators and alternators. The Proposed Combination will be effected through the exchange of approximately 7,782,000 shares of common stock of Kollmorgen and cash of $132,309, resulting in a total estimated purchase price, including other costs of approximately $15,000, of approximately $279,609. The shares of Kollmorgen common stock are assumed to be issued at a value of $17.00 per share, which reflects the closing price of the Company's common stock as of December 10, 1997. This share price differs from the December 12, 1997 share price of $16.88 referred to elsewhere in the Consent Solicitation/Prospectus. Application in these pro forma statements of the $16.88 per share value would not materially impact the pro forma values presented herein. The ultimate number of shares issued to acquire Pacific Scientific will be in the range of approximately 7,007,880 to 8,569,043 shares, dependent upon the 20-day average closing price of Kollmorgen Common Stock five days prior to closing. Kollmorgen has ascribed no value to Pacific Scientific's preferred stock purchase rights which will be acquired in the Proposed Combination. A change in the number of shares issued upon final consummation of the proposed transaction from the amounts assumed above would effect the pro forma net income per share for the periods presented. The transaction will be accounted for as a purchase. The pro forma combined condensed consolidated balance sheet includes the financial statements of Kollmorgen and Pacific Scientific at September 30, 1997, as if the Proposed Combination had occurred on that date. The pro forma combined condensed consolidated statements of operations set forth the results of operations for the nine-month period ended September 30, 1997 and the year ended December 31, 1996, as if the Proposed Combination had occurred at January 1, 1996. The pro forma combined condensed consolidated financial statements are intended for information purposes and are not necessarily indicative of actual results had the Proposed Combination occurred as of the dates indicated above, nor do they purport to indicate the future consolidated financial position or future results of operations of the combined entity. Pacific Scientific's historical financial data was derived from Pacific Scientific's Annual Report on Form 10-K for the year ended December 27, 1996, and Pacific Scientific's Form 10-Q for the nine-month period ended September 26, 1997. For Kollmorgen's pro forma adjusted historical financial data, see "Pro Forma Adjusted Historical Consolidated Statement of Operations" for the nine months ended September 30, 1997 and the year ended December 31, 1996 presented elsewhere herein. These combined condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in Kollmorgen's Annual Report on Form 10-K for the year ended December 31, 1996, Kollmorgen's Form 10-Q for the nine month period ended September 30, 1997, Pacific Scientific's Annual Report on Form 10-K for the year ended December 27, 1997 and Pacific Scientific's Form 10-Q for the nine-month period ended September 26, 1997. B. PRO FORMA ADJUSTMENTS TO PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (a) Pacific Scientific's statement of operations as presented on Form 10-Q for the nine months ended September 26, 1997, reflects a Loss from Discontinued Operations of $13,563, Net Loss of 42 $4,358, Loss per share on Discontinued Operations of $1.09 and Net Loss per share of $0.36. This pro forma statement reflects only results from continuing operations. (b) These pro forma adjustments reflect the amortization of goodwill assumed to be generated in the Proposed Combination over the estimated useful life of fifteen years on a straight-line basis. The ultimate allocation of the purchase price to the net assets acquired, goodwill, other intangible assets, liabilities assumed and incomplete technology is subject to final determination of their respective fair values. A determination of the fair value of incomplete technology, if any, is subject to a detailed analysis of the tangible and intangible assets related to in-process research and development on new products of Pacific Scientific. The value assigned to in-process research and development could result in a material charge to operations at consummation of the transaction and a corresponding reduction in the amounts to be amortized. There were no intercorporate transactions that required elimination. (c) The pro forma combined condensed consolidated balance sheet reflects Kollmorgen's securing the Loan as if the issuance occurred on September 30, 1997. The term loan is payable over seven years. The Loan accrues interest at a rate of LIBOR plus 2%. At the date of the Proposed Combination, this interest rate is assumed to be 8%. The pro forma combined condensed consolidated statements of operations include the interest expense associated with the Loan as if the issuance occurred at January 1, 1996 of $8,838 and $11,785, for the nine months ended September 30, 1997 and the year ended December 31, 1996, respectively. Under applicable pro forma rules, interest income associated with the proceeds from the Loan, which may partially offset the interest expense, is not included in the pro forma statements of operations. Estimated debt issuance costs of $6,000 for credit facility commitment fees have been included in other long-term assets and are being amortized over the term of the Loan. Amortization of debt issuance costs on the Loan for the nine months ended September 30, 1997 and the year ended December 31, 1996 are estimated to be $643 and $857, respectively. (d) This adjustment represents the estimated income tax effect of the pro forma adjustments using a combined U.S. federal and state statutory rate of 40% for both 1996 and the first nine months in 1997. (e) The pro forma adjustments reflect the exchange of Pacific Scientific's weighted average number of common shares outstanding of 12,443,000 and 12,457,000, for the nine months ended September 30, 1997 and the year ended December 31, 1996, respectively, and the issuance of Kollmorgen's common shares to be exchanged in the transaction of 7,782,000 assuming an exchange ratio of 1.2 shares of Kollmorgen Common Stock for one share of Pacific Scientific Common Stock for those shares outstanding as of September 26, 1997 not exchanged for cash. (f) The Pacific Scientific historical financial statements for 1996 included in these pro forma combined condensed consolidated financial statements include the results of operations of Pacific Scientific's Solium business, which was discontinued in 1997. Had the pro forma financial statements been adjusted to exclude the Solium business, net sales would have decreased by $2,416, and pre-tax income would have increased by $14,541. (g) The pro forma adjustment reflects the excess purchase price over the fair value of net assets assumed to be acquired of $170,744. Estimated transaction related costs of $9,000 for investment banker fees, accounting and legal fees, and other various deal costs have been included in the determination of goodwill. For purposes of these pro forma financial statements, the fair value of the assets acquired is estimated to be equivalent to the historical financial statement balance as of the date of acquisition. The ultimate allocation of the purchase price to the net assets acquired, goodwill, other intangible assets, liabilities assumed and a charge for incomplete technology is subject to final determination of their respective fair values. (h) The pro forma combined condensed consolidated balance sheet reflects an increase for the value of 7,782 common shares at $17.00 per share assumed to be issued by Kollmorgen in the Proposed Merger to Pacific Scientific shareholders of $132,300, and an elimination of the net equity of Pacific Scientific of $102,865. 43 MATERIAL FEDERAL INCOME TAX CONSEQUENCES The following discussion, subject to the limitations set forth herein, describes the material federal income tax consequences of the Offer and the Proposed Merger to holders of Pacific Scientific Common Shares who hold Pacific Scientific Common Shares as capital assets and exchange Pacific Scientific Common Shares for cash and/or shares of Kollmorgen Common Stock pursuant to the Offer and the Proposed Merger and represents the opinion of Shearman & Sterling, special tax counsel to Kollmorgen. The tax consequences to a specific shareholder may vary depending upon such shareholder's particular tax situation, and the discussion set forth below may not apply to certain categories of holders of Pacific Scientific Common Shares subject to special treatment under the Internal Revenue Code of 1986, as amended (the "Code"), such as foreign shareholders, securities dealers, broker-dealers, insurance companies, financial institutions, tax-exempt entities and shareholders who acquired such Pacific Scientific Common Shares pursuant to an exercise of an employee stock option or otherwise as compensation or who hold restricted stock. The discussion is based on the Code as in effect on the date of this Consent Solicitation Statement/Prospectus, as well as regulations promulgated thereunder, existing administrative interpretations and court decisions currently in effect, all of which are subject to change, retroactively or prospectively, and to possibly differing interpretations and does not address state, local or foreign tax laws. Since the Offer is conditioned upon, among other events, the Rights having been redeemed or invalidated or being otherwise inapplicable to the Offer and the Proposed Merger, this tax discussion assumes the satisfaction of such condition and thus no allocation of consideration to the Rights or the Rights Certificates. No ruling will be requested from the Internal Revenue Service (the "IRS") regarding the tax consequences of the Offer and the Proposed Merger and, thus, there can be no assurance that the IRS will agree with the discussion set forth below. The exchange of Pacific Scientific Common Shares for cash and/or shares of Kollmorgen Common Stock pursuant to the Offer and the Proposed Merger should, if consummated as currently anticipated, be treated as a single integrated transaction for federal income tax purposes. Although it cannot be determined at this time, if the Offer and the Proposed Merger are so treated, and assuming certain other requirements are satisfied, the Offer and the Proposed Merger, taken together, will be treated for federal income tax purposes as an exchange pursuant to a plan of "reorganization" within the meaning of Section 368(a)(1)(A) of the Code. In such event, the exchange of Pacific Scientific Common Shares for Kollmorgen Common Stock in the Proposed Merger would qualify for nonrecognition treatment as part of a reorganization. Treatment of the Offer and the Proposed Merger as a "reorganization" requires, among other things, that not more than 60% of the consideration received by shareholders of Pacific Scientific in exchange for Pacific Scientific Common Shares consists of cash (including cash received in lieu of fractional shares of Kollmorgen Common Stock and cash received in respect of dissenters' rights, if any, in the Proposed Merger), that the Proposed Merger, if consummated, qualifies as a merger under applicable state corporation laws and that the shareholder continuity of interest tax requirement is satisfied. If the Proposed Merger does not qualify as a reorganization, the exchange of Pacific Scientific Common Shares for Kollmorgen Common Stock would be a taxable exchange. There can be no assurance that the requirements for reorganization treatment will be satisfied and neither Kollmorgen nor Purchaser is obligated to undertake to qualify the Offer and the Proposed Merger as a reorganization. Further, if as matters develop reorganization treatment is not certain, Kollmorgen may change the form of effecting the Proposed Merger to ensure that the Proposed Merger will not be taxable to Pacific Scientific. In the event of such a change, however, the exchange of Pacific Scientific Common Shares for Kollmorgen Common Stock in the Proposed Merger will be taxable to exchanging Pacific Scientific shareholders. SHAREHOLDERS OF PACIFIC SCIENTIFIC SHOULD CONSIDER THAT THE OFFER AND THE PROPOSED MERGER CONSIDERATION WILL BE PARTIALLY OR FULLY TAXABLE TO THEM AND ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF 44 THE OFFER AND THE PROPOSED MERGER. THE EXCHANGE OF PACIFIC SCIENTIFIC COMMON SHARES FOR KOLLMORGEN COMMON STOCK IN THE PROPOSED MERGER MAY QUALIFY FOR NONRECOGNITION TREATMENT AS PART OF A REORGANIZATION OR MAY BE A TAXABLE TRANSACTION. NEITHER KOLLMORGEN NOR PURCHASER IS OBLIGATED TO QUALIFY THE TRANSACTION AS A REORGANIZATION AND THERE IS NO ASSURANCE THAT THE REQUIREMENTS FOR REORGANIZATION TREATMENT WILL BE SATISFIED. TAX CONSEQUENCES IF THE OFFER AND THE PROPOSED MERGER DO NOT QUALIFY AS A REORGANIZATION OR IF THE PROPOSED MERGER IS TREATED AS A TAXABLE TRANSACTION If the Proposed Merger is not consummated, or if the Proposed Merger is consummated but the Offer is treated for federal income tax purposes as a separate transaction, or if the Offer and the Proposed Merger together are determined not to qualify as a reorganization as described above, the receipt of cash pursuant to the Offer will be a taxable transaction for federal income tax purposes. In that event, each shareholder of Pacific Scientific tendering pursuant to the Offer will recognize capital gain or loss for federal income tax purposes measured by the difference between such shareholder's tax basis in such shareholder's Pacific Scientific Common Shares tendered in the Offer and the amount of cash received by such shareholder. (See "Taxation of Capital Gains" below.) If the Offer is treated as a separate transaction, the Proposed Merger may still qualify as a reorganization under Section 368(a) of the Code if certain other requirements are satisfied. In that event, a shareholder of Pacific Scientific receiving shares of Kollmorgen Common Stock and/or cash (either in lieu of fractional shares of Kollmorgen Common Stock or in respect of dissenters' rights) in the Proposed Merger would be subject to the federal income tax rules concerning reorganizations discussed below with respect to such shares of Kollmorgen Common Stock and such cash. If the Offer and the Proposed Merger (or, if treated as separate transactions, the Proposed Merger) do not qualify as a reorganization within the meaning of Section 368(a) of the Code, each exchanging shareholder of Pacific Scientific will recognize capital gain or loss for federal income tax purposes measured by the difference between such shareholder's tax basis in such shareholder's Pacific Scientific Common Shares exchanged and the amount of cash, plus the fair market value of the shares of Kollmorgen Common Stock received by such shareholder in the Proposed Merger. TAX CONSEQUENCES IF THE OFFER AND THE PROPOSED MERGER QUALIFY AS A REORGANIZATION As discussed above, it is possible, although it cannot be determined at this time, that the Offer and the Proposed Merger, taken together, will constitute a "reorganization" within the meaning of Section 368(a) of the Code. If the Offer and the Proposed Merger (if consummated) together qualify as a reorganization, as discussed above, exchanges of Pacific Scientific Common Shares for cash and/or shares of Kollmorgen Common Stock, as the case may be, pursuant to the Offer, the Proposed Merger, or both, will have the following federal income tax consequences: (a) EXCHANGE OF PACIFIC SCIENTIFIC COMMON SHARES SOLELY FOR KOLLMORGEN COMMON STOCK. No gain or loss will be recognized (except in connection with any cash received in lieu of fractional shares of Kollmorgen Common Stock) by shareholders of Pacific Scientific who exchange all of their Pacific Scientific Common Shares actually owned by such shareholders solely for shares of Kollmorgen Common Stock in the Proposed Merger. Any such shareholders' adjusted basis for the shares of Kollmorgen Common Stock received pursuant to the Proposed Merger will be the same as the adjusted basis of such Pacific Scientific Common Shares surrendered in exchange therefor, and the holding period of such shares of Kollmorgen Common Stock, as the case may be, will include the period during which the Pacific Scientific Common Shares exchanged therefor were held by such shareholder. (b) EXCHANGE OF PACIFIC SCIENTIFIC COMMON SHARES SOLELY FOR CASH. The receipt of cash by shareholders of Pacific Scientific who, pursuant to the Offer, exchange all of their Pacific Scientific Common Shares 45 solely for cash will, except as indicated below under "Dividend Treatment--Constructive Ownership Rules", result in capital gain or loss to any such shareholder measured by the difference between the adjusted basis of the Pacific Scientific Common Shares surrendered and the cash received. (See "Taxation of Capital Gains" below.) Since the Offer is only an offer to purchase a majority of the Pacific Scientific Common Shares, if more than a majority of such shares are tendered, the amount of cash payable to tendering shareholders pursuant to the Offer will be prorated and the portion of such tendering shareholders' shares not exchanged in the Offer would be exchanged for Kollmorgen Common Stock in the Proposed Merger. Because it is likely that more than a majority of such shares will be tendered pursuant to the Offer, it is highly unlikely that any of the tendering shareholders of Pacific Scientific will receive solely cash in exchange for all of their Pacific Scientific Common Shares. (c) EXCHANGE OF PACIFIC SCIENTIFIC COMMON SHARES FOR KOLLMORGEN COMMON STOCK AND CASH. No loss will be recognized (except in connection with any cash received in lieu of fractional shares of Kollmorgen Common Stock) by shareholders of Pacific Scientific who, pursuant to the Offer and the Proposed Merger, receive cash for a portion of their Pacific Scientific Common Shares and shares of Kollmorgen Common Stock for the balance of their Pacific Scientific Common Shares. Any such shareholder will realize gain equal to the excess, if any, of the cash and the aggregate fair market value of the Kollmorgen Common Stock received pursuant to the Proposed Merger over such shareholder's adjusted basis in the Pacific Scientific Common Shares exchanged therefor, but will recognize any realized gain as taxable income only to the extent of the cash received. Such recognized gain will, as a general rule (except as discussed below under "Dividend Treatment--Constructive Ownership Rules"), constitute capital gain (see "Taxation of Capital Gains" below). Such shareholder's adjusted basis for the shares of Kollmorgen Common Stock received pursuant to the Proposed Merger will be the same as the adjusted basis of the Pacific Scientific Common Shares surrendered in exchange therefor plus the adjusted basis of the Pacific Scientific Common Shares sold pursuant to the Offer, decreased by the amount of cash received and increased by the amount of gain or dividend income recognized, and the holding period of such shares of Kollmorgen Common Stock will include the period during which the Pacific Scientific Common Shares exchanged therefor were held by such shareholder. TAXATION OF CASH RECEIVED IN LIEU OF FRACTIONAL SHARES Where the only cash received by a shareholder of Pacific Scientific is received in lieu of a fractional share of Kollmorgen Common Stock, such cash will generally be treated as received in exchange for such fractional share of Kollmorgen Common Stock and not as a dividend, and gain or loss recognized as a result of the receipt of such cash will be capital gain or loss if the fractional share would have constituted a capital asset in the hands of the shareholder. TAXATION OF CAPITAL GAINS Under recently enacted legislation, a noncorporate shareholder would be subject to tax at ordinary income rates if the Pacific Scientific Common Shares were held for one year or less, at a maximum rate of 28% if held for more than one year but not more than eighteen months, and at a maximum rate of 20% if held for more than eighteen months. DIVIDEND TREATMENT -- CONSTRUCTIVE OWNERSHIP RULES As noted above, shareholders of Pacific Scientific who receive both cash (other than cash solely in lieu of fractional shares of Kollmorgen Common Stock) and shares of Kollmorgen Common Stock pursuant to the Offer and the Proposed Merger and realize gain, will, as a general rule, recognize capital gain limited to the amount of cash received in the event the transaction is treated as a reorganization. Shareholders of Pacific Scientific who receive cash pursuant to the Offer who own or are deemed to own constructively Pacific Scientific Common Shares that are exchanged for shares of Kollmorgen Common Stock in the Proposed Merger (or that already own or are deemed to own constructively Kollmorgen 46 Common Stock before the Proposed Merger) may be subject to the rules of Section 302 of the Code for purposes of determining whether part or all of the cash received by them is to be taxed as ordinary dividend income as opposed to capital gain. A shareholder may be deemed under the constructive ownership rules of Section 318 of the Code to own Kollmorgen Common Stock or Pacific Scientific Common Shares that are owned or deemed to be owned by related individuals or entities, or that are subject to being acquired upon the exercise by such shareholder or other person of an option or conversion right. For purposes of determining whether cash received pursuant to the Offer and/or the Proposed Merger will be treated as capital gain or ordinary dividend income for federal income tax purposes, a shareholder of Pacific Scientific will be treated as if such shareholder first exchanged all of such shareholder's Pacific Scientific Common Shares solely for Kollmorgen Common Stock ("Deemed Kollmorgen Common Stock Ownership"), and then Kollmorgen immediately redeemed a portion of such Kollmorgen Common Stock (the "Deemed Redemption") in exchange for the cash such shareholder actually received. In general, the determination of whether the cash received will be treated as generating capital gain or ordinary dividend income depends upon whether and to what extent there is a reduction in the shareholder's Deemed Kollmorgen Common Stock Ownership as a result of the Deemed Redemption. A shareholder of Pacific Scientific who exchanges such Pacific Scientific Common Shares for a combination of Kollmorgen Common Stock and cash will recognize capital gain rather than ordinary dividend income if the Deemed Redemption (described in the preceding paragraph) is either (a) "substantially disproportionate" with respect to such shareholder or (b) is "not essentially equivalent to a dividend". SUBSTANTIALLY DISPROPORTIONATE TEST. A shareholder of Pacific Scientific will satisfy the "substantially disproportionate" test if the percentage of the outstanding stock of Kollmorgen actually and constructively owned by such shareholder immediately after the Deemed Redemption by Kollmorgen as a result of the Offer, the Proposed Merger, or otherwise, is less than 80% of the percentage of the outstanding stock of Kollmorgen that such shareholder is deemed actually and constructively to have owned immediately before the Deemed Redemption by Kollmorgen. NOT ESSENTIALLY EQUIVALENT TO A DIVIDEND TEST. Whether the Deemed Kollmorgen Common Stock Ownership and the Deemed Redemption are "not essentially equivalent to a dividend" with respect to a shareholder of Pacific Scientific will depend upon such shareholder's particular circumstances. In order for a payment in redemption of stock to be treated as "not essentially equivalent to a dividend", there must be a "meaningful reduction" in such Pacific Scientific shareholder's stock ownership. In determining whether a reduction in a Pacific Scientific shareholder's Deemed Kollmorgen Common Stock Ownership (discussed above) has occurred, the amount of the Deemed Kollmorgen Common Stock Ownership should be compared to the Kollmorgen Common Stock actually held by the Pacific Scientific Shareholder after the Proposed Merger. Even if a shareholder of Pacific Scientific does not satisfy the "substantially disproportionate" test described above, the IRS has ruled that a minority shareholder in a publicly held corporation whose relative stock interest is minimal and who exercises no control with respect to corporate affairs is considered to have a "meaningful reduction" if such shareholder has even a fractional reduction in such shareholder's percentage stock ownership. In most circumstances, therefore, gain recognized by a shareholder of Pacific Scientific who exchanges Pacific Scientific Common Shares for a combination of Kollmorgen Common Stock and cash will not be ordinary income but will be capital gain, taxed as discussed above under "Taxation of Capital Gains". Therefore, Kollmorgen intends to treat cash payments pursuant to the Offer and the Proposed Merger as proceeds arising from the sale or exchange of Pacific Scientific Common Shares, rather than as dividends, for federal income tax reporting purposes. Shareholders of Pacific Scientific who receive 47 cash should, however, consult their own tax advisors to determine the proper treatment of such payments (including the impact, if any, of Pacific Scientific or Kollmorgen stock owned by persons related to such Pacific Scientific shareholder). TRANSFER TAXES Kollmorgen may pay certain transfer taxes imposed on shareholders of Pacific Scientific in connection with the Offer and the Proposed Merger. Any such payments made on behalf of a shareholder should result in the deemed receipt of additional consideration by such shareholder in proportion to the number of shares of Pacific Scientific Common Shares owned by such shareholder, taxable as described above with respect to cash proceeds. In such event, such shareholder should be deemed to have paid such tax on its own behalf and, therefore, such shareholder should be permitted to reduce such shareholder's gain (or increase such shareholder's loss) realized on the sale by the amount of the tax. Shareholders should consult their tax advisors about the possibility that any such taxes paid on their behalf would reduce the amount realized and/or be added to the adjusted basis of any Kollmorgen Common Stock received in the Proposed Merger. WITHHOLDING Unless a shareholder complies with certain reporting and/or certification procedures or is an exempt recipient under applicable provisions of the Code and Treasury regulations promulgated thereunder, such shareholder may be subject to backup withholding at a rate of 31% with respect to any consideration received pursuant to the Offer and Proposed Merger. Shareholders should consult their brokers to ensure compliance with such procedures. Foreign shareholders should consult with their own tax advisors regarding withholding taxes. THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE MAY NOT APPLY TO CERTAIN CATEGORIES OF HOLDERS OF PACIFIC SCIENTIFIC COMMON SHARES SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS FOREIGN HOLDERS AND HOLDERS WHOSE PACIFIC SCIENTIFIC COMMON SHARES WERE ACQUIRED PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION, OR WHO HOLD RESTRICTED STOCK. SHAREHOLDERS OF PACIFIC SCIENTIFIC ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE OFFER AND THE PROPOSED MERGER, INCLUDING ANY STATE, LOCAL OR OTHER TAX CONSEQUENCES OF THE OFFER AND THE PROPOSED MERGER. COMPARISON OF THE RIGHTS OF HOLDERS OF KOLLMORGEN COMMON STOCK AND HOLDERS OF PACIFIC SCIENTIFIC COMMON STOCK As a consequence of the consummation of the Proposed Merger, the shareholders of Pacific Scientific, a California corporation, will become shareholders of Kollmorgen, a New York corporation. New York corporations are governed by the New York Business Corporation Law (the "NYBCL"). California corporations are governed by the CGCL. Thus, the rights of former Pacific Scientific shareholders will be governed by the NYBCL rather than the CGCL. Differences between CGCL and the NYBCL and between the charters and bylaws of Pacific Scientific and Kollmorgen will result in several changes in the rights of shareholders of Pacific Scientific if the Proposed Merger is effected. Certain differences between the rights of holders of shares of Kollmorgen Common Stock and shares of Pacific Scientific Common Stock are summarized below. The following summary does not purport to be a complete statement of the rights of Pacific Scientific shareholders under the CGCL, the Restated Articles of Incorporation of Pacific Scientific, as amended (the "Pacific Scientific Charter"), and the Pacific Scientific Bylaws, as compared with the rights of Kollmorgen 48 shareholders under the NYBCL, the Certificate of Incorporation of Kollmorgen (the "Kollmorgen Charter") and the bylaws of Kollmorgen (the "Kollmorgen Bylaws") or a complete description of the specific provisions referred to herein. The identification of specific differences is not meant to indicate that other equally or more significant differences do not exist. The summary is qualified in its entirety by reference to the CGCL, the NYBCL and the governing corporate instruments of Kollmorgen and Pacific Scientific, to which shareholders are referred. Copies of the Kollmorgen Charter and Kollmorgen Bylaws are available for inspection at the offices of Kollmorgen and copies will be sent to the holders of Pacific Scientific Common Stock upon request. Pursuant to Sections 1500 and 213 of the CGCL, copies of the Pacific Scientific Charter and the Pacific Scientific Bylaws should be available for inspection at the principal executive offices of Pacific Scientific. DIVIDENDS PACIFIC SCIENTIFIC Generally, a California corporation may pay dividends out of retained earnings. Dividends may also be made if, immediately after giving effect thereto, the sum of (i) the assets (excluding goodwill and certain other assets) of the corporation is at least equal to 1.25 times its liabilities (excluding certain deferred credits) and (ii) the current assets of such corporation is at least equal to its current liabilities or, if the average of the earnings of such corporation before taxes and interest expense for the two preceding fiscal years was less than the average of the interest expense of such corporation for such fiscal years, at least equal to 1.25 times its current liabilities. KOLLMORGEN Under the NYBCL, a corporation may declare and pay dividends or make other distributions on its outstanding shares, in cash, bonds or property except when currently the corporation is insolvent or would thereby be made insolvent, or when the declaration, payment or distribution would be contrary to any restriction contained in the certificate of incorporation. The Kollmorgen Charter contains no such restriction. Dividends may be declared or paid and other distributions may be made out of surplus only, so that the net assets of the corporation remaining after such declaration, payment or distribution shall at least equal the amount of its stated capital. SPECIAL MEETINGS OF SHAREHOLDERS; QUORUM; SHAREHOLDER ACTION BY WRITTEN CONSENT PACIFIC SCIENTIFIC Under the CGCL, a special meeting of shareholders may be called by the board of directors, the chairman of the board, the president or the holders of shares entitled to cast not less than 10% of the votes at the meeting or such additional persons as may be provided in the charter or bylaws. Neither the Pacific Scientific Charter nor Pacific Scientific Bylaws permit any other person to call a special meeting. A quorum for a meeting of shareholders of Pacific Scientific is generally a majority of the outstanding shares of Pacific Scientific entitled to vote at such a meeting. An action by shareholders of Pacific Scientific requires a majority of votes cast at a meeting of shareholders. The CGCL provides that these quorum requirements may be increased or decreased by amendment of the charter, except that in no event shall a quorum consist of less than one-third of the shares entitled to vote. Under the CGCL, any action which may be taken at a meeting of shareholders may also be taken by the written consent of the holders of at least the same proportion of outstanding shares as would be necessary to take such action at a meeting at which all shares entitled to vote were present and voted, except that the election of directors by written consent requires the unanimous consent of all shares entitled to vote unless otherwise provided in the articles of incorporation. The Pacific Scientific Charter contains no such provision. 49 The Pacific Scientific Bylaws allow for written consent and provide that a Director may be elected to fill a vacancy on the Pacific Scientific Board, which has not been filled by Directors, by the written consent of a majority of shares entitled to vote for the election of the Pacific Scientific Board. KOLLMORGEN Pursuant to the Kollmorgen Bylaws, a special meeting of shareholders may be called at any time by the chairman of the board or the chief executive officer or by resolution of the Kollmorgen Board, and will be called by the secretary or any other officer when directed by the chairman of the board or the chief executive officer or requested in writing by shareholders representing not less than 50% of the outstanding shares of capital stock of Kollmorgen entitled to vote at such meeting. No business other than that specified in the notice of the meeting may be presented at any such special meeting, unless otherwise permitted by law. A quorum for a meeting of the shareholders of Kollmorgen generally is a majority of the outstanding shares of Kollmorgen entitled to vote at such meeting. An action by the shareholders of Kollmorgen generally requires a majority of the votes cast at a meeting of shareholders, except that election of directors requires only a plurality of the votes cast. The NYBCL provides that these quorum requirements may be increased by a change to the certificate of incorporation or decreased by a change to the certificate of incorporation or bylaws (which change to the bylaws may be effected by shareholders or by the board), so long as the requirement for a quorum does not fall below one-third of the shares entitled to vote. Under the NYBCL, whenever shareholders are required or permitted to take any action by vote, such action may be taken without a meeting on written consent signed by the holders of all outstanding shares entitled to vote thereon, unless the certificate of incorporation authorizes written consent of the holders of less than all outstanding shares. CERTAIN VOTING RIGHTS PACIFIC SCIENTIFIC The CGCL generally requires approval of any reorganization (which includes a merger, certain exchange reorganizations and certain sale-of-asset reorganizations) or sale of all or substantially all of the assets of a corporation, by the affirmative vote of the holders of a majority (unless the charter requires a higher percentage) of the outstanding shares of each class of capital stock of the corporation entitled to vote thereon. The Pacific Scientific Charter does not require a higher percentage. In general, under the CGCL, no approval of a reorganization is required by the holders of the outstanding shares in the case of any corporation if such corporation, or its shareholders immediately before such reorganization, or both, own, immediately after such reorganization, equity securities (other than warrants or rights) of the surviving or acquiring corporation, or the partner of either of the constituent corporations, possessing more than five-sixths of the voting power of such surviving or acquiring corporation or such parent. Under the CGCL, a parent corporation may, without shareholder approval, merge a subsidiary into itself if the parent corporation owns at least 90% of the outstanding shares of each class of stock of such subsidiary. KOLLMORGEN Under the NYBCL, subject to the provisions of the NYBCL described below under "--Certain Business Combinations and Reorganizations", the recommendation of the board of directors and the 50 approval of two-thirds of the outstanding shares of Kollmorgen entitled to vote thereon are required to effect a merger or consolidation or to sell, lease or exchange substantially all of Kollmorgen's assets. SIZE AND CLASSIFICATION OF THE BOARD OF DIRECTORS PACIFIC SCIENTIFIC Under the CGCL, a Listed Corporation (as defined below) may, by amendment to its charter or bylaws, divide its board of directors into as many as three classes, and directors can be elected to serve staggered terms. The Pacific Scientific Charter and Pacific Scientific Bylaws contain no such provision and, accordingly, all directors are elected annually for a term of one year or until a successor is elected. KOLLMORGEN Under the NYBCL, by provision in the certificate of incorporation or bylaws, the board of directors of a corporation may be divided into as many as four classes, and directors can be elected to serve staggered terms. The Kollmorgen Bylaws provide for two classes of directors, each class to consist of not less than three nor more than four directors with each class elected every other year for a term of two years or until a successor is elected. ELECTION OF DIRECTORS PACIFIC SCIENTIFIC Under the CGCL (unless the corporate charter provides otherwise), any shareholder of a Listed Corporation (as defined below) is entitled to cumulate his votes for the election of directors provided that at least one shareholder has given notice at the meeting prior to the voting of such shareholder's intention to cumulate his votes and the corporation's charter does not specifically eliminate cumulative voting. A "Listed Corporation" is defined under the CGCL as a corporation with (i) securities listed on the New York or American Stock Exchange or (ii) securities designated as a National Market System security on the Nasdaq National Market if the corporation has at least 800 holders of equity securities. Cumulative votes may only be cast for candidates who have been nominated before the voting. The Pacific Scientific Bylaws provide for cumulative voting in accordance with the CGCL. KOLLMORGEN The NYBCL permits a corporation, by inclusion of a provision in its certificate of incorporation, to utilize cumulative voting. The Kollmorgen Charter does not contain such a provision. Pursuant to the NYBCL, directors of Kollmorgen are elected by a plurality of the votes cast at a meeting by the holders of shares entitled to vote thereon. REMOVAL OF DIRECTORS; FILLING VACANCIES ON THE BOARD OF DIRECTORS PACIFIC SCIENTIFIC Under the CGCL, the holders of at least 10% of the number of outstanding shares of any class of stock may initiate a court action to remove any director for cause. In addition, any or all of the directors of a California corporation may be removed without cause by the affirmative vote of a majority of the outstanding shares entitled to vote. However, no director may be removed (unless the entire board is removed) when the votes cast against removal would be sufficient to elect the director if voted cumulatively at an election at which the same total number of votes were cast and the entire number of the directors authorized at the time of the director's most recent election were then being elected. However, in the case of a corporation whose board is classified, a director may not be removed if the votes cast 51 against removal would be sufficient to elect the director if voted cumulatively at an election at which the same number of votes were cast. Under the CGCL (unless otherwise provided in the charter or bylaws and except for a vacancy created by the removal of a director), vacancies on the board of directors may be filled by approval of the board. The Pacific Scientific Charter and the Pacific Scientific Bylaws contain no provisions to the contrary. In addition, any vacancy not filled by the directors and any vacancies on the board resulting from the removal of directors may be filled by the vote of the majority of shares entitled to vote. KOLLMORGEN Under the NYBCL, any or all of the directors of Kollmorgen may be removed for cause by a majority of the votes cast at a meeting by the holders of shares entitled to vote thereon. The NYBCL permits directors to be removed without cause by action of the board of directors if the certificate of incorporation or the specific provisions of a bylaw adopted by the shareholders so provides. The Kollmorgen Charter and the Kollmorgen Bylaws contain no such provisions. The NYBCL permits the filling of vacancies on the board of directors by approval of the board in all cases except where the vacancy was caused by the removal of a director, in which case the vacancy must be filled by vote of the shareholders. The Kollmorgen Charter and Kollmorgen Bylaws contain no provisions to the contrary. AMENDMENT OF CHARTER AND BYLAWS PACIFIC SCIENTIFIC Under the CGCL, amendments to the charter of a corporation generally require approval by vote of directors and the holders of a majority of outstanding shares entitled to vote thereon and, where their rights are affected, by the holders of a majority of the outstanding shares of a class, whether or not such class is entitled to vote thereon by the provision of the charter. Under the CGCL, bylaws may be adopted, amended or repealed either by the vote of a majority of the outstanding shares or by the approval of the board of directors, except (i) if the number of directors is set forth in the charter, in which case such number may only be changed by an amendment to the charter, or (ii) if the charter requires a larger percentage of shareholder or director vote to approve a given action. The Pacific Scientific Charter does not require approval by a supermajority of the shareholders or directors to approve a given action, other than the requirement that two-thirds of the outstanding shares approve certain transfers of assets representing 50% or more of the total assets of Pacific Scientific (unless the Pacific Scientific Board has unanimously approved the transaction). KOLLMORGEN Under the NYBCL, most amendments to the certificate of incorporation of a corporation require the approval of both the board of directors and the majority of the voting power of all outstanding shares of capital stock. The Kollmorgen Bylaws may be amended by the shareholders at any meeting of shareholders or by the Kollmorgen Board at any meeting of the Kollmorgen Board. CERTAIN BUSINESS COMBINATIONS AND REORGANIZATIONS PACIFIC SCIENTIFIC The CGCL generally requires that, unless all shareholders of a class or series consent, each share of such class or series must be treated equally with respect to any distribution of cash, property, rights or securities. The CGCL also provides generally that if a corporation that is party to a merger, or its parent, 52 owns more than 50% but less than 90% of the voting power of the other corporation that is party to such merger, the nonredeemable shares of common stock of the controlled corporation may be converted only into nonredeemable shares of the surviving corporation or a parent party unless all of the shareholders of the class consent. Cash tender offers are not directly regulated under the CGCL. KOLLMORGEN The NYBCL contains provisions which generally would prohibit a business combination, including mergers, sales and leases of assets, issuance of securities and similar transactions, by Kollmorgen or a subsidiary with an interested shareholder (generally the beneficial owner of 20 percent or more of Kollmorgen's voting stock) within five years after the person or entity becomes an interested shareholder, unless (i) prior to the person or entity becoming an interested shareholder, the business combination or the transaction pursuant to which such person or entity became an interested shareholder shall have been approved by the Kollmorgen Board or (ii) the business combination is approved by the holders of a majority of the outstanding voting stock of Kollmorgen, excluding shares held by the interested shareholders, at a meeting called for such purpose no earlier than five years after such interested shareholder's stock acquisition date. LIMITATION ON DIRECTORS' LIABILITY PACIFIC SCIENTIFIC The CGCL provides that a corporation's charter may contain a provision eliminating or limiting the personal liability of a director for monetary damages in an action brought by or in the right of the corporation for breach of a director's duties to the corporation and its shareholders. However, no such provision may eliminate or limit the liability of directors (i) for acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) for acts or omissions that a director believes to be contrary to the best interests of the corporation or its shareholders or that involve the absence of good faith on the part of the director, (iii) for any transaction from which a director derived an improper personal benefit, (iv) for acts or omissions that show a reckless disregard for the director's duty to the corporation or its shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director's duties, of a risk of serious injury to the corporation or its shareholders, (v) for acts or omissions that constitute an unexcused pattern of inattention that amounts to an abdication of the director's duty to the corporation or its shareholders, (vi) for any improper transaction between a director and a corporation in which the director has a material financial interest, (vii) for any unlawful distribution to the shareholders of a corporation or any unlawful loan of money and property to, or guarantee of the obligations of, any director or officer of the corporation, (viii) for any act or omission occurring prior to September 27, 1987 when Section 204 of the CGCL became effective or (ix) for the liability of an officer for any act or omission as an officer, notwithstanding that the officer is also a director or that his or her actions, if negligent or improper, have been ratified by the directors. The Pacific Scientific Charter provides that the liability of Pacific Scientific directors for monetary damages will be eliminated to the fullest extent permissible under the CGCL. KOLLMORGEN Under the NYBCL, a corporation may limit or eliminate the personal liability of directors to the corporation or its shareholders for damages for breach of duty in such capacity. This limitation on liability is not available for acts or omissions by a director which (i) were in bad faith, (ii) involved intentional misconduct or a knowing violation of law, (iii) involved financial profit or other advantage to which the 53 director was not entitled or (iv) resulted in a violation of a statute prohibiting certain dividend declarations, certain payments to shareholders after dissolution and particular types of loans. The Kollmorgen Charter provides for this limitation on directors' liability. INDEMNIFICATION OF OFFICERS AND DIRECTORS; INSURANCE PACIFIC SCIENTIFIC Under the CGCL, (i) a corporation has the power to indemnify, with certain exceptions, any agent who is a party to any action (other than an action by or in the right of the corporation to procure a judgment in its favor) against expenses, judgments, fines and settlements if that person acted in good faith and in a manner that person reasonably believed to be in the best interests of the corporation and, in the case of a criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful, and (ii) a corporation has the power to indemnify, with certain exceptions, any agent who is a party to any action by or in the right of the corporation, against expenses actually and reasonably incurred by that person in connection with the defense or settlement of the action if that person acted in good faith and in a manner that person believed to be in the best interests of the corporation and its shareholders. An agent for purposes of the CGCL includes directors, officers and employees. The indemnification authorized by the CGCL is not exclusive and a corporation may grant its directors certain additional rights to indemnification. The Pacific Scientific Bylaws permit Pacific Scientific to indemnify each of its agents to the maximum extent permitted by the CGCL. KOLLMORGEN The NYBCL provides that a corporation may indemnify its officers and directors who are made a party to any action, suit or proceeding by reason of the fact that he or she was a director, officer or employee of the corporation by, among other things, a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, provided that such officers and directors acted in good faith and in a manner they reasonably believed to be in, not opposed to, the best interests of the corporation. The Kollmorgen Bylaws provide for indemnification of officers and directors as permitted by this statute. RIGHTS PLANS PACIFIC SCIENTIFIC Pacific Scientific has adopted a shareholder rights plan (the "Pacific Scientific Rights Plan") under which one right to purchase one one-hundredth share of Pacific Scientific Series A Junior Participating Preferred Stock was distributed on each outstanding share of Pacific Scientific Common Stock held of record as of November 18, 1988, and on each such share issued thereafter, at an exercise price of $45, subject to adjustment (a "Pacific Scientific Rights"). The Pacific Scientific Rights initially will trade in tandem with the Pacific Scientific Common Stock. The Pacific Scientific Rights detach from the Pacific Scientific Common Stock and become exercisable 20 days after a person or group acquires beneficial ownership of 25% of the Pacific Scientific Common Stock or commences or announces a tender offer that would result in such person or group having beneficial ownership of 35% or more of the Pacific Scientific Common Stock. Each Pacific Scientific Right entitles its holder to purchase, at the Pacific Scientific Right's then current exercise price, that number of units of Pacific Scientific Series A Junior Participating Preferred Stock having a value equal to twice such exercise price. In addition, if Pacific Scientific is involved in certain business combination transactions, each Pacific Scientific Right that has not previously been exercised will entitle its holder to purchase, at the Pacific Scientific Right's then current exercise price, shares of common stock of such other person or surviving company having a value of twice the Pacific Scientific Right's exercise price. 54 KOLLMORGEN Kollmorgen has adopted a shareholder rights plan (the "Kollmorgen Rights Plan") under which one right to purchase one one-thousandth of a share of Preferred Stock for $50, subject to adjustment, was distributed on each outstanding share of Kollmorgen Common Stock held of record as of January 4, 1989, and on each such share issued thereafter (the "Kollmorgen Rights"). Under the Kollmorgen Rights Plan, certificates for Kollmorgen Common Stock represent a like number of Kollmorgen Rights to purchase Kollmorgen Series B Preferred Stock issued thereunder. The Kollmorgen Rights will be evidenced by the Kollmorgen Common Stock certificates until 10 days after a person or group acquires beneficial ownership of 20% or more of the total voting power in the election of directors or commences or announces a tender offer that would result in a person or group beneficially owning 30% or more of the Kollmorgen Common Stock. Each Kollmorgen Right entitles its holder to purchase, at the Kollmorgen Right's then current exercise price, that number of units of Kollmorgen Series B Preferred Stock having a value equal to twice such exercise price. In addition, if Kollmorgen is involved in certain business combination transactions, each Kollmorgen Right that has not previously been exercised will entitle its holder to purchase, at the Kollmorgen Right's then current exercise price, shares of common stock of such other person or surviving company having a value of twice the Kollmorgen Right's exercise price. DISSENTERS' RIGHTS OF PACIFIC SCIENTIFIC SHAREHOLDERS The following discussion is not a complete statement of the law pertaining to appraisal rights under the CGCL and is qualified in its entirety by the full text of Chapter 13 (Sections 1300-1312) of the CGCL, which is attached hereto and is incorporated herein by reference. See "Schedule III--Chapter 13 of the General Corporation Law of the State of California". Holders of Pacific Scientific Common Stock do not have dissenters' rights as a result of the Offer. However, in the Proposed Merger, holders of Pacific Scientific Common Stock, by complying with the provisions of Chapter 13 of the CGCL, may have certain rights to dissent and to require Pacific Scientific to purchase their Pacific Scientific Common Stock for cash at fair market value. In general, holders of Pacific Scientific Common Stock would be entitled to exercise "dissenters' rights" under the CGCL only if the holders of five percent or more of the outstanding Pacific Scientific Common Stock properly file demands for payment or if the Pacific Scientific Common Stock held by such holders are subject to any restriction on transfer imposed by Pacific Scientific or any law or regulation ("Restricted Shares"). Accordingly, any holder of Restricted Shares and, if the holders of five percent or more of the Pacific Scientific Common Stock properly file demands for payment, all other such holders who fully comply with all other applicable provisions of Chapter 13 of the CGCL will be entitled to require Pacific Scientific to purchase their Pacific Scientific Common Stock for cash at their fair market value if the Proposed Merger is consummated. If the statutory procedures under the CGCL relating to dissenters' rights are complied with, such rights could result in a judicial determination of the fair market value of the Pacific Scientific Common Stock. The "fair market value" would be determined as of the day before the first announcement of the terms of the Proposed Merger, excluding any appreciation or depreciation in consequence of the Proposed Merger. The value so determined could be more or less than the Offer Price. Dissenters' rights will only be available in connection with the Proposed Merger. You will be advised of the procedures to be followed at the time when proxies are solicited with respect to the Proposed Merger. 55 SUBSEQUENT VOTES RELATING TO THE PROPOSED MERGER At the Special Meeting, Pacific Scientific shareholders will be asked to remove the entire Pacific Scientific Board, elect the Kollmorgen Nominees to fill the vacancies created thereby and approve the Bylaw Repeal Proposal. The Special Meeting will be held on February 4, 1998 or, if later, on the thirty- sixth day following the date on which the requisite number of consents to call the Special Meeting are delivered to Pacific Scientific. If a definitive merger agreement relating to the Proposed Merger is approved by the Pacific Scientific Board (either before or after the incumbent Pacific Scientific Board has been replaced at the Special Meeting) and the Board of Directors of Purchaser approves such merger, the approval of the shareholders of Pacific Scientific would be sought through the solicitation of proxies for use at another special meeting of shareholders of Pacific Scientific (including any adjournments or postponements thereof, the "Pacific Scientific Second Special Meeting"). In addition, pursuant to the rules promulgated by the NYSE, the shareholders of Kollmorgen must approve the issuance of Kollmorgen Common Stock to be exchanged for Pacific Scientific Common Stock in the Proposed Merger. PACIFIC SCIENTIFIC SHAREHOLDER VOTES REQUIRED Pursuant to the CGCL and the Pacific Scientific Bylaws, a quorum at a meeting of the Pacific Scientific shareholders will consist of a majority of the votes entitled to be cast by the holders of all Pacific Scientific Common Stock that are outstanding and entitled to vote. A majority of the shares of Pacific Scientific Common Stock outstanding and entitled to vote must approve the removal of the entire Pacific Scientific Board. The election of new directors requires the approval of a majority of the votes entitled to be cast by the holders of all Pacific Scientific Common Stock, voting together as a single class, that are present or represented at the shareholder meeting, unless any shareholder announces his intention to cumulate his votes, in which case cumulative voting rules will apply. Approval of the Bylaw Repeal Proposal requires the affirmative vote of a majority of the shares of Pacific Scientific Common Stock represented and voting at the Special Meeting. Pursuant to the CGCL and the Pacific Scientific Bylaws, a majority of the votes entitled to be cast by the holders of all Pacific Scientific Common Stock, voting together as a single class that are present or represented at the shareholder meeting and entitled to vote will be necessary to approve the merger agreement relating to the Proposed Merger at the Pacific Scientific Second Special Meeting. KOLLMORGEN SHAREHOLDER VOTE REQUIRED A quorum at a special meeting of the shareholders of Kollmorgen (including any adjournments or postponements thereof, the "Kollmorgen Special Meeting") will consist of a majority of the votes entitled to be cast by the holders of Kollmorgen Common Stock that are outstanding and entitled to vote. Pursuant to the rules promulgated by the NYSE, the issuance of Kollmorgen Common Stock in the Proposed Merger will require approval by the majority of the votes entitled to be cast by the holders of Kollmorgen Common Stock that are present or represented at the Kollmorgen Special Meeting and entitled to vote. Kollmorgen has established December 26, 1997 as the record date for the Kollmorgen Special Meeting and currently expects the Kollmorgen Special Meeting to be held on or about January 28, 1998. It is expected that all of the shares of Kollmorgen Common Stock (excluding shares subject to stock options) beneficially owned by directors and executive officers of Kollmorgen and their affiliates at the close of business on the Kollmorgen Special Meeting record date would be voted for the approval of the issuance of the shares of Kollmorgen Common Stock in the Proposed Merger. INFORMATION CONCERNING THE SPECIAL MEETINGS Assuming the Special Meeting is called, Kollmorgen will be furnishing the Pacific Scientific shareholders with a proxy statement relating to its proposals, which will contain information about the Special Meeting (including the date and time of the Special Meeting, the record date therefor, voting by proxy and certain other matters). Assuming the Pacific Scientific Board and Board of Directors of Kollmorgen approve a merger agreement with respect to the Proposed Merger, information about the Pacific 56 Scientific Second Special Meeting (including the date and time of the Pacific Scientific Second Special Meeting, the record date therefor, voting by proxy and certain other matters) would be set forth in the subsequent proxy statement relating to the solicitation of votes with respect to the Proposed Merger. ACCOUNTING TREATMENT The acquisition will be accounted for as a purchase. Under this method of accounting, assets and liabilities of Pacific Scientific will be adjusted to their estimated fair values and combined with the recorded values of the assets and liabilities of Kollmorgen. Applicable income tax effects of such adjustments will be included as a component of Kollmorgen's deferred taxes. Kollmorgen has not had access to Pacific Scientific's records in order to make a determination of the fair value of its assets and liabilities. Allocation of the purchase price will be reevaluated upon completion of the acquisition and could result in significant changes to the valuations of assets (including goodwill) and liabilities. REGULATORY MATTERS Based upon its examination of publicly available information with respect to Pacific Scientific, neither Purchaser nor Kollmorgen is aware of any license or other regulatory permit that appears to be material to the business of Pacific Scientific and its subsidiaries, taken as a whole, which might be adversely affected by the acquisition of Pacific Scientific Common Shares by Purchaser pursuant to the Offer or, except as set forth below, of any approval or other action by any domestic (federal or state) or foreign governmental, administrative or regulatory authority or agency which would be required prior to the acquisition of Pacific Scientific Common Shares by Purchaser pursuant to the Offer or consummation of the Proposed Merger. If any such material approval or other action is required, it is Purchaser's present intention to seek such approval or action. Kollmorgen and Purchaser do not currently intend, however, to delay the purchase of Pacific Scientific Common Shares tendered pursuant to the Offer pending the outcome of any such action or the receipt of any such approval (subject to Purchaser's right to decline to purchase Pacific Scientific Common Shares if any of the conditions set forth in Section 14 of the Offer to Purchase shall have occurred). There can be no assurance that any such approval or other action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to the business of Pacific Scientific, Purchaser or Kollmorgen or that certain parts of the businesses of Pacific Scientific, Purchaser or Kollmorgen might not have to be disposed of or held separate or other substantial conditions complied with in order to obtain such approval or other action or in the event that such approval was not obtained or such other action was not taken. ANTITRUST. Under the HSR Act and the rules that have been promulgated thereunder by the FTC, certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division and the FTC and certain waiting period requirements have been satisfied. The acquisition of Pacific Scientific Common Shares by Purchaser pursuant to the Offer are subject to such requirements. Pursuant to the HSR Act, on December 15, 1997, Kollmorgen filed Premerger Notification and Report Forms in connection with the purchase of Pacific Scientific Common Shares pursuant to the Offer with the Antitrust Division and the FTC. Under the provisions of the HSR Act applicable to the Offer, the purchase of Pacific Scientific Common Shares pursuant to the Offer may not be consummated until the expiration of a 15 calendar day waiting period following the applicable filings by Kollmorgen. Accordingly, the waiting period under the HSR Act applicable to the purchase of Pacific Scientific Common Shares pursuant to the Offer will expire at 11:59 p.m., New York City time, on December 30, 1997, unless such waiting period is earlier terminated by the FTC and the Antitrust Division or extended by a request from the Antitrust Division or the FTC for additional information or documentary material prior to the expiration of the waiting period. Pursuant to the HSR Act, Kollmorgen has requested early termination of the waiting period applicable to the Offer. There can be no assurance, however, that the 15 calendar day HSR Act waiting period applicable to the Offer will be terminated early. If the Antitrust Division or the FTC were to request additional information or documentary material from Kollmorgen with respect to the Offer, the waiting period with respect to 57 the Offer would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Kollmorgen with such request. Thereafter, the consummation of the Offer may only be prevented by a court order that extends the waiting periods or by an injunction. Kollmorgen will not be permitted to purchase Pacific Scientific Common Shares pursuant to the Offer or engage in any other transaction that would result in Kollmorgen having beneficial ownership of $15 million or more of the outstanding voting securities of Pacific Scientific until expiration of the waiting period applicable to the Offer. If the acquisition of Pacific Scientific Common Shares is delayed as a result of a request by the Antitrust Division or the FTC for additional information or documentary material pursuant to the HSR Act in connection with the acquisition of Pacific Scientific Common Shares pursuant to the Offer, the Offer may, but need not, be extended and, in any event, the purchase of and payment for Pacific Scientific Common Shares will be deferred until 10 days after the request is substantially complied with by Kollmorgen, unless the extended period expires on or before the date when the initial 15 calendar day period would otherwise have expired, or unless the waiting period is sooner terminated by the FTC and the Antitrust Division. Only one extension of such waiting period pursuant to a request for additional information is authorized by the HSR Act and the rules promulgated thereunder, except by court order. Any such extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. Pursuant to the HSR Condition, the Offer is conditioned upon the waiting period applicable under the HSR Act to the Offer having expired or been terminated. The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of Pacific Scientific Common Shares by Purchaser pursuant to the Offer. At any time before or after the purchase of Pacific Scientific Common Shares pursuant to the Offer by Purchaser, the Antitrust Division or the FTC could take such action under the antitrust laws as they deem necessary or desirable in the public interest, including seeking to enjoin the purchase of Pacific Scientific Common Shares pursuant to the Offer or seeking the divestiture of Pacific Scientific Common Shares purchased by Purchaser or the divestiture of substantial assets of Kollmorgen, Pacific Scientific or their respective subsidiaries. Private parties and state attorneys general may also bring legal action under federal or state antitrust laws under certain circumstances. Based upon an examination of information available to Kollmorgen relating to the businesses in which Kollmorgen, Pacific Scientific and their respective subsidiaries are engaged, Kollmorgen and Purchaser believe that the Offer will not violate the antitrust laws. Nevertheless, there can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such a challenge is made, as to what the result would be. FOREIGN LAWS. According to publicly available information, Pacific Scientific also owns property and conducts businesses in a number of other jurisdictions. In connection with the acquisition of the Pacific Scientific Common Shares pursuant to the Offer, the laws of certain foreign countries and jurisdictions may require the filing of information with, or the obtaining of the approval of, governmental authorities in such countries and jurisdictions. In addition, the waiting period prior to consummation of the Offer associated with such filings or approvals may extend beyond the scheduled Expiration Date. The governments in such countries and jurisdictions might attempt to impose additional conditions on the Kollmorgen operations conducted in such countries and jurisdictions as a result of the acquisition of Pacific Scientific Common Shares pursuant to the Offer or the Proposed Merger. MARKET PRICES AND DIVIDENDS The Kollmorgen Common Stock and the Pacific Scientific Common Stock are listed and principally traded on the NYSE under the symbols "KOL" and "PSX", respectively. The following table sets forth the range of high and low sales prices for Kollmorgen Common Stock and for Pacific Scientific Common Stock on the NYSE, as reported by the Dow Jones News Service, and the amount of cash dividends paid per share of Pacific Scientific Common Stock, together with the per share dividends paid by Pacific Scientific during the periods indicated. 58 MARKET PRICE DATA
KOLLMORGEN PACIFIC SCIENTIFIC COMMON STOCK COMMON STOCK ------------------------------- -------------------- (IN $) (IN $) HIGH LOW DIV HIGH LOW --------- --------- --------- --------- --------- 1997 Fourth Quarter (through December 12)............................. 20 3/8 16 3/4 .02 17 3/8 13 1/2 Third Quarter.................................................... 19 5/16 14 3/4 .02 17 7/8 13 1/4 Second Quarter................................................... 15 15/16 11 5/8 .02 14 5/8 11 1/8 First Quarter.................................................... 15 1/8 10 7/8 .02 14 11 1/8 1996 Fourth Quarter................................................... 13 3/4 10 1/8 .02 12 3/4 10 1/4 Third Quarter.................................................... 14 3/4 10 1/2 .02 16 1/2 11 Second Quarter................................................... 15 5/8 11 3/8 .02 22 3/8 15 1/4 First Quarter.................................................... 13 1/8 9 5/8 .02 24 7/8 18 3/4 1995 Fourth Quarter................................................... 11 1/4 9 .02 27 3/8 19 1/2 Third Quarter.................................................... 12 8 .02 26 1/2 17 7/8 Second Quarter................................................... 8 7/8 6 1/8 .02 21 3/4 14 1/8 First Quarter.................................................... 6 7/8 5 5/8 .02 24 1/8 16 1/2 DIV --------- 1997 Fourth Quarter (through December 12)............................. .03 Third Quarter.................................................... .03 Second Quarter................................................... .03 First Quarter.................................................... .03 1996 Fourth Quarter................................................... .03 Third Quarter.................................................... .03 Second Quarter................................................... .03 First Quarter.................................................... .03 1995 Fourth Quarter................................................... .03 Third Quarter.................................................... .03 Second Quarter................................................... .03 First Quarter.................................................... .03
On December 12, 1997, the last trading day before Kollmorgen publicly announced its intention to make the Offer and the last trading day prior to the date of this Consent Solicitation Statement/ Prospectus, the closing price of Kollmorgen Common Stock was $16.88. Past price performance is not necessarily indicative of likely future price performance. Holders of Pacific Scientific Common Shares are urged to obtain current market quotations for shares of Kollmorgen Common Stock. On December 12, 1997, the last trading day before Kollmorgen announced its intention to make the Offer and the last trading day prior to the date of this Consent Solicitation Statement/Prospectus, the closing price of Pacific Scientific Common Stock on the NYSE was $15.44. Past price performance is not necessarily indicative of likely future price performance. Holders of Pacific Scientific Common Shares are urged to obtain current market quotations for shares of Pacific Scientific Common Stock. Kollmorgen has historically paid dividends on Kollmorgen Common Stock and intends to continue paying regular cash dividends on Kollmorgen Common Stock prior to and after the consummation of the Proposed Combination. Holders of shares of Pacific Scientific Common Stock are entitled to receive dividends from funds legally available therefor when, as and if declared by the Pacific Scientific Board. Kollmorgen has no information with respect to the Pacific Scientific Board's present intentions with respect to its policy of paying quarterly cash dividends. According to the Pacific Scientific 1996 10-K, as of February 28, 1997, there were 1,428 holders of record of shares of Pacific Scientific Common Stock. As of December 12, 1997, there were approximately 1,700 holders of record of Kollmorgen Common Stock. LEGAL MATTERS Assuming the Proposed Merger is consummated, the validity of the shares of Kollmorgen Common Stock offered in connection therewith would be passed upon for Kollmorgen by James A. Eder, Esq., Kollmorgen's General Counsel. EXPERTS The consolidated financial statements of Kollmorgen as of December 31, 1995 and 1996, and for each of the three years in the period ended December 31, 1996 incorporated by reference in this Consent Solicitation Statement/Prospectus, have been incorporated herein in reliance on the report of 59 Coopers & Lybrand L.L.P., independent accountants. Such consolidated financial statements are incorporated herein by reference, in reliance upon such report given upon the authority of that firm as experts in accounting and auditing. AVAILABLE INFORMATION Kollmorgen and Pacific Scientific are each subject to the informational requirements of the Exchange Act, and, in accordance therewith, file reports, proxy statements and other information with the Commission. The reports, proxy statements and other information filed by Kollmorgen and Pacific Scientific with the Commission may be inspected and copied at the public reference facilities maintained by the Commission at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and should be available at the Commission's Regional Offices at Seven World Trade Center, Suite 1300, New York, New York 10048, and the Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material also can be obtained at prescribed rates from the Public Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission maintains a site on the World Wide Web that contains reports, proxy and information statements and other information on registrants, such as Kollmorgen and Pacific Scientific, that must file such material with the Commission electronically. The Commission's internet address on the World Wide Web is http:// www.sec.gov. The Kollmorgen Common Stock and the Pacific Scientific Common Stock are listed on the NYSE and certain of Kollmorgen's and Pacific Scientific's reports, proxy materials and other information may be available for inspection at the offices of the NYSE at 20 Broad Street, New York, New York 10005. This Consent Solicitation Statement/Prospectus does not contain all of the information set forth in the Registration Statement and the exhibits thereto, certain parts of which were omitted as permitted by the rules and regulations of the Commission. Such additional information may be obtained from the Commission's principal office in Washington, D.C. and at the Commission's public reference facilities and internet address described above. Statements contained in this Consent Solicitation Statement/ Prospectus or in any document incorporated in this Consent Solicitation Statement/Prospectus by reference pertaining to the content of any contract or other document referred to herein or therein are not necessarily complete, and in each instance reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement or such other document, each such statement being qualified in all respects by such reference. Kollmorgen and Purchaser have filed the Tender Offer Statement with the Commission. Pursuant to Rules 14d-9 and 14e-2 under the Exchange Act, Pacific Scientific must file with the Commission a Solicitation/Recommendation Statement on Schedule 14D-9 regarding its position concerning the Offer and certain other information. Such Schedules and any amendments thereto should be available for inspection and copying as set forth above (except that such Schedules and any amendments thereto will not be available at the regional offices of the Commission). The information concerning Pacific Scientific contained in this Consent Solicitation Statement/ Prospectus has been taken from or is based upon documents and records on file with the Commission and other publicly available information. Kollmorgen has no knowledge that would indicate that statements relating to Pacific Scientific contained in this Consent Solicitation Statement/Prospectus in reliance upon publicly available information are inaccurate or incomplete. Kollmorgen, however, was not involved in the preparation of such information and statements, and is not in a position to verify, or make any representation with respect to the accuracy of, any such information or statements. Pursuant to Rule 409 promulgated under the Securities Act and Rule 12b-21 promulgated under the Exchange Act, Kollmorgen is requesting that Pacific Scientific and its independent accountants, Deloitte & Touche LLP ("Deloitte & Touche"), provide to Kollmorgen the information required for complete disclosure concerning the business, operations, financial condition and management of Pacific Scientific. Neither Pacific Scientific nor Deloitte & Touche has yet provided any such information. Kollmorgen will provide any and all information that it receives from Pacific Scientific or Deloitte & Touche prior to the expiration of the Offer that Kollmorgen deems material, reliable and appropriate in a subsequently 60 prepared amendment or supplement hereto. In addition, pursuant to Rule 439 promulgated under the Securities Act, Kollmorgen is requesting that Deloitte & Touche provide to Kollmorgen the consent required for the incorporation by reference into this Consent Solicitation Statement/Prospectus of Deloitte & Touche's report included in the Pacific Scientific 1996 Form 10-K with respect to its audit of the consolidated financial statements of Pacific Scientific contained therein. If Kollmorgen receives such consent, it will promptly file such consent as an exhibit to the Registration Statement. MANAGEMENT AND ADDITIONAL INFORMATION Certain information relating to the management, executive compensation, various benefit plans (including stock plans), voting securities and the principal holders thereof, certain relationships and related transactions and other related matters as to Kollmorgen and Pacific Scientific is set forth in or incorporated by reference in the Kollmorgen Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and in the Pacific Scientific 1996 Form 10-K, which are incorporated by reference in this Consent Solicitation Statement/Prospectus. See "Incorporation of Certain Documents by Reference". Copies of the reports of Kollmorgen are available upon written or oral request to Kollmorgen at the address or telephone number set forth under "Incorporation of Certain Documents by Reference". SOLICITATION OF CONSENTS The Solicitation is being made by Kollmorgen. Consents may be solicited by mail, facsimile, telephone, telegraph, in person and by advertisements. Solicitations may be made by certain directors, officers and employees of Kollmorgen, none of whom will receive additional compensation for the Solicitation. Kollmorgen has retained Georgeson for solicitation and advisory services in connection with the Solicitation and the Offer, for which Georgeson will receive a fee of $100,000 plus a fee of $6.00 for each call made to a shareholder together with reimbursement for its reasonable out-of-pocket expenses and will be indemnified against certain liabilities and expenses, including certain liabilities under the federal securities laws. Georgeson will solicit consents from individuals, brokers, banks, bank nominees and other institutional holders. Kollmorgen has requested banks, brokerage houses and other custodians, nominees and fiduciaries to forward all materials related to the Solicitation to the beneficial owners of the Pacific Scientific Common Shares they hold of record. Kollmorgen will reimburse these record holders for their reasonable out-of-pocket expenses in so doing. It is anticipated that Georgeson will employ approximately 50 persons to solicit Pacific Scientific's shareholders for their written consents. Georgeson is also acting as Information Agent in connection with the Offer, for which Georgeson will be paid customary compensation in addition to reimbursement of reasonable out-of-pocket expenses. Salomon Brothers Inc, doing business as Salomon Smith Barney ("Salomon Smith Barney"), is acting as Dealer Manager for the Offer and as financial advisor to Kollmorgen in connection with the Solicitation and Proposed Combination. As compensation for its services, Salomon Smith Barney will receive fees of (i) $350,000 payable by Kollmorgen following an agreement to effect the Proposed Combination or similar transaction or a public announcement regarding the Proposed Combination or similar transaction and (ii) $2,700,000 payable by Kollmorgen upon consummation of the Proposed Combination or similar transaction. In addition, Salomon Smith Barney is entitled to reimbursement for the fees and disbursements of Salomon Smith Barney's counsel and all of Salomon Smith Barney's reasonable travel and other out-of-pocket expenses, as well as indemnification from certain liabilities. Kollmorgen has also given Salomon Smith Barney various rights of first refusal respecting certain related financial transactions as well as the right to 10% of certain proceeds received by Kollmorgen from the sale of Pacific Scientific stock in the event the Proposed Combination is not consummated. In addition, Salomon Smith Barney and its affiliate Salomon Brothers Holding Company Inc have entered into a commitment letter regarding the financing of the Offer. See "Sources of Funds". Smith Barney Inc. and Salomon Brothers Inc are affiliated but separately registered broker/dealers, under the common control of Salomon Smith Barney Holdings Inc. Salomon Brothers Inc and Salomon Smith Barney Holdings Inc. have been licensed to use the Salomon Smith Barney service mark. 61 SOURCES OF FUNDS The total amount of funds required by Kollmorgen and Purchaser to consummate the Offer and the Proposed Merger, to refinance certain indebtedness, to provide a working capital facility for the combined company and to pay related fees and expenses is estimated to be approximately $300 million. Purchaser will obtain all of such funds from Kollmorgen. Kollmorgen and Purchaser intend to obtain the funds from loans to be arranged by Salomon Smith Barney. Salomon Brothers Holding Company Inc delivered to Kollmorgen a letter, dated December 9, 1997, committing, subject to the conditions set forth therein, to provide (1) a fully secured financing for Kollmorgen and Purchaser in the syndicated loan market of up to $300 million to pay the tender price upon fulfillment of the conditions to the Offer, to refinance certain indebtedness of Kollmorgen and to pay related fees and expenses (the "Tender Financing") and (2) a fully secured financing in the syndicated loan market of up to $300 million to refinance the Tender Financing, to refinance (or economically defease) certain debt of Pacific Scientific or Kollmorgen, to pay related fees and expenses and to provide funds for ongoing general corporate purposes (together with the Tender Financing, the "Kollmorgen Indebtedness"). Kollmorgen expects that the definitive documentation with respect to Kollmorgen Indebtedness will contain conditions that are customary for transactions of this type. Kollmorgen may subsequently refinance the Kollmorgen Indebtedness in whole or in part. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The Commission allows Kollmorgen to "incorporate by reference" information into this Consent Solicitation Statement/Prospectus, which means that Kollmorgen can disclose important information to you by referring you to another document filed separately with the Commission. The information incorporated by reference is deemed to be part of this Consent Solicitation Statement/Prospectus, except for any information superseded by information in this Consent Solicitation Statement/Prospectus. This Consent Solicitation Statement/Prospectus incorporates by reference the documents set forth below that Kollmorgen and Pacific Scientific have previously filed with the Commission. These documents contain important information about Kollmorgen and Pacific Scientific and their finances.
KOLLMORGEN COMMISSION FILINGS (FILE NO. 1-5562) PERIOD - -------------------------------------------------------- -------------------------------------------------------- Annual Report on Form 10-K Fiscal year ended December 31, 1996 Annual Report on Form 10-K/A Fiscal Year ended December 31, 1996 Quarterly Report on Form 10-Q Quarterly period ended March 31, 1997 Quarterly Report on Form 10-Q Quarterly period ended June 30, 1997 Quarterly Report on Form 10-Q Quarterly period ended September 30, 1997 Proxy Statement Dated April 4, 1997 Current Reports on Form 8-K Dated December 15, 1997, August 18, 1997, January 31, 1997 and January 27, 1997 The Description of Kollmorgen Common Stock contained in Dated September 25, 1967 the Registration Statement on Form S-1 (No. 2-27327) Registration Statement on Form 8-A Filed on March 14, 1978 (and any amendment or report filed thereafter for the purpose of updating the description of Kollmorgen Common Stock)
62
PACIFIC SCIENTIFIC COMMISSION FILINGS (FILE NO. 1-7744) PERIOD - -------------------------------------------------------- -------------------------------------------------------- Annual Report on Form 10-K Fiscal year ended December 27, 1996 Quarterly Report on Form 10-Q Quarterly period ended March 28, 1997 Quarterly Report on Form 10-Q Quarterly period ended June 27, 1997 Quarterly Report on Form 10-Q Quarterly period ended September 26, 1997 Proxy Statement Dated March 14, 1997 Current Report on Form 8-K Dated April 21, 1997
All documents and reports filed by Kollmorgen or Pacific Scientific with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Consent Solicitation Statement/Prospectus and prior to the date the Offer is terminated or the vote on the Proposed Merger is completed shall be deemed to be incorporated by reference in this Consent Solicitation Statement/ Prospectus and to be a part hereof from the dates of filing of such documents or reports. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Consent Solicitation Statement/Prospectus to the extent that a statement contained herein or in any other subsequently filed document that also is or is deemed to be incorporated by reference herein modifies or supersedes such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Consent Solicitation Statement/Prospectus. THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE TO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF PACIFIC SCIENTIFIC COMMON SHARES, TO WHOM THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS IS DELIVERED, ON WRITTEN OR ORAL REQUEST, TO KOLLMORGEN CORPORATION, RESERVOIR PLACE, 1601 TRAPELO ROAD, WALTHAM, MASSACHUSETTS 02154, ATTENTION: SECRETARY, OR BY TELEPHONE AT (781) 890-5655. 63 LOCATION OF DEFINED TERMS "Antitrust Division"................................................................... 31 "Article Fifth Condition".............................................................. 32 "Article Fifth"........................................................................ 5 "Average Kollmorgen Share Price"....................................................... 3 "Bylaw Repeal Proposal"................................................................ iii "CGCL"................................................................................. 29 "Code"................................................................................. 44 "Commission"........................................................................... ii "Consent Solicitation Statement/Prospectus"............................................ i "Deemed Kollmorgen Common Stock Ownership"............................................. 47 "Deemed Redemption".................................................................... 47 "Deloitte & Touche".................................................................... 60 "Effective Time"....................................................................... ii "Expiration Date"...................................................................... ii "Financing Condition".................................................................. 32 "FTC".................................................................................. 31 "Georgeson"............................................................................ 30 "HSR Act".............................................................................. 6 "HSR Condition"........................................................................ 31 "IRS".................................................................................. 44 "Joint Venture"........................................................................ 12 "Kollmorgen"........................................................................... i "Kollmorgen Board"..................................................................... 25 "Kollmorgen Bylaws".................................................................... 49 "Kollmorgen Charter"................................................................... 49 "Kollmorgen Common Stock".............................................................. i "Kollmorgen Indebtedness".............................................................. 62 "Kollmorgen Nominees".................................................................. ii "Kollmorgen Rights".................................................................... 55 "Kollmorgen Rights Plan"............................................................... 55 "Kollmorgen Special Meeting"........................................................... 56 "Letter of Transmittal"................................................................ ii "Listed Corporation"................................................................... 51
"Loan"................................................................................. 22 "Macbeth".............................................................................. 16 "Minimum Condition".................................................................... 31 "Minimum Number"....................................................................... ii "NYBCL"................................................................................ 48 "NYSE"................................................................................. 4 "Offer"................................................................................ ii "Offer Price".......................................................................... ii "Offer to Purchase".................................................................... ii "Pacific Scientific"................................................................... i "Pacific Scientific 1996 Form 10-K".................................................... 8 "Pacific Scientific 1997 Proxy Statement".............................................. 5 "Pacific Scientific Board"............................................................. i "Pacific Scientific Bylaws"............................................................ ii "Pacific Scientific Charter"........................................................... 48 "Pacific Scientific Common Shares"..................................................... i "Pacific Scientific Common Stock"...................................................... i "Pacific Scientific Rights"............................................................ 54 "Pacific Scientific Rights Plan"....................................................... 54 "Pacific Scientific Second Special Meeting"............................................ 56 "Proposed Combination"................................................................. i "Proposed Merger"...................................................................... ii "Purchaser"............................................................................ ii "Record Date".......................................................................... iii "Registration Statement"............................................................... 33 "Restricted Shares".................................................................... 55 "Rights"............................................................................... i "Rights Condition"..................................................................... 32 "Salomon Smith Barney"................................................................. 61 "Seidel"............................................................................... 12 "Servotronix".......................................................................... 12 "Solicitation"......................................................................... i "Special Meeting"...................................................................... ii "Tender Financing"..................................................................... 62 "Tender Offer Statement"............................................................... ii
SCHEDULE I INFORMATION CONCERNING DIRECTORS AND OFFICERS OF KOLLMORGEN AND CERTAIN REPRESENTATIVES OF KOLLMORGEN WHO MAY ALSO ASSIST IN THE SOLICITATION DIRECTORS AND EXECUTIVE OFFICERS OF KOLLMORGEN The following table shows, with respect to each executive officer or director of Kollmorgen, such person's name and age, all positions and offices with Kollmorgen currently held by such person and his or her principal occupation and business experience during the last five years.
PRESENT BUSINESS EXPERIENCE DURING NAME AGE POSITION PAST FIVE YEARS - -------------------------- --- -------------------------- --------------------------------------------------- Gideon Argov.............. 41 President and Chief Chairman of the Board since March 1996, President Executive Officer, and Chief Executive Officer since November 1991; Director Director since May 1991. From March 1988 to May 1991, President and Chief Executive Officer and Director of High Voltage Engineering Company. Prior to that date, for five years, a manager and senior consultant with Bain & Company. Robert J. Cobuzzi......... 56 Senior Vice President, Senior Vice President (since February 1993), Treasurer and Chief Treasurer and Chief Financial Officer since July Financial Officer, 1991. From April 1989 to July 1991, Vice President Director and Treasurer of High Voltage Engineering Company. Prior to April 1989, Vice President and Chief Financial Officer of Ausimont N.V. Daniel M. Desmond......... 48 Vice President President of Kollmorgen's Aerospace and Defense Motion Technologies Group and Vice President since November 1997. President of Kollmorgen's Electro-Optical Division since 1989. Previously Vice President of Program Management. James A. Eder............. 52 Vice President, Secretary General Counsel since January 1992; Vice President and General Counsel since January 1990; and Secretary since 1983. Previously, Assistant Corporate Counsel from 1977 to 1992. Keith D. Jones............ 39 Controller and Chief Corporate Controller since May 1996; Chief Accounting Officer Accounting Officer since March 1996. Director of Finance, Chief Accounting Officer and Corporate Controller of Cambridge Biotech Corporation from September 1991 to August 1995.
I-1
PRESENT BUSINESS EXPERIENCE DURING NAME AGE POSITION PAST FIVE YEARS - -------------------------- --- -------------------------- --------------------------------------------------- Mark E. Petty............. 42 Vice President President of Kollmorgen's Industrial and Commercial Motion Technologies Group since November 1997; Vice President since January 1, 1996. Prior to that, he held several management positions with Kollmorgen since March 1992. Previously, President of General Eastern, Division of High Voltage Engineering Company. Jerald G. Fishman......... 51 Director President, Chief Executive Officer and a Director of Analog Devices, Inc. Prior to November 1996, President and Chief Operating Officer of Analog Devices, Inc. for five years. Herbert L. Henkel......... 49 Director President of Textron Industrial Products, Textron, Inc. since December 1995. Prior to that date, Industrial Group Vice President for two years and President of Greenlee Textron. James H. Kasschau......... 46 Director President of International Contract Furnishings, Inc. since October 1995. Prior to that date, President of Tinicum Incorporated and President of Tinicum Enterprises, Inc. J. Douglas Maxwell........ 56 Director Chairman of the Board and Chief Executive Officer of Swissray Empower, Inc. and its predecessor since 1988. Robert N. Parker.......... 69 Director Business consultant since 1992. Previously, Executive Vice President of LTV Aerospace and Defense Corporation. Geoffrey S. Renhert....... 40 Director Managing Director and General Partner of Bain Capital, Inc. Founder of Bain Capital, Inc. in 1984. George P. Stephan......... 64 Director Managing Director of Stonington Group, Inc. since 1994. Previously Of Counsel to law firm of Murtha, Cullina, Richter and Pinney. Chairman of the Board of Kollmorgen from 1991 until March 26, 1996.
I-2 SCHEDULE II PACIFIC SCIENTIFIC COMMON SHARES HELD BY KOLLMORGEN, ITS DIRECTORS AND OFFICERS
NAME SHARES OWNED - ------------------------------------------------------------------------------------------------- ----------------- Kollmorgen Corporation........................................................................... 100 Torque Corporation............................................................................... 100 Gideon Argov..................................................................................... 10
II-1 SCHEDULE III CHAPTER 13 OF THE GENERAL CORPORATION LAW OF THE STATE OF CALIFORNIA 1300 [SHORT FORM MERGER; PURCHASE OF SHARES AT FAIR MARKET VALUE; "DISSENTING SHARES" AND DISSENTING SHAREHOLDER].--(a) If the approval of the outstanding shares (Section 152) of a corporation is required for a reorganization under subdivisions (a) and (b) or subdivision (e) or (f) of Section 1201, each shareholder of the corporation entitled to vote on the transaction and each shareholder of a subsidiary corporation in a short-form merger may, by complying with this chapter, require the corporation in which the shareholder holds shares to purchase for cash at their fair market value the shares owned by the shareholder which are dissenting shares as defined in subdivision (b). The fair market value shall be determined as of the day before the first announcement of the terms of the proposed reorganization or short-form merger, excluding any appreciation or depreciation in consequence of the proposed action, but adjusted for any stock split, reverse stock split, or share dividend which becomes effective thereafter. (b) As used in this chapter, "dissenting shares" means shares which come within all of the following descriptions: (1) Which were not immediately prior to the reorganization or short-form merger either (A) listed on any national securities exchange certified by the Commissioner of Corporations under subdivision (o) of Section 25100 or (B) listed on the list of OTC margin stocks issued by the Board of Governors of the Federal Reserve System, and the notice of meeting of shareholders to act upon the reorganization summarizes this section and Sections 1301, 1302, 1303 and 1304; PROVIDED, HOWEVER, that this provision does not apply to any shares with respect to which there exists any restriction on transfer imposed by the corporation or by any law or regulation; and PROVIDED, FURTHER, that this provision does not apply to any class of shares described in SUBPARAGRAPH (A) OR (B) if demands for payment are filed with respect to 5 percent or more of the outstanding shares of that class. (2) Which were outstanding on that date for the termination of shareholders entitled to vote on the reorganization and (A) were not voted in favor of the reorganization or, (B) if described in SUBPARAGRAPH (A) OR (B) of paragraph (1) (without regard to the provisos in that paragraph), were voted against the reorganization, or which were held of record on the effective date of a short-form merger; PROVIDED, HOWEVER, that SUBPARAGRAPH (A) rather than SUBPARAGRAPH (B) of this paragraph applies in any case where the approval required by Section 1201 is sought by written consent rather than at a meeting. (3) Which the dissenting shareholder has demanded that the corporation purchase at their fair market value, in accordance with Section 1301. (4) Which the dissenting shareholder has submitted for endorsement, in accordance with Section 1302. (c) As used in this chapter, "dissenting shareholder" means the recordholder of dissenting shares and includes a transferee of record. (Last amended by Ch. 543, L. '93, eff. 1-1-94.) 1301 [DISSENTER'S RIGHTS; DEMAND ON CORPORATION FOR PURCHASE OF SHARES].-- (a) If, in the case of a reorganization, any shareholders of a corporation have a right under Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to purchase their shares for cash, such corporation shall mail to each such shareholder a notice of the approval of the reorganization by its outstanding shares (Section 152) within 10 days after the date of such approval, accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of the price determined by the corporation to represent the fair market value of the dissenting shares, III-1 and a brief description of the procedure to be followed if the shareholder desires to exercise the shareholder's right under such sections. The statement of price constitutes an offer by the corporation to purchase at the price stated any dissenting shares as defined in subdivision (b) of Section 1300, unless they lose their status as dissenting shares under Section 1309. (b) Any shareholder who has a right to require the corporation to purchase the shareholder's shares for cash under Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the corporation to purchase such shares shall make written demand upon the corporation to purchase such shares and payment to the shareholder in cash of their fair market value. The demand is not effective for any purpose unless it is received by the corporation or any transfer agent thereof (1) in the case of shares described in clause (i) or (ii) of paragraph (1) of subdivision (b) of Section 1300 (without regard to the provisos in that paragraph), not later than the date of the shareholders' meeting to vote upon the reorganization, or (2) in any other case within 30 days after the date on which the notice of the approval by the outstanding shares pursuant to subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder. (c) The demand shall state the number and class of the shares held of record by the shareholder which the shareholder demands that the corporation purchase and shall contain a statement of what such shareholder claims to be the fair market value of those shares as of the day before the announcement of the proposed reorganization or short form merger. The statement of fair market value constitutes an offer by the shareholder to sell the shares at such price. (Last amended by Ch. 1155, L. '80, eff. 1-1-81.) 1302 [DISSENTING SHARES, STAMPING OR ENDORSING].--Within 30 days after the date on which notice of the approval by the outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, the shareholder shall submit to the corporation at its principal office or at the office of any transfer agent thereof, (a) if the shares are certificated securities, the shareholder's certificates representing any shares which the shareholder demands that the corporation purchase, to be stamped or endorsed with a statement that the shares are dissenting shares or to be exchanged for certificates of appropriate denomination so stamped or endorsed or (b) if the shares are uncertificated securities, written notice of the number of shares which the shareholder demands that the corporation purchase. Upon subsequent transfers of the dissenting shares on the books of the corporation the new certificates, initial transaction statement, and other written statements issued therefor shall bear a like statement, together with the name of the original dissenting holder of the shares. (Last amended by Ch. 766, L. '86, eff. 1-1-87). 1303 [DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST; TIME OF PAYMENT].--(a) If the corporation and the shareholder agree that the shares are dissenting shares and agree upon the price of the shares, the dissenting shareholder is entitled to the agreed price with interest thereon at the legal rate on judgments from the date of the agreement. Any agreements fixing the fair market value of any dissenting shares as between the corporation and the holders thereof shall be filed with the secretary of the corporation. (b) Subject to the provisions of Section 1306, payment of the fair market value of dissenting shares shall be made within 30 days after the amount thereof has been agreed or within 30 days after any statutory or contractual conditions to the reorganization are satisfied, whichever is later, and in the case of certificated securities, subject to surrender of the certificates therefor, unless provided otherwise by agreement. (Last amended by Ch. 766, L. '86, eff. 1-1-87). 1304 [DISSENTERS ACTIONS; JOINDER; CONSOLIDATION; APPOINTMENT OF APPRAISERS].--(a) If the corporation denies that the shares are dissenting shares, or the corporation and the shareholder fail to agree upon the fair market values of the shares, then the shareholder demanding purchase of such shares as dissenting shares or any interested corporation, within six months after the date on which notice of the approval by the outstanding shares (Section 152) or notice pursuant to III-2 subdivision (i) of Section 1110 was mailed to the shareholder, but not thereafter, may file a complaint in the superior court of the proper county praying the court to determine whether the shares are dissenting shares or the fair market value of the dissenting shares or both or may intervene in any action pending on such a complaint. (b) Two or more dissenting shareholders may join as plaintiffs or be joined as defendants in any such action and two or more such actions may be consolidated. (c) On the trial of the action, the court shall determine the issues. If the status of the shares as dissenting shares is in issue, the court shall first determine that issue. If the fair market value of the dissenting shares is in issue, the court shall determine, or shall appoint one or more impartial appraisers to determine, the fair market value of the shares. 1305 [APPRAISERS DUTY AND REPORT; COURT JUDGEMENT; PAYMENT; APPEAL; COSTS OF ACTION].--(a) If the court appoints an appraiser or appraisers, they shall proceed forthwith to determine the fair market value per share. Within the time fixed by the court, the appraisers, or a majority of them, shall make and file a report in the office of the clerk of the court. Thereupon, on the motion of any party, the report shall be submitted to the court and considered on such evidence as the court considers relevant. If the court finds the report reasonable, the court may confirm it. (b) If a majority of the appraisers appointed fail to make and file a report within 10 days from the date of their appointment or within such further time as may be allowed by the court or the report is not confirmed by the court, the court shall determine the fair market value of the dissenting shares. (c) Subject to the provisions of Section 1306, judgment shall be rendered against the corporation for payment of an amount equal to the fair market value of each dissenting share multiplied by the number of dissenting shares which any dissenting shareholder who is a party, or who has intervened, is entitled to require the corporation to purchase, with interest thereon at the legal rate from the date on which judgment was entered. (d) Any such judgment shall be payable forthwith with respect to uncertificated securities and, with respect to certificated securities, only upon the endorsement and delivery to the corporation of the certificates for the shares described in the judgment. Any party may appeal from the judgment. (e) The costs of the action, including reasonable compensation to the appraisers to be fixed by the court, shall be assessed or apportioned as the court considers equitable, but, if the appraisal exceeds the price offered by the corporation, the corporation shall pay the costs (including in the discretion of the court attorneys' fees, fees of expert witnesses and interest at the legal rate on judgments from the date of compliance with Sections 1300, 1301 and 1302 if the value awarded by the court for the shares is more than 125 percent of the price offered by the corporation under subdivision (a) of Section 1301). (Last amended by Ch. 766 L. '86, eff. 1-1-87.) 1306 [DISSENTING SHAREHOLDERS: EFFECT OF PREVENTION OF PAYMENT OF FAIR MARKET VALUE].--To the extent that the provisions of Chapter 5 prevent the payment to any holders to dissenting shares of their fair market value, they shall become creditors of the corporation for the amount thereof together with interest at the legal rate on judgments until the date of payment, but subordinate to all other creditors in any liquidation proceeding, such debt to be payable when permissible under the provisions of Chapter 5. 1307 [DISSENTING SHARES, DISPOSITION OF DIVIDENDS].--Cash dividends declared and paid by the corporation upon the dissenting shares after the date of approval of the reorganization by the outstanding shares (Section 152) and prior to payment for the shares by the corporation shall be credited against the total amount to be paid by the corporation therefor. 1308 [DISSENTING SHARES, RIGHTS AND PRIVILEGES].--Except as expressly limited in this chapter, holders of dissenting shares continue to have all the rights and privileges incident to their III-3 shares, until the fair market value of their shares is agreed upon or determined. A dissenting shareholder may not withdraw a demand for payment unless the corporation consents thereto. 1309 [DISSENTING SHARES, LOSS OF STATUS].--Dissenting shares lose their status as dissenting shares and the holders thereof cease to be dissenting shareholders and cease to be entitled to require the corporation to purchase their shares upon the happening of any of the following: (a) The corporation abandons the reorganization. Upon abandonment of the reorganization, the corporation shall pay on demand to any dissenting shareholder who has initiated proceedings in good faith under this chapter all necessary expenses incurred in such proceedings and reasonable attorneys' fees. (b) The shares are transferred prior to their submission for endorsement in accordance with Section 1302 or are surrendered for conversion into shares of another class in accordance with the articles. (c) The dissenting shareholder and the corporation do not agree upon the status of the shares as dissenting shares or upon the purchase price of the shares, and neither files a complaint or intervenes in a pending action as provided in Section 1304, within six months after the date on which notice of the approval by the outstanding shares or notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder. (d) The dissenting shareholder, with the consent of the corporation, withdraws the shareholder's demand for purchase of the dissenting shares. 1310 [SUSPENSION OF CERTAIN PROCEEDINGS WHILE LITIGATION IS PENDING].--If litigation is instituted to test the sufficiency or regularity of the votes of the shareholders in authorizing a reorganization, any proceedings under Sections 1304 and 1305 shall be suspended until final determination of such litigation. 1311 [CHAPTER INAPPLICABLE TO CERTAIN CLASSES OF SHARES].--This chapter, EXCEPT SECTION 1312, does not apply to classes of shares whose terms and provisions specifically set forth the amount to be paid in respect to such shares in the event of a reorganization or merger. (Last amended by Ch. 919, L. '88, eff. 1-1-89.) 1312 [VALIDITY OF REORGANIZATION OR SHORT FORM MERGER, ATTACK; SHAREHOLDERS' RIGHTS; BURDEN OF PROOF].--(a) No shareholder of a corporation who has a right under this chapter to demand payment of cash for the shares held by the shareholder shall have any right at law or in equity to attach the validity of the reorganization or short-form merger, or to have the reorganization or short-form merger set aside or rescinded, except in an action to test whether the number of shares required to authorize or approve the reorganization have been legally voted in favor thereof; but any holder of shares of a class whose terms and provisions specifically set forth the amount to be paid in respect to them in the event of a reorganization or short-form merger is entitled to payment in accordance with those terms and provisions or, IF THE PRINCIPAL TERMS OF THE REORGANIZATION ARE APPROVED PURSUANT TO SUBDIVISION (B) OF SECTION 1202, IS ENTITLED TO PAYMENT IN ACCORDANCE WITH THE TERMS AND PROVISIONS OF THE APPROVED REORGANIZATION. (b) If one of the parties to a reorganization or short-form merger is directly or indirectly controlled by, or under common control with, another party to the reorganization or short-form merger, subdivision (a) shall not apply to any shareholder of such party who has not demanded payment of cash for such shareholder's shares pursuant to this chapter; but if the shareholder institutes any action to attach the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or rescinded, the shareholder shall not thereafter have any right to demand payment of cash for the shareholder's shares pursuant to this chapter. The court in any action attacking the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or III-4 rescinded shall not restrain or enjoin the consummation of the transaction except upon 10 days prior notice to the corporation and upon a determination by the court that clearly no other remedy will adequately protect the complaining shareholder or the class of shareholders of which such shareholder is a member. (c) If one of the parties to a reorganization or short-form merger is directly or indirectly controlled by, or under common control with, another party to the reorganization or short-form merger, in any action to attach the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or rescinded, (1) a party to a reorganization or short-form merger which controls another party to the reorganization or short-form merger shall have the burden of proving that the transaction is just and reasonable as to the shareholders of the controlled party, and (2) a person who controls two or more parties to a reorganization shall have the burden of proving that the transaction is just and reasonable as to the shareholders of any party so controlled. (Last amended by Ch. 919, L. '88, eff. 1-1-89.) III-5 IF YOU HAVE ANY QUESTIONS OR REQUIRE ANY ADDITIONAL INFORMATION CONCERNING THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS, PLEASE CONTACT GEORGESON & COMPANY INC. AT THE ADDRESS SET FORTH BELOW. [LOGO] WALL STREET PLAZA NEW YORK, NEW YORK 10005 BANKS AND BROKERS CALL COLLECT (212) 440-9800 OR CALL TOLL-FREE (800) 223-2064 FAX (212) 440-9009 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 721 of the New York Business Corporation Law ("NYBCL") provides that no provision made to indemnify directors or officers of a corporation for the defense of any civil or criminal action or proceeding, whether contained in the Certificate of Incorporation, the Bylaws, a resolution of shareholders or directors, an agreement or otherwise, nor any award of indemnification by a Court, shall be valid unless consistent with Article 7 of the NYBCL. Sections 722 through 726 of the NYBCL prescribe the various conditions under which directors and officers may be indemnified by a New York corporation, such as Parent. Article VI of the Parent Bylaws provides for indemnification of directors and officers of Parent and in substance incorporates the provisions of Sections 722 and 723 of the NYBCL. Article VI provides that Parent (a) may indemnify a director or officer made a party to a derivative action against reasonable expenses actually and necessarily incurred by him in connection with the defense of such action, except in relation to matters as to which such director or officer is adjudged to have breached his duty to Parent, and (b) may indemnify a director or officer made, or threatened to be made, a party to any action other than a derivative action, whether civil or criminal, by reason of the fact that he was a director or officer of Parent, against judgments, fines, amounts paid in settlement and reasonable expenses actually and necessarily incurred as a result of such action, if such director or officer acted, in good faith, for a purpose which he reasonably believed to be in the best interests of Parent and, in criminal actions or proceedings, in addition, had no reasonable cause to believe that his conduct was unlawful. Parent has entered into Indemnification Agreements ("Indemnification Agreements") with each of its outside directors that provide that Parent shall indemnify each director (the "Indemnitee") against all expenses, judgments, penalties, fines, expenses and amounts incurred by an Indemnitee if such person is, or is threatened to be made, a party to any Proceeding (as defined below), provided that the Indemnitee acted in good faith and was not opposed to the interests of Parent. "Proceeding" as defined in the Indemnification Agreement includes any action, suit, arbitration, alternate despite resolution mechanism, investigation, administrative hearing or any other actual, threatened or completed proceeding whether civil, criminal, administrative or investigation, other than one initiated by the Indemnitee. If an Indemnitee has been successful, on the merits or otherwise, in a Proceeding, the Indemnitee shall be indemnified to the maximum extent permitted by the NYBCL. If the Indemnitee is not wholly successful in a Proceeding, Parent will, nevertheless, provide indemnity to the Indemnitee for each successful matter to the maximum extent permitted by the NYBCL. Parent shall advance to the Indemnitee all amounts which were incurred by, or on behalf of, the Indemnitee, prior to a final resolution of a Proceeding, provided that the Indemnitee undertakes to repay any such advances if it is finally determined that the Indemnitee was not entitled to indemnification. The Indemnification Agreements set out a procedure for obtaining and determining indemnification from Parent under certain circumstances. In addition, the Indemnification Agreements provide that Parent shall have the right under certain circumstances to participate in, and assume the defense and control of, any Proceeding and, subject to certain limited situations, shall not be liable to the Indemnitee for any legal fees after assuming such a defense. Parent has purchased standard policies of directors and officers liability insurance which: (a) subject to certain limitations, retentions and exclusions, insure Parent for amounts which it may be required to pay as indemnification to its directors and officers pursuant to Article VI of its Bylaws, and (b) subject to certain limitations and retentions, insure Parent's directors and officers against any losses sustained by them by reason of the fact that they were directors or officers of Parent to the extent that such losses are not covered by Article VI of the Parent Bylaws. However, such insurance excludes, among other things, losses arising out of claims (i) under the Securities Exchange Act of 1934 and amendments thereto for an accounting of profits made from the purchase or sale by any of the directors and officers of securities of Parent; (ii) for damages payable in connection with transactions of the directors and officers out of which they shall have gained any personal profit or advantage to which they are not legally entitled; (iii) where a judgment, in a suit brought against the director or officer, establishes that their acts of active and deliberate dishonesty committed with actual dishonest purpose and intent were material to the cause of action so adjudicated; and (iv) for libel or slander. ITEM 21. EXHIBITS
EXHIBIT NO. - ----------- 5.1 Opinion of James A. Eder, Esq. relating to validity of Parent Common Stock. 8.1 Tax Opinion of Shearman & Sterling. 23.1 Consent of Coopers & Lybrand L.L.P. 23.2 Consent of James A. Eder, Esq. (included in the opinion filed as Exhibit 5.1). 23.3 Consent of Shearman & Sterling (included in the opinion filed as Exhibit 8.1). 24.1 Powers of Attorney. 99.1 Form of Offer to Purchase dated December 15, 1997. 99.2 Form of Letter of Transmittal. 99.3 Form of Notice of Guaranteed Delivery. 99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. 99.5 Form of Letter to Clients. 99.6 Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. 99.7 Form of Press Release dated December 15, 1997. 99.8 Form of Summary Advertisement. 99.9 Form of Consent to be mailed to Pacific Scientific Shareholders. 99.10 Kollmorgen Letter to Pacific Scientific Shareholders dated December 15, 1997. 99.11 Form of Press Release dated December 15, 1997, relating to the record date for action by consent of Pacific Scientific Shareholders.
ITEM 22. UNDERTAKINGS The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933, as amended (the "Securities Act"); (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. II-2 (2) That, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) That, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (5) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this registration statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus shall contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (6) That every prospectus (i) that is filed pursuant to paragraph (5) immediately preceding, or (ii) that purports to meet the requirements of section 10(a)(3) of the Securities Act and is used in connection with an offering of securities subject to Rule 415, shall be filed as a part of an amendment to the registration statement and shall not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (7) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant shall, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and shall be governed by the final adjudication of such issue. (8) To respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the registration statement through the date of responding to the request. (9) To supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the registration statement when it became effective. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of New York, State of New York, on December 15, 1997. KOLLMORGEN CORPORATION BY: /S/ JAMES A. EDER ----------------------------------------- Name: James A. Eder Title: Vice President, Secretary and General Counsel II-4 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed below on the 15th day of December, 1997, by the following persons on behalf of the Registrant in the capacities indicated:
SIGNATURE TITLE - ------------------------------------------------------ ------------------------------------------------------ * ------------------------------------------- Chairman of the Board, President, Chief Executive Gideon Argov Officer and Director (Principal Executive Officer) * ------------------------------------------- Senior Vice President, Treasurer, Chief Financial Robert J. Cobuzzi Officer and Director (Principal Financial Officer) * ------------------------------------------- Controller and Chief Accounting Officer (Principal Keith A. Jones Accounting Officer) * ------------------------------------------- Director Herbert L. Henkel * ------------------------------------------- Director James H. Kasschau * ------------------------------------------- Director J. Douglas Maxwell, Jr. * ------------------------------------------- Director Robert N. Parker * ------------------------------------------- Director Geoffrey S. Rehnert * ------------------------------------------- Director George P. Stephan
*By: /s/ James A. Eder James A. Eder Attorney-in-fact II-5 EXHIBIT INDEX 5.1 Opinion of James A. Eder, Esq. relating to validity of Parent Common Stock. 8.1 Tax Opinion of Shearman & Sterling. 23.1 Consent of Coopers & Lybrand L.L.P. 23.2 Consent of James A. Eder, Esq. (included in the opinion filed as Exhibit 5.1). 23.3 Consent of Shearman & Sterling (included in the opinion filed as Exhibit 8.1). 24.1 Powers of Attorney. 99.1 Form of Offer to Purchase dated December 15, 1997. 99.2 Form of Letter of Transmittal. 99.3 Form of Notice of Guaranteed Delivery. 99.4 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees. 99.5 Form of Letter to Clients. 99.6 Form of Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9. 99.7 Form of Press Release dated December 15, 1997. 99.8 Form of Summary Advertisement. 99.9 Form of Consent to be mailed to Pacific Scientific Shareholders. 99.10 Kollmorgen Letter to Pacific Scientific Shareholders dated December 15, 1997. 99.11 Form of Press Release dated December 15, 1997, relating to the record date for action by consent of Pacific Scientific Shareholders.
i EX-5.1 2 MERGER OF TORQUE CORP. & PACIFIC SCIENTIFIC CO. Exhibit 5.1 December 15, 1997 Kollmorgen Corporation Reservoir Place 1601 Trapelo Road Waltham, Massachusetts 02154 PROPOSED MERGER OF TORQUE CORPORATION AND PACIFIC SCIENTIFIC COMPANY Ladies and Gentlemen: I am General Counsel of Kollmorgen Corporation, a New York Corporation ("Kollmorgen"), and in such capacity I have acted as counsel to Kollmorgen in connection with the Registration Statement on Form S-4 (the "Registration Statement") being filed by Kollmorgen on the date hereof with the Securities and Exchange Commission covering the registration under the Securities Act of 1933, as amended (the "Act"), of such number of shares of Kollmorgen's common stock, par value $2.50 per share (the "Kollmorgen Common Stock") as shall be determined by the product of (i) 12,694,880 (the sum of the aggregate number of shares of common stock, $1.00 par value per share, of Pacific Scientific Company (the "Pacific Scientific Common Stock") (A) outstanding according to the Quarterly Report on Form 10-Q for the nine months ended September 26, 1997 of Pacific Scientific Company (the "Form 10-Q") and (B) issuable upon the exercise of stock options as reported in the Form 10-Q) and (ii) an exchange ratio of 1.215 shares of Kollmorgen Common Stock for each share of Pacific Scientific Common Stock computed on the basis of a Kollmorgen Common Stock per share price of 16.88 and (iii) 0.5, to reflect the fact that only half of the Pacific Scientific Common Stock will be exchanged in the Proposed Merger (as defined herein). The Common Stock is being registered in connection with the proposed merger of Pacific Scientific Company, a California corporation, with and into Torque Corporation, a Delaware corporation and a wholly owned subsidiary of Kollmorgen. In connection with the foregoing, I have examined the Registration Statement and the consent solicitation statement/preliminary prospectus contained in the Registration Statement (the "Consent Solicitation Statement/Prospectus"), and originals, or copies certified or otherwise identified to my satisfaction, of such other documents and corporate and public records as I have deemed necessary as a basis for the opinions hereinafter expressed. In my examination, I have assumed the genuineness of all signatures, the authenticity of all documents presented to me as originals and the conformity to the originals of all documents presented to me as copies. In rendering my opinion, I have relied as to factual matters upon certificates and representations of officers of Kollmorgen and certificates of public officials. Based upon the foregoing and having regard for such legal considerations as I deem relevant, I am of the opinion that the shares of Kollmorgen Common Stock to which the Registration Statement relates have been duly authorized by Kollmorgen and, when issued and delivered as described in the Consent Solicitation Statement/Prospectus, will be validly issued, fully paid and non-assessable. My opinion expressed herein is limited to the law of the State of New York and the Federal law of the United States, and I do not express any opinion herein concerning any other law. I hereby consent to the use of this opinion as Exhibit 5.1 to the Registration Statement and to the reference to me under the caption "Legal Matters" contained in the Consent Solicitation Statement/Prospectus. Very truly yours, /s/ James A. Eder Vice President, Secretary and General Counsel Kollmorgen Corporation EX-8.1 3 KOLLMORGEN CORP. LTR. EXHIBIT 8.1 December 15, 1997 Kollmorgen Corporation Reservoir Place 1601 Trapelo Road Waltham, Massachusetts 02154 Ladies and Gentlemen: We are acting as counsel to Kollmorgen Corporation, a New York corporation ("Kollmorgen"), in connection with (i) the offer (the "Offer") to purchase shares of common stock ("Shares") of Pacific Scientific Company, a California corporation ("Pacific Scientific"), (ii) the proposed merger (the "Proposed Merger") of Pacific Scientific with and into Torque Corporation, a Delaware corporation and a direct wholly owned subsidiary of Kollmorgen ("Purchaser"), (iii) the preparation and the filing with the Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended, of a registration statement on Form S-4 (the "Registration Statement") with respect to the common stock of Kollmorgen ("Kollmorgen Common Stock") to be issued to holders of Shares of Pacific Scientific in the Proposed Merger, and (iv) the preparation of a consent solicitation statement/preliminary prospectus of Kollmorgen dated December 15, 1997, which is contained in and made a part of the Registration Statement (the "Consent Solicitation Statement/Prospectus"). On the basis of the foregoing and upon consideration of applicable current law, we are of the opinion that, subject to the limitations stated therein, the discussion as to federal income tax matters set forth under the caption "Material Federal Income Tax Consequences" in the Consent Solicitation Statement/Prospectus is an accurate description of the material federal income tax consequences under currently applicable law to holders of Shares who exchange Shares for cash and/or shares of Kollmorgen Common Stock pursuant to the Offer and the Proposed Merger. Kollmorgen 2 December 15, 1997 We hereby consent to the filing of this opinion with the Commission as an exhibit to the Registration Statement and to the reference to us under the caption "Material Federal Income tax Consequences" and elsewhere in the Consent Solicitation Statement/Prospectus. In giving such consent, we do not hereby admit that we are in the category of persons whose consent is required under Section 7 of the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder. Very truly yours, /s/ Shearman & Sterling ----------------------- EX-23.1 4 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this Registration Statement on Form S-4 of our report dated January 27, 1997, on our audits of the consolidated financial statements of Kollmorgen Corporation as of December 31, 1996 and 1995, and for the three years in the period ended December 31, 1996, which report is included in the Company's Annual Report on Form 10-K. We also consent to the reference to our firm under the caption "Experts" and "Summary Selected Financial Data" in the Consent Solicitation Statement/Prospectus included in this Registration Statement on Form S-4. /s/ Coopers & Lybrand L.L.P. Boston, Massachusetts December 15, 1997 EX-24.1 5 POWERS OF ATTORNEY Exhibit 24.1 Kollmorgen Corporation Power of Attorney ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby appoint and constitute James A. Eder and Robert J. Cobuzzi, and each of them acting individually, his true and lawful attorneys-in-fact and agents, each with power to act without the other and full power of substitution, to execute, deliver and file, for and on his behalf, and in his name, place and stead, in any and all capacities, a Registration Statement on Form S-4 (or other appropriate form) for filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and any other documents in support thereof or supplemental or amendatory thereto, with respect to the registration of shares of Kollmorgen Corporation Common Stock, par value $2.50 per share, pursuant to the merger of Pacific Scientific Company with and into Kollmorgen Corporation's wholly-owned subsidiary, Torque Corporation, hereby granting to such attorneys-in-fact and each of them full power and authority to do and perform each and every act and thing whatsoever as such attorney-in-fact or attorneys-in-fact may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in any and all capacities, hereby ratifying and confirming all acts and things which such attorney-in-fact or attorneys-in-fact may do or cause to be done by virtue of this power of attorney. IN WITNESS WHEREOF, the undersigned has executed this power of attorney as of the 8th day of December, 1997. By /s/ Gideon Argov ----------------- Gideon Argov Kollmorgen Corporation Power of Attorney ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby appoint and constitute James A. Eder and Robert J. Cobuzzi, and each of them acting individually, his true and lawful attorneys-in-fact and agents, each with power to act without the other and full power of substitution, to execute, deliver and file, for and on his behalf, and in his name, place and stead, in any and all capacities, a Registration Statement on Form S-4 (or other appropriate form) for filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and any other documents in support thereof or supplemental or amendatory thereto, with respect to the registration of shares of Kollmorgen Corporation Common Stock, par value $2.50 per share, pursuant to the merger of Pacific Scientific Company with and into Kollmorgen Corporation's wholly-owned subsidiary, Torque Corporation, hereby granting to such attorneys-in-fact and each of them full power and authority to do and perform each and every act and thing whatsoever as such attorney-in-fact or attorneys-in-fact may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in any and all capacities, hereby ratifying and confirming all acts and things which such attorney-in-fact or attorneys-in-fact may do or cause to be done by virtue of this power of attorney. IN WITNESS WHEREOF, the undersigned has executed this power of attorney as of the 8th day of December, 1997. By /s/ Robert J. Cobuzzi --------------------- Robert J. Cobuzzi Kollmorgen Corporation Power of Attorney ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby appoint and constitute James A. Eder and Robert J. Cobuzzi, and each of them acting individually, his true and lawful attorneys-in-fact and agents, each with power to act without the other and full power of substitution, to execute, deliver and file, for and on his behalf, and in his name, place and stead, in any and all capacities, a Registration Statement on Form S-4 (or other appropriate form) for filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and any other documents in support thereof or supplemental or amendatory thereto, with respect to the registration of shares of Kollmorgen Corporation Common Stock, par value $2.50 per share, pursuant to the merger of Pacific Scientific Company with and into Kollmorgen Corporation's wholly-owned subsidiary, Torque Corporation, hereby granting to such attorneys-in-fact and each of them full power and authority to do and perform each and every act and thing whatsoever as such attorney-in-fact or attorneys-in-fact may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in any and all capacities, hereby ratifying and confirming all acts and things which such attorney-in-fact or attorneys-in-fact may do or cause to be done by virtue of this power of attorney. IN WITNESS WHEREOF, the undersigned has executed this power of attorney as of the 8th day of December, 1997. By /s/ Keith A. Jones ------------------ Keith A. Jones Kollmorgen Corporation Power of Attorney ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby appoint and constitute James A. Eder and Robert J. Cobuzzi, and each of them acting individually, his true and lawful attorneys-in-fact and agents, each with power to act without the other and full power of substitution, to execute, deliver and file, for and on his behalf, and in his name, place and stead, in any and all capacities, a Registration Statement on Form S-4 (or other appropriate form) for filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and any other documents in support thereof or supplemental or amendatory thereto, with respect to the registration of shares of Kollmorgen Corporation Common Stock, par value $2.50 per share, pursuant to the merger of Pacific Scientific Company with and into Kollmorgen Corporation's wholly-owned subsidiary, Torque Corporation, hereby granting to such attorneys-in-fact and each of them full power and authority to do and perform each and every act and thing whatsoever as such attorney-in-fact or attorneys-in-fact may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in any and all capacities, hereby ratifying and confirming all acts and things which such attorney-in-fact or attorneys-in-fact may do or cause to be done by virtue of this power of attorney. IN WITNESS WHEREOF, the undersigned has executed this power of attorney as of the 8th day of December, 1997. By /s/ Herbert L. Henkel --------------------- Herbert L. Henkel Kollmorgen Corporation Power of Attorney ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby appoint and constitute James A. Eder and Robert J. Cobuzzi, and each of them acting individually, his true and lawful attorneys-in-fact and agents, each with power to act without the other and full power of substitution, to execute, deliver and file, for and on his behalf, and in his name, place and stead, in any and all capacities, a Registration Statement on Form S-4 (or other appropriate form) for filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and any other documents in support thereof or supplemental or amendatory thereto, with respect to the registration of shares of Kollmorgen Corporation Common Stock, par value $2.50 per share, pursuant to the merger of Pacific Scientific Company with and into Kollmorgen Corporation's wholly-owned subsidiary, Torque Corporation, hereby granting to such attorneys-in-fact and each of them full power and authority to do and perform each and every act and thing whatsoever as such attorney-in-fact or attorneys-in-fact may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in any and all capacities, hereby ratifying and confirming all acts and things which such attorney-in-fact or attorneys-in-fact may do or cause to be done by virtue of this power of attorney. IN WITNESS WHEREOF, the undersigned has executed this power of attorney as of the 8th day of December, 1997. By /s/ James H. Kasschau --------------------- James H. Kasschau Kollmorgen Corporation Power of Attorney ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby appoint and constitute James A. Eder and Robert J. Cobuzzi, and each of them acting individually, his true and lawful attorneys-in-fact and agents, each with power to act without the other and full power of substitution, to execute, deliver and file, for and on his behalf, and in his name, place and stead, in any and all capacities, a Registration Statement on Form S-4 (or other appropriate form) for filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and any other documents in support thereof or supplemental or amendatory thereto, with respect to the registration of shares of Kollmorgen Corporation Common Stock, par value $2.50 per share, pursuant to the merger of Pacific Scientific Company with and into Kollmorgen Corporation's wholly-owned subsidiary, Torque Corporation, hereby granting to such attorneys-in-fact and each of them full power and authority to do and perform each and every act and thing whatsoever as such attorney-in-fact or attorneys-in-fact may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in any and all capacities, hereby ratifying and confirming all acts and things which such attorney-in-fact or attorneys-in-fact may do or cause to be done by virtue of this power of attorney. IN WITNESS WHEREOF, the undersigned has executed this power of attorney as of the 8th day of December, 1997. By /s/ J. Douglas Maxwell, Jr. --------------------------- J. Douglas Maxwell, Jr. Kollmorgen Corporation Power of Attorney ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby appoint and constitute James A. Eder and Robert J. Cobuzzi, and each of them acting individually, his true and lawful attorneys-in-fact and agents, each with power to act without the other and full power of substitution, to execute, deliver and file, for and on his behalf, and in his name, place and stead, in any and all capacities, a Registration Statement on Form S-4 (or other appropriate form) for filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and any other documents in support thereof or supplemental or amendatory thereto, with respect to the registration of shares of Kollmorgen Corporation Common Stock, par value $2.50 per share, pursuant to the merger of Pacific Scientific Company with and into Kollmorgen Corporation's wholly-owned subsidiary, Torque Corporation, hereby granting to such attorneys-in-fact and each of them full power and authority to do and perform each and every act and thing whatsoever as such attorney-in-fact or attorneys-in-fact may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in any and all capacities, hereby ratifying and confirming all acts and things which such attorney-in-fact or attorneys-in-fact may do or cause to be done by virtue of this power of attorney. IN WITNESS WHEREOF, the undersigned has executed this power of attorney as of the 8th day of December, 1997. By /s/ Robert N. Parker -------------------- Robert N. Parker Kollmorgen Corporation Power of Attorney ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby appoint and constitute James A. Eder and Robert J. Cobuzzi, and each of them acting individually, his true and lawful attorneys-in-fact and agents, each with power to act without the other and full power of substitution, to execute, deliver and file, for and on his behalf, and in his name, place and stead, in any and all capacities, a Registration Statement on Form S-4 (or other appropriate form) for filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and any other documents in support thereof or supplemental or amendatory thereto, with respect to the registration of shares of Kollmorgen Corporation Common Stock, par value $2.50 per share, pursuant to the merger of Pacific Scientific Company with and into Kollmorgen Corporation's wholly-owned subsidiary, Torque Corporation, hereby granting to such attorneys-in-fact and each of them full power and authority to do and perform each and every act and thing whatsoever as such attorney-in-fact or attorneys-in-fact may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in any and all capacities, hereby ratifying and confirming all acts and things which such attorney-in-fact or attorneys-in-fact may do or cause to be done by virtue of this power of attorney. IN WITNESS WHEREOF, the undersigned has executed this power of attorney as of the 8th day of December, 1997. By Geoffrey S. Rehnert ------------------- Geoffrey S. Rehnert Kollmorgen Corporation Power of Attorney ----------------- KNOW ALL MEN BY THESE PRESENTS, that the undersigned does hereby appoint and constitute James A. Eder and Robert J. Cobuzzi, and each of them acting individually, his true and lawful attorneys-in-fact and agents, each with power to act without the other and full power of substitution, to execute, deliver and file, for and on his behalf, and in his name, place and stead, in any and all capacities, a Registration Statement on Form S-4 (or other appropriate form) for filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and any other documents in support thereof or supplemental or amendatory thereto, with respect to the registration of shares of Kollmorgen Corporation Common Stock, par value $2.50 per share, pursuant to the merger of Pacific Scientific Company with and into Kollmorgen Corporation's wholly-owned subsidiary, Torque Corporation, hereby granting to such attorneys-in-fact and each of them full power and authority to do and perform each and every act and thing whatsoever as such attorney-in-fact or attorneys-in-fact may deem necessary or advisable to carry out fully the intent of the foregoing as the undersigned might or could do personally or in any and all capacities, hereby ratifying and confirming all acts and things which such attorney-in-fact or attorneys-in-fact may do or cause to be done by virtue of this power of attorney. IN WITNESS WHEREOF, the undersigned has executed this power of attorney as of the 8th day of December, 1997. By George P. Stephan ----------------- George P. Stephan EX-99.1 6 FORM OF OFFER TO PURCHASE OFFER TO PURCHASE FOR CASH 6,347,241 Shares of Common Stock (including the associated Preferred Stock Purchase Rights) of Pacific Scientific Company at $20.50 Net Per Share by Torque Corporation a wholly owned subsidiary of Kollmorgen Corporation THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JANUARY 14, 1998, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER 6,347,241 SHARES OF COMMON STOCK, PAR VALUE $1.00 PER SHARE (THE "COMMON STOCK"), OF PACIFIC SCIENTIFIC COMPANY (THE "COMPANY"), INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS ISSUED PURSUANT TO THE SHAREHOLDER PROTECTION AGREEMENT, DATED AS OF NOVEMBER 7, 1988, AS AMENDED, BETWEEN THE COMPANY AND MANUFACTURERS HANOVER TRUST COMPANY, AS SUCCESSOR RIGHTS AGENT (THE "RIGHTS" AND, TOGETHER WITH THE COMMON STOCK, THE "SHARES"), OR SUCH GREATER OR LESSER NUMBER OF SHARES THAT, TOGETHER WITH THE SHARES OWNED BY KOLLMORGEN CORPORATION ("PARENT") AND TORQUE CORPORATION, A WHOLLY OWNED SUBSIDIARY OF PARENT ("PURCHASER"), WOULD CONSTITUTE A MAJORITY OF THE OUTSTANDING SHARES ON A FULLY DILUTED BASIS, (2) THE EXPIRATION OR TERMINATION OF ANY APPLICABLE WAITING PERIOD UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, (3) PARENT AND PURCHASER HAVING OBTAINED, PRIOR TO THE EXPIRATION OF THE OFFER, ON TERMS SATISFACTORY TO PARENT IN ITS SOLE DISCRETION, SUFFICIENT FINANCING TO ENABLE CONSUMMATION OF THE OFFER AND THE PROPOSED MERGER DESCRIBED HEREIN (THE "PROPOSED MERGER"), (4) PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE RIGHTS HAVE BEEN REDEEMED OR INVALIDATED OR ARE OTHERWISE INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER, (5) PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE OFFER AND THE PROPOSED MERGER HAVE BEEN APPROVED FOR PURPOSES OF ARTICLE FIFTH OF THE COMPANY'S ARTICLES OF INCORPORATION (IF NECESSARY) OR ARTICLE FIFTH OF THE COMPANY'S ARTICLES OF INCORPORATION HAS BEEN INVALIDATED OR IS OTHERWISE SATISFIED WITH RESPECT TO THE OFFER AND THE PROPOSED MERGER AND (6) THE APPROVAL BY PARENT'S SHAREHOLDERS OF THE ISSUANCE OF COMMON STOCK OF PARENT, PAR VALUE $2.50 PER SHARE ("PARENT COMMON STOCK"), IN THE PROPOSED MERGER. THE OFFER IS ALSO SUBJECT TO THE OTHER TERMS AND CONDITIONS WHICH ARE CONTAINED IN THIS OFFER TO PURCHASE. SEE "SECTION 14. CERTAIN CONDITIONS OF THE OFFER". (COVER CONTINUED ON NEXT PAGE) ------------------------------ The Dealer Manager for the Offer is: SALOMON SMITH BARNEY December 15, 1997 IMPORTANT Parent and Purchaser intend to continue to seek to negotiate with the Company with respect to the acquisition of the Company by Parent or Purchaser. Purchaser reserves the right to amend the Offer (including amending the number of Shares to be purchased, the purchase prices therefor and the proposed merger consideration) at any time, including upon entering into a merger agreement with the Company, or to negotiate a merger agreement with the Company not involving a tender offer pursuant to which Purchaser would terminate the Offer and the Shares would, upon consummation of such merger, be converted into cash and Parent Common Stock in such amounts as are negotiated by Parent and the Company; provided, however, that Parent has no intention of reducing the consideration paid to the Company's shareholders below that being offered in the Offer and the Proposed Merger. ------------------------ Any shareholder desiring to tender all or any portion of such shareholder's Shares should either (1) complete and sign the Letter of Transmittal (or a facsimile thereof) in accordance with the instructions in the Letter of Transmittal and mail or deliver it, together with the certificate(s) evidencing tendered Shares and, if separate, the certificates representing the associated Rights, and any other required documents, to the Depositary (as defined herein) or tender such Shares pursuant to the procedures for book-entry transfer set forth in "Section 3. Procedures for Accepting the Offer and Tendering Shares" or (2) request such shareholder's broker, dealer, commercial bank, trust company or other nominee to effect the transaction for such shareholder. Any shareholder whose Shares are registered in the name of a broker, dealer, commercial bank, trust company or other nominee must contact such broker, dealer, commercial bank, trust company or other nominee if such shareholder desires to tender such Shares. Unless and until Purchaser declares that the Rights Condition (as defined herein) is satisfied, shareholders will be required to tender one Right for each Share tendered in order to effect a valid tender of such Share. A shareholder who desires to tender Shares and whose certificates evidencing such Shares are not immediately available, or who cannot comply with the procedure for book-entry transfer on a timely basis, may tender such Shares by following the procedure for guaranteed delivery set forth in "Section 3. Procedures for Accepting the Offer and Tendering Shares". Questions or requests for assistance may be directed to the Information Agent (as defined herein) or to the Dealer Manager at their respective addresses and telephone numbers set forth on the back cover of this Offer to Purchase. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may also be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. TABLE OF CONTENTS
PAGE ----- INTRODUCTION............................................................................................... 1 1. Terms of the Offer; Proration; Expiration Date......................................................... 5 2. Acceptance for Payment and Payment for Shares.......................................................... 7 3. Procedures for Accepting the Offer and Tendering Shares................................................ 8 4. Withdrawal Rights...................................................................................... 10 5. Certain Federal Income Tax Consequences................................................................ 11 6. Price Range of Shares; Dividends....................................................................... 15 7. Certain Information Concerning the Company............................................................. 16 8. Certain Information Concerning Purchaser and Parent.................................................... 18 9. Financing of the Offer and the Proposed Merger......................................................... 20 10. Background of the Offer; Contacts with the Company..................................................... 22 11. Purpose of the Offer; Plans for the Company After the Offer and the Proposed Merger.................... 24 12. Dividends and Distributions............................................................................ 27 13. Effect of the Offer on the Market for the Shares, Exchange Listing and Exchange Act Registration....... 27 14. Certain Conditions of the Offer........................................................................ 28 15. Certain Legal Matters and Regulatory Approvals......................................................... 32 16. Shareholder Rights Plan................................................................................ 34 17. Article Fifth of the Company's Articles of Incorporation............................................... 36 18. Fees and Expenses...................................................................................... 38 19. Miscellaneous.......................................................................................... 39 Schedule I. Directors and Executive Officers of Parent and Purchaser....................................... I-1 Schedule II. Schedule of Transactions in Shares During the Past 60 Days.................................... II-1 Schedule III. Chapter 13 of the General Corporation Law of the State of California......................... III-1
i To the Holders of Common Stock (including the associated Preferred Stock Purchase Rights) of Pacific Scientific Company: INTRODUCTION Torque Corporation, a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Kollmorgen Corporation, a New York corporation ("Parent"), hereby offers to purchase 6,347,241 of shares of common stock, par value $1.00 per share (the "Common Stock"), of Pacific Scientific Company, a California corporation (the "Company"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares") issued pursuant to the Shareholder Protection Agreement, dated as of November 7, 1988, as amended (the "Rights Agreement"), between the Company and Manufacturers Hanover Trust Company, as successor Rights Agent (the "Rights Agent"), or such greater or lesser number of Shares that, together with the Shares owned by Parent and Purchaser, would constitute a majority of the outstanding Shares on a fully diluted basis (such number of Shares being the "Minimum Number") at a price of $20.50 per Share, net to the seller in cash (the "Offer Price"), upon the terms and subject to the conditions set forth in this Offer to Purchase (this "Offer to Purchase") and in the related Letter of Transmittal (the "Letter of Transmittal", as amended from time to time, and the Offer to Purchase, as it may be amended from time to time, which together constitute the "Offer"). Unless the context otherwise requires, all references to the Rights shall include the benefits that may inure to holders of the Rights pursuant to the Rights Agreement. Tendering shareholders will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by Purchaser pursuant to the Offer. Purchaser will pay all charges and expenses of Salomon Brothers Inc, doing business as Salomon Smith Barney ("Salomon Smith Barney"), which is acting as the Dealer Manager for the Offer (in such capacity, the "Dealer Manager"), Harris Trust Company of New York (the "Depositary") and Georgeson & Company Inc. (the "Information Agent") incurred in connection with the Offer. See "Section 18. Fees and Expenses". The purpose of the Offer is to acquire control of, and ultimately the entire equity interest in, the Company. Parent is seeking to negotiate with the Company a definitive merger agreement pursuant to which the Company would, as soon as practicable following consummation of the Offer, consummate a merger or similar business combination with Parent, Purchaser or another direct or indirect subsidiary of Parent (the "Proposed Merger"). At the effective time of the Proposed Merger (the "Effective Time"), each Share then outstanding (other than Shares held by the Company or any wholly owned subsidiary of the Company and Shares owned by Parent, Purchaser or any other direct or indirect wholly owned subsidiary of Parent and Shares held by shareholders of the Company who shall have demanded and perfected, and who shall not have withdrawn or otherwise lost, dissenters' rights, if any, under the California General Corporation Law (the "CGCL")) would be converted into the right to receive $20.50 of common stock, par value $2.50 per share, of Parent ("Parent Common Stock"). The exact number of shares of Parent Common Stock into which each Share will be converted in the Proposed Merger will be determined by dividing $20.50 by the average, over the 20 consecutive trading days ending five days prior to the meeting of the shareholders of the Company called for the purpose of voting on the Proposed Merger, of the daily average of the high and low per share sales prices of Parent Common Stock (weighted by sales volume). In the event that such average during such period is less than $15.19 or greater than $18.56, the exchange ratio would be fixed at 1.350 shares of Parent Common Stock or 1.104 shares of Parent Common Stock, respectively, per Share. In such event, the Company's shareholders could receive Parent Common Stock in the Proposed Merger with a value greater or lesser than $20.50. See "Section 11. Purpose of the Offer; Plans for the Company After the Offer and the Proposed Merger". THIS OFFER TO PURCHASE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF OFFERS TO BUY ANY SECURITIES THAT MAY BE ISSUED IN ANY MERGER OR SIMILAR BUSINESS COMBINATION INVOLVING PARENT, PURCHASER OR THE COMPANY. THE ISSUANCE OF SUCH SECURITIES WOULD BE REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND SUCH SECURITIES WOULD BE OFFERED ONLY BY MEANS OF A PROSPECTUS COMPLYING WITH THE REQUIREMENTS OF THE SECURITIES ACT. ON DECEMBER 15, 1997, PARENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION") A REGISTRATION STATEMENT ON FORM S-4 WITH RESPECT TO THE SHARES OF PARENT COMMON STOCK TO BE ISSUED IN THE PROPOSED MERGER. To date, the Company has refused to enter into negotiations with Parent. Accordingly, Parent has commenced a solicitation (the "Solicitation") to urge the Company's shareholders to take action by written consent to call a special meeting of the Company's shareholders (the "Special Meeting"), to be held on February 4, 1998 or, if later, on the thirty-sixth day following the date on which the requisite number of consents to call the Special Meeting are delivered to the Company, in order to, among other things, remove the entire Board of Directors of the Company (the "Company Board") and fill the newly created vacancies on the Company Board by electing six persons nominated by Parent (the "Parent Nominees"). Parent expects that, if elected, and subject to their fiduciary duties under applicable law, the Parent Nominees would cause the Company Board to (i) amend the Rights Agreement or redeem the Rights, or otherwise act to ensure that the Rights Condition (as defined below) is satisfied, (ii) approve the Offer and the Proposed Merger for purposes of Article Fifth of the Company's Articles of Incorporation ("Article Fifth") or otherwise act to ensure that the Article Fifth Condition (as defined below) is satisfied and (iii) take any other actions necessary to permit the Offer and the Proposed Merger to be consummated. The Solicitation will be made pursuant to separate consent solicitation materials complying with the requirements of Section 14(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder. On December 15, 1997, Parent filed definitive consent solicitation materials in connection with the Solicitation with the Commission, which are being mailed to shareholders of the Company together with this Offer to Purchase. THIS OFFER TO PURCHASE DOES NOT CONSTITUTE A SOLICITATION OF A PROXY, CONSENT OR AUTHORIZATION FOR OR WITH RESPECT TO THE ANNUAL MEETING OR ANY SPECIAL MEETING OF, OR ACTION BY WRITTEN CONSENT BY, THE COMPANY'S SHAREHOLDERS. THE SOLICITATION WILL BE MADE ONLY PURSUANT TO SEPARATE CONSENT SOLICITATION MATERIALS COMPLYING WITH ALL APPLICABLE REQUIREMENTS OF SECTION 14(a) OF THE EXCHANGE ACT. On December 15, 1997, Parent commenced litigation ( the "Litigation") against the Company and the Company Board in the United States District Court for the Central District of California seeking, among other things, an order (i) declaring that failure to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger or to approve the Offer and the Proposed Merger for purposes of Article Fifth would constitute a breach of the Company Board's fiduciary duties to the Company's shareholders under California law, (ii) invalidating the Rights or compelling the Company Board to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger, (iii) compelling the Company Board to approve the Offer and the Proposed Merger for purposes of Article Fifth, and (iv) enjoining the Company Board from taking any actions to interfere with the Offer, the Solicitation or the Proposed Merger. BY TENDERING SHARES IN THE OFFER, PARENT BELIEVES THAT THE COMPANY'S SHAREHOLDERS EFFECTIVELY WILL EXPRESS TO THE COMPANY BOARD THAT THEY WISH TO BE ABLE TO ACCEPT THE OFFER AND TO APPROVE THE PROPOSED MERGER OR A SIMILAR TRANSACTION WITH PARENT AND ITS AFFILIATES. Purchaser reserves the right to amend the Offer (including amending the number of Shares to be purchased, the purchase prices therefor and the proposed merger consideration) at any time, including upon entering into a merger agreement with the Company, or to negotiate a merger agreement with the Company in connection with a merger not involving a tender offer pursuant to which Purchaser would terminate the Offer and the Shares would, upon consummation of such merger, be converted into cash and Parent Common Stock in such amounts as are negotiated by Parent and the Company, provided, 2 however, that Parent has no intention of reducing the consideration paid to the Company's shareholders being offered in the Offer and the Proposed Merger. The timing of consummation of the Offer and the Proposed Merger will depend on a variety of factors and legal requirements, the actions of the Company Board and whether the conditions to the Offer and the Proposed Merger are satisfied or waived. Consummation of the Offer is subject to the fulfillment of a number of conditions, including, without limitation, the following: MINIMUM CONDITION. Consummation of the Offer is conditioned upon there being validly tendered and not withdrawn prior to the expiration of the Offer at least the Minimum Number of Shares (the "Minimum Condition"). Purchaser reserves the right (subject to the applicable rules and regulations of the Commission), which it currently has no intention of exercising, to waive or reduce the Minimum Condition and to elect to purchase, pursuant to the Offer, fewer than the Minimum Number of Shares. See "Section 1. Terms of the Offer; Proration; Expiration Date" and "Section 14. Certain Conditions of the Offer". According to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 26, 1997 (the "Company Form 10-Q"), as of September 26, 1997 there were 12,381,595 shares of Common Stock issued and outstanding. According to the Company Form 10-Q, as of September 26, 1997, the weighted average number of shares of Common Stock subject to issuance under the Company's 1995 Stock Option Plan (the "Stock Option Plan Common Stock") during the third fiscal quarter of 1997 was 313,285. Parent currently owns 100 Shares, and Purchaser owns 100 Shares, which Parent and Purchaser recently acquired in open market transactions. See "Schedule II. Schedule of Transactions in Shares During the Past 60 Days". Based on the foregoing and assuming that (i) no shares of Common Stock are issued or acquired by the Company after September 26, 1997 (other than as described in clause (iii) below), (ii) no options are granted or expired after September 26, 1997 and (iii) all 313,285 Shares of the Stock Option Plan Common Stock is issued at or prior to the consummation of the Offer, there would be 12,694,880 Shares outstanding immediately following the consummation of the Offer and the Minimum Number of Shares would be 6,347,241 Shares. HSR CONDITION. Consummation of the Offer is conditioned upon the expiration or termination of any applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act") (the "HSR Condition"). On December 15, 1997, Parent filed with the Federal Trade Commission (the "FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division") Premerger Notification and Report Forms under the HSR Act with respect to the Offer. Accordingly, Parent anticipates that the waiting period under the HSR Act applicable to the Offer will expire at 11:59 p.m., New York City time, on December 30, 1997, unless such waiting period is earlier terminated by the FTC and the Antitrust Division or extended by a request from the FTC or the Antitrust Division for additional information or documentary material prior to the expiration of the waiting period. See "Section 15. Certain Legal Matters and Regulatory Approvals". FINANCING CONDITION. Consummation of the Offer is conditioned upon Parent and Purchaser obtaining, prior to the expiration of the Offer, on terms satisfactory to Parent in its sole discretion, sufficient financing to enable consummation of the Offer and the Proposed Merger (the "Financing Condition"). Parent, Salomon Smith Barney and Salomon Brothers Holding Company Inc ("SBHCI"), an affiliate of Salomon Smith Barney, have entered into a commitment letter dated December 9, 1997 pursuant to which SBHCI has committed, subject to certain conditions set forth therein (including, without limitation, that all conditions of the Offer are satisfied and that either (i) Parent has entered into a definitive merger agreement with the Company or (ii) that the Parent Nominees shall, or that SBHCI shall otherwise be satisfied that the Parent Nominees will, upon consummation of the Offer, constitute a majority of the Company Board), to provide such financing, consisting of a fully secured financing in the syndicated loan market in the principal amount of $300 million. See "Section 9. Financing of the Offer 3 and the Proposed Merger" for a description of the proposed financing of the Offer and the Proposed Merger. RIGHTS CONDITION. Consummation of the Offer is conditioned upon Purchaser being satisfied, in its sole discretion, that the Rights have been redeemed or invalidated or are otherwise inapplicable to the Offer and the Proposed Merger (the "Rights Condition"). See "Section 16. Shareholder Rights Plan". Parent expects that, if elected, and subject to their fiduciary duties under applicable law, the Parent Nominees would cause the Company Board to amend the Rights Agreement or redeem the Rights, or otherwise act to ensure that the Rights Condition is satisfied. In addition, on December 15, 1997, Parent commenced the Litigation seeking, among other things, an order (i) declaring that failure to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger would constitute a breach of the Company Board's fiduciary duties to the Company's shareholders under California law and (ii) invalidating the Rights or compelling the Company Board to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger. ARTICLE FIFTH CONDITION. Consummation of the Offer is conditioned upon Purchaser being satisfied, in its sole discretion, that the Offer and the Proposed Merger have been approved for purposes of Article Fifth (if necessary) or Article Fifth has been invalidated or is otherwise satisfied with respect to the Offer and the Proposed Merger (the "Article Fifth Condition"). See "Section 17. Article Fifth of the Company's Articles of Incorporation". Parent expects that, if elected, and subject to their fiduciary duties under applicable law, the Parent Nominees would cause the Company Board to approve the Offer and the Proposed Merger for purposes of Article Fifth. In addition, on December 15, 1997, Parent commenced the Litigation seeking, among other things, an order (i) declaring that failure to approve the Offer and the Proposed Merger for purposes of Article Fifth would constitute a breach of the Company Board's fiduciary duties to the Company's shareholders under California law and (ii) compelling the Company Board to approve the Offer and the Proposed Merger for purposes of Article Fifth. PARENT SHAREHOLDER APPROVAL CONDITION. Consummation of the Offer is conditioned upon the approval by shareholders of Parent of the issuance of Parent Common Stock in the Proposed Merger. Pursuant to rules promulgated by the New York Stock Exchange, Inc. (the "NYSE"), approval by shareholders of Parent of the issuance of Parent Common Stock in the Proposed Merger prior to the issuance thereof is required where the present or potential issuance of Parent Common Stock is or will be equal to or in excess of 20% of the number of shares of Parent Common Stock outstanding before such issuance of Parent Common Stock. Parent currently intends to hold a special meeting of its shareholders on or about January 28, 1998 for purposes of approving the issuance of Parent Common Stock to be issued in the Proposed Merger and has set December 26, 1997 as the record date for determining the holders of Parent Common Stock entitled to notice of, and to vote at, the special meeting of Parent's shareholders. THE OFFER IS ALSO SUBJECT TO THE OTHER TERMS AND CONDITIONS WHICH ARE CONTAINED IN THIS OFFER TO PURCHASE. SEE "SECTION 14. CERTAIN CONDITIONS OF THE OFFER", WHICH SETS FORTH IN FULL THE CONDITIONS TO THE OFFER. THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. 1. TERMS OF THE OFFER; PRORATION; EXPIRATION DATE. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of such extension or 4 amendment), Purchaser will accept for payment and pay for the Minimum Number of Shares validly tendered prior to the Expiration Date (as defined herein) and not withdrawn as permitted by "Section 4. Withdrawal Rights". The term "Expiration Date" means 12:00 midnight, New York City time, on Wednesday, January 14, 1998, unless and until Purchaser, in its sole discretion, shall have extended the period during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Purchaser, shall expire. The Offer is conditioned upon, among other things, satisfaction of the Minimum Condition, the HSR Condition, the Financing Condition, the Rights Condition, the Article Fifth Condition and the Parent Shareholder Approval Condition. If any or all of such conditions are not satisfied, or if any or all of the other events set forth in "Section 14. Certain Conditions of the Offer" shall have occurred prior to the Expiration Date, Purchaser reserves the right (but shall not be obligated) to (i) decline to purchase any of the Shares tendered in the Offer and terminate the Offer and return all tendered Shares to the tendering shareholders or (ii) waive or reduce the Minimum Condition, or waive or amend any or all other conditions to the Offer to the extent permitted by applicable law and, subject to complying with applicable rules and regulations of the Commission, purchase all Shares validly tendered, or extend the Offer and, subject to the right of shareholders to withdraw Shares until the Expiration Date, retain the Shares which have been tendered during the period or periods for which the Offer is extended. Upon the terms and subject to the conditions of the Offer, if more than the Minimum Number of Shares shall be validly tendered and not withdrawn prior to the Expiration Date, Purchaser will, upon the terms and subject to the conditions of the Offer, purchase the Minimum Number of Shares on a pro rata basis (with adjustments to avoid purchases of fractional Shares) based upon the aggregate number of Shares validly tendered and not withdrawn prior to the Expiration Date. Because of the difficulty of determining the precise number of Shares validly tendered and not withdrawn, if proration is required, Purchaser does not expect to be able to announce the final proration factor until approximately five NYSE trading days after the Expiration Date. Preliminary results of proration will be announced by press release as promptly as practicable after the Expiration Date. Shareholders of the Company may obtain such preliminary information from the Information Agent, and may be able to obtain such information from their brokers. Purchaser will not pay for any Shares accepted for payment pursuant to the Offer until the final proration factor is known. Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, to extend for any reason the period of time during which the Offer is open, including the occurrence of any of the conditions specified in "Section 14. Certain Conditions of the Offer", by giving oral or written notice of such extension to the Depositary. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the rights of tendering shareholders to withdraw their Shares. See "Section 4. Withdrawal Rights". Subject to the applicable regulations of the Commission, Purchaser also expressly reserves the right, in its sole discretion, at any time and from time to time, (i) to delay acceptance for payment of, or, regardless of whether such Shares were theretofore accepted for payment, payment for any Shares pending receipt of any regulatory approval specified in "Section 15. Certain Legal Matters and Regulatory Approvals", (ii) to terminate the Offer and not accept for payment any Shares upon the occurrence of any of the conditions specified in "Section 14. Certain Conditions of the Offer" and (iii) to waive any condition or otherwise amend the Offer in any respect, by giving oral or written notice of such delay, termination, waiver or amendment to the Depositary and by making a public announcement thereof. Purchaser acknowledges that (i) Rule 14e-1(c) under the Exchange Act requires Purchaser to pay the consideration offered or return the Shares tendered promptly after the termination or withdrawal of the Offer and (ii) Purchaser may not delay acceptance for payment of, or payment for (except as provided in clause (i) of the first sentence of this paragraph), any Shares upon the occurrence of any of the conditions specified in "Section 14. Certain Conditions of the Offer" without extending the period of time 5 during which the Offer is open. Under no circumstances will interest be paid on the purchase price for tendered shares, whether or not Parent exercises its right to extend the Offer. Any such extension, delay, termination, waiver or amendment will be followed as promptly as practicable by public announcement thereof, such announcement in the case of an extension to be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date. Subject to applicable law (including Rules 14d-4(c) and 14d-6(d) under the Exchange Act, which require that material changes be promptly disseminated to shareholders in a manner reasonably designed to inform them of such changes) and without limiting the manner in which Purchaser may choose to make any public announcement, Purchaser shall have no obligation to publish, advertise or otherwise communicate any such public announcement other than by issuing a press release to the Dow Jones News Service. If Purchaser makes a material change in the terms of the Offer or the information concerning the Offer, or if it waives a material condition of the Offer, Purchaser will extend the Offer to the extent required by Rules 14d-4(c) and 14d-6(d) under the Exchange Act. Purchaser reserves the right (but shall not be obligated) to accept for payment more than the Minimum Number of Shares pursuant to the Offer. Purchaser has no present intention of exercising such right. If, prior to the Expiration Date, Purchaser should decide to increase or decrease the number of Shares being sought or to increase or decrease the consideration being offered in the Offer, such increase or decrease in the number of Shares being sought or such increase or decrease in the consideration being offered will be applicable to all shareholders whose Shares are accepted for payment pursuant to the Offer and, if at the time notice of any such increase or decrease in the number of Shares being sought or such increase or decrease in the consideration being offered is first published, sent or given to holders of such Shares, the 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 Offer will be extended at least until the expiration of such ten business day period. For purposes of the 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. As of the date of this Offer to Purchase, the Rights are evidenced by the Share Certificates (as defined herein) evidencing the Shares and do not trade separately. Accordingly, by tendering a Share Certificate evidencing Shares, a shareholder is automatically tendering a similar number of associated Rights. If, however, pursuant to the Rights Agreement or for any other reason, the Rights detach and separate Rights Certificates (as defined herein) are issued, shareholders will be required to tender one Right for each share of Common Stock tendered in order to effect a valid tender of such share of Common Stock. A request is being made to the Company for the use of the Company's shareholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. Upon compliance by the Company with such request, this Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares whose names appear on the Company's shareholder list and will be furnished, for subsequent transmittal to beneficial owners of Shares, to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the shareholder list or who are listed as participants in a clearing agency's security position listing. 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR SHARES. Upon the terms and subject to the conditions of the Offer (including, if the Offer is extended or amended, the terms and conditions of any such extension or amendment), Purchaser will accept for payment, and will pay for, the Minimum Number of Shares validly tendered prior to the Expiration Date and not properly withdrawn promptly after the Expiration Date. Notwithstanding the immediately preceding sentence and subject to applicable rules of the Commission, Purchaser expressly reserves the right to delay acceptance for payment of, or payment 6 for, Shares pending receipt of any regulatory approvals specified in "Section 15. Certain Legal Matters and Regulatory Approvals" or in order to comply in whole or in part with applicable laws. Any such delay will be effected in compliance with Rule 14e-1(c) under the Exchange Act (which requires a bidder to pay the consideration offered or return the securities deposited by or on behalf of holders of securities promptly after the termination or withdrawal of such bidder's offer). In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Shares (the "Share Certificates") and, if the Rights are at such time separately traded, certificates representing the Rights associated with shares of Common Stock (the "Rights Certificates") or timely confirmation (a "Book-Entry Confirmation") of a book-entry transfer of such Shares (and Rights, if applicable) into the Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company (each a "Book-Entry Transfer Facility" and, together, the "Book-Entry Transfer Facilities") pursuant to the procedures set forth in "Section 3. Procedures for Accepting the Offer and Tendering Shares", (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message (as defined below) and (iii) any other documents required under the Letter of Transmittal. The term "Agent's Message" means a message, transmitted by a Book-Entry Transfer Facility to, and received by, the Depositary and forming a part of a Book-Entry Confirmation that states that such Book-Entry Transfer Facility has received an express acknowledgment from the participant in such Book-Entry Transfer Facility tendering the Shares which are the subject of such book-entry confirmation, that such participant has received and agrees to be bound by the terms of the Letter of Transmittal and that Purchaser may enforce such agreement against such participant. For purposes of the Offer, Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when Purchaser gives oral or written notice to the Depositary of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering shareholders for the purpose of receiving payments from Purchaser and transmitting such payments to tendering shareholders whose Shares have been accepted for payment. Under no circumstances will interest on the purchase price for Shares be paid, regardless of any delay in making such payment. If any tendered Shares are not accepted for payment for any reason pursuant to the terms and conditions of the Offer (including proration due to tenders of Shares pursuant to the Offer in excess of the Minimum Number of Shares), or if Share Certificates are submitted evidencing more Shares than are tendered or accepted for payment, Share Certificates evidencing unpurchased Shares will be returned, without expense to the tendering shareholder (or, in the case of Shares tendered by book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility pursuant to the procedure set forth in "Section 3. Procedures for Accepting the Offer and Tendering Shares", such Shares will be credited to an account maintained at such Book-Entry Transfer Facility), as promptly as practicable following the expiration or termination of the Offer. 7 If, prior to the Expiration Date, Purchaser increases the consideration to be paid per Share pursuant to the Offer, Purchaser will pay such increased consideration for all such Shares purchased pursuant to the Offer, whether or not such Shares were tendered prior to such increase in consideration. Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer, but any such transfer or assignment will not relieve Purchaser of its obligations under the Offer and will in no way prejudice the rights of tendering shareholders to receive payment for Shares validly tendered and accepted for payment pursuant to the Offer. 3. PROCEDURES FOR ACCEPTING THE OFFER AND TENDERING SHARES. In order for a holder of Shares to validly tender Shares pursuant to the Offer, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or any Agent's Message (in the case of any book-entry transfer) and any other documents required by the Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase and either (i) the Share Certificates evidencing tendered Shares must be received by the Depositary at such address or such Shares must be tendered pursuant to the procedure for book- entry transfer described below and a Book-Entry Confirmation must be received by the Depositary, in each case prior to the Expiration Date, or (ii) the tendering shareholder must comply with the guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF SHARE CERTIFICATES, RIGHTS CERTIFICATES (IF APPLICABLE) AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH ANY BOOK-ENTRY TRANSFER FACILITY, IS AT THE OPTION AND RISK OF THE TENDERING SHAREHOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY. BOOK-ENTRY TRANSFER. The Depositary will establish accounts with respect to the Shares at the Book-Entry Transfer Facilities for purposes of the Offer within two business days after the date of this Offer to Purchase. Any financial institution that is a participant in the system of any Book-Entry Transfer Facility may make a book-entry delivery of Shares by causing such Book-Entry Transfer Facility to transfer such Shares into the Depositary's account at such Book-Entry Transfer Facility in accordance with such Book-Entry Transfer Facility's procedures for such transfer. However, although delivery of Shares may be effected through book-entry transfer at a Book-Entry Transfer Facility, the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, together with any required signature guarantees, or an Agent's Message in lieu of the Letter of Transmittal, and any other required documents, must, in any case, be received by the Depositary at one of its addresses set forth on the back cover of this Offer to Purchase prior to the Expiration Date, or the tendering shareholder must comply with the guaranteed delivery procedure described below. DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. SIGNATURE GUARANTEES. Signatures on all Letters of Transmittal must be guaranteed by a firm which is a member of the Medallion Signature Guarantee Program, or by any other "eligible guarantor institution", as such term is defined in Rule 17Ad-5 promulgated under the Exchange Act (each of the foregoing being referred to as an "Eligible Institution"), except in cases where Shares are tendered (i) by a registered holder of Shares who has not completed either the box entitled "Special Payment Instructions" or the box entitled "Special Delivery Instructions" on the Letter of Transmittal or (ii) for the account of an Eligible Institution. If a Share Certificate is registered in the name of a person other than the signer of the Letter of Transmittal, or if payment is to be made, or a Share Certificate not accepted for payment or not tendered is to be returned, to a person other than the registered holder(s), then the Share Certificate must be endorsed or accompanied by appropriate stock powers, in either case signed 8 exactly as the name(s) of the registered holder(s) appear on the Share Certificate, with the signature(s) on such Share Certificate or stock powers guaranteed by an Eligible Institution. See Instructions 1 and 5 of the Letter of Transmittal. GUARANTEED DELIVERY. If a shareholder desires to tender Shares pursuant to the Offer and such shareholder's Share Certificates evidencing such Shares are not immediately available or such shareholder cannot deliver the Share Certificates and all other required documents to the Depositary prior to the Expiration Date, or such shareholder cannot complete the procedure for delivery by book-entry transfer on a timely basis, such Shares may nevertheless be tendered, provided that all the following conditions are satisfied: (i) such tender is made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Purchaser, is received prior to the Expiration Date by the Depositary as provided below; and (iii) the Share Certificates (or a Book-Entry Confirmation) evidencing all tendered Shares, in proper form for transfer, in each case together with the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message) and any other documents required by the Letter of Transmittal are received by the Depositary within three NYSE trading days after the date of execution of such Notice of Guaranteed Delivery. The Notice of Guaranteed Delivery may be delivered by hand or mail or transmitted by telegram or facsimile transmission to the Depositary and must include a guarantee by an Eligible Institution in the form set forth in the form of Notice of Guaranteed Delivery made available by Purchaser. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of the Share Certificates evidencing such Shares, or a Book-Entry Confirmation of the delivery of such Shares, and the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees (or, in the case of a book-entry transfer, an Agent's Message), and any other documents required by the Letter of Transmittal. DISTRIBUTION OF RIGHTS. Unless the Rights are redeemed prior to the Expiration Date, holders of Shares will be required to tender one Right for each Share tendered to effect a valid tender of such Share. Unless and until the Separation Time (as defined below) occurs, the Rights are represented by and transferred with the Shares. Accordingly, if the Separation Time does not occur prior to the Expiration Date, a tender of Shares will constitute a tender of the associated Rights. If the Separation Time has occurred, certificates representing a number of Rights equal to the number of shares of Common Stock being tendered must be delivered to the Depositary in order for such shares of Common Stock to be validly tendered. If the Separation Time has occurred, a tender of shares of Common Stock without Rights constitutes an agreement by the tendering shareholder to deliver certificates representing a number of Rights equal to the number of shares of Common Stock tendered pursuant to the Offer to the Depositary within three NYSE trading days after the date such certificates are distributed. Purchaser reserves the right to require that it receive such certificates prior to accepting shares of Common Stock for payment. Payment for shares of Common Stock tendered and purchased pursuant to the Offer will be made only after timely receipt by the Depositary of, among other things, such certificates, if such certificates have been distributed to holders of shares of Common Stock. Purchaser will not pay any additional consideration for the Rights tendered pursuant to the Offer. DETERMINATION OF VALIDITY. All questions as to the validity, form, eligibility (including time of receipt) and acceptance for payment of any tender of Shares will be determined by Purchaser in its sole discretion, which determination shall be final and binding on all parties. Purchaser reserves the absolute 9 right to reject any and all tenders determined by it not to be in proper form or the acceptance for payment of which may, in the opinion of its counsel, be unlawful. Purchaser also reserves the absolute right to waive any condition of the Offer or any defect or irregularity in the tender of any Shares of any particular shareholder, whether or not similar defects or irregularities are waived in the case of other shareholders. No tender of Shares will be deemed to have been validly made until all defects and irregularities have been cured or waived. None of Purchaser, Parent, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in tenders or incur any liability for failure to give any such notification. Purchaser's interpretation of the terms and conditions of the Offer (including the Letter of Transmittal and the instructions thereto) will be final and binding. OTHER REQUIREMENTS. By executing the Letter of Transmittal as set forth above, a tendering shareholder irrevocably appoints designees of Purchaser as such shareholder's proxies, each with full power of substitution, in the manner set forth in the Letter of Transmittal, to the full extent of such shareholder's rights with respect to the Shares (including the associated Rights) tendered by such shareholder and accepted for payment by Purchaser (and with respect to any and all other Shares or other securities issued or issuable in respect of such Shares on or after the date of this Offer to Purchase). All such proxies shall be considered coupled with an interest in the tendered Shares. Such appointment will be effective when, and only to the extent that, Purchaser accepts such Shares for payment. Upon such acceptance for payment, all prior proxies given by such shareholder with respect to such Shares (and such other Shares and securities) will be revoked without further action, and no subsequent proxies may be given nor any subsequent written consent executed by such shareholder (and, if given or executed, will not be deemed to be effective) with respect thereto. The designees of Purchaser will, with respect to the Shares for which the appointment is effective, be empowered to exercise all voting and other rights of such shareholder as they in their sole discretion may deem proper at any annual or special meeting of the Company's shareholders or any adjournment or postponement thereof, by written consent in lieu of any such meeting or otherwise. Purchaser reserves the right to require that, in order for Shares to be deemed validly tendered, immediately upon Purchaser's payment for such Shares, Purchaser must be able to exercise full voting rights with respect to such Shares. The acceptance for payment by Purchaser of Shares pursuant to any of the procedures described above will constitute a binding agreement between the tendering shareholder and Purchaser upon the terms and subject to the conditions of the Offer. TO PREVENT BACKUP FEDERAL INCOME TAX WITHHOLDING WITH RESPECT TO PAYMENT TO CERTAIN SHAREHOLDERS OF THE PURCHASE PRICE OF SHARES PURCHASED PURSUANT TO THE OFFER, EACH SUCH SHAREHOLDER MUST PROVIDE THE DEPOSITARY WITH SUCH SHAREHOLDER'S CORRECT TAXPAYER IDENTIFICATION NUMBER AND CERTIFY THAT SUCH SHAREHOLDER IS NOT SUBJECT TO BACKUP FEDERAL INCOME TAX WITHHOLDING BY COMPLETING THE SUBSTITUTE FORM W-9 IN THE LETTER OF TRANSMITTAL. SEE INSTRUCTION 9 OF THE LETTER OF TRANSMITTAL. 4. WITHDRAWAL RIGHTS. Tenders of Shares made pursuant to the Offer are irrevocable except that such Shares may be withdrawn at any time prior to the Expiration Date and, unless theretofore accepted for payment by Purchaser pursuant to the Offer, may also be withdrawn at any time after February 12, 1998. If Purchaser extends the Offer, is delayed in its acceptance for payment of Shares or is unable to accept Shares for payment pursuant to the Offer for any reason, then, without prejudice to Purchaser's rights under the Offer, the Depositary may, nevertheless, on behalf of Purchaser, retain tendered Shares, and such Shares may not be withdrawn except to the extent that tendering shareholders are entitled to withdrawal rights as described in this Section 4. Any such delay will be by an extension of the Offer to the extent required by law. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover page of this Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the 10 Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of such Shares, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution, unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in "Section 3. Procedures for Accepting the Offer and Tendering Shares", any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including time of receipt) of any notice of withdrawal will be determined by Purchaser, in its sole discretion, which determination will be final and binding. None of Purchaser, Parent, the Dealer Manager, the Depositary, the Information Agent or any other person will be under any duty to give notification of any defects or irregularities in any notice of withdrawal or incur any liability for failure to give any such notification. Any Shares properly withdrawn will thereafter be deemed not to have been validly tendered for purposes of the Offer. However, withdrawn Shares may be re-tendered at any time prior to the Expiration Date by following one of the procedures described in "Section 3. Procedures for Accepting the Offer and Tendering Shares". 5. CERTAIN FEDERAL INCOME TAX CONSEQUENCES. The following discussion, subject to the limitations set forth herein, describes the material federal income tax consequences of the Offer and the Proposed Merger to holders of Shares who hold the Shares as capital assets and exchange Shares for cash and/or shares of Parent Common Stock pursuant to the Offer and the Proposed Merger. The tax consequences to a specific shareholder may vary depending upon such shareholder's particular tax situation, and the discussion set forth below may not apply to certain categories of holders of Shares subject to special treatment under the Internal Revenue Code of 1986, as amended (the "Code"), such as foreign shareholders, securities dealers, broker-dealers, insurance companies, financial institutions, tax-exempt entities and shareholders who acquired such Shares pursuant to an exercise of an employee stock option or otherwise as compensation or who hold restricted stock. The discussion is based on the Code as in effect on the date of this Offer to Purchase, as well as regulations promulgated thereunder, existing administrative interpretations and court decisions currently in effect, all of which are subject to change, retroactively or prospectively, and to possibly differing interpretations and does not address state, local or foreign tax laws. Since the Offer is conditioned upon, among other events, the Rights having been redeemed or invalidated or being otherwise inapplicable to the Offer and the Proposed Merger, this tax discussion assumes the satisfaction of such condition and thus no allocation of consideration to the Rights or the Rights Certificates. No ruling will be requested from the Internal Revenue Service (the "IRS") regarding the tax consequences of the Offer and the Proposed Merger and thus there can be no assurance that the IRS will agree with the discussion set forth below. The exchange of Shares for cash and/or shares of Parent Common Stock pursuant to the Offer and the Proposed Merger should, if consummated as currently anticipated, be treated as a single integrated transaction for federal income tax purposes. Although it cannot be determined at this time, if the Offer and the Proposed Merger are so treated, and assuming certain other requirements are satisfied, the Offer and the Proposed Merger, taken together, will be treated for federal income tax purposes as an exchange pursuant to a plan of "reorganization" within the meaning of Section 368(a)(1)(A) of the Code. In such event, the exchange of Shares for Parent Common Stock in the Proposed Merger would qualify for nonrecognition treatment as part of a reorganization. Treatment of the Offer and the Proposed Merger as a "reorganization" requires, among other things, that not more than 60% of the consideration received by shareholders of the Company in exchange for Shares consists of cash (including cash received in lieu of fractional shares of Parent Common Stock and cash received in respect of dissenters' 11 rights, if any, in the Proposed Merger), that the Proposed Merger, if consummated, qualifies as a merger under applicable state corporation laws and that the shareholder continuity of interest tax requirement is satisfied. If the Proposed Merger does not qualify as a reorganization, the exchange of Shares for Parent Common Stock would be a taxable exchange. There can be no assurance that the requirements for reorganization treatment will be satisfied and neither Parent nor Purchaser is obligated to undertake to qualify the Offer and the Proposed Merger as a reorganization. Further, if as matters develop reorganization treatment is not certain, Parent may change the form of effecting the Proposed Merger to ensure that the Proposed Merger will not be taxable to the Company. In the event of such a change, however, the exchange of Shares for Parent Common Stock in the Proposed Merger will be taxable to exchanging shareholders of the Company. SHAREHOLDERS OF THE COMPANY SHOULD CONSIDER THAT THE OFFER AND THE PROPOSED MERGER CONSIDERATION WILL BE PARTIALLY OR FULLY TAXABLE TO THEM AND ARE URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE TAX CONSEQUENCES OF THE OFFER AND THE PROPOSED MERGER. THE EXCHANGE OF SHARES FOR PARENT COMMON STOCK IN THE PROPOSED MERGER MAY QUALIFY FOR NONRECOGNITION TREATMENT AS PART OF A REORGANIZATION OR MAY BE A TAXABLE TRANSACTION. NEITHER PARENT NOR PURCHASER IS OBLIGATED TO QUALIFY THE TRANSACTION AS A REORGANIZATION AND THERE IS NO ASSURANCE THAT THE REQUIREMENTS FOR REORGANIZATION TREATMENT WILL BE SATISFIED. TAX CONSEQUENCES IF THE OFFER AND THE PROPOSED MERGER DO NOT QUALIFY AS A REORGANIZATION OR IF THE PROPOSED MERGER IS TREATED AS A TAXABLE TRANSACTION. If the Proposed Merger is not consummated, or if the Proposed Merger is consummated but the Offer is treated for federal income tax purposes as a separate transaction, or if the Offer and the Proposed Merger together are determined not to qualify as a reorganization as described above, the receipt of cash pursuant to the Offer will be a taxable transaction for federal income tax purposes. In that event, each shareholder of the Company tendering pursuant to the Offer will recognize capital gain or loss for federal income tax purposes measured by the difference between such shareholder's tax basis in such shareholder's Shares tendered in the Offer and the amount of cash received by such shareholder. (See "Taxation of Capital Gains" below.) If the Offer is treated as a separate transaction, the Proposed Merger may still qualify as a reorganization under Section 368(a) of the Code if certain other requirements are satisfied. In that event, a shareholder of the Company receiving shares of Parent Common Stock and/or cash (either in lieu of fractional shares of Parent Common Stock or in respect of dissenters' rights) in the Proposed Merger would be subject to the federal income tax rules concerning reorganizations discussed below with respect to such shares of Parent Common Stock and such cash. If the Offer and the Proposed Merger (or, if treated as separate transactions, the Proposed Merger) does not qualify as a reorganization within the meaning of Section 368(a) of the Code, each exchanging shareholder of the Company will recognize capital gain or loss for federal income tax purposes measured by the difference between such shareholder's tax basis in such shareholder's Shares exchanged and the amount of cash, plus the fair market value of the shares of Parent Common Stock received by such shareholder in the Proposed Merger. TAX CONSEQUENCES IF THE OFFER AND THE PROPOSED MERGER QUALIFY AS A REORGANIZATION. As discussed above, it is possible, although it cannot be determined at this time, that the Offer and the Proposed Merger, taken together, will constitute a "reorganization" within the meaning of Section 368(a) of the Code. If the Offer and the Proposed Merger (if consummated) together qualify as a reorganization as discussed above, exchanges of Shares for cash and/or shares of Parent Common Stock, as the case may be, pursuant to the Offer, the Proposed Merger, or both, will have the following federal income tax consequences: (a) EXCHANGE OF SHARES SOLELY FOR PARENT COMMON STOCK. No gain or loss will be recognized (except in connection with any cash received in lieu of fractional shares of Parent Common Stock) 12 by shareholders of the Company who exchange all of their Shares actually owned by such shareholders solely for shares of Parent Common Stock in the Proposed Merger. Any such shareholder's adjusted basis for the shares of Parent Common Stock received pursuant to the Proposed Merger will be the same as the adjusted basis of such Shares surrendered in exchange therefor, and the holding period of such shares of Parent Common Stock, as the case may be, will include the period during which the Shares exchanged therefor were held by such shareholder. (b) EXCHANGE OF SHARES SOLELY FOR CASH. The receipt of cash by shareholders of the Company who, pursuant to the Offer, exchange all of their Shares solely for cash will, except as indicated below under "Dividend Treatment -- Constructive Ownership Rules", result in capital gain or loss to such shareholder measured by the difference between the adjusted basis of the Shares surrendered and the cash received. (See "Taxation of Capital Gains" below.) Since the Offer is only an offer to purchase a majority of the Shares, if more than a majority of such shares are tendered, the amount of cash payable to tendering shareholders pursuant to the Offer will be prorated and the portion of such tendering shareholders' shares not exchanged in the Offer would be exchanged for Parent Common Stock in the Proposed Merger. Because it is likely that more than a majority of such shares will be tendered pursuant to the Offer, it is highly unlikely that any of the tendering shareholders of the Company will receive solely cash in exchange for all of their Shares. (c) EXCHANGE OF SHARES FOR PARENT COMMON STOCK AND CASH. No loss will be recognized (except in connection with any cash received in lieu of fractional shares of Parent Common Stock) by shareholders of the Company who, pursuant to the Offer and the Proposed Merger, receive cash for a portion of their Shares and shares of Parent Common Stock for the balance of their Shares. Any such shareholder will realize gain equal to the excess, if any, of the cash and the aggregate fair market value of the Parent Common Stock received pursuant to the Proposed Merger over such shareholder's adjusted basis in the Shares exchanged therefor, but will recognize any realized gain as taxable income only to the extent of the cash received. Such recognized gain will, as a general rule (except as discussed below under "Dividend Treatment -- Constructive Ownership Rules"), constitute capital gain (see "Taxation of Capital Gains" below). Such shareholder's adjusted basis for the shares of Parent Common Stock received pursuant to the Proposed Merger will be the same as the adjusted basis of the Shares surrendered in exchange therefor plus the adjusted basis of the Shares sold pursuant to the Offer, decreased by the amount of cash received and increased by the amount of gain or dividend income recognized, and the holding period of such shares of Parent Common Stock will include the period during which the Shares exchanged therefor were held by such shareholder. TAXATION OF CASH RECEIVED IN LIEU OF FRACTIONAL SHARES. Where the only cash received by a shareholder of the Company is received in lieu of a fractional share of Parent Common Stock, such cash will generally be treated as received in exchange for such fractional share of Parent Common Stock and not as a dividend, and gain or loss recognized as a result of the receipt of such cash will be capital gain or loss if the fractional share would have constituted a capital asset in the hands of the shareholder. TAXATION OF CAPITAL GAINS. Under recently enacted legislation, a noncorporate shareholder would be subject to tax at ordinary income rates if the Shares were held for one year or less, at a maximum rate of 28% if held for more than one year but not more than eighteen months, and at a maximum rate of 20% if held for more than eighteen months. DIVIDEND TREATMENT -- CONSTRUCTIVE OWNERSHIP RULES. As noted above, shareholders of the Company who receive both cash (other than cash solely in lieu of fractional shares of Parent Common Stock) and shares of Parent Common Stock pursuant to the Offer and the Proposed Merger and realize gain, will, as a general rule, recognize capital gain limited to the amount of cash received in the event the transaction is treated as a reorganization. Shareholders of the Company who receive cash pursuant to the Offer who own or are deemed to own constructively Shares that are exchanged for shares of Parent Common Stock in the Proposed Merger (or that already own or are deemed to own constructively Parent 13 Common Stock before the Proposed Merger) may be subject to the rules of Section 302 of the Code for purposes of determining whether part or all of the cash received by them is to be taxed as ordinary dividend income as opposed to capital gain. A shareholder may be deemed under the constructive ownership rules of Section 318 of the Code to own Parent Common Stock or Shares that are owned or deemed to be owned by related individuals or entities, or that are subject to being acquired upon the exercise by such shareholder or other person of an option or conversion right. For purposes of determining whether cash received pursuant to the Offer and/or the Proposed Merger will be treated as capital gain or ordinary dividend income for federal income tax purposes, a shareholder of the Company will be treated as if such shareholder first exchanged all of such shareholder's Shares solely for Parent Common Stock ("Deemed Parent Common Stock Ownership"), and then Parent immediately redeemed a portion of such Parent Common Stock (the "Deemed Redemption") in exchange for the cash such shareholder actually received. In general, the determination of whether the cash received will be treated as generating capital gain or ordinary dividend income depends upon whether and to what extent there is a reduction in the shareholder's Deemed Parent Common Stock Ownership as a result of the Deemed Redemption. A shareholder of the Company who exchanges such Shares for a combination of Parent Common Stock and cash will recognize capital gain rather than ordinary dividend income if the Deemed Redemption (described in the preceding paragraph) is either (a) "substantially disproportionate" with respect to such shareholder or (b) is "not essentially equivalent to a dividend". SUBSTANTIALLY DISPROPORTIONATE TEST. A shareholder of the Company will satisfy the "substantially disproportionate" test if the percentage of the outstanding stock of Parent actually and constructively owned by such shareholder immediately after the Deemed Redemption by Parent as a result of the Offer, the Proposed Merger, or otherwise, is less than 80% of the percentage of the outstanding stock of Parent that such shareholder is deemed actually and constructively to have owned immediately before the Deemed Redemption by Parent. NOT ESSENTIALLY EQUIVALENT TO A DIVIDEND TEST. Whether the Deemed Parent Common Stock Ownership and the Deemed Redemption are "not essentially equivalent to a dividend" with respect to a shareholder of the Company will depend upon such shareholder's particular circumstances. In order for a payment in redemption of stock to be treated as "not essentially equivalent to a dividend", there must be a "meaningful reduction" in such Company shareholder's stock ownership. In determining whether a reduction in a shareholder of the Company's Deemed Parent Common Stock Ownership (discussed above) has occurred, the amount of the Deemed Parent Common Stock Ownership should be compared to the Parent Common Stock actually held by a shareholder of the Company after the Proposed Merger. Even if a shareholder of the Company does not satisfy the "substantially disproportionate" test described above, the IRS has ruled that a minority shareholder in a publicly held corporation whose relative stock interest is minimal and who exercises no control with respect to corporate affairs is considered to have a "meaningful reduction" if such shareholder has even a fractional reduction in such shareholder's percentage stock ownership. In most circumstances, therefore, gain recognized by a shareholder of the Company who exchanges Shares for a combination of Parent Common Stock and cash will not be ordinary income but will be capital gain, taxed as discussed above under "Taxation of Capital Gains". Therefore, Parent intends to treat cash payments pursuant to the Offer and the Proposed Merger as proceeds arising from the sale or exchange of Shares, rather than as dividends, for federal income tax reporting purposes. Shareholders of the Company who receive cash should, however, consult their own tax advisors to determine the proper treatment of such payments (including the impact, if any, of the Shares or Parent Common Stock owned by persons related to such shareholder of the Company). 14 TRANSFER TAXES. Parent may pay certain transfer taxes imposed on shareholders of the Company in connection with the Offer and the Proposed Merger. Any such payments made on behalf of a shareholder should result in the deemed receipt of additional consideration by such shareholder in proportion to the number of Shares owned by such shareholder, taxable as described above with respect to cash proceeds. In such event, such shareholder should be deemed to have paid such tax on its own behalf and therefore such shareholder should be permitted to reduce such shareholder's gain (or increase such shareholder's loss) realized on the sale by the amount of the tax. Shareholders should consult their tax advisors about the possibility that any such taxes paid on their behalf would reduce the amount realized and/or be added to the adjusted basis of any Parent Common Stock received in the Proposed Merger. WITHHOLDING. Unless a shareholder complies with certain reporting and/or certification procedures or is an exempt recipient under applicable provisions of the Code and Treasury regulations promulgated thereunder, such shareholder may be subject to backup withholding at a rate of 31% with respect to any consideration received pursuant to the Offer and Proposed Merger. Shareholders should consult their brokers to ensure compliance with such procedures. Foreign shareholders should consult with their own tax advisors regarding withholding taxes. THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE MAY NOT APPLY TO CERTAIN CATEGORIES OF HOLDERS OF SHARES SUBJECT TO SPECIAL TREATMENT UNDER THE CODE, SUCH AS FOREIGN HOLDERS AND HOLDERS WHOSE SHARES WERE ACQUIRED PURSUANT TO THE EXERCISE OF AN EMPLOYEE STOCK OPTION OR OTHERWISE AS COMPENSATION, OR WHO HOLD RESTRICTED STOCK. SHAREHOLDERS OF THE COMPANY ARE URGED TO CONSULT THEIR OWN TAX ADVISORS TO DETERMINE THE SPECIFIC TAX CONSEQUENCES OF THE OFFER AND THE PROPOSED MERGER, INCLUDING ANY STATE, LOCAL OR OTHER TAX CONSEQUENCES OF THE OFFER AND THE PROPOSED MERGER. 6. PRICE RANGE OF SHARES; DIVIDENDS. According to the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 1996 (the "Company Form 10-K"), the Shares are listed and principally traded on the NYSE and quoted under the symbol "PSX". The following table sets forth, for the quarters indicated, the high and low sales prices per Share on the NYSE as reported by the Dow Jones News Service and the amount of cash dividends paid per Share according to published financial sources.
HIGH LOW DIVIDENDS ----------- ----------- ----------- Calendar Year Ended December 31, 1995: First Quarter................................................................... $ 241/8 $ 161/2 $ 0.03 Second Quarter.................................................................. 213/4 141/8 0.03 Third Quarter................................................................... 261/2 177/8 0.03 Fourth Quarter.................................................................. 273/8 191/2 0.03 Calendar Year Ended December 31, 1996: First Quarter................................................................... $ 247/8 $ 183/4 $ 0.03 Second Quarter.................................................................. 223/8 151/4 0.03 Third Quarter................................................................... 161/2 11 0.03 Fourth Quarter.................................................................. 123/4 101/4 0.03 Calendar Year Ending December 31, 1997: First Quarter................................................................... $ 14 $ 111/8 $ 0.03 Second Quarter.................................................................. 145/8 111/8 0.03 Third Quarter................................................................... 177/8 131/4 0.03 Fourth Quarter (through December 12, 1997)...................................... 173/8 131/2 0.03
On December 12, 1997, the last full trading day prior to the date of this Offer to Purchase and Parent's public announcement of its intention to make the Offer, the closing price per Share as reported on the NYSE was $15.44. Past performance is not necessarily indicative of likely future price performance. 15 SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR THE SHARES. Prior to the occurrence of the Separation Time, the Rights are attached to outstanding Shares and may not be traded separately. As a result, the sales prices per Share set forth above include the associated Rights. As a result of the commencement of the Offer, the Separation Time may occur, after which the Rights will separate and will begin trading apart from the Shares. IN SUCH EVENT, SHAREHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION, IF ANY, FOR THE RIGHTS. 7. CERTAIN INFORMATION CONCERNING THE COMPANY. The information concerning the Company contained in this Offer to Purchase, including financial information and information relating to the Rights and the Rights Agreement, has been taken from or based upon publicly available documents and records on file with the Commission and other public sources. Neither Purchaser nor Parent assumes any responsibility for the accuracy or completeness of the information concerning the Company contained in such documents and records or for any failure by the Company to disclose events which may have occurred or may affect the significance or accuracy of any such information but which are unknown to Purchaser or Parent. GENERAL. According to the Company Form 10-K, the Company is a California corporation with its principal executive offices located at 620 Newport Center Drive, Suite 700, Newport Beach, California 92660. According to the Company Form 10-K, the Company manufactures and sells the products of two segments - --electrical equipment and safety equipment. The electrical equipment segment produces: electric motors and generators and related motion control devices such as controllers and drivers, electronic instruments for particle measurement, electromechanical and electronic controls for use mainly by electric utilities, including the controls for street and highway lighting and electronic ballasts for fluorescent lights. The safety equipment segment produces: fire detection and suppression equipment, personnel safety restraints, mechanical and electromechanical flight control components and pyrotechnics. This segment also provides service for products already delivered to customers. These products are used mainly in commercial and military aircraft and vehicles, but are also used in a variety of other commercial and industrial applications. FINANCIAL INFORMATION. The following table represents the selected historical statement of operations and balance sheet data of the Company. The financial data presented below as of and for the fiscal year ended December 25, 1992, have been derived from the condensed consolidated statements of income, condensed consolidated balance sheets and other financial data of the Company in the Company's 1996 Annual Report to Shareholders. The Financial Data presented below as of and for the fiscal year ended December 31, 1993 have been derived from the audited consolidated financial statements of the Company in the Company's Annual Report on Form 10-K for the fiscal year ended December 29, 1995. The financial data presented below as of and for each of the fiscal years ended December 30, 1994, December 29, 1995 and December 27, 1996 have been derived from the audited consolidated financial statements of the Company in the Company's Annual Report on Form 10-K for the fiscal year ended December 27, 1996. The balance sheet data as of September 27, 1996 have been derived from the unaudited financial statements of the Company in the Company's Form 10-Q for the nine months ended September 27, 1996. The statement of operations data for the nine months ended September 27, 1996 and the financial data as of and for the nine months ended September 26, 1997 have been derived from the unaudited financial statements of the Company in the Company's Form 10-Q for the nine months ended September 26, 1997. The operating results for the nine months ended September 26, 1997 are not necessarily indicative of the results that may be expected for the year ending December 26, 1997. The Company's selected historical financial data should be read in conjunction with, and are qualified in their entirety by reference to, the historical financial statements (and related notes) of Pacific Scientific which are incorporated by reference herein. Pacific Scientific reports quarterly and annual earnings results using methods required by generally accepted accounting principles. Pacific Scientific prepares its financial statements on the basis of a fiscal year beginning the day following the end of the prior fiscal year and ending on the last Friday in December. 16 PACIFIC SCIENTIFIC COMPANY SUMMARY SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE FISCAL YEARS ENDED(1) MONTHS ENDED (AUDITED) (UNAUDITED) ---------------------------------------------- -------------- DECEMBER 30, DECEMBER 29, DECEMBER 27, SEPTEMBER 26, 1994 1995 1996 1997 -------------- -------------- -------------- -------------- STATEMENT OF OPERATIONS DATA: Net Sales.............................................. $ 247,683 $ 284,812 $ 294,779 $ 227,744 Costs and Expenses Cost of Sales........................................ 164,941 186,224 203,074 154,428 Selling, Marketing, General and Administrative....... 51,967 59,519 63,569 47,397 Research and Development............................. 11,793 15,750 15,974 9,880 Cost of Solium Restructuring and Other Charges......... -- -- 7,500 -- -------------- -------------- -------------- -------------- Operating Income....................................... 18,982 23,319 4,662 16,039 Other Income (Expense), net.......................... (2,240) (3,229) (4,362) (1,630) -------------- -------------- -------------- -------------- Income Before Income Taxes............................. 16,742 20,090 300 14,409 Income Taxes........................................... (6,481) (7,340) (131) (5,384) Loss from Discontinued Operations...................... -- -- -- (13,563) -------------- -------------- -------------- -------------- Net Income (Loss)...................................... $ 10,261 $ 12,750 $ 169 ($ 4,538) -------------- -------------- -------------- -------------- -------------- -------------- -------------- -------------- Net Income (Loss) per share (Fully diluted)............ $ 0.83 $ 1.01 $ 0.01 $ (0.36) BALANCE SHEET DATA:(2) Total Assets........................................... $ 180,635 $ 225,018 $ 229,490 $ 220,800 Long-Term Debt......................................... $ 42,936 $ 63,719 $ 83,108 $ 70,187 Common Stock Outstanding at Par Value.................. $ 11,922 $ 12,071 $ 12,195 $ 12,382 Total Stockholders' Equity............................. $ 92,773 $ 106,486 $ 106,810 $ 102,865
- ------------------------ (1) Statements of Operations for the years presented do not include the operating results of Solium as a Discontinued Operation as this information was not publicly available (refer to the Company Current Report on Form 8-K dated April 21, 1997). (2) Balance Sheet data at September 27, 1996 and for the fiscal years presented do not include the Solium business as a discontinued operation as this information was not publicly available. The Company is subject to the informational filing requirements of the Exchange Act and, in accordance therewith, is required to file periodic reports, proxy statements and other information with the Commission relating to its business, financial condition and other matters. Information as of particular dates concerning the Company's directors and officers, their remuneration, stock options granted to them, the principal holders of the Company's securities and any material interest of such persons in transactions with the Company is required to be disclosed in proxy statements distributed to the Company's shareholders and filed with the Commission. Such reports, proxy statements and other information should be available for inspection at the public reference facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and also should be available for inspection at the Commission's regional offices located at Seven World Trade Center, 13th Floor, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511. The Commission also maintains an Internet site on the World Wide Web at http:// www.sec.gov that contains reports, proxy statements and other information. Copies of such materials 17 may also be obtained by mail, upon payment of the Commission's customary fees, by writing to its principal office at 450 Fifth Street, N.W., Washington, D.C. 20549. The information should also be available for inspection at the NYSE, 20 Broad Street, New York, New York 10005. 8. CERTAIN INFORMATION CONCERNING PURCHASER AND PARENT. Purchaser is a newly incorporated Delaware corporation organized in connection with the Offer and the Proposed Merger and has not carried on any activities other than in connection with the Offer and the Proposed Merger. The principal offices of Purchaser are located at Reservoir Place, 1601 Trapelo Road, Waltham, Massachusetts 02154. Purchaser is a wholly owned subsidiary of Parent. Until immediately prior to the time that Purchaser will purchase Shares pursuant to the Offer, it is not anticipated that Purchaser will have any significant assets or liabilities or engage in activities other than those incident to its formation and capitalization and the transactions contemplated by the Offer and the Proposed Merger. Because Purchaser is newly formed and has minimal assets and capitalization, no meaningful financial information regarding Purchaser is available. Parent is a New York corporation. Parent's principal offices are located at Reservoir Place, 1601 Trapelo Road, Waltham, Massachusetts 02154. Parent believes it is one of the major worldwide manufacturers of high performance electronic motion control components and systems. Parent's products include brushless, permanent magnet motors and associated electronic servo amplifiers and controllers. Parent also manufacturers integrated electromechanical actuators and periscopes, as well as stabilized weapons control systems for ground vehicles and naval vessels. These products and systems are manufactured by Parent in the United States, France, Germany, Israel, India, Vietnam and the People's Republic of China, and are sold around the world by Parent's separate sales and marketing organizations for each of the commercial and industrial and aerospace and defense markets. Parent's commercial and industrial products are sold to original equipment manufacturers of machine tools, robotics, electronic, semi-conductor and automation equipment, packaging and textile machinery, medical instruments and equipment, office automation and computer peripherals. Parent's aerospace and defense products include components and systems for secondary flight controls, utility actuators, airborne power conversion equipment, radar pedestals, weapons directors, periscopes and missiles. A wholly owned subsidiary of Parent, Proto-Power Corporation, provides engineering services to domestic fossil and nuclear electric companies and independent power producers. The name, citizenship, business address, principal occupation or employment, and five-year employment history for each of the directors and executive officers of Purchaser and Parent and certain other information are set forth in Schedule I hereto. Set forth below are certain selected consolidated financial data relating to Parent and its subsidiaries for Parent's last three fiscal years, which have been excerpted or derived from the audited financial statements contained in Parent's Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and from the unaudited financial statements contained in Parent's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1997, in each case filed by Parent with the Commission. More comprehensive financial information is included in such reports and other documents filed by Parent with the Commission, and the following financial data is qualified in its entirety by reference to such reports and other documents, including the financial information and related notes contained therein, which are incorporated herein by reference. Such reports and other documents may be inspected and copies may be obtained from the offices of the Commission in the same manner as set forth with respect to information about the Company in "Section 7. Certain Information Concerning the Company". 18 KOLLMORGEN CORPORATION SUMMARY SELECTED CONSOLIDATED FINANCIAL INFORMATION (IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED FISCAL YEARS ENDED DECEMBER 31, SEPTEMBER 30, (AUDITED) (UNAUDITED) ------------------------------------- -------------- 1994 1995 1996 1997 ----------- ----------- ----------- -------------- STATEMENT OF OPERATIONS DATA: Net sales................................................. $ 191,771 $ 228,655 $ 230,424 $ 163,054 Cost of sales............................................. 124,627 152,614 152,928 113,590 ----------- ----------- ----------- -------------- Gross profit.............................................. 67,144 76,041 77,496 49,464 ----------- ----------- ----------- -------------- Selling and marketing expense............................. 27,753 29,412 27,570 15,003 General and administrative expense........................ 21,491 22,435 24,348 17,412 Research and development expense.......................... 10,843 13,178 12,143 7,249 Acquired research and development......................... -- -- -- 11,391 ----------- ----------- ----------- -------------- Income (loss) before interest, minority interest and taxes................................................... 7,057 11,016 13,435 (1,591) Other (income) expense:................................... 3,821 3,859 5,045 2,868 ----------- ----------- ----------- -------------- Income (loss) before minority interest and income taxes... 3,236 7,157 8,390 (4,459) Minority interest......................................... -- -- 514 222 Income tax benefit (provision)............................ 815 -- -- (1,978) Joint Venture: Equity in Earnings.................................... -- -- -- 1,430 Gain on sale of investment, net of income taxes..... -- -- -- 24,321 ----------- ----------- ----------- -------------- Net income (loss)......................................... $ 4,051 $ 7,157 $ 8,904 $ 19,536 ----------- ----------- ----------- -------------- ----------- ----------- ----------- -------------- Net income available to common shareholders............... $ 1,727 $ 2,509 $ 8,619 $ 19,536 Earnings (loss) per common share fully diluted............ $ 0.18 $ 0.26 $ 0.86 $ 1.87 Number of shares used in calculating earnings per share... 9,642 9,670 10,042 10,444 BALANCE SHEET DATA: Total Assets.............................................. $ 138,201 $ 147,474 $ 141,330 $ 142,144 Total Debt................................................ $ 53,991 $ 49,808 $ 65,541 $ 44,775 Redeemable Preferred Stock (a)............................ $ 22,532 $ 25,506 -- -- Cash Dividends............................................ $ 0.08 $ 0.08 $ 0.08 $ 0.06 Common Stock Outstanding at Par Value..................... $ 26,891 $ 26,904 $ 26,914 $ 26,919 Total Shareholders' Equity................................ $ 9,880 $ 11,297 $ 21,779 $ 41,911
- ------------------------ (a) The Preferred Stock at December 31, 1995 is presented at its liquidation value of $22,750 plus the 10% premium of $2,756. (Refer to Kollmorgen's Annual Report on Form 10-K) 19 PARENT CORPORATION NOTES TO SELECTED HISTORICAL FINANCIAL DATA (1) Effective December 31, 1996, Parent combined its Macbeth division with the Color Control Systems business of Gretag AG and received 48% of the shares in the Swiss holding company which controls the two businesses (the "Joint Venture"). Accordingly, at December 31, 1996, and through the second quarter of 1997, the Macbeth division was not consolidated in Parent's financial statements, but instead Parent accounted for its interest in the Joint Venture using the equity method. Effective June 17, 1997, Parent agreed, pursuant to a firm underwriting agreement, to sell approximately 88% of its interest in the Joint Venture as part of an initial public offering on the Swiss stock exchange. On June 25, 1997 Parent sold approximately 88% of its interest in the Joint Venture, receiving approximately $38 million. Subsequently in August, 1997, Parent sold the remaining shares to the underwriter, receiving approximately $4.0 million in cash. Parent's financial statements reflect a gain in the second quarter of 1997 of approximately $24 million on the sale of its shares in the Joint Venture. The gain is net of $2 million in income taxes and utilization of net operating loss and other tax credit carryforwards. Refer to Note 2 of the 1996 financial statements contained in Parent's Annual Report on Form 10-K for the year ended December 31, 1996 for additional information. (2) Effective April 2, 1997, Parent agreed to purchase all of the remaining shares of Servotronix Ltd. ("Servotronix") for cash of $6.4 million and through the issuance of 257,522 shares of Parent Common Stock. The shares not yet purchased are a liability of Parent in the amount of $1.8 million at September 30, 1997. Accordingly, Parent has accounted for the purchase of Servotronix as if 100% of the shares were purchased on April 2, 1997. (3) Effective June 10, 1997, Parent entered into a binding agreement to purchase all of the shares of Fritz A. Seidel Elektro-Automatik GmbH ("Seidel"). Accordingly, Parent consolidated the balance sheet of Seidel as of June 30, 1997. Effective in the third quarter of 1997, the results of operations for Seidel are consolidated in Parent's financial statements. (4) In connection with the acquisitions of Servotronix and Seidel, Parent has allocated the purchase price to the assets acquired, both tangible and intangible, and any excess of the purchase price over the assets acquired has been classified as goodwill. A portion of the purchase price has been allocated to in-process research and development for products which are not yet feasible and the value of the in-process research and development of $10.5 million was expensed as acquired research and development in the second quarter of 1997. Also included in acquired research and development was a charge of approximately $0.9 million for technology acquired unrelated to the Servotronix and Seidel acquisitions. Parent owns 100 Shares and Purchaser owns 100 Shares, together representing less than one percent of the 12,381,595 Shares outstanding at September 26, 1997, which were acquired in open market transactions on December 3, 1997 at $15 3/16 per Share. Schedule II hereto sets forth information with respect to each purchase of Shares made by Parent during the past 60 days. Except as described in this Offer to Purchase and in Schedule II hereto, (i) none of Purchaser, Parent nor, to the best knowledge of Purchaser and Parent, any of the persons listed in Schedule I to this Offer to Purchase or any associate or majority-owned subsidiary of Purchaser, Parent or any of the persons so listed, beneficially owns or has any right to acquire, directly or indirectly, any Shares and (ii) none of Purchaser, Parent nor, to the best knowledge of Purchaser and Parent, any of the persons or entities referred to above nor any director, executive officer or subsidiary of any of the foregoing has effected any transaction in the Shares during the past 60 days. 20 Except as otherwise described in this Offer to Purchase, none of Purchaser, Parent nor, to the best knowledge of Purchaser and Parent, any of the persons listed in Schedule I to this Offer to Purchase, has any contract, arrangement, understanding or relationship with any other person with respect to any securities of the Company, including, but not limited to, any contract, arrangement, understanding or relationship concerning the transfer or voting of such securities, joint ventures, loan or option arrangements, puts or calls, guaranties of loans, guaranties against loss or the giving or withholding of proxies. Except as set forth in this Offer to Purchase, since December 31, 1993, neither Purchaser nor Parent nor, to the best knowledge of Purchaser and Parent, any of the persons listed on Schedule I hereto, has had any business relationship or transaction with the Company or any of its executive officers, directors or affiliates that is required to be reported under the rules and regulations of the Commission applicable to the Offer. Except as set forth in this Offer to Purchase, since December 31, 1993, there have been no contacts, negotiations or transactions between any of Purchaser, Parent, or any of their respective subsidiaries or, to the best knowledge of Purchaser and Parent, any of the persons listed in Schedule I to this Offer to Purchase, on the one hand, and the Company or its affiliates, on the other hand, concerning a merger, consolidation or acquisition, tender offer or other acquisition of securities, an election of directors or a sale or other transfer of a material amount of assets. 9. FINANCING OF THE OFFER AND THE PROPOSED MERGER. The total amount of funds required for the purchase of 6,347,241 Shares is approximately $130.1 million. The determination that such number of Shares equals a majority of the Shares outstanding on a fully diluted basis is based on publicly available information about the Company, and the actual Minimum Number of Shares, and the total amount of funds required to purchase such Shares, may differ. Purchaser will obtain all of such funds from Parent. Parent intends to obtain the funds from a bank facility (the "Facility") to be arranged by Salomon Smith Barney. Parent, Salomon Smith Barney and SBHCI have entered into a commitment letter, dated December 9, 1997 (the "Commitment Letter"), pursuant to which SBHCI has committed, subject to the conditions set forth therein (including, without limitation, that all conditions of the Offer are satisfied and that Parent has either (i) entered into a definitive merger agreement with the Company or (ii) that the Parent Nominees shall, or that SBHCI shall otherwise be satisfied that the Parent Nominees will upon consummation of the Offer, constitute a majority of the Company Board), to provide to Parent and the Company up to $300 million pursuant to a fully secured financing (the "Financing"), to pay the Offer Price for the Shares to be purchased in the Offer, to refinance existing indebtedness of Parent and the Company, to provide funds for general corporate purposes and to pay related fees and expenses. SBHCI expects to syndicate the Facility in the bank syndicate market. The Financing consists of two phases. In Phase I there are two nine-month secured revolving credit facilities available for borrowing, one in an aggregate principal amount of $175 million (the "Phase I Tender Facility"), available to Parent and the other in an aggregate principal amount of $125 million, available to the Company (the "Phase I Company Facility", and together with the Phase I Tender Facility, the "Phase I Facilities"). The Phase I Facilities may be drawn on or after the date on which Purchaser accepts the Shares for payment and consummates the Tender Offer (the "Closing Date") and may be drawn in multiple drawings. Phase II of the Financing consists of a secured term credit facility in an aggregate principal amount of $175 million, available to both Parent and the Company (the "Term Facility") and a secured revolving credit facility in an aggregate principal amount of $125 million (the "Revolving Credit Facility", and together with the Term Facility, the "Phase II Facilities"), a portion of which may be used for letters of credit. The entire Term Facility must be drawn in a single drawing on the date on which the Proposed Merger is consummated (the "Merger Date") and the Revolving Credit Facility is also available on or after the Merger Date. Amounts borrowed under the Revolving Credit Facility and the Phase I Facilities that are repaid may be reborrowed. Amounts borrowed under the Term Facility that are repaid or prepaid may not be reborrowed. The Facility will be available to Parent and the Company subject to various conditions precedent including, but not limited to (i) satisfaction of the conditions to the Offer; (ii) Parent having entered into a 21 definitive merger agreement with the Company or Parent Nominees constituting, or that SBHCI shall otherwise be satisfied that Parent's Nominees will constitute upon consummation of the Offer, a majority of the Company Board; and (iii) certain other conditions customary for facilities and transactions of this type. Parent may borrow funds from the Phase I Facilities at an interest rate equal to either (i) the London InterBank Offered Rate plus 2% or (ii) the Alternate Base Rate (defined as the higher of (A) the Prime Rate of the administrative agent or reference bank and (B) the Federal Funds Effective Rate plus 1/2 of 1%) plus 0.5%. Such interest shall be calculated on the basis of actual days elapsed in a year of 360 days (or 365 or 366 days, as the case may be, in the case of Alternate Base Rate loans based on the Prime Rate) and will be paid quarterly, in arrears or at the end of an interest period, in arrears. Default interest is paid at the applicable interest rate plus 2%. A commitment fee of 0.5% per annum will accrue on any unused portion of the Phase I Facilities. The interest rates and commitment fees applicable to the Phase II Facilities will be determined at a later date. The obligations of Parent and the Company under the facilities will be unconditionally guaranteed by each domestic and certain foreign subsidiaries of Parent other than the Purchaser. In addition, all borrowings under the Phase I Company Facility will be guaranteed by Parent. The Obligations of both Parent and Purchaser under the Phase I Tender Facility and the guarantees thereof will be secured by a perfected first priority security interest in substantially all of the tangible and intangible assets of Parent, and certain significant subsidiaries (other than Company Common Stock). The Phase I Company Facility and the guarantees thereof will be secured by a perfected first priority security interest in substantially all of the assets of the Company and certain of its subsidiaries. The Phase II Facilities will be secured by all of the assets of both the Company and Parent as well as the stock of the Company and its subsidiaries. The Phase I Facilities will mature upon the earlier of nine months after the Closing Date or the Merger Date. The Term Facility will mature seven years after the Closing Date and will amortize quarterly. The Revolving Credit Facility will mature on the earlier of (i) seven years after the Closing Date or (ii) the repayment in full of the Term Facility. Parent must mandatorily prepay borrowings with a percentage of Excess Cash Flow, 100% of the net cash proceeds of all non-ordinary-course asset sales or other dispositions of property by Parent and its subsidiaries (subject to certain exceptions to be agreed upon), 100% of the net proceeds of debt issuances, and 50% of the net proceeds of certain issuances of equity of Parent and its subsidiaries. Parent may voluntarily prepay its loans at any time without premium or penalty. Parent makes customary representations, warranties and covenants for facilities of this type including, without limitation: (i) financial maintenance tests consisting of a maximum leverage ratio, a minimum fixed charge coverage ratio, and a minimum net worth level; (ii) maintenance of corporate existence, compliance with laws, payment of taxes, and maintenance of properties and insurance; (iii) maintenance of appropriate interest protection and other hedging arrangements in respect of, at any time, not less than 50% of the aggregate principal amount of loans outstanding at such time under the Facilities; and (iv) limitations on cash dividends, capital stock redemptions and repurchases, indebtedness, liens, loans, investments, capital expenditures, mergers, acquisitions, asset sales (other than sales of margin securities), prepayments, repurchases and redemption of debt, and certain changes in Parent's business. The Facilities also include customary events of default including, without limitation, payment defaults, covenant defaults, cross default, cross acceleration, bankruptcy, material judgments, certain Employee Retirement Income Security Act of 1974 events, actual or asserted invalidity of security documents and a change of control (to be defined in the loan documentation) of Parent. Parent expects that the definitive documentation with respect to the Financing will contain conditions that are customary for transactions of this type. 22 The foregoing is not intended to be a complete description of the terms and conditions of the Commitment Letter and is qualified in its entirety by reference to the full text thereof which is incorporated herein by reference and copies of which have been filed as an exhibit to the Tender Offer Statement on Schedule 14D-1. All capitalized terms which are used in this section and not otherwise defined shall have the meanings ascribed to them in the Commitment Letter. Parent has no current specific plans or arrangements for the repayment or refinancing of the borrowings under the Facility. Such plans or arrangements, when made, will be based on Parent's review from time to time of the advisability of particular actions, as well as on prevailing interest rates and financial and other economic conditions. Parent and the Purchaser have not had access to all of the instruments and agreements under which the Company has existing debt or other obligations (collectively "Company Debt"). There can be no assurance that the purchase of the Shares and the Proposed Merger will not result in an event of default, cross default or other adverse consequences under any or all of the instruments defining the rights of the holders of Company Debt. As a result, it is possible that holders of certain of the Company Debt may have the right to require its immediate payment and Parent may need to refinance this additional indebtedness. In the event that the holders of some or all of the Company Debt have the right to demand its immediate payment upon purchase of the Shares pursuant to the Offer or consummation of the Proposed Merger, Parent presently intends to seek such holders' consent to the Purchaser's assumption of the Company Debt pursuant to the same terms and conditions as such Company Debt presently outstanding or to refinance such Company Debt through additional borrowings. 10. BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY. In the ordinary course of business, Parent analyzes a broad range of strategic alternatives, including possible business combinations with other companies in the motion control business. On August 21, 1996, Mr. Robert J. Cobuzzi, Parent's Senior Vice President and Chief Financial Officer, telephoned Mr. Richard V. Plat, who was at the time the Company's Executive Vice President, Chief Financial Officer and Secretary, to engage in discussions regarding a possible transaction involving Parent and the Company. Mr. Plat reacted negatively, suggesting that the Company's common stock was undervalued by the market. Thereafter, as a matter of course, Parent continued to evaluate a wide array of strategic options. In the second quarter of 1997, Parent intensified its review of a possible business combination with the Company. After several months of detailed review of the implications of a possible Parent-Company combination, on or about July 18, 1997, Mr. Gideon Argov, Parent's Chairman, President and Chief Executive Officer, telephoned Mr. Lester Hill, the Company's Chairman, President and Chief Executive Officer, to suggest that they meet to discuss ways in which the companies might cooperate and the possibility of combining Parent and the Company. Mr. Hill agreed and a meeting was arranged for the first week in August 1997. On August 1, 1997, Mr. Argov met with Mr. Hill in Newport Beach, California. Mr. Argov discussed the two companies and the motion control industry with Mr. Hill and proposed a merger of Parent and the Company. The merger proposed by Mr. Argov would have been structured as a merger of equals transaction, and Mr. Argov indicated that the key executives of Parent and the Company would become the senior executives of the combined company. Mr. Hill indicated that he needed more time to consider Mr. Argov's proposal. Mr. Argov and Mr. Hill agreed to speak again within the next few weeks. On or about August 13, 1997, Mr. Argov telephoned Mr. Hill to ask whether Mr. Hill had considered Mr. Argov's proposal. Mr. Hill responded that he had but that he needed more time to do so since the Company was in the midst of a strategic planning process that was expected to last into September, 1997. Mr. Argov agreed to call Mr. Hill in early September. On or about September 15, 1997, Mr. Argov again telephoned Mr. Hill to ask whether Mr. Hill was ready to discuss a possible business combination. Mr. Hill again responded that he was not ready to 23 discuss a possible business combination because of the Company's ongoing strategic planning process. Mr. Argov and Mr. Hill agreed to speak again on October 15 or 16. On or about October 15, 1997, Mr. Argov attempted to telephone Mr. Hill, but Mr. Hill did not return Mr. Argov's calls. On October 21, 1997, Mr. Argov telephoned Mr. Hill and again proposed that Parent and the Company commence discussions regarding a possible merger. Mr. Hill responded that he had thought about Mr. Argov's suggestion and discussed it with the Company Board and had concluded that it would not be in the best interests of the Company. On October 22, 1997, Mr. Hill telephoned Mr. Argov to offer to sell the Company's Automation Intelligence, Inc. business to Parent. Mr. Argov indicated that Parent would not be interested in acquiring only a small piece of the Company's business. On December 9, 1997, Mr. Argov telephoned Mr. Hill to inform Mr. Hill that Mr. Argov was authorized by the Parent Board to make a proposal to acquire the Company for $20.50 per share in cash and stock, and that Mr. Hill should expect to receive a letter from Mr. Argov making such a proposal. Mr. Argov reiterated Parent's belief that a combination of the Company and Parent offered unsurpassed benefits to both companies' shareholders and expressed his hope that Mr. Hill and the Company's Board would, once they had undertaken an informed review of Parent's proposal, support the proposed combination and open substantive discussions with Parent. Mr. Hill promised to telephone Mr. Argov with a response to the proposal letter on Friday morning, December 12, 1997. Following that telephone call, Mr. Argov sent to Mr. Hill a letter outlining the contemplated terms of the proposed combination. On December 12, 1997, Mr. Hill failed to telephone Mr. Argov as previously agreed. Mr. Argov attempted to reach Mr. Hill by telephone without success. After the close of business on December 12, 1997, Mr. Argov received the following letter by telecopy: DEAR MR. ARGOV: I HAVE RECEIVED YOUR LETTER OF THE 9TH. I HAVE SHARED IT WITH THE BOARD OF DIRECTORS. WE WILL BE BACK TO YOU ONCE WE HAVE HAD THE CHANCE TO FULLY CONSIDER THE MATTER. BEST REGARDS, LESTER HILL On December 15, Mr. Argov sent to Mr. Hill the following letter: DEAR BUCK: IN AUGUST, YOU AND I MET TO DISCUSS WHAT WE AT KOLLMORGEN BELIEVE ARE THE COMPELLING MERITS OF A STRATEGIC BUSINESS COMBINATION OF KOLLMORGEN CORPORATION AND PACIFIC SCIENTIFIC COMPANY. WE EXPLORED A BROAD RANGE OF TOPICS RELATED TO SUCH A COMBINATION, ALL OF WHICH, MY COLLEAGUES ON THE KOLLMORGEN BOARD AND SENIOR MANAGEMENT TEAM FIRMLY BELIEVE, LEAD TO THE CONCLUSION THAT A STRATEGIC MERGER OF OUR TWO COMPANIES OFFERS SIGNIFICANT BENEFITS TO OUR RESPECTIVE SHAREHOLDERS, CUSTOMERS AND EMPLOYEES. ON DECEMBER 9, I AGAIN DESCRIBED FOR YOU, BOTH OVER THE PHONE AND IN MY LETTER OF THAT DATE, WHAT WE AT KOLLMORGEN BELIEVE ARE SOME OF THE COMPELLING STRATEGIC, OPERATIONAL AND FINANCIAL BENEFITS OF A BUSINESS COMBINATION OF OUR TWO COMPANIES AND THE EXTRAORDINARY VALUE THAT COMBINATION COULD REPRESENT FOR OUR RESPECTIVE SHAREHOLDERS. WE AT KOLLMORGEN WERE THUS QUITE DISAPPOINTED THAT IN AUGUST AND AGAIN IN DECEMBER YOU REFUSED TO NEGOTIATE OUR PROPOSAL FOR THIS BUSINESS COMBINATION. ACCORDINGLY, WE HAVE DECIDED TO PRESENT OUR OFFER DIRECTLY TO THE SHAREHOLDERS OF PACIFIC SCIENTIFIC, AND ARE TODAY PUBLICLY 24 ANNOUNCING THAT WE ARE COMMENCING A TENDER OFFER TO ACQUIRE HALF OF PACIFIC SCIENTIFIC'S OUTSTANDING SHARES FOR $20.50 PER SHARE IN CASH. PURSUANT TO OUR PROPOSAL, FOLLOWING COMPLETION OF THE TENDER OFFER, KOLLMORGEN AND PACIFIC SCIENTIFIC WILL MERGE, AND EACH REMAINING SHARE OF PACIFIC SCIENTIFIC STOCK WILL BE EXCHANGED FOR KOLLMORGEN COMMON STOCK WITH A VALUE OF $20.50 PER SHARE, BASED ON THE AVERAGE PRICE OF KOLLMORGEN STOCK DURING THE TWENTY TRADING DAYS ENDING FIVE DAYS PRIOR TO THE MEETING OF PACIFIC SCIENTIFIC SHAREHOLDERS CALLED TO VOTE ON THE MERGER. THE VALUE OF THE STOCK CONSIDERATION WILL BE PROTECTED BY A COLLAR. AMONG THE KEY ASPECTS OF THE TRANSACTION WE PROPOSE ARE THE FOLLOWING: - A PREMIUM OF 33%. THE PURCHASE PRICE OF $20.50 PER COMMON SHARE REPRESENTS APPROXIMATELY A 33% PREMIUM OVER PACIFIC SCIENTIFIC'S CLOSING SHARE PRICE OF $15.44 ON THE NEW YORK STOCK EXCHANGE ON FRIDAY, DECEMBER 12, 1997, AND APPROXIMATELY A 37% PREMIUM OVER THE COMPANY'S CLOSING SHARE PRICE FOR THE PRECEDING 30 TRADING DAYS. - IMMEDIATE CASH PAYMENT FOR HALF OF PACIFIC SCIENTIFIC'S CAPITAL STOCK. HALF OF PACIFIC SCIENTIFIC'S OUTSTANDING SHARES WILL BE PURCHASED FOR A CASH PAYMENT OF $20.50 PER SHARE IF THE TENDER OFFER IS SUCCESSFULLY CONSUMMATED. - CONTINUED PARTICIPATION IN THE FUTURE GROWTH OF THE COMBINED COMPANY. BECAUSE PACIFIC SCIENTIFIC'S SHAREHOLDERS HAVE THE ABILITY TO RECEIVE KOLLMORGEN COMMON STOCK IN THE PROPOSED MERGER, THEY WILL HAVE THE OPPORTUNITY TO PARTICIPATE IN THE FUTURE GROWTH AND SUCCESS OF THE COMBINED ENTERPRISE. UPON CONSUMMATION OF THE PROPOSED MERGER, PACIFIC SCIENTIFIC SHAREHOLDERS WILL HOLD AN EQUITY STAKE OF APPROXIMATELY 43% IN THE COMBINED COMPANY, BASED UPON AN ASSUMED MARKET VALUE FOR KOLLMORGEN COMMON STOCK OF $16.88 PER SHARE (THE CLOSING PRICE OF KOLLMORGEN COMMON STOCK ON DECEMBER 12, 1997). - OPERATING AND REVENUE SYNERGIES. BASED ON PUBLIC INFORMATION, KOLLMORGEN MANAGEMENT BELIEVES THAT THE COMBINED COMPANY CAN ACHIEVE MORE THAN $15 MILLION OF ANNUAL OPERATING SYNERGIES IN 1999, RISING TO MORE THAN $20 MILLION IN 2000 AND INCREASING THEREAFTER. MANAGEMENT BELIEVES THESE SYNERGIES CAN BE ACHIEVED PRINCIPALLY FROM COST SAVINGS IN SELLING AND MARKETING EXPENSES AND CONSOLIDATION OF RESEARCH AND DEVELOPMENT, AND EXPECTS TO REALIZE ADDITIONAL SYNERGIES FROM CROSS-SELLING OPPORTUNITIES, JOINT PURCHASING SAVINGS, AND REDUCTION IN CORPORATE EXPENSES. - AN ACCRETIVE TRANSACTION. KOLLMORGEN IS CONFIDENT THAT THE PROPOSED COMBINATION WILL BE ACCRETIVE TO EARNINGS PER SHARE IN 1999, THE FIRST FULL YEAR OF OPERATIONS OF THE COMBINED COMPANY, AND INCREASINGLY SO THEREAFTER, BASED UPON THE ANTICIPATED SYNERGIES DESCRIBED ABOVE. KOLLMORGEN EXPECTS THAT, DUE TO THE SUBSTANTIAL NON-RECURRING CHARGES ASSOCIATED WITH THE PROPOSED COMBINATION (WHICH ARE NOT CURRENTLY QUANTIFIABLE) CONSISTING OF RESTRUCTURING CHARGES AND A CHARGE FOR ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT, THE PROPOSED COMBINATION WILL BE SUBSTANTIALLY DILUTIVE IN FISCAL 1998. - COMMITTED FINANCING. KOLLMORGEN HAS ENTERED INTO A BINDING COMMITMENT LETTER WITH SALOMON, SALOMON SMITH BARNEY AND ITS AFFILIATE SALOMON BROTHERS HOLDING COMPANY INC IN WHICH SALOMON BROTHERS HOLDING COMPANY INC HAS COMMITTED TO PROVIDE, SUBJECT TO CERTAIN CONDITIONS, WHAT KOLLMORGEN BELIEVES IS A CONSERVATIVELY FINANCED SECURED BANK FACILITY TO FULLY FINANCE THE TRANSACTION, INCLUDING THE REFINANCING OF EXISTING INDEBTEDNESS AND THE PROVISION OF A WORKING CAPITAL FACILITY FOR THE COMBINED COMPANY. WE CONTINUE TO FIRMLY BELIEVE THAT CONSOLIDATION IN OUR INDUSTRY IS INEVITABLE, AND THAT NEITHER PACIFIC SCIENTIFIC NOR KOLLMORGEN CAN SIT BY IDLY WHILE COMPETITORS, MANY OF WHICH ARE MUCH LARGER THAN PACIFIC SCIENTIFIC AND KOLLMORGEN, CREATE THE INTERNATIONAL NETWORK AND BROAD PRODUCT OFFERINGS THAT OUR CUSTOMERS DEMAND AND DESERVE. KOLLMORGEN BELIEVES THAT THIS REALITY, 25 COUPLED WITH THE NATURAL FIT OF OUR TWO COMPANIES, MAKES A KOLLMORGEN/PACIFIC SCIENTIFIC COMBINATION COMPELLING. KOLLMORGEN BELIEVES THAT THE COMBINED COMPANY WILL OFFER CUSTOMERS SUPERIOR PRODUCTS AND SERVICES. AMONG THE MANY ADVANTAGES CONTRIBUTING TO THE COMBINED COMPANY'S ABILITY TO ACHIEVE THESE GOALS WOULD BE: - CREATION OF AN INDUSTRY LEADER. A MERGER OF KOLLMORGEN AND PACIFIC SCIENTIFIC WILL ESTABLISH THE COMBINED ENTERPRISE AS A LEADER IN HIGH PERFORMANCE ELECTRONIC MOTION CONTROL--ONE OF THE FASTEST-GROWING SEGMENTS OF THE MOTORS AND CONTROLS BUSINESS. IN A FRAGMENTED INDUSTRY, THE COMBINED ENTERPRISE WILL BE BETTER POSITIONED TO COMPREHENSIVELY SERVE THE NEEDS OF CUSTOMERS AND TAKE ADVANTAGE OF CONSOLIDATION OPPORTUNITIES. - STRATEGIC AND OPERATIONAL FIT. HIGHLY COMPLEMENTARY MOTION CONTROL PRODUCT LINES WILL ENABLE THE COMBINED COMPANY TO BECOME A FULL-SERVICE PROVIDER. THE COMBINED COMPANY WILL BE WELL-POSITIONED TO CAPITALIZE ON THE COMPLEMENTARY PRODUCT LINES AND DIFFERING STRENGTHS OF KOLLMORGEN AND PACIFIC SCIENTIFIC ENABLING IT TO OFFER A BROADER ARRAY OF PRODUCTS AND SUPPORT SERVICES TO AN EXPANDED CUSTOMER BASE. IN ADDITION, THE COMBINED COMPANY WOULD TAKE ADVANTAGE OF COST SAVINGS AND EFFICIENCIES RESULTING FROM ECONOMIES OF SCALE IN RESEARCH AND DEVELOPMENT, MARKETING, PRODUCTION AND SOURCING. - ENHANCED CAPABILITY TO TAP FOREIGN MARKETS. THE INCREASED SIZE AND GLOBAL SCOPE OF THE COMBINED COMPANY WILL ENABLE IT TO MORE EFFECTIVELY MARKET ITS PRODUCTS TO CUSTOMERS AROUND THE WORLD. KOLLMORGEN HAS ALREADY ESTABLISHED A LOCAL PRESENCE IN GERMANY, FRANCE, ISRAEL, INDIA, CHINA AND ELSEWHERE. THE COMBINED ENTERPRISE WILL BE WELL-POSITIONED TO BUILD ON THIS FOUNDATION, PARTICULARLY IN EUROPE AND THE PACIFIC RIM. KOLLMORGEN BELIEVES THAT THE COMBINED COMPANY WILL BE ABLE TO EXPAND ITS CUSTOMER BASE AND OFFER INTERNATIONAL ON-SITE PRODUCT SUPPORT TO CUSTOMERS, WHILE CONDUCTING MORE EFFECTIVE AND COST-EFFICIENT RESEARCH AND DEVELOPMENT, MARKETING, PRODUCTION AND SOURCING. - MANAGEMENT TEAM WITH PROVEN TRACK RECORD. KOLLMORGEN MANAGEMENT HAS DELIVERED YEAR OVER YEAR GROWTH IN SALES AND OPERATING INCOME FROM CONTINUING OPERATIONS FROM 1994 THROUGH 1996, AND WILL DO SO GAIN IN 1997. KOLLMORGEN HAS ACHIEVED THIS BY FOCUSING ON ITS CORE OPERATIONS. KOLLMORGEN ALSO BELIEVES THAT ITS MANAGEMENT HAS MAXIMIZED ITS RETURNS FROM NON-STRATEGIC OPERATIONS. IN ADDITION, KOLLMORGEN'S MANAGEMENT HAS CONSIDERABLE EXPERTISE IN MANAGING DEBT, HAVING REDUCED KOLLMORGEN'S DEBT AND PREFERRED STOCK OBLIGATIONS BY MORE THAN 40% DURING THE PAST THREE FISCAL YEARS AND TRANSITIONED FROM FULLY-SECURED TO UNSECURED CREDIT ARRANGEMENTS. - ENHANCED GROWTH OPPORTUNITIES. KOLLMORGEN BELIEVES THAT THE COMBINED ENTERPRISE WILL BE WELL-POSITIONED, STRATEGICALLY, OPERATIONALLY AND FINANCIALLY, TO AGGRESSIVELY PURSUE ATTRACTIVE OPPORTUNITIES FOR EXTERNAL AND INTERNAL GROWTH. KOLLMORGEN IS CONFIDENT THAT THE COMBINED COMPANY'S INCREASED SIZE AND SCOPE WILL ENABLE IT TO BE A LEADER IN THE ACCELERATING CONSOLIDATION OF THE MOTION CONTROL INDUSTRY, AND RAISE ITS VISIBILITY IN THE BUSINESS AND FINANCIAL COMMUNITIES. WE BELIEVE THAT THE PROPOSED COMBINATION IS A BOLD, EXCITING INITIATIVE FOR PACIFIC SCIENTIFIC, KOLLMORGEN, AND THE SHAREHOLDERS, CUSTOMERS AND EMPLOYEES OF BOTH COMPANIES. WE ARE FIRMLY COMMITTED TO PURSUING THIS MATTER AND ARE CONVINCED THAT YOUR SHAREHOLDERS WILL STRONGLY SUPPORT OUR PROPOSAL. ALTHOUGH IT IS CLEAR TO US THAT YOU HAVE NOT UP TO NOW GIVEN ADEQUATE CONSIDERATION TO A KOLLMORGEN/PACIFIC SCIENTIFIC COMBINATION, IT IS OUR SINCERE HOPE THAT YOU WILL TAKE THIS OPPORTUNITY TO DO SO. YOUR SHAREHOLDERS DESERVE NO LESS THAN YOUR PROMPT AND FULL CONSIDERATION OF OUR PROPOSAL AND THE OPPORTUNITY TO REALIZE THE FULL BENEFITS OF THIS PROPOSED COMBINATION. WE ARE CERTAIN THAT ONCE YOU HAVE UNDERTAKEN AN INFORMED REVIEW OF OUR PROPOSAL, YOU WILL SHARE IN OUR VISION AND WILL SUPPORT A COMBINATION OF OUR TWO COMPANIES. WE CONTINUE TO 26 BE INTERESTED IN PROCEEDING WITH THIS TRANSACTION ON A FRIENDLY AND EXPEDITIOUS BASIS SO THAT YOUR SHAREHOLDERS, AS WELL AS OURS, CAN BEGIN TO RECEIVE PROMPTLY THE BENEFITS OF OUR OFFER. IN ORDER TO ENSURE THAT YOUR SHAREHOLDERS ARE PERMITTED TO CHOOSE FREELY TO ACCEPT OUR OFFER, WE ARE ALSO ANNOUNCING TODAY OUR INTENTION TO SOLICIT CONSENTS TO CALL A SPECIAL MEETING OF PACIFIC SCIENTIFIC'S SHAREHOLDERS TO REMOVE THE INCUMBENT MEMBERS OF PACIFIC SCIENTIFIC'S BOARD OF DIRECTORS AND ELECT OUR NOMINEES TO THE BOARD. SUBJECT TO THEIR FIDUCIARY DUTIES, IF ELECTED WE EXPECT OUR NOMINEES WOULD AMEND THE PACIFIC SCIENTIFIC RIGHTS PLAN OR REDEEM THE RIGHTS TO ENABLE THE CONSUMMATION OF THE PROPOSED TRANSACTION, APPROVE THE PROPOSED TRANSACTION IF REQUIRED UNDER PACIFIC SCIENTIFIC'S CHARTER, AND TAKE ALL OTHER ACTIONS NECESSARY TO REMOVE ANY IMPEDIMENTS TO YOUR SHAREHOLDERS' ABILITY TO ACCEPT OUR OFFER. WE ALSO INTEND TO SUBMIT A PROPOSAL DESIGNED TO PREVENT THE CURRENT BOARD FROM TAKING ANY ACTIONS TO FRUSTRATE THE ABILITY OF PACIFIC SCIENTIFIC'S SHAREHOLDERS TO DETERMINE THE FUTURE OF THEIR COMPANY. WE ARE ALSO TODAY COMMENCING LITIGATION AGAINST PACIFIC SCIENTIFIC AND THE PACIFIC SCIENTIFIC BOARD IN THE UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA SEEKING TO ASSURE PACIFIC SCIENTIFIC'S SHAREHOLDERS THE RIGHT TO REPLACE THE PACIFIC SCIENTIFIC BOARD AND AN OPPORTUNITY TO ACCEPT OUR OFFER AND PROPOSED MERGER. WE URGE THE PACIFIC SCIENTIFIC BOARD OF DIRECTORS TO FACILITATE THE PROPOSED TRANSACTION AND REMOVE ALL OBSTACLES TO THE REALIZATION OF EXCEPTIONAL VALUE BY YOUR SHAREHOLDERS. AS INDICATED ABOVE, OUR PREFERENCE IS TO PROCEED WITH THE PROPOSED TRANSACTION ON A FRIENDLY BASIS AND WITH THE SUPPORT OF PACIFIC SCIENTIFIC'S MANAGEMENT AND BOARD OF DIRECTORS. ACCORDINGLY, WE AND OUR ADVISORS REMAIN READY AND WILLING TO MEET WITH YOU AND YOUR ADVISORS AT ANY TIME TO DISCUSS OUR PROPOSAL AND COMMENCE THE NEGOTIATION OF DEFINITIVE DOCUMENTATION FOR THE TRANSACTION. WE LOOK FORWARD TO HEARING FROM YOU. VERY TRULY YOURS, GIDEON ARGOV CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER CC: MEMBERS OF THE BOARD OF DIRECTORS OF PACIFIC SCIENTIFIC COMPANY Later that same day, Parent commenced the Offer and the Solicitation and filed definitive consent solicitation materials and a related registration statement with the Commission. Also on December 15, 1997, Parent commenced the Litigation seeking, among other things, an order (i) declaring that failure to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger or to approve the Offer and the Proposed Merger for purposes of Article Fifth would constitute a breach of the Company Board's fiduciary duties to the Company's shareholders under California law, (ii) invalidating the Rights or compelling the Company Board to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger, (iii) compelling the Company Board to approve the Offer and the Proposed Merger for purposes of Article Fifth and (iv) enjoining the Company Board from taking any actions to interfere with the Offer, the Solicitation or the Proposed Merger. 27 11. PURPOSE OF THE OFFER; PLANS FOR THE COMPANY AFTER THE OFFER AND THE PROPOSED MERGER. PURPOSE OF THE OFFER. The purpose of the Offer and the Proposed Merger is for Parent to acquire control of, and the entire equity interest in, the Company. The purpose of the Proposed Merger is for Parent to acquire all Shares not purchased pursuant to the Offer. Upon consummation of the Proposed Merger, the Company will become a wholly owned subsidiary of Parent. Parent is seeking to negotiate with the Company a definitive merger agreement pursuant to which the Company would, as soon as practicable following consummation of the Offer, consummate a Proposed Merger or similar business combination with Parent, Purchaser or another direct or indirect subsidiary of Parent. At the Effective Time, each Share then outstanding (other than Shares held by the Company or any wholly owned subsidiary of the Company and Shares owned by Parent, Purchaser or any other direct or indirect wholly owned subsidiary of Parent and Shares held by shareholders of the Company who shall have demanded and perfected, and who shall not have withdrawn or otherwise lost, dissenters' rights, if any, under the CGCL) would be converted into the right to receive $20.50 of Parent Common Stock. The exact number of shares of Parent Common Stock into which each Share will be converted in the Proposed Merger will be determined by dividing $20.50 by the average, over the 20 consecutive trading days ending five days prior to the meeting of the shareholders of the Company called for the purpose of voting on the Proposed Merger, of the daily average of the high and low per share sales prices of Parent Common Stock (weighted by sales volume). In the event that such average during such period is less than $15.19 or greater than $18.56, the exchange ratio would be fixed at 1.350 shares of Parent Common Stock or 1.104 shares of Parent Common Stock, respectively, per Share. In such event, the Company's shareholders could receive Parent Common Stock in the Proposed Merger with a value greater or lesser than $20.50. To date, the Company has refused to enter into negotiations with Parent. Accordingly, Parent has commenced the Solicitation to urge the Company's shareholders to take action by written consent to call the Special Meeting in order to, among other things, remove the entire Company Board and fill the newly created vacancies on the Company Board with the Parent Nominees, who are expected to take such actions, subject to their fiduciary duties under applicable law, as may be necessary to consummate the Offer and the Proposed Merger. Parent expects that, if elected, and subject to their fiduciary duties under applicable law, the Parent Nominees would cause the Company Board to (i) amend the Rights Agreement or redeem the Rights, or otherwise act to ensure that the Rights Condition is satisfied, (ii) approve the Offer and the Proposed Merger for purposes of Article Fifth or otherwise act to ensure that the Article Fifth Condition is satisfied and (iii) take any other actions necessary to permit the Offer and the Proposed Merger to be consummated. The Solicitation will be made pursuant to separate consent solicitation materials complying with the requirements of Section 14(a) of the Exchange Act, and the rules and regulations promulgated thereunder. On December 15, 1997, Parent filed definitive consent solicitation materials in connection with the Solicitation with the Commission, which are being mailed to shareholders of the Company together with this Offer to Purchase. On December 15, 1997, Parent commenced the Litigation, seeking, among other things, an order (i) declaring that failure to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger or to approve (if necessary) the Offer and the Proposed Merger for purposes of Article Fifth would constitute a breach of the Company Board's fiduciary duties to the Company's shareholders under California law, (ii) invalidating the Rights or compelling the Company Board to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger, (iii) compelling the Company Board to approve the Offer and the Proposed Merger for purposes of Article Fifth, if necessary and (iv) enjoining the Company Board from taking any actions to interfere with the Offer, the Solicitation or the Proposed Merger. 28 Subject to the terms and conditions of the Proposed Merger and in accordance with the CGCL and the DGCL, the Company will be merged with and into Purchaser. It is expected that Purchaser will be the surviving corporation in the Proposed Merger, and will continue its corporate existence under Delaware law. Purchaser reserves the right to amend the Offer and/or the Proposed Merger (including amending the number of Shares to be purchased, the purchase prices therefor, the proposed merger consideration and the form of the Proposed Merger) at any time, including upon entering into a merger agreement with the Company, or to negotiate a merger agreement with the Company in connection with a merger not involving a tender offer pursuant to which Purchaser would terminate the Offer and the Shares would, upon consummation of such merger, be converted into cash and Parent Common Stock in such amounts as are negotiated by Parent and the Company; provided, however, that Kollmorgen has no intention of reducing the consideration paid to Pacific Scientific shareholders below that being offered in the Offer and the Proposed Merger. DISSENTERS' RIGHTS. California law provides for rights of dissenting shareholders in certain business combinations to receive fair value for their shares. Accordingly, while shareholders of the Company will not have dissenters' rights as a result of the Offer, they may have certain rights in connection with the Proposed Merger to dissent and to require the Company to purchase their Shares for cash at fair market value. The following discussion is not a complete statement of the law pertaining to appraisal rights under the CGCL and is qualified in its entirety by the full text of Chapter 13 (Sections 1300-1312) of the CGCL which is attached hereto and is incorporated herein by reference. See "Schedule III--Chapter 13 of the General Corporation Law of the State of California". Holders of Shares do not have dissenters' rights as a result of the Offer. However, in connection with the Proposed Merger, holders of Shares, by complying with the provisions of Chapter 13 of the CGCL, may have certain rights to dissent and to require the Company to purchase their Shares for cash at fair market value. In general, holders of Shares will be entitled to exercise "dissenters' rights" under the CGCL only if the holders of five percent or more of the outstanding Shares properly file demands for payment or if the Shares held by such holders are subject to any restriction on transfer imposed by the Company or any law or regulation ("Restricted Shares"). Accordingly, any holder of Restricted Shares and, if the holders of five percent or more of the Shares properly file demands for payment, all other such holders who fully comply with all other applicable provisions of Chapter 13 of the CGCL will be entitled to require the Company to purchase their Shares for cash at their fair market value if the Proposed Merger is consummated. If the statutory procedures under the CGCL relating to dissenters' rights is complied with, such rights could result in a judicial determination of the fair market value of the Shares. The "fair market value" would be determined as of the day before the first announcement of the terms of the Proposed Merger, excluding any appreciation or depreciation in consequence of the Proposed Merger. The value so determined could be more or less than the Offer Price. RULE 13E-3. The Commission has adopted Rule 13e-3 under the Exchange Act which is applicable to certain "going private" transactions and which may under certain circumstances be applicable to the Proposed Merger or another business combination following the purchase of Shares pursuant to the Offer in which Purchaser seeks to acquire the remaining Shares not held by it. Purchaser believes, however, that Rule 13e-3 will not be applicable to the Proposed Merger. Rule 13e-3 requires, among other things, that certain financial information concerning the Company and certain information relating to the fairness of the proposed transaction and the consideration offered to minority shareholders in such transaction, be filed with the Commission and disclosed to shareholders prior to consummation of the transaction. PLANS FOR THE COMPANY. In connection with the Offer, Parent and Purchaser have reviewed, and will continue to review, on the basis of publicly available information, various possible business strategies 29 that they might consider in the event that Purchaser acquires control of the Company. Parent expects that the merged company will combine the highly complementary motion control product lines of Parent and the Company to become a full-service provider. Parent believes that the combined company will be well-positioned to capitalize on the complementary product lines and differing strengths of Parent and the Company, enabling the combined company to provide its products and support services on a global basis and as a result satisfy today's sophisticated customers demand by offering them a global supplier for their electronic motion control requirements. The increased size and global scope of the resulting entity, Parent believes, will allow it to more effectively market its products to customers around the world, which will make it well positioned to build on this foundation, particularly in Europe and the Pacific Rim. Parent expects that the combined company's increased size and scope will enable it to be a leader in the accelerating consolidation of the motion control industry and raising its visibility in the business and financial communities. Parent sees the combined company as being well-positioned, strategically, operationally and financially, to aggressively pursue attractive opportunities for external and internal growth. In addition, if and to the extent that Purchase acquires control of the Company or otherwise obtains access to the books and records of the Company, Parent and Purchaser intend to conduct a detailed review of the Company and its assets, financial projections, corporate structure, dividend policy, capitalization, operations, properties, policies, management and personnel and consider and determine what, if any, changes would be desirable in light of the circumstances which then exist, with a view to optimizing the Company's potential in conjunction with Parent's business. Such strategies could include, among other things, changes in the Company's business, corporate structure, marketing strategies, capitalization, management or dividend policy and changes to the Company's Articles of Incorporation or Bylaws. Parent has commenced the Solicitation to urge the Company's shareholders to take action by written consent to call the Special Meeting in order to, among other things, remove the entire Company Board and fill the newly created vacancies on the Company Board with the Parent Nominees, who are expected to take such actions, subject to their fiduciary duties under applicable law, as may be necessary to consummate the Offer and the Proposed Merger. Parent expects that, if elected, and subject to their fiduciary duties under applicable law, the Parent Nominees would cause the Company Board to (i) amend the Rights Agreement or redeem the Rights, or otherwise act to ensure that the Rights Condition is satisfied, (ii) approve the Offer and the Proposed Merger for purposes of Article Fifth or otherwise act to ensure that the Article Fifth Condition is satisfied and (iii) take any other actions necessary to permit the Offer and the Proposed Merger to be consummated. The Solicitation will be made pursuant to separate consent solicitation materials complying with the requirements of Section 14(a) of the Exchange Act, and the rules and regulations promulgated thereunder. On December 15, 1997, Parent filed definitive consent solicitation materials in connection with the Solicitation with the Commission, which are being mailed to shareholders of the Company together with this Offer to Purchase. Except as indicated in this Offer to Purchase, Parent does not have any present plans or proposals which relate to or would result in an extraordinary corporate transaction, such as a merger, reorganization or liquidation, involving the Company or any subsidiary of the Company, a sale or transfer of a material amount of assets of the Company or any subsidiary of the Company or any material change in the Company's capitalization or dividend policy or any other material changes in the Company's corporate structure or business, or the composition of the Company Board or the Company's management. 30 12. DIVIDENDS AND DISTRIBUTIONS. If, on or after the date of this Offer to Purchase, the Company should (i) split, combine or otherwise change the Shares or its capitalization, (ii) acquire or otherwise cause a reduction in the number of outstanding Shares or (iii) issue or sell any additional Shares, shares of any other class or series of capital stock, other voting securities or any securities convertible into, or options, rights or warrants, conditional or otherwise, to acquire, any of the foregoing, then, without prejudice to Purchaser's rights under "Section 14. Certain Conditions of the Offer", Purchaser, in its sole discretion, may make such adjustments to the purchase price and other terms of the Offer (including the number and type of securities to be purchased) as it deems appropriate to reflect such split, combination or other change. If, on or after the date of this Offer to Purchase, the Company should declare or pay any dividend on the Shares or make any other distribution (including the issuance of additional shares of capital stock pursuant to a stock dividend or stock split, the issuance of other securities or the issuance of rights for the purchase of any securities) with respect to the Shares that is payable or distributable to shareholders of record on a date prior to the transfer to the name of Purchaser or its nominee or transferee on the Company's stock transfer records of the Shares purchased pursuant to the Offer, other than regular quarterly dividends on the Shares declared and paid at times consistent with past practice and in an amount not in excess of $0.03 per Share, then, without prejudice to Purchaser's rights under "Section 14. Certain Conditions of the Offer", (i) the purchase price per Share payable by Purchaser pursuant to the Offer will be reduced to the extent any such dividend or distribution is payable in cash and (ii) any non-cash dividend, distribution or right shall be received and held by the tendering shareholder for the account of Purchaser and will be required to be promptly remitted and transferred by each tendering shareholder to the Depositary for the account of Purchaser, accompanied by appropriate documentation of transfer. Pending such remittance and subject to applicable law, Purchaser will be entitled to all the rights and privileges as owner of any such non-cash dividend, distribution or right and may withhold the entire purchase price or deduct from the purchase price the amount or value thereof, as determined by Purchaser in its sole discretion. 13. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES, EXCHANGE LISTING AND EXCHANGE ACT REGISTRATION. The purchase of Shares by Purchaser pursuant to the Offer will reduce the number of Shares that might otherwise trade publicly and will reduce the number of holders of Shares, which could adversely affect the liquidity and market value of the remaining Shares held by the public. Depending upon the number of Shares purchased pursuant to the Offer, the Shares may no longer meet the requirements of the NYSE for continued listing and may be delisted from the NYSE. According to the NYSE's published guidelines, the NYSE would consider delisting the Shares if, among other things, (i) the number of record holders of at least 100 Shares should fall below 1,200, (ii) the number of publicly held Shares (exclusive of holdings of officers, directors and their families and other concentrated holdings of 10% or more ("NYSE Excluded Holdings")) should fall below 600,000, (iii) the aggregate market value of publicly held Shares, subject to adjustment (and exclusive of NYSE Excluded Holdings), should fall below $5,000,000 or (iv) the aggregate market value of Shares outstanding (excluding treasury stock) should fall below $8,000,000 and average net income after taxes of the Company for the past three years is less than $600,000. If, as a result of the purchase of Shares pursuant to the Offer or otherwise, the Shares no longer meet the requirements of the NYSE for continued listing and the listing of the Shares is discontinued, the market for the Shares could be adversely affected. Based on these guidelines and publicly available information, however, Parent and Purchaser do not believe that the purchase of the Minimum Number of Shares is likely to result in the delisting of the Shares on the NYSE. If the NYSE were to delist the Shares, it is possible that the Shares would continue to trade on another securities exchange or in the over-the-counter market and that price or other quotations would be reported by such exchange or other sources. The extent of the public market therefor and the availability of such quotations would depend, however, upon such factors as the number of shareholders 31 and/or the aggregate market value of such securities remaining at such time, the interest in maintaining a market in the Shares on the part of securities firms, the possible termination of registration under the Exchange Act as described below, and other factors. Parent and Purchaser cannot predict whether the reduction in the number of Shares that might otherwise trade publicly would have an adverse or beneficial effect on the market price for or marketability of the Shares or whether it would cause future market prices to be greater or less than the Offer Price. The Shares are currently "margin securities", as such term is defined under the rules of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board"), which has the effect, among other things, of allowing brokers to extend credit on the collateral of such securities. Depending upon factors similar to those described above regarding listing and market quotations, following the Offer it is possible that the Shares might no longer constitute "margin securities" for purposes of the margin regulations of the Federal Reserve Board, in which event such Shares could no longer be used as collateral for loans made by brokers. The Shares are currently registered under the Exchange Act. Such registration may be terminated upon application by the Company to the Commission if the Shares are not listed on a national securities exchange and there are fewer than 300 record holders. The termination of the registration of the Shares under the Exchange Act would substantially reduce the information required to be furnished by the Company to holders of Shares and to the Commission and would make certain provisions of the Exchange Act, such as the short-swing profit recovery provisions of Section 16(b), the requirement of furnishing a proxy statement in connection with shareholders' meetings and the requirements of Rule 13e-3 under the Exchange Act with respect to "going private" transactions, no longer applicable to the Shares. In addition, "affiliates" of the Company and persons holding "restricted securities" of the Company may be deprived of the ability to dispose of such securities pursuant to Rule 144 promulgated under the Securities Act. If registration of the Shares under the Exchange Act were terminated, the Shares would no longer be "margin securities" or be eligible for reporting on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). As soon as practicable after the Separation Time has occurred, Rights Certificates are to be sent to all holders of Rights. If the Separation Time has occurred and the Rights separate from the Shares, the foregoing discussion with respect to the effect of the Offer on the market for the Shares, NYSE listing and Exchange Act registration would apply to the Rights in a similar manner. 14. CERTAIN CONDITIONS OF THE OFFER. Notwithstanding any other provision of the Offer, and in addition to (and not in limitation of) Purchaser's rights to extend and amend the Offer at any time, in its sole discretion, Purchaser shall not be required to accept for payment or pay for any Shares tendered pursuant to the Offer, and may terminate or amend the Offer and may postpone the acceptance for payment of and payment for, Shares tendered, if (i) any one or more of the Minimum Condition, the HSR Condition, the Financing Condition, the Rights Condition, the Article Fifth Condition and the Parent Shareholder Approval Condition shall not have been satisfied or (ii) at any time on or after December 15, 1997, and prior to the acceptance for payment of Shares, any of the following conditions shall exist: (a) there shall have been threatened, instituted or be pending any action or proceeding before any court or governmental, administrative or regulatory authority or agency, domestic or foreign (each, a "Governmental Entity"), or by any other person, domestic or foreign, before any court or Governmental Entity, (i) challenging or seeking to, or which is reasonably likely to, make illegal, materially delay or otherwise directly or indirectly restrain or prohibit or seeking to, or which is reasonably likely to, impose voting, procedural, price or other requirements, in addition to those required by federal securities laws and the CGCL (each as in effect on the date of this Offer to Purchase), in connection with the making of the Offer, the acceptance for payment of, or payment for, any Shares by Parent, Purchaser or any other affiliate of Parent or the consummation by Purchaser or Parent or any other affiliate of Parent of the Proposed Merger or other business 32 combination with the Company, or seeking to obtain material damages in connection therewith; (ii) seeking to prohibit or limit materially the ownership or operation by the Company, Parent or any of their subsidiaries of all or any material portion of the business or assets of the Company, Parent or any of their subsidiaries, or to compel the Company, Parent or any of their subsidiaries to dispose of or hold separate all or any material portion of the business or assets of the Company, Parent or any of their subsidiaries; (iii) seeking to impose or confirm limitations on the ability of Parent, Purchaser or any other affiliate of Parent to exercise effectively full rights of ownership of any Shares (including the Rights associated with Shares), including, without limitation, the right to vote any Shares acquired by Purchaser pursuant to the Offer or otherwise on all matters properly presented to the Company's shareholders; (iv) seeking to require divestiture by Parent, Purchaser or any other affiliate of Parent of any Shares; (v) seeking any material diminution in the benefits expected to be derived by Purchaser, Parent or any other affiliate of Parent as a result of the transactions contemplated by the Offer or the Proposed Merger or any other similar business combination with the Company; (vi) otherwise directly or indirectly relating to the Offer or which otherwise, in the sole judgment of Purchaser, might materially adversely affect the Company or any of its subsidiaries or Purchaser, Parent or any other affiliate of Parent or the value of the Shares; or (vii) which otherwise, in the sole judgment of Purchaser, is reasonably likely to materially adversely affect the business, operations (including, without limitation, results of operations), properties (including, without limitation, intangible properties), condition (financial or otherwise), assets or liabilities (including, without limitation, contingent liabilities) or prospects of either the Company or any of its subsidiaries or Parent; (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) Parent, Purchaser, the Company or any subsidiary or affiliate of Parent or the Company or (ii) the Offer or the Proposed Merger or other business combination by Purchaser or Parent or any affiliate of Parent with the Company, by any legislative body, court, government or governmental, administrative or regulatory authority or agency, domestic or foreign, other than the routine application of the waiting period provisions of the HSR Act to the Offer or the Proposed Merger, which, in the sole judgment of Purchaser, is reasonably likely to result, directly or indirectly, in any of the consequences referred to in clauses (i) through (vii) of paragraph (a) above; (c) there shall have occurred any change, condition, event or development that, in the sole judgment of Purchaser, is or is reasonably likely to be materially adverse to the business, operations (including, without limitation, results of operations), properties (including, without limitation, intangible properties), condition (financial or otherwise), assets or liabilities (including, without limitation, contingent liabilities) or prospects of the Company or any of its subsidiaries; (d) there shall have occurred (i) any general suspension of, or limitation on prices for, trading in securities on the NYSE, (ii) any decline, measured from the close of business on December 12, 1997, in the Standard & Poor's 500 Index by an amount in excess of 15%, (iii) any material adverse change in United States currency exchange rates or a suspension of, or limitation on, currency exchange markets, (iv) a declaration of a banking moratorium or any suspension of payments in respect of banks in the United States, (v) 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 sole judgment of Purchaser, might affect the extension of credit by banks or other lending institutions, (vi) a commencement of a war or armed hostilities or other national or international calamity directly or indirectly involving the United States or (vii) in the case of any of the foregoing existing on December 12, 1997, a material acceleration or worsening thereof; (e) the Company or any of its subsidiaries, joint ventures or partners or other affiliates shall have, directly or indirectly, (i) split, combined or otherwise changed, or authorized or proposed a split, combination or other change of, the Shares or its capitalization (other than by redemption of 33 the Rights in accordance with their terms as such terms have been publicly disclosed prior to the date of this Offer to Purchase), (ii) acquired or otherwise caused a reduction in the number of, or authorized or proposed the acquisition or other reduction in the number of, outstanding Shares or other securities (other than as aforesaid), (iii) issued or sold, or authorized or proposed the issuance, distribution or sale of, additional Shares (other than the issuance of Shares under option prior to the date of this Offer to Purchase, in accordance with the terms of such options as such terms have been publicly disclosed prior to the date of this Offer to Purchase), shares of any other class of capital stock, other voting securities or any securities convertible into, or rights, warrants or options, conditional or otherwise, to acquire, any of the foregoing, (iv) declared or paid, or proposed to declare or pay, any dividend or other distribution, whether payable in cash, securities or other property, on or with respect to any shares of capital stock of the Company (other than (A) a regular cash quarterly dividend not in excess of $0.03 per Share, having customary and usual record and payment dates and (B) in the event the Rights are redeemed, the price of redemption thereof), (v) altered or proposed to alter any material term of any outstanding security (including the Rights) other than to amend the Rights Agreement to make the Rights inapplicable to the Offer and the Proposed Merger, (vi) incurred any debt other than in the ordinary course of business or any debt containing burdensome covenants, (vii) authorized, recommended, proposed or entered into an agreement, agreement in principle or arrangement or understanding with respect to any merger, consolidation, liquidation, dissolution, business combination, acquisition of assets, disposition of assets, release or relinquishment of any material contractual or other right of the Company or any of its subsidiaries or any comparable event not in the ordinary course of business, (viii) authorized, recommended, proposed or entered into, or announced its intention to authorize, recommend, propose or enter into, any agreement, arrangement or understanding with any person or group that in the sole judgment of Purchaser could adversely affect either the value of the Company or any of its subsidiaries, joint ventures or partnerships or the value of the Shares to Purchaser, Parent or any other affiliate of Parent, (ix) entered into or amended any employment, change in control, severance, executive compensation or similar agreement, arrangement or plan with or for the benefit of any of its employees, consultants or directors, or made grants or awards thereunder, other than in the ordinary course of business or entered into or amended any agreements, arrangements or plans so as to provide for increased or accelerated benefits to any such persons, (x) except as may be required by law, taken any action to terminate or amend any employee benefit plan (as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended) of the Company or any of its subsidiaries, or Purchaser shall have become aware of any such action that was not disclosed in publicly available filings prior to the date of this Offer to Purchase, or (xi) amended or authorized or proposed any amendment to the Company's Articles of Incorporation or Bylaws, or Purchaser shall have become aware that the Company or any of its subsidiaries shall have proposed or adopted any such amendment that was not disclosed in publicly available filings prior to the date of this Offer to Purchase; (f) a tender or exchange offer for any Shares shall have been made or publicly proposed to be made by any other person (including the Company or any of its subsidiaries or affiliates), or it shall have been publicly disclosed or Purchaser shall have otherwise learned that (i) any person, entity (including the Company or any of its subsidiaries) or "group" (within the meaning of Section 13(d)(3) of the Exchange Act) shall have acquired or proposed to acquire beneficial ownership of more than 5% of any class or series of capital stock of the Company (including the Shares), through the acquisition of stock, the formation of a group or otherwise, or shall have been granted any right, option or warrant, conditional or otherwise, to acquire beneficial ownership of more than 5% of any class or series of capital stock of the Company (including the Shares), other than acquisitions for bona fide arbitrage purposes only and other than as disclosed in a Schedule 13G on file with the Commission prior to the date of this Offer to Purchase, (ii) any such person, entity or group that prior to the date of this Offer to Purchase had filed such a Schedule 13G with the Commission has 34 acquired or proposes to acquire, through the acquisition of stock, the formation of a group or otherwise, beneficial ownership of 1% or more of any class or series of capital stock of the Company (including the Shares), or shall have been granted any right, option or warrant, conditional or otherwise, to acquire beneficial ownership of 1% or more of any class or series of capital stock of the Company (including the Shares), (iii) any person or group shall have entered into a definitive agreement or an agreement in principle or made a proposal with respect to a tender offer or exchange offer or a merger, consolidation or other business combination with or involving the Company or (iv) any person shall have filed a Notification and Report Form under the HSR Act (or amended a prior filing to increase the applicable filing threshold set forth therein) or made a public announcement reflecting an intent to acquire the Company or any subsidiary or significant assets of the Company; (g) any approval, permit, authorization or consent of any governmental authority or agency (including those described or referred to in "Section 15. Certain Legal Matters and Regulatory Approvals") shall not have been obtained on terms satisfactory to Purchaser in its sole discretion; (h) Purchaser shall have reached an agreement or understanding with the Company providing for termination of the Offer, or Purchaser, Parent or any other affiliate of Parent shall have entered into a definitive agreement or announced an agreement in principle with the Company providing for a merger or other business combination with the Company or the purchase of stock or assets of the Company; or (i) (i) any material contractual right of the Company or any of its subsidiaries or affiliates shall be impaired or otherwise adversely affected or any material amount of indebtedness of the Company or any of its subsidiaries, joint ventures or partnerships shall become accelerated or otherwise become due before its stated due date, in either case, with or without notice or the lapse of time or both, as a result of the transactions contemplated by the Offer or the Proposed Merger or (ii) any covenant, term or condition in any of the Company's or any of its subsidiaries', joint ventures' or partnerships' instruments or agreements is or may be materially adverse to the value of the Shares in the hands of Purchaser (including, but not limited to, any event of default that may ensue as a result of the consummation of the Offer or the Proposed Merger or the acquisition by Parent of control of the Company); which, in the reasonable judgment of Purchaser in any such case, and regardless of the circumstances (including any action or inaction by Parent or any of its affiliates) giving rise to any such condition, makes it inadvisable to proceed with such acceptance for payment. The foregoing conditions are for the sole benefit of Purchaser and Parent and may be asserted by Purchaser or Parent regardless of the circumstances giving rise to any such condition or may be waived by Purchaser or Parent in whole or in part at any time and from time to time in their reasonable discretion. The failure by Parent or Purchaser 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 other 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. 35 15. CERTAIN LEGAL MATTERS AND REGULATORY APPROVALS. GENERAL. Based upon its examination of publicly available information with respect to the Company, neither Purchaser nor Parent is aware of any license or other regulatory permit that appears to be material to the business of the Company and its subsidiaries, taken as a whole, which might be adversely affected by the acquisition of Shares by Purchaser pursuant to the Offer or, except as set forth below, of any approval or other action by any domestic (federal or state) or foreign governmental, administrative or regulatory authority or agency which would be required prior to the acquisition of Shares by Purchaser pursuant to the Offer and the Proposed Merger. Should any such approval or other action be required, it is Purchaser's present intention to seek such approval or action. Purchaser does not currently intend, however, to delay the purchase of Shares tendered pursuant to the Offer pending the outcome of any such action or the receipt of any such approval (subject to Purchaser's right to decline to purchase Shares if any of the conditions in "Section 14. Certain Conditions of the Offer" shall have occurred). There can be no assurance that any such approval or other action, if needed, would be obtained without substantial conditions or that adverse consequences might not result to the businesses of the Company, Purchaser or Parent or that certain parts of the businesses of the Company, Purchaser or Parent might not have to be disposed of or held separate or other substantial conditions complied with in order to obtain such approval or other action or in the event that such approval was not obtained or such other action was not taken. Purchaser's obligation under the Offer to accept for payment and pay for Shares is subject to certain conditions, including conditions relating to the legal matters discussed in this Section 15. See "Section 14. Certain Conditions of the Offer". STATE TAKEOVER LAWS. The Company's principal executive offices are located in, and the Company is incorporated under the laws of, the State of California, which currently has no takeover statute that would apply to the Offer or to the Proposed Merger. However, there can be no assurances that California will not, prior to the completion of the Offer, adopt such a statute. Under California law, the Proposed Merger may not be accomplished for cash paid to the Company's shareholders if Purchaser or Parent owns directly or indirectly more than 50% but less than 90% of the then outstanding Shares unless either all the shareholders consent or the Commissioner of Corporations of the State of California approves, after a hearing, the terms and conditions of the Proposed Merger and the fairness thereof. Because the consideration to be paid in the Proposed Merger consists of Parent Common Stock and not cash, this provision of California law will not interfere with the consummation of the Offer or the Proposed Merger. A number of other states have adopted laws and regulations applicable to attempts to acquire securities of corporations which are incorporated, or have substantial assets, shareholders, principal executive offices or principal places of business, or whose business operations otherwise have substantial economic effects, in such states. In EDGAR V. MITE CORP., the Supreme Court of the United States invalidated on constitutional grounds the Illinois Business Takeover Statute, which, as a matter of state securities law, made takeovers of corporations meeting certain requirements more difficult. However, in 1987 in CTS CORP. V. DYNAMICS CORP. OF AMERICA, the Supreme Court held that the State of Indiana may, as a matter of corporate law and, in particular, with respect to those aspects of corporate law concerning corporate governance, constitutionally disqualify a potential acquiror from voting on the affairs of a target corporation without the prior approval of the remaining shareholders. The state law before the Supreme Court was by its terms applicable only to corporations that had a substantial number of shareholders in the state and were incorporated there. The Company, directly or through subsidiaries, conducts business in a number of states throughout the United States, some of which have enacted takeover laws. Purchaser does not know whether any of these laws will, by their terms, apply to the Offer or the Proposed Merger and has not sought to comply with any such laws. Should any person seek to apply any state takeover law, Purchaser will take such action as then appears desirable, which may include challenging the validity or applicability of any such statute in appropriate court proceedings. In the event it is asserted that one or more state takeover laws is applicable to the Offer or the Proposed Merger, and an appropriate court does not determine that it is 36 inapplicable or invalid as applied to the Offer, Purchaser might be required to file certain information with, or receive approvals from, the relevant state authorities. In addition, if enjoined, Purchaser might be unable to accept for payment any Shares tendered pursuant to the Offer, or be delayed in continuing or consummating the Offer and the Proposed Merger. In such case, Purchaser may not be obligated to accept for payment any Shares tendered. See "Section 14. Certain Conditions of the Offer". ANTITRUST. Under the HSR Act and the rules that have been promulgated thereunder by the FTC, certain acquisition transactions may not be consummated unless certain information has been furnished to the Antitrust Division and the FTC and certain waiting period requirements have been satisfied. The acquisition of Shares by Purchaser pursuant to the Offer are subject to such requirements. Pursuant to the HSR Act, on December 15, 1997, Parent will file Premerger Notification and Report Forms in connection with the purchase of Shares pursuant to the Offer with the Antitrust Division and the FTC. Under the provisions of the HSR Act applicable to the Offer, the purchase of Shares pursuant to the Offer may not be consummated until the expiration of a 15-calendar day waiting period following the applicable filings by Parent. Accordingly, the waiting period under the HSR Act applicable to the purchase of Shares pursuant to the Offer will expire at 11:59 p.m., New York City time, on December 30, 1997, unless such waiting period is earlier terminated by the FTC and the Antitrust Division or extended by a request from the Antitrust Division or the FTC for additional information or documentary material prior to the expiration of the waiting period. Pursuant to the HSR Act, Parent has requested early termination of the waiting period applicable to the Offer. There can be no assurance, however, that the 15-calendar day HSR Act waiting period applicable to the Offer will be terminated early. If the Antitrust Division or the FTC were to request additional information or documentary material from Parent with respect to the Offer, the waiting period with respect to the Offer would expire at 11:59 p.m., New York City time, on the tenth calendar day after the date of substantial compliance by Parent with such request. Thereafter, the consummation of the Offer may only be prevented by a court order that extends the waiting period or by an injunction. Parent will not be permitted to purchase Shares pursuant to the Offer or engage in any other transaction that would result in Parent having beneficial ownership of $15 million or more of the outstanding voting securities of the Company until expiration of the waiting period applicable to the Offer. If the acquisition of Shares is delayed as a result of a request by the Antitrust Division or the FTC for additional information or documentary material pursuant to the HSR Act in connection with the acquisition of Shares pursuant to the Offer, the Offer may, but need not, be extended and, in any event, the purchase of and payment for Shares will be deferred until 10 days after the request is substantially complied with by Parent, unless the extended period expires on or before the date when the initial 15-day period would otherwise have expired, or unless the waiting period is sooner terminated by the FTC and the Antitrust Division. Only one extension of such waiting period pursuant to a request for additional information is authorized by the HSR Act and the rules promulgated thereunder, except by court order. Any such extension of the waiting period will not give rise to any withdrawal rights not otherwise provided for by applicable law. Pursuant to the HSR Condition, the Offer is conditioned upon the waiting period applicable to the Offer under the HSR Act having expired or been terminated. The Antitrust Division and the FTC frequently scrutinize the legality under the antitrust laws of transactions such as the proposed acquisition of Shares by Purchaser pursuant to the Offer. At any time before or after the purchase of Shares pursuant to the Offer by Purchaser, the Antitrust Division or the FTC could take such action under the antitrust laws as they deem necessary or desirable in the public interest, including seeking to enjoin the purchase of Shares pursuant to the Offer or seeking the divestiture of Shares purchased by Purchaser or the divestiture of substantial assets of Parent, the Company or their respective subsidiaries. Private parties and state attorneys general may also bring legal action under federal or state antitrust laws under certain circumstances. Based upon an examination of information available to Parent relating to the businesses in which Parent, the Company and their respective subsidiaries are engaged, Parent and Purchaser believe that the Offer will not violate the 37 antitrust laws. Nevertheless, there can be no assurance that a challenge to the Offer on antitrust grounds will not be made or, if such a challenge is made, what the result would be. FOREIGN LAWS. According to publicly available information, the Company also owns property and conducts businesses in a number of other jurisdictions. In connection with the acquisition of the Shares pursuant to the Offer, the laws of certain foreign countries and jurisdictions may require the filing of information with, or the obtaining of the approval of, governmental authorities in such countries and jurisdictions. In addition, the waiting period prior to consummation of the Offer associated with such filings or approvals may extend beyond the scheduled Expiration Date. The governments in such countries and jurisdictions might attempt to impose additional conditions on the Company's operations conducted in such countries and jurisdictions as a result of the acquisition of Shares pursuant to the Offer or the Proposed Merger. CERTAIN LITIGATION. On December 15, 1997, Parent commenced the Litigation seeking, among other things, an order (i) declaring that failure to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger or to approve the Offer and the Proposed Merger for purposes of Article Fifth would constitute a breach of the Company Board's fiduciary duties to the Company's shareholders under California law, (ii) invalidating the Rights or compelling the Company Board to redeem the Rights or render the Rights inapplicable to the Offer and the Proposed Merger, (iii) compelling the Company Board to approve the Offer and the Proposed Merger for purposes of Article Fifth, and (iv) enjoining the Company Board from taking any actions to interfere with the Offer, the Solicitation or the Proposed Merger. See "Section 15. Certain Legal Matters and Regulatory Approvals". 16. SHAREHOLDER RIGHTS PLAN. The Rights Agreement and the Rights issued thereunder are described in the Company's Current Report on Form 8-K filed on February 16, 1996, and a summary of that description is provided below. Under the provisions of the Rights Agreement, one Right to purchase a fractional share of the Company's Series A Junior Participating Preferred Stock (the "Preferred Stock") was distributed as a dividend on each outstanding share of Common Stock held of record as of November 18, 1988, and on each such share issued thereafter. The Rights trade in tandem with the Common Stock. Each Right entitles holders of Common Stock to purchase 1/100th of a share of Preferred Stock at an exercise price of $45, subject to adjustment (the "Exercise Price"). The holders of Preferred Stock will be entitled to receive, when, as and if declared by the Board, semiannual dividends equal to the greater of $4 or 100 times the dividend or other distribution on the Common Stock. Each share of Preferred Stock will have a liquidation preference of $100 plus accrued but unpaid dividends. The holders of Common Stock and Preferred Stock generally will vote together as a class, with holders of Preferred Stock authorized to cast 100 votes on each matter for each such share held. Until the Separation Time (as defined below), the Rights are not exercisable. Prior to the Separation Time, certificates representing the Rights will not be sent to shareholders and the Rights will attach to and trade only together with shares of Common Stock. Shares of Common Stock issued after the record date and prior to the Separation Time will be issued with accompanying Rights. Separate Rights Certificates will be issued and the Rights will become exercisable on the date (the "Separation Time") which is 20 days following the earlier to occur of the following events (each an "Acquisition Event") (i) the date on which a person (or its affiliates or associates) acquires, or obtains the right to acquire, beneficial ownership of 25% or more of the outstanding shares of Common Stock (such person thereby becoming an "Acquiring Person") and (ii) the date of commencement by any person of, or public announcement of the intention of any person to commence, a tender or exchange offer for outstanding shares of Common Stock that would result in such person owning beneficially 35% or more of the outstanding shares of Common Stock. The Rights are redeemable, for $0.01 each, by action of the Board prior to the occurrence of an Acquisition Event. 38 If, after the Separation Time, unless the Rights are earlier redeemed as described below, (i) the Company is acquired in a merger or other business combination transaction in which the Company is not the surviving corporation or in which all or any part of the Company's outstanding shares of Common Stock are changed or exchanged for cash, stock or other assets or (ii) 50% or more of the Company's consolidated assets or earning power is sold, then proper provision must be made so that each holder of a Right which has not theretofore been exercised will thereafter have the Right to receive in lieu of Preferred Stock, upon exercise and payment of the then current Exercise Price therefor, shares of common stock of the acquiring or surviving company (which may be the Company), or certain related entities, having a value equal to two times the Exercise Price. If any person or group acquires 25% beneficial ownership or announces or commences a tender offer, each Right not owned by such person or related parties will entitle its holder to purchase, at the Right's then current Exercise Price, that number of units of Preferred Stock equal to the then current Exercise Price divided by 50% of an average market price for the Common Stock. Following the Separation Time, holders of the Rights (other than Rights beneficially owned by the Acquiring Person and certain related entities, which will thereafter be void) will be entitled to receive, upon exercise and the payment of the Exercise Price, one unit of Preferred Stock. The rights, preferences, privileges and restrictions of Preferred Stock are set forth in a Certificate of Designation filed by the Company with the office of the California Secretary of State. The Company initially has reserved 300,000 shares of Preferred Stock for issuance upon exercise of the Rights. The Rights will expire at the close of business on November 7, 1998 (the "Rights Expiration Time"), unless earlier redeemed as described below. The Company Board may, at its option, at any time prior to the earlier of the Separation Time or the Rights Expiration Time, redeem all but not less than all of the then outstanding Rights at a redemption price of $.01 per Right, as such amount may be appropriately adjusted to reflect any stock split, stock dividend or similar transaction (the "Redemption Price"). The redemption of the Rights by the Company Board may be made effective at such time on such basis and with such conditions as the Company Board in its sole discretion may establish. The Company may, at its option, pay the Redemption Price in cash, shares of Common Stock (based on the market price at the time of redemption) or any other form of consideration deemed appropriate by the Company Board. If the Company receives a written proposal (a "Proposal") from a Person who beneficially owns 1% or less of the outstanding Common Stock as of the date of delivery of the Proposal (the "Proposal Date") and who has not within one year prior to the Proposal Date beneficially owned in excess of 1% of the then outstanding Common Stock and disclosed, or caused the disclosure of, any intention that relates to or would result in the acquisition, or influence or control, of the Company, and the Proposal provides for the (i) acquisition of all outstanding shares of Common Stock of the Company, (ii) states that the offeror has committed financing sufficient to consummate the proposal acquisition, (iii) is accompanied by a fairness opinion of a nationally recognized investment banking firm and (iv) requests a special shareholders' meeting to vote on the proposed acquisition, the Rights Agreement contains mechanisms for the Company Board to call a special meeting of shareholders for the purpose of voting on a precatory resolution with respect to the Proposal. The provisions of the Rights Agreement may be supplemented or amended by the Company Board, without approval of holders of Rights, in any manner prior to the Separation Time. Any amendment adopted by the Company Board after the Separation Time may not materially and adversely affect the interests of the holders of Rights. The Exercise Price payable, the number of Rights issued per share of Common Stock and the number of fractions of shares of Preferred Stock or other securities or property issuable upon exercise of the Rights are subject to adjustment from time to time to prevent dilution. 39 If the Company does not have a sufficient number of shares of Preferred Stock to permit the exercise in full of the Rights, the Company may issue, in lieu of units of Preferred Stock, cash, shares or fractions of shares of Common Stock, Preferred Stock or equity or debt securities of the Company, assets of the Company, or any combination of the foregoing, or may reduce the Exercise Price. The Company may elect not to issue fractional shares of Preferred Stock upon exercise of a Right, and in lieu thereof may evidence such fractional shares by depositary receipts, or may make an adjustment in cash based on the then current market price of Preferred Stock. The holders of any such depositary receipts shall have all the Rights, privileges, preferences and restrictions to which they are entitled or subject as holders of Preferred Stock. Until a Right is exercised, the holder thereof, as such, will have no Rights as a shareholder of the Company (other than rights resulting from such holder's ownership of shares of Common Stock), including, without limitation, the right to vote or to receive dividends. The issuance of Preferred Stock upon exercise of the Rights is subject to the effectiveness of a registration statement under the Securities Act. A copy of the Rights Agreement has been filed with the Commission as an exhibit to a registration statement on Form 8-A under the Exchange Act. Shareholders of the Company will be required to tender one Right for each Share tendered in order to effect a valid tender of Shares in accordance with the procedures set forth in "Section 2. Acceptance for Payment and Payment for Shares". Unless a Separation Time occurs, a tender of Shares will also constitute a tender of the associated Rights. 17. ARTICLE FIFTH OF THE COMPANY'S ARTICLES OF INCORPORATION. Under Article Fifth, certain business combinations (each a "Transaction"), including a merger of the Company with or into any other Person (as defined below) that is an Associate (as defined below) of the Company require the approval of both (i) the holders of at least two-thirds of the outstanding shares of stock of the Company entitled to vote, and (ii) the holders of at least a majority of the outstanding shares of stock of the Company entitled to vote, exclusive of shares "owned beneficially" (as defined below) by any such other Person. Such voting requirements are not applicable if (i) the Transaction is a merger for which, except for the requirements of Article Fifth, approval by the shareholders of the Company is not required by the CGCL; (ii) the Transaction is a merger in which the Company is the "surviving entity" (as defined below); (iii) the Transaction has been approved by the Company Board either (a) unanimously, or (b) prior to the acquisition by any Person that is an Associate of the Company of the beneficial ownership of five percent or more of the outstanding shares of stock of the Company; or (iv) all of the following conditions are met: (1) The cash or fair market value of the property, securities or other consideration to be received per share by holders of the stock of the Company in such Transaction is not less than the higher of (a) the Highest Per Share Price (as defined below) paid by such associated Person in acquiring any of its holdings of the Company's stock or (b) an amount which bears the same or a greater percentage relationship to the market price of the Company's stock immediately prior to the announcement of such Transaction as the Highest Per Share Price determined in (a) above bears to the market price of the Company's stock immediately prior to the commencement of acquisition of the Company's stock by such associated Person, but in no event in excess of two times the Highest Per Share Price determined in (a) above; (2) After becoming an associated Person and prior to the consummation of such business combination, (a) such associated Person has not acquired any newly issued shares of capital stock, directly or indirectly, from the Company (except upon conversion of convertible securities acquired by it prior to becoming an associated Person or upon compliance with the provisions of the Article Fifth or as a result of a pro rata stock dividend or stock split), (b) such associated Person has not received the benefit, directly or indirectly (except proportionately as a shareholder), of any loans, other financial assistance or tax credits provided by the Company, or made any major changes in the Company's business or equity capital structure, and (c) there has been no reduction 40 in the rate of dividends payable on the Company's common stock, except as may have been approved by unanimous vote of directors; and (3) A proxy statement responsive to the requirements of the Exchange Act, whether or not the Company is then subject to such requirements, is mailed to the public shareholders of the Company for the purpose of soliciting shareholder approval of such transaction and contains at the front thereof, in a prominent place (i) any recommendations as to the advisability (or inadvisability) of the Transaction which any of the directors may choose to state, and (ii) the opinion of a reputable national investment banking firm as to the fairness (or not) of the terms of such business combination, from the point of view of the remaining public shareholders of the Company (such investment banking firm to be engaged solely on behalf of the remaining public shareholders, to be paid a reasonable fee for its services by the Company upon receipt of such opinion, to be one of the so-called major bracket investment banking firms which has not previously been associated with such associated Person, and, if there are at the time any such directors, to be selected by a majority of the outside directors). "Affiliate" means with respect to a specified Person, any Person that directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, the specified Person. "Associate" means with respect to a specified Person (A) any Person who is, directly or indirectly, the Beneficial Owner of five percent or more of any class of equity securities of such specified Person or who is an officer, director, trustee or partner of such specified Person or any Affiliate of such specified Person, (B) any trust or estate in which such specified Person has a substantial beneficial interest or as to which such specified Person serves as a trustee or in a similar fiduciary capacity, and (C) any relative or spouse of such specified Person, or any relative of such spouse, who has the same home as such specified Person. "Beneficial Owner" means any Person who beneficially owns shares of stock of the Company (A) which such specified Person or any Affiliate or Associate or such Person beneficially owns, directly or indirectly, whether of record or not, (B) which such specified Person or any Affiliate or Associate of such Person has the right to acquire pursuant to any agreement or (C) which are beneficially owned, directly or indirectly including shares deemed owned through application of clauses (A) or (B) above, by any other Person with which such specified Person or any Affiliate or Associate of such specified Person has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of voting securities of the Company. "Highest Per Share Price" means the per share price inclusive of brokerage commissions, soliciting dealers' fees, dealer-management compensation, and other expenses, including, but not limited to, costs of newspaper advertisements, printing expenses and attorneys' fees. "Person" means an individual corporation, partnership, joint venture, trust or unincorporated organization, or a government or any agency or political subdivision thereof. The company shall be the "surviving entity" in any merger in which: (A) the shareholders of the Company immediately prior to the merger own immediately after the merger the same stock of the Company they owned immediately prior to the merger, subject to their rights, if any, under the CGCL as dissenting shareholders; and (B) the shareholders of the Company immediately prior to the merger (other than any Person with or into which the Company merges or any Affiliate or Associate of such Person) own immediately after the merger, subject to the same rights, if any, as dissenting shareholders, stock possessing at least a majority of the voting power of the Company. Pursuant to the terms of Article Fifth, the Company Board has the power to determine, (i) whether any Person referred to in Article Fifth is the Beneficial Owner of the outstanding securities of the 41 Company entitled to vote and the extent of such "beneficial ownership"; and (ii) whether Article Fifth is satisfied or does not apply to a Transaction. The foregoing description of Article Fifth is qualified in its entirety by reference to the text of the Articles of Incorporation of the Company, copies of which have been filed by the Company as exhibits to documents filed with the Commission and may be obtained from, the same places and in the same manner as described in "Section 7. Certain Information Regarding the Company". Parent expects that, if elected, and subject to their fiduciary duties under applicable law, the Parent Nominees would cause the Company Board to approve the Offer and the Proposed Merger for purposes of Article Fifth. 18. FEES AND EXPENSES. Except as set forth below, Purchaser will not pay any fees or commissions to any broker, dealer or other person for soliciting tenders of Shares pursuant to the Offer. Salomon Smith Barney is acting as Dealer Manager for the Offer and as financial advisor to Parent in connection with the Proposed Merger. Questions regarding the Offer may be directed to Salomon Smith Barney at the phone number and address set forth on the back cover hereof. As compensation for its services to Parent in connection with the Offer and Proposed Merger, Salomon Smith Barney will receive fees of (i) $350,000 payable by Parent following an agreement to effect the Proposed Merger or similar transaction or a public announcement regarding the Proposed Merger or similar transaction and (ii) $2,700,000 payable by Parent upon consummation of the Proposed Merger or similar transaction. In addition, Salomon Smith Barney is entitled to reimbursement for the fees and disbursements of Salomon Smith Barney's counsel and all of Salomon Smith Barney's reasonable travel and other out-of-pocket expenses, as well as indemnification from certain liabilities. Parent has also given Salomon Smith Barney various rights of first refusal respecting certain related financial transactions as well as the right to 10% of certain proceeds received by Parent from the sale of Shares in the event the Proposed Merger is not consummated. In addition, Salomon Smith Barney and its affiliate SBHCI entered into a commitment letter pursuant to which SBHCI has agreed to provide financing for the Offer. See "Section 9. Financing of the Offer and the Proposed Merger". Salomon Smith Barney is a service mark of Smith Barney Inc. Salomon Brothers Inc and Smith Barney Inc. are affiliated but separately registered broker/dealers under common control of Salomon Smith Barney Holdings Inc Salomon Brothers Inc and Salomon Smith Barney Holdings Inc have been licensed to use the Salomon Smith Barney service mark. Purchaser and Parent have retained Georgeson & Company Inc. ("Georgeson") as the Information Agent, and Harris Trust Company of New York as the Depositary, in connection with the Offer. The Information Agent may contact holders of Shares by mail, telephone, telex, telecopy, telegraph and personal interview and may request banks, brokers, dealers and other nominee shareholders to forward materials relating to the Offer to beneficial owners. As compensation for acting as Information Agent in connection with the Offer, Georgeson will be paid a fee of $100,000 plus a fee of $6.00 for each call made to a shareholder and will also be reimbursed for certain out-of-pocket expenses and may be indemnified against certain liabilities and expenses in connection with the Offer, including certain liabilities under the federal securities laws. Purchaser will pay the Depositary reasonable and customary compensation for its services in connection with the Offer, plus reimbursement for out-of-pocket expenses, and will indemnify the Depositary against certain liabilities and expenses in connection therewith, including certain liabilities under the federal securities laws. Brokers, dealers, commercial banks and trust companies will be reimbursed by Purchaser for customary handling and mailing expenses incurred by them in forwarding material to their customers. 19. MISCELLANEOUS. Purchaser is not aware of any jurisdiction where the making of the Offer is prohibited by any administrative or judicial action pursuant to any valid state statute. If Purchaser 42 becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will make a good faith effort to comply with any such state statute. If, after such good faith effort, Purchaser cannot comply with any such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by the Dealer Manager or by one or more registered brokers or dealers licensed under the laws of such jurisdiction. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION ON BEHALF OF PURCHASER OR THE COMPANY NOT CONTAINED IN THIS OFFER TO PURCHASE OR IN THE LETTER OF TRANSMITTAL, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. Pursuant to Rule 14d-3 of the General Rules and Regulations under the Exchange Act, Parent and Purchaser have filed with the Commission the Schedule 14D-1, together with exhibits, furnishing certain additional information with respect to the Offer. The Schedule 14D-1 and any amendments thereto, including exhibits, may be inspected at, and copies may be obtained from, the same places and in the same manner as set forth in "Section 7. Certain Information Regarding the Company" (except that they will not be available at the regional offices of the Commission). TORQUE CORPORATION December 15, 1997 43 SCHEDULE I DIRECTORS AND EXECUTIVE OFFICERS OF PARENT AND PURCHASER 1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT. The following table sets forth the name, current business address, citizenship and present principal occupation or employment, and material occupations, positions, offices or employments and business addresses thereof for the past five years of each director and executive officer of Parent. Unless otherwise indicated, the current business address of each person is 1601 Trapelo Road, Waltham, Massachusetts 02154. Unless otherwise indicated, each such person is a citizen of the United States of America and has held his or her present position as set forth below for the past five years. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Parent.
PRESENT BUSINESS EXPERIENCE DURING NAME POSITION PAST FIVE YEARS - ----------------------- ---------------------------------- ---------------------------------------------- Gideon Argov Chairman of the Board, President Chairman of the Board since March 1996, and Chief Executive Officer, President and Chief Executive Officer since Director November 1991; Director since May 1991. From March 1988 to May 1991, President and Chief Executive Officer and Director of High Voltage Engineering Company. Prior to that date, for five years a manager and senior consultant with Bain & Company. Robert J. Cobuzzi Senior Vice President, Treasurer Senior Vice President (since February 1993), and Chief Financial Officer, Treasurer and Chief Financial Officer since Director July 1991. From April 1989 to July 1991, Vice President and Treasurer of High Voltage Engineering Company. Prior to April 1989, Vice President and Chief Financial Officer of Ausimont N.V. Daniel M. Desmond Vice President President of Parent's Aerospace and Defense Motion Technologies Group and Vice President since November 1997. President of Parent Electro-Optical Division since 1989. Previously Vice President of Program Management. James A. Eder Vice President, Secretary and General Counsel since January 1992; Vice General Counsel President since January 1990; and Secretary since 1983. Previously he had been Assistant Corporate Counsel from 1977 to 1992. Keith D. Jones Controller and Chief Accounting Corporate Controller since May 1996. Chief Officer Accounting Officer, since March 1996. Director of Finance, Chief Accounting Officer, and Corporate Controller of Cambridge Biotech Corporation from September 1991 to August 1995.
PRESENT BUSINESS EXPERIENCE DURING NAME POSITION PAST FIVE YEARS - ----------------------- ---------------------------------- ---------------------------------------------- Mark E. Petty Vice President President of Parent's Industrial and Commercial Motion Technologies Group since November 1997; Vice President since January 1, 1996. Prior to that, he held several management positions with Parent since March 1992. Previously, President of General Eastern, Division of High Voltage Engineering Company. Jerald G. Fishman Director President, Chief Executive Officer and a Director of Analog Devices, Inc. Prior to November 1996, President and Chief Operating Officer of Analog Devices, Inc. for five years. Herbert L. Henkel Director President of Textron Industrial Products, Textron, Inc. since December 1995. Prior to that date, Industrial Group Vice President for two years and President of Greenlee Textron. James H. Kasschau Director President of International Contract Furnishings, Inc. since October 1995. Prior to that date, President of Tinicum Incorporated and President of Tinicum Enterprises, Inc. J. Douglas Maxwell Director Chairman of the Board and Chief Executive Officer of Swissray Empower, Inc. since 1988. Robert N. Parker Director Business consultant since 1992. Previously Executive Vice President of LTV Aerospace and Defense Corporation. Geoffrey S. Renhart Director Managing Director and General Partner of Bain Capital, Inc. Founder of Bain Capital, Inc. in 1984. George P. Stephan Director Managing Director of Stonington Group, Inc. since 1994. Previously Of Counsel to law firm of Murtha, Cullina, Richter and Pinney. Chairman of the Board of Parent from 1991 until March 26, 1996.
I-2 2. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER. The following table sets forth the name, current business address, citizenship and present principal occupation or employment, and material occupations, positions, offices or employments thereof for the past five years of each director and executive officer of Purchaser. Unless otherwise indicated, the current business address of each person is 1601Trapelo Road, Waltham Massachussets 02154. Unless otherwise indicated, each such person is a citizen of the United States of America, and each occupation set forth opposite an individual's name refers to employment with Purchaser.
PRESENT BUSINESS EXPERIENCE DURING NAME POSITION PAST FIVE YEARS - --------------------- --------------------------- -------------------------------------------------------- Gideon Argov President President since November 1997. Chairman of the Board of Parent since March 1996; President and Chief Executive Officer of Parent since November 1991; and Director of Parent since May 1991. From March 1988 to May 1991, President and Chief Executive Officer and Director of High Voltage Engineering Company. Prior to that date, for five years a manager and senior consultant with Bain & Company. Robert J. Cobuzzi Vice President, Treasurer Vice President, Treasurer and Assistant Secretary since and Assistant Secretary November 1997. Senior Vice President of Parent (since February 1993); and Treasurer and Chief Financial Officer of Parent since July 1991. From April 1989 to July 1991, Vice President and Treasurer of High Voltage Engineering Company. Prior to April 1989, Vice President and Chief Financial Officer of Ausimont N.V. James A. Eder Chairman of the Board, Vice Chairman of the Board, Vice President, Secretary and President and Secretary, Director since November 1997. Vice President of Parent Director since January 1990; General Counsel of Parent since January 1992; and Secretary of Parent since 1983. Previously he had been Assistant Corporate Counsel from 1977 to 1982. Keith D. Jones Vice President and Vice President and Assistant Secretary and Director Assistant Secretary, since November 1997. Corporate Controller of Parent Director since May 1996; and Chief Accounting Officer of Parent since March 1996. Director of Finance, Chief Accounting Officer, and Corporate Controller of Cambridge Biotech Corporation from September 1991 to August 1995.
I-3 SCHEDULE II SCHEDULE OF TRANSACTIONS IN SHARES DURING THE PAST 60 DAYS The following table sets forth purchases of the Shares within the past 60 days by or on behalf of Parent or Purchaser. All transactions were effected in open market transactions.
BENEFICIAL NUMBER OF SHARES OWNER DATE PURCHASED PRICE PER SHARE - ---------------------------------------------- --------------------- --------------------- --------------- Parent December 3, 1997 100 $ 15 3/16 Purchaser December 3, 1997 100 $ 15 3/16 --- Total 200 --- ---
SCHEDULE III CHAPTER 13 OF THE GENERAL CORPORATION LAW OF THE STATE OF CALIFORNIA 1300 [SHORT FORM MERGER; PURCHASE OF SHARES AT FAIR MARKET VALUE; "DISSENTING SHARES" AND DISSENTING SHAREHOLDER].--(a) If the approval of the outstanding shares (Section 152) of a corporation is required for a reorganization under subdivisions (a) and (b) OR subdivision (e) or (f) of Section 1201, each shareholder of the corporation entitled to vote on the transaction and each shareholder of a subsidiary corporation in a short-form merger may, by complying with this chapter, require the corporation in which the shareholder holds shares to purchase for cash at their fair market value the shares owned by the shareholder which are dissenting shares as defined in subdivision (b). The fair market value shall be determined as of the day before the first announcement of the terms of the proposed reorganization or short-form merger, excluding any appreciation or depreciation in consequence of the proposed action, but adjusted for any stock split, reverse stock split, or share dividend which becomes effective thereafter. (b) As used in this chapter, "dissenting shares" means shares which come within all of the following descriptions: (1) Which were not immediately prior to the reorganization or short-form merger either (A) listed on any national securities exchange certified by the Commissioner of Corporations under subdivision (o) of Section 25100 or (B) listed on the list of OTC margin stocks issued by the Board of Governors of the Federal Reserve System, and the notice of meeting of shareholders to act upon the reorganization summarizes this section and Sections 1301, 1302, 1303 and 1304; PROVIDED, HOWEVER, that this provision does not apply to any shares with respect to which there exists any restriction on transfer imposed by the corporation or by any law or regulation; and PROVIDED, FURTHER, that this provision does not apply to any class of shares described in SUBPARAGRAPH (A) OR (B) if demands for payment are filed with respect to 5 percent or more of the outstanding shares of that class. (2) Which were outstanding on that date for the termination of shareholders entitled to vote on the reorganization and (A) were not voted in favor of the reorganization or, (B) if described in SUBPARAGRAPH (A) OR (B) of paragraph (1) (without regard to the provisos in that paragraph), were voted against the reorganization, or which were held of record on the effective date of a short-form merger; PROVIDED, HOWEVER, that SUBPARAGRAPH (A) rather than SUBPARAGRAPH (B) of this paragraph applies in any case where the approval required by Section 1201 is sought by written consent rather than at a meeting. (3) Which the dissenting shareholder has demanded that the corporation purchase at their fair market value, in accordance with Section 1301. (4) Which the dissenting shareholder has submitted for endorsement, in accordance with Section 1302. (c) As used in this chapter, "dissenting shareholder" means the recordholder of dissenting shares and includes a transferee of record. (Last amended by Ch. 543, L. '93, eff. 1-1-94.) 1301 [DISSENTER'S RIGHTS; DEMAND ON CORPORATION FOR PURCHASE OF SHARES].-- (a) If, in the case of a reorganization, any shareholders of a corporation have a right under Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof, to require the corporation to purchase their shares for cash, such corporation shall mail to each such shareholder a notice of the approval of the reorganization by its outstanding shares (Section 152) within 10 days after the date of such approval, accompanied by a copy of Sections 1300, 1302, 1303, 1304 and this section, a statement of the price determined by the corporation to represent the fair market value of the dissenting shares, and a brief description of the procedure to be followed if the shareholder desires to exercise the shareholder's right under such sections. The statement of price constitutes an offer by the corporation to purchase at the price stated any dissenting shares as defined in subdivision (b) of Section 1300, unless they lose their status as dissenting shares under Section 1309. (b) Any shareholder who has a right to require the corporation to purchase the shareholder's shares for cash under Section 1300, subject to compliance with paragraphs (3) and (4) of subdivision (b) thereof, and who desires the corporation to purchase such shares shall make written demand upon the corporation to purchase such shares and payment to the shareholder in cash of their fair market value. The demand is not effective for any purpose unless it is received by the corporation or any transfer agent thereof (1) in the case of shares described in clause (i) or (ii) of paragraph (1) of subdivision (b) of Section 1300 (without regard to the provisos in that paragraph), not later than the date of the shareholders' meeting to vote upon the reorganization, or (2) in any other case within 30 days after the date on which the notice of the approval by the outstanding shares pursuant to subdivision (a) or the notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder. (c) The demand shall state the number and class of the shares held of record by the shareholder which the shareholder demands that the corporation purchase and shall contain a statement of what such shareholder claims to be the fair market value of those shares as of the day before the announcement of the proposed reorganization or shortform merger. The statement of fair market value constitutes an offer by the shareholder to sell the shares at such price. (Last amended by Ch. 1155, L. '80, eff. 1-1-81.) 1302 [DISSENTING SHARES, STAMPING OR ENDORSING].--Within 30 days after the date on which notice of the approval by the outstanding shares or the notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, the shareholder shall submit to the corporation at its principal office or at the office of any transfer agent thereof, (a) if the shares are certificated securities, the shareholder's certificates representing any shares which the shareholder demands that the corporation purchase, to be stamped or endorsed with a statement that the shares are dissenting shares or to be exchanged for certificates of appropriate denomination so stamped or endorsed or (b) if the shares are uncertificated securities, written notice of the number of shares which the shareholder demands that the corporation purchase. Upon subsequent transfers of the dissenting shares on the books of the corporation the new certificates, initial transaction statement, and other written statements issued therefor shall bear a like statement, together with the name of the original dissenting holder of the shares. (Last amended by Ch. 766, L. '86, eff. 1-1-87). 1303 [DISSENTING SHAREHOLDER ENTITLED TO AGREED PRICE WITH INTEREST; TIME OF PAYMENT].--(a) If the corporation and the shareholder agree that the shares are dissenting shares and agree upon the price of the shares, the dissenting shareholder is entitled to the agreed price with interest thereon at the legal rate on judgments from the date of the agreement. Any agreements fixing the fair market value of any dissenting shares as between the corporation and the holders thereof shall be filed with the secretary of the corporation. (b) Subject to the provisions of Section 1306, payment of the fair market value of dissenting shares shall be made within 30 days after the amount thereof has been agreed or within 30 days after any statutory or contractual conditions to the reorganization are satisfied, whichever is later, and in the case of certificated securities, subject to surrender of the certificates therefor, unless provided otherwise by agreement. (Last amended by Ch. 766, L. '86, eff. 1-1-87). 1304 [DISSENTERS ACTIONS; JOINDER; CONSOLIDATION; APPOINTMENT OF APPRAISERS].--(a) If the corporation denies that the shares are dissenting shares, or the corporation and the shareholder fail to agree upon the fair market values of the shares, then the shareholder demanding purchase of such shares as dissenting shares or any interested corporation, within six months after the date on which notice of the approval by the outstanding shares (Section 152) or notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder, but not thereafter, may file a complaint in the superior court of the proper county praying the court to determine whether the shares are dissenting III-2 shares or the fair market value of the dissenting shares or both or may intervene in any action pending on such a complaint. (b) Two or more dissenting shareholders may join as plaintiffs or be joined as defendants in any such action and two or more such actions may be consolidated. (c) On the trial of the action, the court shall determine the issues. If the status of the shares as dissenting shares is in issue, the court shall first determine that issue. If the fair market value of the dissenting shares is in issue, the court shall determine, or shall appoint one or more impartial appraisers to determine, the fair market value of the shares. 1305 [APPRAISERS DUTY AND REPORT; COURT JUDGEMENT; PAYMENT; APPEAL; COSTS OF ACTION].--(a) If the court appoints an appraiser or appraisers, they shall proceed forthwith to determine the fair market value per share. Within the time fixed by the court, the appraisers, or a majority of them, shall make and file a report in the office of the clerk of the court. Thereupon, on the motion of any party, the report shall be submitted to the court and considered on such evidence as the court considers relevant. If the court finds the report reasonable, the court may confirm it. (b) If a majority of the appraisers appointed fail to make and file a report within 10 days from the date of their appointment or within such further time as may be allowed by the court or the report is not confirmed by the court, the court shall determine the fair market value of the dissenting shares. (c) Subject to the provisions of Section 1306, judgment shall be rendered against the corporation for payment of an amount equal to the fair market value of each dissenting share multiplied by the number of dissenting shares which any dissenting shareholder who is a party, or who has intervened, is entitled to require the corporation to purchase, with interest thereon at the legal rate from the date on which judgment was entered. (d) Any such judgment shall be payable forthwith with respect to uncertificated securities and, with respect to certificated securities, only upon the endorsement and delivery to the corporation of the certificates for the shares described in the judgment. Any party may appeal from the judgment. (e) The costs of the action, including reasonable compensation to the appraisers to be fixed by the court, shall be assessed or apportioned as the court considers equitable, but, if the appraisal exceeds the price offered by the corporation, the corporation shall pay the costs (including in the discretion of the court attorneys' fees, fees of expert witnesses and interest at the legal rate on judgments from the date of compliance with Sections 1300, 1301 and 1302 if the value awarded by the court for the shares is more than 125 percent of the price offered by the corporation under subdivision (a) of Section 1301). (Last amended by Ch. 766 L. '86, eff. 1-1-87.) 1306 [DISSENTING SHAREHOLDERS: EFFECT OF PREVENTION OF PAYMENT OF FAIR MARKET VALUE].--To the extent that the provisions of Chapter 5 prevent the payment to any holders to dissenting shares of their fair market value, they shall become creditors of the corporation for the amount thereof together with interest at the legal rate on judgments until the date of payment, but subordinate to all other creditors in any liquidation proceeding, such debt to be payable when permissible under the provisions of Chapter 5. 1307 [DISSENTING SHARES, DISPOSITION OF DIVIDENDS].--Cash dividends declared and paid by the corporation upon the dissenting shares after the date of approval of the reorganization by the outstanding shares (Section 152) and prior to payment for the shares by the corporation shall be credited against the total amount to be paid by the corporation therefor. 1308 [DISSENTING SHARES, RIGHTS AND PRIVILEGES].--Except as expressly limited in this chapter, holders of dissenting shares continue to have all the rights and privileges incident to their shares, until the fair market value of their shares is agreed upon or determined. A dissenting shareholder may not withdraw a demand for payment unless the corporation consents thereto. III-3 1309 [DISSENTING SHARES, LOSS OF STATUS].--Dissenting shares lose their status as dissenting shares and the holders thereof cease to be dissenting shareholders and cease to be entitled to require the corporation to purchase their shares upon the happening of any of the following: (a) The corporation abandons the reorganization. Upon abandonment of the reorganization, the corporation shall pay on demand to any dissenting shareholder who has initiated proceedings in good faith under this chapter all necessary expenses incurred in such proceedings and reasonable attorneys' fees. (b) The shares are transferred prior to their submission for endorsement in accordance with Section 1302 or are surrendered for conversion into shares of another class in accordance with the articles. (c) The dissenting shareholder and the corporation do not agree upon the status of the shares as dissenting shares or upon the purchase price of the shares, and neither files a complaint or intervenes in a pending action as provided in Section 1304, within six months after the date on which notice of the approval by the outstanding shares or notice pursuant to subdivision (i) of Section 1110 was mailed to the shareholder. (d) The dissenting shareholder, with the consent of the corporation, withdraws the shareholder's demand for purchase of the dissenting shares. 1310 [SUSPENSION OF CERTAIN PROCEEDINGS WHILE LITIGATION IS PENDING].--If litigation is instituted to test the sufficiency or regularity of the votes of the shareholders in authorizing a reorganization, any proceedings under Sections 1304 and 1305 shall be suspended until final determination of such litigation. 1311 [CHAPTER INAPPLICABLE TO CERTAIN CLASSES OF SHARES].--This chapter, EXCEPT SECTION 1312, does not apply to classes of shares whose terms and provisions specifically set forth the amount to be paid in respect to such shares in the event of a reorganization or merger. (Last amended by Ch. 919, L. '88, eff. 1-1-89.) 1312 [VALIDITY OF REORGANIZATION OR SHORT FORM MERGER, ATTACK; SHAREHOLDERS' RIGHTS; BURDEN OF PROOF].--(a) No shareholder of a corporation who has a right under this chapter to demand payment of cash for the shares held by the shareholder shall have any right at law or in equity to attach the validity of the reorganization or short-form merger, or to have the reorganization or short-form merger set aside or rescinded, except in an action to test whether the number of shares required to authorize or approve the reorganization have been legally voted in favor thereof; but any holder of shares of a class whose terms and provisions specifically set forth the amount to be paid in respect to them in the event of a reorganization or short-form merger is entitled to payment in accordance with those terms and provisions OR, IF THE PRINCIPAL TERMS OF THE REORGANIZATION ARE APPROVED PURSUANT TO SUBDIVISION (B) OF SECTION 1202, IS ENTITLED TO PAYMENT IN ACCORDANCE WITH THE TERMS AND PROVISIONS OF THE APPROVED REORGANIZATION. (b) If one of the parties to a reorganization or short-form merger is directly or indirectly controlled by, or under common control with, another party to the reorganization or short-form merger, subdivision (a) shall not apply to any shareholder of such party who has not demanded payment of cash for such shareholder's shares pursuant to this chapter; but if the shareholder institutes any action to attach the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or rescinded, the shareholder shall not thereafter have any right to demand payment of cash for the shareholder's shares pursuant to this chapter. The court in any action attacking the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or rescinded shall not restrain or enjoin the consummation of the transaction except upon 10 days prior notice to the corporation and upon a determination by the court that clearly no other remedy will III-4 adequately protect the complaining shareholder or the class of shareholders of which such shareholder is a member. (c) If one of the parties to a reorganization or short-form merger is directly or indirectly controlled by, or under common control with, another party to the reorganization or short-form merger, in any action to attach the validity of the reorganization or short-form merger or to have the reorganization or short-form merger set aside or rescinded, (1) a party to a reorganization or short-form merger which controls another party to the reorganization or short-form merger shall have the burden of proving that the transaction is just and reasonable as to the shareholders of the controlled party, and (2) a person who controls two or more parties to a reorganization shall have the burden of proving that the transaction is just and reasonable as to the shareholders of any party so controlled. (Last amended by Ch. 919, L. '88, eff. 1-1-89.) III-5 Facsimiles of the Letter of Transmittal will be accepted. The Letter of Transmittal and certificates evidencing Shares and any other required documents should be sent or delivered by each shareholder or his broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of its addresses set forth below. THE DEPOSITARY FOR THE OFFER IS: HARRIS TRUST COMPANY OF NEW YORK BY MAIL: BY HAND/OVERNIGHT DELIVERY: WALL STREET STATION RECEIVE WINDOW P.O. BOX 1023 WALL STREET PLAZA NEW YORK, NEW YORK 10268-1023 88 PINE STREET, 19TH FLOOR NEW YORK, NEW YORK 10005
BY FACSIMILE: (212) 701-7636 CONFIRM BY TELEPHONE: (212) 701-7624 Questions or requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers listed below. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent. A shareholder may also contact brokers, dealers, commercial banks or trust companies for assistance concerning the Offer. THE INFORMATION AGENT FOR THE OFFER IS: [LOGO] WALL STREET PLAZA NEW YORK, NY 10005 BANKS AND BROKERS CALL COLLECT (212) 440-9800 OR ALL OTHERS CALL TOLL-FREE (800) 223-2064 THE DEALER MANAGER FOR THE OFFER IS: SALOMON SMITH BARNEY SEVEN WORLD TRADE CENTER NEW YORK, NY 10048 CALL TOLL-FREE (888) 746-7939 EX-99.2 7 FORM OF LETTER OF TRANSMITTAL LETTER OF TRANSMITTAL TO TENDER SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF PACIFIC SCIENTIFIC COMPANY AT $20.50 NET PER SHARE PURSUANT TO THE OFFER TO PURCHASE DATED DECEMBER 15, 1997 OF TORQUE CORPORATION a wholly owned subsidiary of KOLLMORGEN CORPORATION - ----------------------------------------------------------------------------- THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JANUARY 14, 1998, UNLESS THE OFFER IS EXTENDED. - -------------------------------------------------------------------------------- THE DEPOSITARY FOR THE OFFER IS: HARRIS TRUST COMPANY OF NEW YORK BY MAIL: BY HAND/OVERNIGHT DELIVERY: Wall Street Station Receive Window P.O. Box 1023 Wall Street Plaza New York, New York 10268-1023 88 Pine Street, 19th Floor New York, New York 10005
BY FACSIMILE: (212) 701-7636 CONFIRM BY TELEPHONE: (212) 701-7624 DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED. This Letter of Transmittal is to be completed by shareholders either if certificates evidencing Shares or, if applicable, Rights (as such terms are defined below) are to be forwarded herewith or if delivery of Shares or, if applicable, Rights, is to be made by book-entry transfer to the Depositary's account at The Depository Trust Company ("DTC") or the Philadelphia Depository Trust Company ("PDTC") (each a "Book-Entry Transfer Facility" and together, the "Book-Entry Transfer Facilities") pursuant to the book-entry transfer procedures described in Section 3 ("Procedures for Accepting the Offer and Tendering Shares") of the Offer to Purchase (as defined below). DELIVERY OF DOCUMENTS TO A BOOK-ENTRY TRANSFER FACILITY DOES NOT CONSTITUTE DELIVERY TO THE DEPOSITARY. As of the date of the Offer to Purchase, the Rights are evidenced by the certificates evidencing the Shares (the "Share Certificates") and do not trade separately. Accordingly, by tendering a Share Certificate evidencing Shares, a shareholder is automatically tendering a similar number of associated Rights. If, however, pursuant to the Rights Agreement (as defined below) or for any other reason, the Rights detach and separate certificates evidencing the Rights ("Rights Certificates") are issued, shareholders will be required to tender one Right for each share of Common Stock tendered in order to effect a valid tender of such share of Common Stock. Shareholders whose Share Certificates (or, if applicable, Rights Certificates) are not immediately available or who cannot deliver their Share Certificates (or, if applicable, Rights Certificates) and all other documents required hereby to the Depositary prior to the Expiration Date (as defined in Section 1 ("Terms of the Offer; Proration; Expiration Date") of the Offer to Purchase) or who cannot complete the procedure for delivery by book-entry transfer on a timely basis and who wish to tender their Shares, must do so pursuant to the guaranteed delivery procedure described in Section 3 ("Procedures for Accepting the Offer and Tendering Shares") of the Offer to Purchase. See Instruction 2. / / CHECK HERE IF SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER TO THE DEPOSITARY'S ACCOUNT AT ONE OF THE BOOK-ENTRY TRANSFER FACILITIES AND COMPLETE THE FOLLOWING: Name of Tendering Institution Check Box of Applicable Book-Entry Transfer Facility: (CHECK ONE) / / DTC / / PDTC
Account Number________________________________________ Transaction Code Number________________________________________ / / CHECK HERE IF SHARES ARE BEING TENDERED PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE THE FOLLOWING: Name(s) of Registered Holder(s) Window Ticket No. (if any) Date of Execution of Notice of Guaranteed Delivery Name of Institution which Guaranteed Delivery
If delivery is by book-entry transfer, check box of applicable Book-Entry Transfer Facility: (CHECK ONE) DTC / / / / PDTC
Account Number________________________________________ Transaction Code Number________________________________________
---------------------------------------------------------------------------------------------------- DESCRIPTION OF SHARES TENDERED ---------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(ES) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) SHARE CERTIFICATE(S) AND SHARE(S) TENDERED ON SHARE CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY) - ------------------------------------------------------------------------------------------------------ TOTAL NUMBER OF SHARES SHARE EVIDENCED BY NUMBER OF CERTIFICATE SHARE SHARES NUMBER(S)* CERTIFICATE(S)* TENDERED** ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- TOTAL SHARES - ------------------------------------------------------------------------------------------------------
* Need not be completed by shareholders delivering Shares by book-entry transfer. ** Unless otherwise indicated, it will be assumed that all Shares evidenced by each Share Certificate delivered to the Depositary are being tendered hereby. See Instruction 4. ----------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------- DESCRIPTION OF RIGHTS TENDERED* ---------------------------------------------------------------------------------------------------- NAME(S) AND ADDRESS(S) OF REGISTERED HOLDER(S) (PLEASE FILL IN, IF BLANK, EXACTLY AS NAME(S) APPEAR(S) ON RIGHTS CERTIFICATE(S) AND RIGHT(S) TENDERED RIGHTS CERTIFICATE(S)) (ATTACH ADDITIONAL LIST, IF NECESSARY) - ------------------------------------------------------------------------------------------------------ TOTAL NUMBER OF RIGHTS RIGHTS EVIDENCED BY NUMBER OF CERTIFICATE RIGHTS RIGHTS NUMBER(S)** CERTIFICATE(S)** TENDERED*** ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- ---------------------------------------------- TOTAL RIGHTS - ------------------------------------------------------------------------------------------------------
* Need not be completed unless separate Rights Certificates have been issued. ** Need not be completed by shareholders delivering Rights by book-entry transfer. *** Unless otherwise indicated, it will be assumed that all Rights evidenced by each Rights Certificate delivered to the Depositary are being tendered hereby. See Instruction 4. - -------------------------------------------------------------------------------- NOTE: SIGNATURES MUST BE PROVIDED BELOW PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY Ladies and Gentlemen: The undersigned hereby tenders to Torque Corporation, a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Kollmorgen Corporation, a New York corporation ("Parent"), the above-described shares of common stock, par value $1.00 per share (the "Common Stock"), of Pacific Scientific Company, a California corporation (the "Company"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares") issued pursuant to the Shareholder Protection Agreement, dated as of November 7, 1988, as amended (the "Rights Agreement"), between the Company and Manufacturers Hanover Trust Company, as successor Rights Agent (the "Rights Agent"), pursuant to Purchaser's offer to purchase 6,347,241 Shares, or such greater or lesser number of Shares that, together with Shares owned by Parent and Purchaser, would constitute a majority of the outstanding Shares on a fully diluted basis (such number of Shares being the "Minimum Number") at a price of $20.50 per Share, net to the seller in cash (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase, dated December 15, 1997 (the "Offer to Purchase"), receipt of which is hereby acknowledged, and in this Letter of Transmittal (which, as amended from time to time, and the Offer to Purchase as it may be amended from time to time, together constitute the "Offer"). The undersigned understands that Purchaser reserves the right to transfer or assign, in whole or from time to time in part, to one or more of its affiliates, the right to purchase all or any portion of the Shares tendered pursuant to the Offer. The undersigned understands that, unless the Rights are redeemed prior to the Expiration Date (as defined in the Offer to Purchase), holders of Shares will be required to tender one Right for each Share tendered in order to effect a valid tender of such Share. Unless and until the Separation Time (as defined in the Offer to Purchase) occurs, the Rights are represented by and transferred with the Shares. Accordingly, if the Separation Time does not occur prior to the Expiration Date, a tender of Shares will constitute a tender of the associated Rights. If a Separation Time has occurred, certificates representing a number of Rights ("Rights Certificates") equal to the number of shares of Common Stock being tendered must be delivered to the Depositary in order for such shares of Common Stock to be validly tendered. If a Separation Time has occurred, the undersigned agrees hereby to deliver Rights Certificates representing a number of Rights equal to the number of shares of Common Stock tendered herewith to the Depositary within three business days after the date such Rights Certificates are distributed. Purchaser reserves the right to require that the Depositary receive such Rights Certificates, or a Book-Entry Confirmation (as defined in this Offer to Purchase), if available, with respect to such Rights prior to accepting shares of Common Stock for payment. Payment for shares of Common Stock tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of, among other things, such Rights Certificates, if such certificates have been distributed to holders of Shares. Purchaser will not pay any additional consideration for the Rights tendered pursuant to the Offer. Subject to, and effective upon, acceptance for payment of the Shares tendered herewith, in accordance with the terms of and subject to the conditions of the Offer, the undersigned hereby sells, assigns and transfers to, or upon the order of, Purchaser, all right, title and interest in and to all the Shares that are being tendered hereby and all dividends, distributions (including, without limitation, distributions of additional Shares) and rights declared, paid or distributed in respect of such Shares on or after December 15, 1997, other than regular quarterly dividends on the Shares declared and paid at times consistent with past practice in an amount not in excess of $0.03 per Share (collectively, "Distributions") and irrevocably appoints the Depositary the true and lawful agent and attorney-in-fact of the undersigned with respect to such Shares and all Distributions, with full power of substitution (such power of attorney being deemed to be an irrevocable power coupled with an interest), to (i) deliver Share Certificates evidencing such Shares and all Distributions, or transfer ownership of such Shares and all Distributions on the account books maintained by a Book-Entry Transfer Facility, together, in either case, with all accompanying evidences of transfer and authenticity, to or upon the order of Purchaser, (ii) present such Shares and all Distributions for transfer on the books of the Company and (iii) receive all benefits and otherwise exercise all rights of beneficial ownership of such Shares and all Distributions, all in accordance with the terms of the Offer. The undersigned hereby irrevocably appoints James A. Eder, Robert J. Cobuzzi and Gideon Argov, and each of them, as the attorneys and proxies of the undersigned, each with full power of substitution, to vote in such manner as each such attorney and proxy or his substitute shall, in his sole discretion, deem proper and otherwise act (by written consent or otherwise) with respect to all the Shares tendered hereby which have been accepted for payment by Purchaser prior to the time of such vote or other action and all Shares and other securities issued in Distributions in respect of such Shares, which the undersigned is entitled to vote at any meeting of shareholders of the Company (whether annual or special and whether or not an adjourned or postponed meeting) or consent in lieu of any such meeting or otherwise. This proxy and power of attorney is coupled with an interest in the Shares tendered hereby, is irrevocable and is granted in consideration of, and is effective upon, the acceptance for payment of such Shares by Purchaser in accordance with the terms of the Offer. Such acceptance for payment shall revoke all other proxies and powers of attorney granted by the undersigned at any time with respect to such Shares (and all Shares and other securities issued in Distributions in respect of such Shares), and no subsequent proxy or power of attorney shall be given or written consent executed (and if given or executed, shall not be effective) by the undersigned with respect thereto. The undersigned understands that, in order for Shares to be deemed validly tendered, immediately upon Purchaser's acceptance of such Shares for payment, Purchaser must be able to exercise full voting and other rights with respect to such Shares, including, without limitation, voting at any meeting of the Company's shareholders then scheduled. The undersigned hereby represents and warrants that the undersigned has full power and authority to tender, sell, assign and transfer the Shares tendered hereby and all Distributions, that when such Shares are accepted for payment by Purchaser, Purchaser will acquire good, marketable and unencumbered title thereto and to all Distributions, free and clear of all liens, restrictions, charges and encumbrances, and that none of such Shares and Distributions will be subject to any adverse claim. The undersigned, upon request, shall execute and deliver all additional documents deemed by the Depositary or Purchaser to be necessary or desirable to complete the sale, assignment and transfer of the Shares tendered hereby and all Distributions. In addition, the undersigned shall remit and transfer promptly to the Depositary for the account of Purchaser all Distributions in respect of the Shares tendered hereby, accompanied by appropriate documentation of transfer, and pending such remittance and transfer or appropriate assurance thereof, Purchaser shall be entitled to all rights and privileges as owner of each such Distribution and may withhold the entire purchase price of the Shares tendered hereby, or deduct from such purchase price, the amount or value of such Distribution as determined by Purchaser in its sole discretion. No authority herein conferred or agreed to be conferred shall be affected by, and all such authority shall survive, the death or incapacity of the undersigned. All obligations of the undersigned hereunder shall be binding upon the heirs, personal representatives, successors and assigns of the undersigned. Except as stated in the Offer to Purchase, this tender is irrevocable. The undersigned understands that tenders of Shares pursuant to any one of the procedures described in Section 3 ("Procedures for Accepting the Offer and Tendering Shares") of the Offer to Purchase and in the instructions hereto will constitute the undersigned's acceptance of the terms and conditions of the Offer. Purchaser's acceptance of such Shares for payment will constitute a binding agreement between the undersigned and Purchaser upon the terms and subject to the conditions of the Offer. Unless otherwise indicated herein in the box entitled "Special Payment Instructions," please issue the check for the purchase price of all Shares purchased, and return all Share Certificates (or, if applicable, Rights Certificates) evidencing Shares not purchased or not tendered in the name(s) of the registered holder(s) appearing above under "Description of Shares Tendered." Similarly, unless otherwise indicated in the box entitled "Special Delivery Instructions," please mail the check for the purchase price of all Shares purchased and all Share Certificates (or, if applicable, Rights Certificates) evidencing Shares not tendered or not purchased (and accompanying documents, as appropriate) to the address(es) of the registered holder(s) appearing above under "Description of Shares Tendered." In the event that the boxes entitled "Special Payment Instructions" and "Special Delivery Instructions" are both completed, please issue the check for the purchase price of all Shares purchased and return all Share Certificates (or, if applicable, Rights Certificates) evidencing Shares not purchased or not tendered in the name(s) of, and mail such check and Share Certificates (or, if applicable, Rights Certificates) to, the person(s) so indicated. The undersigned recognizes that Purchaser has no obligation, pursuant to the Special Payment Instructions, to transfer any Shares from the name of the registered holder(s) thereof if Purchaser does not purchase any of the Shares tendered hereby. SPECIAL PAYMENT INSTRUCTIONS (See Instructions 1, 5, 6 and 7) To be completed ONLY if the check for the purchase price of Shares or Share Certificates (or, if applicable, Rights Certificates) evidencing Shares not tendered or not purchased are to be issued in the name of someone other than the undersigned. Issue / / check / / Share Certificates (or, if applicable, Rights Certificates) to: Name ______________________________________________________________________ PLEASE PRINT Address ____________________________________________________________________ ____________________________________________________________________________ (ZIP CODE) ------------------------------ TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER (SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE) / / Credit Shares (or Rights, if applicable) delivered by book-entry transfer and not purchased to the account set forth below: Check appropriate box: / / DTC / / PDTC Account Number: ____________________________________________________________ SPECIAL DELIVERY INSTRUCTIONS (See Instructions 1, 5, 6 and 7) To be completed ONLY if the check for the purchase price of Shares purchased or Share Certificates (or, if applicable, Rights Certificates) evidencing Shares not tendered or not purchased are to be mailed to someone other than the undersigned, or to the undersigned at an address other than that shown under "Description of Shares Tendered" (or, if applicable, "Description of Rights Tendered"). Mail / / check / / Share Certificates (or, if applicable, Rights Certificates) to: Name _______________________________________________________________________ PLEASE PRINT Address ____________________________________________________________________ ____________________________________________________________________________ (ZIP CODE) ------------------------------ IMPORTANT SHAREHOLDERS: SIGN HERE (PLEASE COMPLETE SUBSTITUTE FORM W-9 ON REVERSE) ------------------------------------------------------------ ------------------------------------------------------------ SIGNATURE(S) OF HOLDER(S) Dated: _______________________________, 199 __ (Must be signed by registered holder(s) exactly as name(s) appear(s) on Share Certificates (or, if applicable, Rights Certificates) or on a security position listing by (a) person(s) authorized to become (a) 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 or other person acting in a fiduciary or representative capacity, please provide the following information and see Instruction 5.) NAME(S) ____________________________________________________________________ (PLEASE PRINT) CAPACITY (full title) ______________________________________________________ ADDRESS ____________________________________________________________________ (INCLUDE ZIP CODE) AREA CODE AND TELEPHONE NO. ( )___________________________________________ TAX IDENTIFICATION OR SOCIAL SECURITY NO. __________________________________ (SEE SUBSTITUTE FORM W-9 ON REVERSE SIDE) GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5) FOR USE BY FINANCIAL INSTITUTIONS ONLY. FINANCIAL INSTITUTIONS: PLACE MEDALLION GUARANTEE IN SPACE BELOW. INSTRUCTIONS FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER 1. GUARANTEE OF SIGNATURES. All signatures on this Letter of Transmittal must be guaranteed by a firm which is a member of the Medallion Signature Guarantee Program, or by any other "eligible guarantor institution," as such term is defined in Rule 17Ad-5 promulgated under the Securities Exchange Act of 1934, as amended (each of the foregoing being referred to as an "Eligible Institution"), unless (i) this Letter of Transmittal is signed by the registered holder(s) of the Shares (which term, for purposes of this document, shall include any participant in a Book-Entry Transfer Facility whose name appears on a security position listing as the owner of Shares) tendered hereby and such holder(s) has (have) completed neither the box entitled "Special Payment Instructions" nor the box entitled "Special Delivery Instructions" on the reverse hereof or (ii) such Shares are tendered for the account of an Eligible Institution. See Instruction 5. 2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARE CERTIFICATES (OR, IF APPLICABLE, RIGHTS CERTIFICATES). This Letter of Transmittal is to be used either if Share Certificates (or, if applicable, Rights Certificates) are to be forwarded herewith or if Shares are to be delivered by book-entry transfer pursuant to the procedure set forth in Section 3 ("Procedures for Accepting the Offer and Tendering Shares") of the Offer to Purchase. Share Certificates evidencing all physically tendered Shares, or a confirmation of a book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility of all Shares delivered by book-entry transfer, as well as a properly completed and duly executed Letter of Transmittal (or facsimile thereof), with any required signature guarantees, or an Agent's Message (as defined below), in the case of a book-entry delivery, and any other documents required by this Letter of Transmittal, must be received by the Depositary at one of its addresses set forth on the reverse hereof prior to the Expiration Date (as defined in Section 1 ("Terms of the Offer; Proration; Expiration Date") of the Offer to Purchase). If a Separation Time (as defined in the Offer to Purchase) has occurred, Rights Certificates, or Book-Entry Confirmation of a transfer of Rights into the Depositary's account at a Book-Entry Transfer Facility, if available (together with, if Rights are forwarded separately from Shares, a properly completed and duly executed Letter of Transmittal (or a facsimile thereof) with any required signature guarantee, or an Agent's Message in the case of a book-entry delivery, and any other documents required by this Letter of Transmittal), must be received by the Depositary at one of its addresses set forth herein prior to the Expiration Date or, if later, within three business days after the date on which such Rights Certificates are distributed. If Share Certificates (or, if applicable, Rights Certificates) are forwarded to the Depositary in multiple deliveries, a properly completed and duly executed Letter of Transmittal must accompany each such delivery. Shareholders whose Share Certificates (or, if applicable, Rights Certificates) are not immediately available, who cannot deliver their Share Certificates (or, if applicable, Rights Certificates) and all other required documents to the Depositary prior to the Expiration Date or who cannot complete the procedure for delivery by book-entry transfer on a timely basis, may tender their Shares pursuant to the guaranteed delivery procedure described in Section 3 ("Procedures for Accepting the Offer and Tendering Shares") of the Offer to Purchase. Pursuant to such procedure: (i) such tender must be made by or through an Eligible Institution; (ii) a properly completed and duly executed Notice of Guaranteed Delivery, substantially in the form made available by Purchaser, must be received by the Depositary prior to the Expiration Date; and (iii) the Share Certificates (or, if applicable, Rights Certificates) evidencing all physically delivered Shares in proper form for transfer by delivery, or a confirmation of a book-entry transfer into the Depositary's account at a Book-Entry Transfer Facility of all Shares delivered by book-entry transfer, in each case together with a Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message, and any other documents required by this Letter of Transmittal, must be received by the Depositary within (A) three New York Stock Exchange, Inc. ("NYSE") trading days after the date of execution of such Notice of Guaranteed Delivery, all as described in Section 3 of the Offer to Purchase, or (B) three business days after Rights Certificates are distributed to holders of Shares, as applicable. The method of delivery of this Letter of Transmittal, Share Certificates (or, if applicable, Rights Certificates) and all other required documents, including delivery through any Book-Entry Transfer Facility, is at the option and risk of the tendering shareholder, and the delivery will be deemed made only when actually received by the Depositary. If delivery is by mail, registered mail with return receipt requested, properly insured, is recommended. In all cases, sufficient time should be allowed to ensure timely delivery. No alternative, conditional or contingent tenders will be accepted and no fractional Shares will be purchased. By execution of this Letter of Transmittal (or a facsimile hereof), all tendering shareholders waive any right to receive any notice of the acceptance of their Shares for payment. 3. INADEQUATE SPACE. If the space provided herein under "Description of Shares Tendered" is inadequate, the Share Certificate (or, if applicable, Rights Certificate) numbers, the number of Shares evidenced by such Share Certificates (or, if applicable, the number of Rights evidenced by such Rights Certificates) and the number of Shares (or, if applicable, Rights) tendered should be listed on a separate signed schedule and attached hereto. 4. PARTIAL TENDERS (NOT APPLICABLE TO SHAREHOLDERS WHO TENDER BY BOOK-ENTRY TRANSFER). If fewer than all the Shares evidenced by any Share Certificate (or, if applicable, fewer than all the Rights evidenced by any Rights Certificate) delivered to the Depositary herewith are to be tendered hereby, fill in the number of Shares (or, if applicable, Rights) which are to be tendered in the box entitled "Number of Shares Tendered" (or, if applicable, "Number of Rights Tendered"). In such cases, new Share Certificates (or, if applicable, the remainder of Rights that were evidenced by the Rights Certificates) evidencing the remainder of the Shares that were evidenced by the Share Certificates (or, if applicable, Rights Certificates) delivered to the Depositary herewith will be sent to the person(s) signing this Letter of Transmittal, unless otherwise provided in the box entitled "Special Delivery Instructions" on the reverse hereof, as soon as practicable after the expiration or termination of the Offer. All Shares (or, if applicable, Rights) evidenced by Share Certificates (or, if applicable, Rights Certificates) delivered to the Depositary will be deemed to have been tendered unless otherwise indicated. 5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, the signature(s) must correspond with the name(s) as written on the face of the Share Certificates (or, if applicable, Rights Certificates) evidencing such Shares without alteration, enlargement or any other change whatsoever. If any Share tendered hereby is owned of record by two or more persons, all such persons must sign this Letter of Transmittal. If any of the Shares tendered hereby are registered in the names of different holders, it will be necessary to complete, sign and submit as many separate Letters of Transmittal as there are different registrations of such Shares. If this Letter of Transmittal is signed by the registered holder(s) of the Shares tendered hereby, no endorsements of Share Certificates (or, if applicable, Rights Certificates) or separate stock powers are required, unless payment is to be made to, or Share Certificates (or, if applicable, Rights Certificates) evidencing Shares not tendered or not purchased are to be issued in the name of, a person other than the registered holder(s), in which case, the Share Certificates (or, if applicable Rights Certificates) evidencing the Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such Share Certificates (or, if applicable Rights Certificates). Signatures on such Share Certificates (or, if applicable Rights Certificates) and stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal is signed by a person other than the registered holder(s) of the Shares tendered hereby, the Share Certificates (or, if applicable, Rights Certificate(s)) evidencing the Shares tendered hereby must be endorsed or accompanied by appropriate stock powers, in either case signed exactly as the name(s) of the registered holder(s) appear(s) on such Share Certificates (or, if applicable Rights Certificates). Signatures on such Share Certificates (or, if applicable Rights Certificates) and stock powers must be guaranteed by an Eligible Institution. If this Letter of Transmittal or any Share Certificate (or, if applicable, Rights Certificate) or stock power is signed by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a corporation or other person acting in a fiduciary or representative capacity, such person should so indicate when signing, and proper evidence satisfactory to Purchaser of such person's authority so to act must be submitted. 6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction 6, Purchaser will pay all stock transfer taxes with respect to the sale and transfer of any Shares to it or its order pursuant to the Offer. If, however, payment of the purchase price of any Shares purchased is to be made to, or Share Certificates (or, if applicable Rights Certificates) evidencing Shares not tendered or not purchased are to be issued in the name of, a person other than the registered holder(s), the amount of any stock transfer taxes (whether imposed on the registered holder(s), such other person or otherwise) payable on account of the transfer to such other person will be deducted from the purchase price of such Shares purchased, unless evidence satisfactory to Purchaser of the payment of such taxes, or exemption therefrom, is submitted. Except as provided in this Instruction 6, it will not be necessary for transfer tax stamps to be affixed to the Share Certificates (or, if applicable, Rights Certificates) evidencing the Shares tendered hereby. 7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase price of any Shares tendered hereby is to be issued, or Share Certificates (or, if applicable, Rights Certificates) evidencing Shares not tendered or not purchased are to be issued, in the name of a person other than the person(s) signing this Letter of Transmittal or if such check or any such Share Certificate (or, if applicable, Rights Certificate) is to be sent to someone other than the person(s) signing this Letter of Transmittal or to the person(s) signing this Letter of Transmittal but at an address other than that shown in the box entitled "Description of Shares Tendered" (or, if applicable, "Number of Rights Tendered") on the reverse hereof, the appropriate boxes on the reverse of this Letter of Transmittal must be completed. Shareholders delivering Shares tendered hereby by book-entry transfer may request that Shares not purchased be credited to such account maintained at a Book-Entry Transfer Facility as such shareholder may designate in the box entitled "Special Payment Instructions" on the reverse hereof. 8. QUESTIONS AND REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses or telephone numbers set forth below. Additional copies of the Offer to Purchase, this Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent or from brokers, dealers, commercial banks or trust companies. 9. SUBSTITUTE FORM W-9. Each tendering shareholder is required to provide the Depositary with a correct taxpayer identification number ("TIN") and other information on the Substitute Form W-9 which is provided under "Important Tax Information" below, and to certify whether such shareholder is subject to backup withholding of federal income tax. If a tendering shareholder has been notified by the Internal Revenue Service that such shareholder is subject to backup withholding, such shareholder must cross out item (2) of the Certification box of the Substitute Form W-9, unless such shareholder has since been notified by the Internal Revenue Service that such shareholder is no longer subject to backup withholding. Failure to provide the correct information on the Substitute Form W-9 may subject the tendering shareholder to a $50 penalty imposed by the Internal Revenue Service and 31% federal income tax backup withholding on the payment of the purchase price of all Shares purchased from such shareholder. If the tendering shareholder has not been issued a TIN and has applied for one or intends to apply for one in the near future, such shareholder should write "Applied For" in the space provided for the TIN in Part I of the Substitute Form W-9, and sign and date the Substitute Form W-9. If "Applied For" is written in Part I and the Depositary is not provided with a TIN by the time of payment, the Depositary will withhold 31% on all payments of the purchase price to such shareholder until a TIN is provided to the Depositary. 10. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Share Certificate(s) or Rights Certificate(s) (has) (have) been lost, destroyed or stolen, the shareholder should promptly notify the Depositary. The shareholder will then be instructed as to the steps that must be taken in order to replace the certificate(s). This Letter of Transmittal and related documents cannot be processed until the procedures for replacing lost or destroyed certificates have been followed. IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE HEREOF, PROPERLY COMPLETED AND DULY EXECUTED (TOGETHER WITH ANY REQUIRED SIGNATURE GUARANTEES AND SHARE CERTIFICATES (OR, IF APPLICABLE, RIGHTS CERTIFICATES) OR CONFIRMATION OF BOOK-ENTRY TRANSFER AND ALL OTHER REQUIRED DOCUMENTS) OR A PROPERLY COMPLETED AND DULY EXECUTED NOTICE OF GUARANTEED DELIVERY MUST BE RECEIVED BY THE DEPOSITARY PRIOR TO THE EXPIRATION DATE (AS DEFINED IN THE OFFER TO PURCHASE). IMPORTANT TAX INFORMATION Under the federal income tax law, a shareholder whose tendered Shares are accepted for payment is required by law to provide the Depositary (as payer) with such shareholder's correct TIN on Substitute Form W-9 below. If such shareholder is an individual, the TIN is such shareholder's social security number. If the Depositary is not provided with the correct TIN, the shareholder may be subject to a $50 penalty imposed by the Internal Revenue Service. In addition, payments that are made to such shareholder with respect to Shares purchased pursuant to the Offer may be subject to backup withholding of 31%. In addition, if a shareholder makes a false statement that results in no imposition of backup withholding, and there was no reasonable basis for such statement, a $500 penalty may also be imposed by the Internal Revenue Service. Certain shareholders (including, among others, corporations and certain foreign individuals) are not subject to these backup withholding and reporting requirements. In order for a foreign individual to qualify as an exempt recipient, such individual must submit a properly completed Form W-8 (or substitute form), signed under penalties of perjury, attesting to such individual's exempt status. A Form W-8 can be obtained from the Depositary. See the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional instructions. A shareholder should consult his or her tax advisor as to such shareholder's qualification for exemption from backup withholding and the procedure for obtaining such exemption. If backup withholding applies, the Depositary is required to withhold 31% of any payments made to the shareholder. Backup withholding is not an additional tax. Rather, the tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund may be obtained, provided that proper information is submitted to the Internal Revenue Service. PURPOSE OF SUBSTITUTE FORM W-9 To prevent backup withholding on payments that are made to a shareholder with respect to Shares purchased pursuant to the Offer, the shareholder is required to notify the Depositary of such shareholder's correct TIN by completing the form below certifying that the TIN provided on Substitute Form W-9 is correct (or that such shareholder is awaiting a TIN), and that (i) such shareholder has not been notified by the Internal Revenue Service that he is subject to backup withholding as a result of a failure to report all interest or dividends or (ii) the Internal Revenue Service has notified such shareholder that such shareholder is no longer subject to backup withholding. WHAT NUMBER TO GIVE THE DEPOSITARY The shareholder is required to give the Depositary the social security number or employer identification number of the record holder of the Shares tendered hereby. If the Shares are in more than one name or are not in the name of the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9" for additional guidance on which number to report. If the tendering shareholder has not been issued a TIN and has applied for a number or intends to apply for a number in the near future, the shareholder should write "Applied For" in the space provided for the TIN in Part I, and sign and date the Substitute Form W-9. If "Applied For" is written in Part I and the Depositary is not provided with a TIN by the time of payment, the Depositary will withhold 31% of all payments of the purchase price to such shareholder until a TIN is provided to the Depositary. PAYER'S NAME: Harris Trust Company of New York SUBSTITUTE PART I--Taxpayer Identification Number-- FORM W-9 For all accounts, enter taxpayer Social Security Number Department of the Treasury identification number in the box at OR Internal Revenue Service right. (For most individuals, this is your social security number. If you do Employer Identification Number not have a number, see Obtaining a (If awaiting TIN write Number in the enclosed GUIDELINES). "Applied For") Certify by signing and dating below. Note: If the account is in more than one name, see the chart in the enclosed GUIDELINES to determine which social security or employer identification number to give the payer. Payer s Request for Taxpayer PART II--For Payees Exempt From Backup Withholding, see the enclosed GUIDELINES Identification number (TIN) and complete as instructed therein. 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 (the "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. CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have been notified by the IRS that you are subject to backup withholding because of underreporting interest or dividends on your tax return. However, if after being notified by the IRS that you were subject to backup withholding you received another notification from the IRS that you are no longer subject to backup withholding, do not cross out item (2). (Also see instructions in the enclosed GUIDELINES.) SIGNATURE DATE , 199
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING OF 31%. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS. YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU INDICATED "APPLIED FOR" IN PLACE OF A TIN IN SUBSTITUTE FORM W-9. CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER I CERTIFY UNDER PENALTIES OF PERJURY THAT A TAXPAYER IDENTIFICATION NUMBER HAS NOT BEEN ISSUED TO ME, AND EITHER (1) I HAVE MAILED OR DELIVERED AN APPLICATION TO RECEIVE A TAXPAYER IDENTIFICATION NUMBER TO THE APPROPRIATE INTERNAL REVENUE SERVICE CENTER OR SOCIAL SECURITY ADMINISTRATION OFFICE, OR (2) I INTEND TO MAIL OR DELIVER AN APPLICATION IN THE NEAR FUTURE. I UNDERSTAND THAT IF I DO NOT PROVIDE A TAXPAYER IDENTIFICATION NUMBER BY THE TIME OF PAYMENT, 31% OF ALL REPORTABLE PAYMENTS MADE TO ME WILL BE WITHHELD, BUT THAT SUCH AMOUNTS MAY BE REFUNDED TO ME IF I THEN PROVIDE A TAXPAYER IDENTIFICATION NUMBER WITHIN SIXTY (60) DAYS. SIGNATURE DATE , 199
Facsimiles of this Letter of Transmittal, properly completed and duly signed, will be accepted. The Letter of Transmittal, certificates evidencing Shares and any other required documents should be sent or delivered by each shareholder or such shareholder's broker, dealer, commercial bank, trust company or other nominee to the Depositary at one of its addresses set forth below. THE DEPOSITARY FOR THE OFFER IS: HARRIS TRUST COMPANY OF NEW YORK BY MAIL: BY HAND/OVERNIGHT DELIVERY: Wall Street Station Receive Window P.O. Box 1023 Wall Street Plaza New York, New York 10268-1023 88 Pine Street, 19th Floor New York, New York 10005
BY FACSIMILE: (212) 701-7636 CONFIRM BY TELEPHONE: (212) 701-7624 Questions or requests for assistance may be directed to the Information Agent or the Dealer Manager at their respective addresses and telephone numbers listed below. Additional copies of this Offer to Purchase, the Letter of Transmittal and the Notice of Guaranteed Delivery may be obtained from the Information Agent. A shareholder may also contact brokers, dealers, commercial banks or trust companies for assistance concerning the Offer. THE INFORMATION AGENT FOR THE OFFER IS: [LOGO] WALL STREET PLAZA NEW YORK, NEW YORK 10005 BANKS AND BROKERS CALL COLLECT (212) 440-9800 ALL OTHERS CALL TOLL-FREE: (800) 223-2064 THE DEALER MANAGER FOR THE OFFER IS: SALOMON SMITH BARNEY SEVEN WORLD TRADE CENTER NEW YORK, NEW YORK 10048 TEL: (888) 746-7939 EX-99.3 8 FORM OF NOTICE OF GUARANTEED DELIVERY NOTICE OF GUARANTEED DELIVERY FOR TENDER OF SHARES OF COMMON STOCK (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) OF PACIFIC SCIENTIFIC COMPANY (Not to be Used for Signature Guarantees) This Notice of Guaranteed Delivery, or one substantially in the form hereof, must be used to accept the Offer (as defined below) (i) if certificates ("Share Certificates") evidencing shares of common stock, par value $1.00 per share (the "Common Stock"), of Pacific Scientific Company, a California corporation (the "Company"), including the associated preferred stock purchase rights (together with the Common Stock, the "Shares"), are not immediately available, (ii) if certificates evidencing the Shares and all other required documents cannot be delivered to Harris Trust Company of New York, as Depositary (the "Depositary"), prior to the Expiration Date (as defined in Section 1 ("Terms of the Offer; Proration; Expiration Date") of the Offer to Purchase (as defined below)) or (iii) if the procedure for delivery by book-entry transfer cannot be completed on a timely basis. This Notice of Guaranteed Delivery may be delivered by hand or mail or transmitted by telegram or facsimile transmission to the Depositary. See Section 3 ("Procedures for Accepting the Offer and Tendering Shares") of the Offer to Purchase. THE DEPOSITARY FOR THE OFFER IS: HARRIS TRUST COMPANY OF NEW YORK BY MAIL: BY HAND/OVERNIGHT DELIVERY: Receive Window Wall Street Station Wall Street Plaza P.O. Box 1023 88 Pine Street, 19th Floor New York, New York 10268-1023 New York, New York 10005
BY FACSIMILE: (212) 701-7636 CONFIRM BY TELEPHONE: (212) 701-7624 DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TRANSMISSION OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY. This form is not to be used to guarantee signatures. If a signature on a Letter of Transmittal is required to be guaranteed by an "Eligible Institution" under the instructions thereto, such signature guarantee must appear in the applicable space provided in the signature box on the Letter of Transmittal. Ladies and Gentlemen: The undersigned hereby tenders to Torque Corporation, a Delaware corporation and a wholly owned subsidiary of Parent Corporation, a New York corporation, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated December 15, 1997 (the "Offer to Purchase"), and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"), receipt of each of which is hereby acknowledged, the number of Shares specified below pursuant to the guaranteed delivery procedure described in Section 3 ("Procedures for Accepting the Offer and Tendering Shares") of the Offer to Purchase. Number of Shares (including the associated Preferred Stock Purchase Rights): - -------------------------------------------- -------------------------------------------- -------------------------------------------- Signature(s) of Holder(s) Share Certificate Nos. (if available): Dated: , 199 - -------------------------------------------- Name(s) of Holders: - -------------------------------------------- -------------------------------------------- -------------------------------------------- Please Type or Print Check one box if Shares will be delivered by book-entry transfer: -------------------------------------------- Address / / The Depository Trust Company -------------------------------------------- Zip Code / / Philadelphia Depository Trust Company -------------------------------------------- Area Code and Telephone No. Account No.
2 GUARANTEE (NOT TO BE USED FOR SIGNATURE GUARANTEE) The undersigned, a firm which is a member of the Medallion Signature Guarantee Program (or is an "eligible guarantor institution", as such term is defined in Rule 17Ad-5 promulgated under the Securities Exchange Act of 1934, as amended), guarantees to deliver to the Depositary, at one of its addresses set forth above, either certificates evidencing the Shares tendered hereby, in proper form for transfer, or confirmation of book-entry transfer of such Shares into the Depositary's account at The Depository Trust Company or the Philadelphia Depository Trust Company, in each case with delivery of a Letter of Transmittal (or facsimile thereof) properly completed and duly executed with any required signature guarantees, or an Agent's Message (as defined in the Offer to Purchase) in the case of a book-entry delivery, and any other required documents, all within three New York Stock Exchange, Inc. trading days of the date hereof. NAME OF FIRM AUTHORIZED SIGNATURE ADDRESS TITLE Name: ZIP CODE PLEASE TYPE OR PRINT Dated: , 199 AREA CODE AND TELEPHONE NO.
DO NOT SEND CERTIFICATES EVIDENCING SHARES WITH THIS NOTICE. CERTIFICATES EVIDENCING SHARES SHOULD BE SENT WITH YOUR LETTER OF TRANSMITTAL. 3 EX-99.4 9 BROKER DEALER LETTER SALOMON SMITH BARNEY Seven World Trade Center New York, New York 10048 OFFER TO PURCHASE FOR CASH 6,347,241 SHARES OF COMMON STOCK (including the associated Preferred Stock Purchase Rights) of PACIFIC SCIENTIFIC COMPANY at $20.50 NET PER SHARE by TORQUE CORPORATION a wholly owned subsidiary of KOLLMORGEN CORPORATION THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JANUARY 14, 1998, UNLESS THE OFFER IS EXTENDED. December 15, 1997 To Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees: We have been appointed by Torque Corporation, a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Kollmorgen Corporation, a New York corporation ("Parent"), to act as the Dealer Manager in connection with Purchaser's offer to purchase 6,347,241 shares of common stock, par value $1.00 per share (the "Common Stock"), of Pacific Scientific Company, a California corporation (the "Company"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), or such greater or lesser number of Shares that, together with the Shares owned by Parent and Purchaser, would constitute a majority of the outstanding Shares on a fully diluted basis (such number of Shares being the "Minimum Number") at a price of $20.50 per Share, net to the seller in cash, upon the terms and subject to the conditions set forth in Purchaser's Offer to Purchase, dated December 15, 1997 (the "Offer to Purchase"), and in the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer") enclosed herewith. Please furnish copies of the enclosed materials to those of your clients for whose accounts you hold Shares registered in your name or in the name of your nominee. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THE MINIMUM NUMBER OF SHARES, (2) THE EXPIRATION OR TERMINATION OF ANY APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, (3) PARENT AND PURCHASER HAVING OBTAINED, PRIOR TO THE EXPIRATION OF THE OFFER, ON TERMS SATISFACTORY TO PARENT IN ITS SOLE DISCRETION, SUFFICIENT FINANCING TO ENABLE CONSUMMATION OF THE OFFER AND THE PROPOSED MERGER DESCRIBED BELOW, (4) PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE RIGHTS HAVE BEEN REDEEMED OR INVALIDATED OR ARE OTHERWISE INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER, (5) PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE OFFER AND THE PROPOSED MERGER HAVE BEEN APPROVED FOR PURPOSES OF ARTICLE FIFTH OF THE COMPANY'S ARTICLES OF INCORPORATION (IF NECESSARY) OR ARTICLE FIFTH OF THE COMPANY'S ARTICLES OF INCORPORATION HAS BEEN INVALIDATED OR IS OTHERWISE SATISFIED WITH RESPECT TO THE OFFER AND PROPOSED MERGER AND (6) THE APPROVAL BY PARENT'S SHAREHOLDERS OF THE ISSUANCE OF COMMON STOCK, PAR VALUE $2.50 PER SHARE, OF PARENT IN THE PROPOSED MERGER. THE OFFER IS ALSO SUBJECT TO THE OTHER TERMS AND CONDITIONS WHICH ARE CONTAINED IN THE OFFER TO PURCHASE. If more than the Minimum Number of Shares shall be validly tendered and not withdrawn prior to the Expiration Date (as defined in the Offer to Purchase), Purchaser will, upon the terms and subject to the conditions of the Offer, purchase the Minimum Number of Shares on a pro rata basis (with adjustments to avoid purchases of fractional Shares) based upon the number of Shares validly tendered and not withdrawn prior to the Expiration Date. As of the date of the Offer to Purchase, the Rights are evidenced by the Share Certificates (as defined below) evidencing the Shares and do not trade separately. Accordingly, by tendering a Share Certificate evidencing Shares, a shareholder is automatically tendering a similar number of associated Rights. If, however, the Rights detach and separate Rights Certificates (as defined below) are issued, stockholders will be required to tender one Right for each share of Common Stock tendered in order to effect a valid tender of such share of Common Stock. Enclosed for your information and use are copies of the following documents: 1. Offer to Purchase, dated December 15, 1997; 2. Letter of Transmittal to be used by holders of Shares in accepting the Offer and tendering Shares (including Rights); 3. Notice of Guaranteed Delivery to be used to accept the Offer if the Shares and all other required documents are not immediately available or cannot be delivered to Harris Trust Company of New York (the "Depositary") by the Expiration Date or if the procedure for book-entry transfer cannot be completed by the Expiration Date; 4. A letter which may be sent to your clients for whose accounts you hold Shares registered in your name or in the name of your nominee, with space provided for obtaining such clients' instructions with regard to the Offer; 5. Guidelines for Certification of Taxpayer Identification Number on Substitute Form W-9; and 6. Return envelope addressed to the Depositary. WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE THAT THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JANUARY 14, 1998, UNLESS THE OFFER IS EXTENDED. In all cases, payment for Shares accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Shares (the "Share Certificates") and, if the Rights are at such time separately traded, certificates representing the Rights associated with shares of the Common Stock (the "Rights Certificates") (or timely confirmation of a book-entry transfer of such Shares into the Depositary's account at one of the Book-Entry Transfer Facilities (as defined in the Offer to Purchase)), a Letter of Transmittal (or facsimile thereof) properly completed and duly executed, with any required signature guarantees or, in the case of a book-entry transfer, an Agent's Message (as defined in the Offer to Purchase), and any other required documents. If holders of Shares wish to tender pursuant to the Offer, but cannot deliver their certificates or other required documents or cannot comply with the procedure for book-entry transfer prior to the expiration of the Offer, a tender may be effected by following the guaranteed delivery procedure described in Section 3 ("Procedures for Accepting the Offer and Tendering Shares") of the Offer to Purchase. 2 Purchaser will not pay any fees or commissions to any broker, dealer or other person (other than the Dealer Manager, the Depositary and the Information Agent as described in the Offer to Purchase) in connection with the solicitation of tenders of Shares pursuant to the Offer. However, Purchaser will reimburse you for customary mailing and handling expenses incurred by you in forwarding any of the enclosed materials to your clients. Purchaser will pay or cause to be paid any stock transfer taxes payable with respect to the transfer of Shares to it, except as otherwise provided in Instruction 6 of the Letter of Transmittal. Any inquiries you may have with respect to the Offer should be addressed to Salomon Smith Barney or Georgeson & Company Inc. (the "Information Agent") at their respective addresses and telephone numbers set forth on the back cover page of the Offer to Purchase. Additional copies of the enclosed material may be obtained from the Information Agent, at the address and telephone number set forth on the back cover page of the Offer to Purchase. Very truly yours, SALOMON SMITH BARNEY NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL RENDER YOU OR ANY OTHER PERSON THE AGENT OF PARENT, PURCHASER, THE COMPANY, THE DEALER MANAGER, THE INFORMATION AGENT OR THE DEPOSITARY, OR OF ANY AFFILIATE OF ANY OF THEM, OR AUTHORIZE YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR TO MAKE ANY STATEMENT ON BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN. 3 EX-99.5 10 CLIENT LETTER OFFER TO PURCHASE FOR CASH 6,347,241 SHARES OF COMMON STOCK (including the associated Preferred Stock Purchase Rights) of PACIFIC SCIENTIFIC COMPANY at $20.50 NET PER SHARE BY TORQUE CORPORATION a wholly owned subsidiary of KOLLMORGEN CORPORATION THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JANUARY 14, 1998, UNLESS THE OFFER IS EXTENDED. December 15, 1997 To Our Clients: Enclosed for your consideration are an Offer to Purchase, dated December 15, 1997 (the "Offer to Purchase"), and a related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer") in connection with the offer by Torque Corporation, a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Kollmorgen Corporation, a New York corporation ("Parent"), to purchase 6,347,241 shares of common stock, par value $1.00 per share (the "Common Stock"), of Pacific Scientific Company, a California corporation (the "Company"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares"), or such greater or lesser number of Shares that, together with the Shares owned by Parent and Purchaser, would constitute a majority of the outstanding Shares on a fully diluted basis (such number of Shares being the "Minimum Number") at a price of $20.50 per Share, net to the seller in cash, upon the terms and subject to the conditions contained in the Offer. We are the holder of record of Shares held by us for your account. A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND PURSUANT TO YOUR INSTRUCTIONS. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT. We request instructions as to whether you wish to have us tender on your behalf any or all of the Shares held by us for your account, upon the terms and subject to the conditions set forth in the Offer. Your attention is invited to the following: 1. The tender price is $20.50 per Share, net to the seller in cash. 2. The Offer is being made for the Minimum Number of Shares. If more than the Minimum Number of Shares is validly tendered and not withdrawn prior to the Expiration Date (as defined in the Offer to Purchase), Purchaser will, upon the terms and subject to the conditions of the Offer, purchase the Minimum Number of Shares on a pro rata basis (with adjustments to avoid purchases of fractional Shares) based upon the number of Shares validly tendered and not withdrawn prior to the Expiration Date. 3. THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JANUARY 14, 1998, UNLESS THE OFFER IS EXTENDED. 4. The Offer is conditioned upon, among other things, (1) there being validly tendered and not withdrawn prior to the expiration of the Offer at least the Minimum Number of Shares, (2) the expiration or termination of any applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (3) Parent and Purchaser having obtained, prior to the expiration of the Offer, on terms satisfactory to Parent in its sole discretion, sufficient financing to enable consummation of the Offer and the Proposed Merger (as defined in the Offer to Purchase), (4) Purchaser being satisfied, in its sole discretion, that the Rights have been redeemed or invalidated or are otherwise inapplicable to the Offer and the Proposed Merger, (5) Purchaser being satisfied, in its sole discretion, that the Offer and the Proposed Merger have been approved for purposes of Article Fifth of the Company's Articles of Incorporation or Article Fifth of the Company's Articles of Incorporation (if necessary) has been invalidated or is otherwise satisfied with respect to the Offer and Proposed Merger and (6) the approval by Parent's shareholders of the issuance of common stock, par value $2.50 per share, of Parent in the Proposed Merger. The Offer is also subject to the other terms and conditions which are contained in the Offer to Purchase. 5. Tendering shareholders will not be obligated to pay brokerage fees or commissions or, except as otherwise provided in Instruction 6 of the Letter of Transmittal, stock transfer taxes with respect to the purchase of Shares by Purchaser pursuant to the Offer. 6. As of the date of the Offer to Purchase, the Rights are evidenced by the certificates evidencing the Shares (the "Share Certificates") and do not trade separately. Accordingly, by tendering a Share Certificate evidencing Shares, a shareholder is automatically tendering a similar number of associated Rights. If, however, the Rights detach and separate certificates representing the Rights are issued, shareholders will be required to tender one Right for each share of Common Stock tendered in order to effect a valid tender of such share of Common Stock. If you wish to have us tender any or all of your Shares, please so instruct us by completing, executing and returning to us the instruction form contained in this letter. An envelope in which to return your instructions to us is enclosed. If you authorize the tender of your Shares, all such Shares will be tendered unless otherwise specified in your instructions. YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US WITH AMPLE TIME TO PERMIT US TO SUBMIT A TENDER ON YOUR BEHALF PRIOR TO THE EXPIRATION OF THE OFFER. The Offer is made solely by the Offer to Purchase and the related Letter of Transmittal and is being made to all holders of Shares. Purchaser is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will make a good faith effort to comply with such state statute. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the Offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by Salomon Smith Barney or one or more registered brokers or dealers licensed under the laws of such jurisdiction. 2 INSTRUCTIONS WITH RESPECT TO THE OFFER TO PURCHASE FOR CASH SHARES OF COMMON STOCK OF PACIFIC SCIENTIFIC COMPANY The undersigned acknowledge(s) receipt of your letter and the enclosed Offer to Purchase, dated December 15, 1997, and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer") in connection with the offer by Torque Corporation, a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Kollmorgen Corporation, a New York corporation ("Parent"), to purchase 6,347,241 shares of common stock, par value $1.00 per share (the "Common Stock"), of Pacific Scientific Company, a California corporation (the "Company"), including the associated preferred stock purchase rights (together with the Common Stock, the "Shares"), or such greater or lesser number of Shares that, together with the Shares owned by Parent and Purchaser, would constitute a majority of the outstanding Shares on a fully diluted basis, at a price of $20.50 per Share, net to the seller in cash. This form will instruct you to tender the number of Shares indicated below (or, if no number is indicated below, all Shares) that are held by you for the account of the undersigned, upon the terms and subject to the conditions set forth in the Offer.
NUMBER OF SHARES TO BE TENDERED:* SIGN HERE SHARES (INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS) -------------------------------------------- -------------------------------------------- SIGNATURE(S) Dated: , 199 ------------------------------------------- ------------------------------------------- PLEASE TYPE OR PRINT NAME(S) -------------------------------------------- -------------------------------------------- PLEASE TYPE OR PRINT ADDRESS -------------------------------------------- AREA CODE AND TELEPHONE NUMBER -------------------------------------------- TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER
- ------------------------ * Unless otherwise indicated, it will be assumed that all Shares held by us for your account are to be tendered. 3 EX-99.6 11 FORM OF GUIDELINES ON FORM W-9 GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--Social Security numbers have nine digits separated by two hyphens: i.e. 000-00-0000. Employer identification numbers have nine digits separated by only one hyphen: i.e. 00-0000000. The table below will help determine the number to give the payer.
- ----------------------------------------------------- GIVE THE TAXPAYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - ----------------------------------------------------- 1. An individual's The individual account 2. Two or more The actual owner of individuals (joint the account or, if account) combined funds, the first individual on the account(1) 3. Custodian account of The minor(2) a minor (Uniform Gift to Minors Act) 4. a. The usual The revocable savings grantor-trustee(1) trust (grantor is also trustee) b. So-called trust account that is The actual owner(1) not a legal or valid trust under state law. 5. Sole proprietorship The owner(3) 6. A valid trust, The legal entity (Do estate, or pension not furnish the trust identifying number of the personal representative or trustee unless the legal entity itself is not designated in the account title.)(4) - ----------------------------------------------------- GIVE THE TAXPAYER IDENTIFICATION FOR THIS TYPE OF ACCOUNT: NUMBER OF-- - ----------------------------------------------------- 7. Corporate account The corporation 8. Religious, The organization charitable, or educational organization account 9. Partnership account The partnership 10. Association, club, The organization or other tax-exempt organization 11. A broker or The broker or registered nominee nominee 12. Account with the The public entity Department of Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments
- --------------------------------------------- - --------------------------------------------- (1) List first and circle the name of the person whose number you furnish. If only one person on a joint account has an SSN, that person's number must be furnished. (2) Circle the minor's name and furnish the minor's social security number. (3) Show your individual name. You may also enter your business or "doing business as" name. You may use either your social security number or your employer identification number. (4) List first and circle the name of the legal trust, estate, or pension trust. NOTE: If no name is circled when there is more than one name listed, the number will be considered to be that of the first name listed. GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 PAGE 2 Note: Section references are to the Internal Revenue Code unless otherwise noted. OBTAINING A NUMBER If you do not have a taxpayer identification number or you don't know your number, obtain Form SS-5, Application for a Social Security Number Card (for individuals), or Form SS-4, Application for Employer Identification Number (for businesses and all other entities), at the local office of the Social Security Administration or the Internal Revenue Service (the "IRS") and apply for a number. PAYEES AND PAYMENTS EXEMPT FROM BACKUP WITHHOLDING The following is a list of payees exempt from backup withholding and for which no information reporting is required. For interest and dividends, all listed payees are exempt except item (9). For broker transactions, payees listed in items (1) through (13) and a person registered under the Investment Advisors Act of 1940 who regularly acts as a broker are exempt. Payments subject to reporting under sections 6041 and 6041A are generally exempt from backup withholding only if made to payees described in items (1) through (7), except a corporation (other than certain hospitals described in Regulations section 1.6041-3(c)) that provides medical and health care services or bills and collects payments for such services is not exempt from backup withholding or information reporting. Only payees described in items (1) through (5) are exempt from backup withholding for barter exchange transactions and patronage dividends. (1) An organization exempt from tax under section 501(a), or an IRA, or a custodial account under section 403(b)(7), if the account satisfies the requirements of section 401(f)(2). (2) The United States or any of its agencies or instrumentalities. (3) A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities. (4) A foreign government or any of its political subdivisions, agencies or instrumentalities. (5) An international organization or any of its agencies or instrumentalities. (6) A corporation. (7) A foreign central bank of issue. (8) A dealer in securities or commodities required to register in the United States, the District of Columbia or a possession of the United States. (9) A futures commission merchant registered with the Commodity Futures Trading Commission. (10) A real estate investment trust. (11) An entity registered at all times during the tax year under the Investment Company Act of 1940 (12) A common trust fund operated by a bank under section 584(a). (13) A financial institution. (14) A middleman known in the investment community as a nominee or listed in the most recent publication of the American Society of Corporate Secretaries, Inc., Nominee List. (15) A trust exempt from tax under section 664 or described in section 4947. Payments of dividends and patronage dividends that generally are exempt from backup withholding include the following: - - Payments to nonresident aliens subject to withholding under section 1441. - - Payments to partnerships not engaged in a trade or business in the U.S. and which have at least one nonresident alien partner. - - Payments of patronage dividends not paid in money. - - Payments made by certain foreign organizations. - - Section 404(k) payments made by an ESOP. Payments of interest that generally are exempt from backup withholding include the following: - - Payments of interest on obligations issued by individuals. Note: You may be subject to backup withholding if this interest is $600 or more and is paid in the course of the payer's trade or business and you have not provided your correct taxpayer identification number to the payor. - - Payments of tax-exempt interest (including exempt-interest dividends under section 852). - - Payments described in section 6049(b)(5) to non-resident aliens. - - Payments on tax-free covenant bonds under section 1451. - - Payments made by certain foreign organizations. - - Payments of mortgage interest to you. Exempt payees described above should file substitute Form W-9 to avoid possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, SIGN AND DATE THE FORM AND RETURN IT TO THE PAYER. IF YOU ARE A NON-RESIDENT ALIEN OR A FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS). Payments that are not subject to information reporting are also not subject to backup withholding. For details, see sections 6041, 6041A, 6042, 6044, 6045, 6049, 6050A and 6050N and the regulations promulgated thereunder. PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend, interest, or other payments to give taxpayer identification numbers to payors who must report the payments to the IRS. The IRS uses the numbers for identification purposes. Payers must generally withhold 31% of taxable interest, dividend, and certain other payments to a payee who does not furnish a taxpayer identification number to a payer. Certain penalties may also apply. PENALTIES (1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail to furnish your correct taxpayer identification number to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. (2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you make a false statement with no reasonable basis which results in no imposition of backup withholding, you are subject to a penalty of $500. (3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE SERVICE. EX-99.7 12 FORM OF PRESS RELEASE Contacts: Roy Winnick or Mark Semer Kekst and Company 212-521-4842 or 4802 KOLLMORGEN CORPORATION ANNOUNCES $20.50 PER SHARE OFFER FOR PACIFIC SCIENTIFIC COMPANY -- Transaction Would Establish Combined Enterprise as a Leader in the Fast-Growing Electronic Motion Control Business -- WALTHAM, Mass., December 15, 1997 -- Kollmorgen Corporation (NYSE: KOL), of Waltham, Mass., announced that it has proposed a business combination with Pacific Scientific Company (NYSE: PSX), of Newport Beach, Calif., that values Pacific Scientific common stock at $20.50 per share. The offer price represents an approximately 33% premium over Pacific Scientific's closing market price on Friday, December 12, of $15.44 on the New York Stock Exchange and a premium of approximately 37% over the average closing price for the preceding 30 trading days. As part of the proposed transaction, Kollmorgen will today commence a tender offer to acquire a majority of Pacific Scientific's common stock outstanding for $20.50 per share in cash. If more than a majority of Pacific Scientific shares are tendered into the offer, Kollmorgen will purchase a majority of the shares outstanding on a pro rata basis. The offer, proration period and withdrawal rights will expire at 12:00 midnight, New York City time, on Wednesday, January 14, 1998, unless the offer is extended. Under Kollmorgen's proposal, following the tender offer, Kollmorgen and Pacific Scientific would merge, and each remaining share of Pacific Scientific common stock would be exchanged for Kollmorgen common stock with a value of $20.50, subject to a collar. Following the merger, Pacific Scientific's current shareholders would own approximately 43% of the combined enterprise, based upon Kollmorgen's closing stock price on December 12, 1997 of $16.88. Kollmorgen believes that the combination would be accretive to the company's earnings in 1999 and increasingly so thereafter. In order to ensure that Pacific Scientific's shareholders are permitted to choose freely to accept its offer, Kollmorgen also is announcing today that it will solicit consents to call a special meeting of Pacific Scientific's shareholders to remove the incumbent members of Pacific Scientific's Board of Directors and elect Kollmorgen's nominees to the Board. Under applicable law, the holders of 10% of Pacific Scientific's outstanding shares have the power to call a special meeting. Kollmorgen expects that, if elected and subject to their fiduciary duties, Kollmorgen's nominees would act to facilitate the proposed combination, including by redeeming or otherwise making inapplicable to the (more) 2 proposed combination, the Rights outstanding under Pacific Scientific's shareholder rights plan and approving the proposed business combination (if required) under Pacific Scientific's "fair price" charter provision. Kollmorgen also announced that it is commencing litigation against Pacific Scientific and its Board in the United States District Court for the Central District of California seeking to assure Pacific Scientific's shareholders the right to replace the Pacific Scientific Board and an opportunity to accept Kollmorgen's offer and proposed merger. Salomon Smith Barney is acting as financial advisor to Kollmorgen. Kollmorgen has entered into a binding commitment letter with an affiliate of Salomon Smith Barney, which has committed, subject to certain conditions, to provide $300 million of secured bank financing for the cash necessary to consummate the transaction, including amounts necessary to refinance certain existing indebtedness and to provide a working capital facility for the combined company. In announcing the proposed combination, Gideon Argov, Chairman of the Board, President and Chief Executive Officer of Kollmorgen Corporation, stated: "My colleagues and I have been disappointed that to date, Pacific Scientific's management and Board of Directors have declined to negotiate our proposal. We are firmly convinced that a combination of our two companies offers compelling strategic and financial benefits. We hope that we will now be able to engage the Pacific Scientific Board in discussions leading to a prompt, friendly negotiated transaction." Mr. Argov noted that "this transaction will bring together two companies with highly complementary motion control product lines. We are convinced that by establishing a combined enterprise with a strong customer base, dedicated employees and a strong balance sheet, the new company will be well-positioned to aggressively pursue attractive opportunities for external and internal growth, to realize its revenue and earnings potential, and to build value for its shareholders, customers and employees." Consummation of the tender offer is subject to certain conditions, including, among others, expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, receipt of the requisite financing for the transaction, approval by Kollmorgen's shareholders of the issuance of the Kollmorgen common shares in the proposed merger, and satisfaction of conditions relating to Pacific Scientific's shareholder rights plan and "fair price" charter provision, all as more fully described in Kollmorgen's Offer to Purchase relating to the tender offer. Copies of the Offer to Purchase and related documents may be obtained from Georgeson & Company Inc., the information agent for the tender offer. The Kollmorgen offer was communicated today in a letter from Mr. Argov to Lester Hill, Chairman, President and Chief Executive Officer of Pacific Scientific Company. The following is the complete text of Mr. Argov's letter to Mr. Hill: (more) 3 December 15, 1997 Mr. Lester Hill Chairman of the Board, President and Chief Executive Officer Pacific Scientific Company 620 Newport Center Drive, Suite 700 Newport Beach, California 92660 Dear Buck: In August, you and I met to discuss what we at Kollmorgen believe are the compelling merits of a strategic business combination of Kollmorgen Corporation and Pacific Scientific Company. We explored a broad range of topics related to such a combination, all of which, my colleagues on the Kollmorgen Board and senior management team firmly believe, lead to the conclusion that a strategic merger of our two companies offers significant benefits to our respective shareholders, customers and employees. On December 9, I again described for you, both over the phone and in my letter of that date, what we at Kollmorgen believe are some of the compelling strategic, operational and financial benefits of a business combination of our two companies and the extraordinary value that combination could represent for our respective shareholders. We at Kollmorgen were thus quite disappointed that in August and again in December you refused to seriously consider our proposal for this business combination. Accordingly, we have decided to present our offer directly to the shareholders of Pacific Scientific, and are today publicly announcing that we will commence a tender offer to acquire half of Pacific Scientific's outstanding shares for $20.50 per share in cash. Under our proposal, following completion of the tender offer, Kollmorgen and Pacific Scientific will merge, and each remaining share of Pacific Scientific stock will be exchanged for Kollmorgen common stock with a value of $20.50 per share, based on the average price of Kollmorgen stock during the twenty trading days ending five days prior to the meeting of Pacific Scientific shareholders called to vote on the merger, subject to a collar. Among the key aspects of the transaction we propose are the following: - - A Premium of 33% -- The purchase price of $20.50 per common share represents approximately a 33% premium over Pacific Scientific's closing share price of $15.44 on the New York Stock Exchange on Friday, December 12, 1997, and approximately a 37% premium over the average of the company's closing share price for the preceding 30 trading days. - - Immediate Cash Payment for Half of Pacific Scientific's Capital Stock -- Half of Pacific Scientific's outstanding shares will be purchased for a cash payment of $20.50 per share if the tender offer is successfully consummated. (more) 4 - - Continued Participation in the Future Growth of the Combined Company -- Because Pacific Scientific's shareholders have the ability to receive Kollmorgen common stock in the proposed merger, they will have the opportunity to participate in the future growth and success of the combined enterprise. Upon consummation of the proposed merger, Pacific Scientific shareholders will hold an equity stake of approximately 43% in the combined company, based upon an assumed market value for Kollmorgen common stock of $16.88 per share (the closing price of Kollmorgen common stock on December 12, 1997). - - Operating and Revenue Synergies -- Based on public information, Kollmorgen management believes that the combined company can achieve more than $15 million of annual operating synergies in 1999, rising to more than $20 million in 2000 and increasing thereafter. Management believes these synergies can be achieved principally from cost savings in selling and marketing expenses and consolidation of research and development, and expects to realize additional synergies from cross-selling opportunities, joint purchasing savings, and reduction in corporate expenses. - - An Accretive Transaction -- Kollmorgen is confident that the proposed combination will be accretive to earnings per share in 1999, the first full year of operations of the combined company, and increasingly so thereafter, based upon the synergies described above. - - Committed Financing -- Kollmorgen has entered into a binding commitment letter with Salomon Smith Barney and its affiliate Salomon Brothers Holding Company Inc in which Salomon Brothers Holding Company Inc has committed to provide, subject to certain conditions, what Kollmorgen believes is a conservatively financed secured bank facility to fully finance the transaction, including the refinancing of existing indebtedness and the provision of a working capital facility for the combined company. We continue to firmly believe that consolidation in our industry is inevitable, and that neither Pacific Scientific nor Kollmorgen can sit by idly while competitors, many of which are much larger than Pacific Scientific and Kollmorgen, create the international network and broad product offerings that our customers demand. Kollmorgen believes that this reality, coupled with the natural fit of our two companies, makes a Kollmorgen/Pacific Scientific combination compelling. Kollmorgen believes that the combined company will offer customers superior products and services. Among the many advantages contributing to the combined company's ability to achieve these goals would be: - - Creation of an Industry Leader. A merger of Kollmorgen and Pacific Scientific will establish the combined enterprise as a leader in high performance electronic motion control -- one of the fastest-growing segments of the motors and controls business. In a fragmented industry, the combined enterprise will be better-positioned to comprehensively serve the needs of customers and take advantage of consolidation opportunities. (more) 5 - - Strategic and Operational Fit. Highly complementary motion control product lines will enable the combined company to become a full-service provider. The combined company will be well-positioned to capitalize on the complementary product lines and differing strengths of Kollmorgen and Pacific Scientific, enabling it to offer a broader array of products and support services to an expanded customer base. In addition, the combined company would take advantage of cost savings and efficiencies resulting from economies of scale in research and development, marketing, production and sourcing. - - Enhanced Capability to Tap Foreign Markets. The increased size and global scope of the combined company will enable it to more effectively market its products to customers around the world. Kollmorgen has already established a local presence in Germany, France, Israel, India, China and elsewhere. The combined enterprise will be well-positioned to build on this foundation, particularly in Europe and the Pacific Rim. Kollmorgen believes that the combined company will be able to expand its customer base and offer international on-site product support to customers, while conducting more effective and cost-efficient research and development, marketing, production and sourcing. - - Management Team with Proven Track Record. Kollmorgen management has delivered year over year growth in sales and operating income from continuing operations from 1994 through 1996, and will do so again in 1997. Kollmorgen has achieved this by focusing on its core operations. Kollmorgen also believes that its management has maximized its returns from non-strategic operations. In addition, Kollmorgen's management has considerable expertise in managing debt, having reduced Kollmorgen's debt and preferred stock obligations by more than 40% during the past three fiscal years and transitioned from fully-secured to unsecured credit arrangements. - - Enhanced Growth Opportunities. Kollmorgen believes that the combined enterprise will be well-positioned, strategically, operationally and financially, to aggressively pursue attractive opportunities for external and internal growth. Kollmorgen is confident that the combined company's increased size and scope will enable it to be a leader in the accelerating consolidation of the motion control industry and raise its visibility in the business and financial communities. We believe that the proposed combination is a bold, exciting initiative for Pacific Scientific, Kollmorgen, and the shareholders, customers and employees of both companies. We are firmly committed to pursuing this matter and are convinced that your shareholders will strongly support our proposal. Although it is clear to us that you have not up to now given adequate consideration to a Kollmorgen/Pacific Scientific combination, it is our sincere hope that you will take this opportunity to do so. Your shareholders deserve no less than your prompt and full consideration of our proposal and the opportunity to realize the full benefits of this proposed combination. We are (more) 6 certain that once you have undertaken an informed review of our proposal, you will share in our vision and will support a combination of our two companies. We continue to be interested in proceeding with this transaction on a friendly and expeditious basis so that your shareholders, as well as ours, can begin to receive promptly the benefits of our offer. In order to ensure that your shareholders are permitted to choose freely to accept our offer, we are also announcing today our intention to solicit consents to call a special meeting of Pacific Scientific's shareholders to remove the incumbent members of Pacific Scientific's Board of Directors and elect our nominees to the Board. Subject to their fiduciary duties, if elected we expect our nominees would amend the Pacific Scientific rights plan or redeem the rights to enable the consummation of the proposed transaction, approve the proposed transaction if required under Pacific Scientific's charter, and take all other actions necessary to remove any impediments to your shareholders' ability to accept our offer. We also intend to submit a proposal designed to prevent the current Board from taking any actions to frustrate the ability of Pacific Scientific's shareholders to determine the future of their company. We are also today commencing litigation against Pacific Scientific and the Pacific Scientific Board in the United States District Court for the Central District of California seeking to assure Pacific Scientific's shareholders the right to replace the Pacific Scientific Board and an opportunity to accept our offer and proposed merger. We urge the Pacific Scientific Board of Directors to facilitate the proposed transaction and remove all obstacles to the realization of the benefits of the combination by your shareholders. As indicated above, our preference is to proceed with the proposed transaction on a friendly basis and with the support of Pacific Scientific's management and Board of Directors. Accordingly, we and our advisors remain ready and willing to meet with you and your advisors at any time to discuss our proposal and commence the negotiation of definitive documentation for the transaction. We look forward to hearing from you. Very truly yours, /s/ Gideon Argov Chairman, President and Chief Executive Officer cc: Members of the Board of Directors of Pacific Scientific Company # # # Kollmorgen's primary business is in the area of high-performance electronic motion control. Growth in this business area is fueled by the need for higher productivity in every industrial, commercial, aerospace, and consumer market segment. Additional 7 information can be found on the World Wide Web at http://kollmorgen.com. This press release contains certain forward-looking statements, including assumptions as to how Kollmorgen, Pacific Scientific and the combined company may perform in the future, which are subject to risks and uncertainties, and there can be no assurance that such statements will prove to be correct. Actual results may differ materially. For a discussion of such risks and uncertainties, shareholders are referred to the discussion thereof in the consent solicitation materials to be filed today by Kollmorgen with the Securities and Exchange Commission. # # # EX-99.8 13 FORM OF SUMMARY ADVERTISEMENT This announcement is neither an offer to purchase nor a solicitation of an offer to sell Shares (as defined below). The Offer (as defined below) is made solely by the Offer to Purchase dated December 15, 1997 and the related Letter of Transmittal, and is being made to all holders of Shares. Purchaser (as defined below) is not aware of any state where the making of the Offer is prohibited by administrative or judicial action pursuant to any valid state statute. If Purchaser becomes aware of any valid state statute prohibiting the making of the Offer or the acceptance of Shares pursuant thereto, Purchaser will make a good faith effort to comply with such state statute. If, after such good faith effort, Purchaser cannot comply with such state statute, the Offer will not be made to (nor will tenders be accepted from or on behalf of) the holders of Shares in such state. In any jurisdiction where the securities, blue sky or other laws require the offer to be made by a licensed broker or dealer, the Offer shall be deemed to be made on behalf of Purchaser by Salomon Smith Barney or one or more registered brokers or dealers licensed under the laws of such jurisdiction. Notice of Offer to Purchase for Cash 6,347,241 Shares of Common Stock (including the associated Preferred Stock Purchase Rights) of Pacific Scientific Company at $20.50 Net Per Share by Torque Corporation, a wholly owned subsidiary of Kollmorgen Corporation Torque Corporation, a Delaware corporation ("Purchaser") and a wholly owned subsidiary of Kollmorgen Corporation, a New York corporation ("Kollmorgen"), hereby offers to purchase 6,347,241 shares of common stock, par value $1.00 per share (the "Common Stock"), of Pacific Scientific Company, a California corporation ("Pacific Scientific"), including the associated preferred stock purchase rights (the "Rights" and, together with the Common Stock, the "Shares") issued pursuant to the Shareholder Protection Agreement, dated as of November 7, 1988, as amended (the "Rights Agreement"), between Pacific Scientific and Manufacturers Hanover Trust Company, as successor Rights Agent (the "Rights Agent"), or such greater or lesser number of Shares as would constitute a majority of the outstanding Shares on a fully diluted basis (such number of Shares being the "Minimum Number") at a price of $20.50 per Share, net to the seller in cash (the "Offer Price"), upon the terms and subject to the conditions set forth in the Offer to Purchase dated December 15, 1997 (the "Offer to Purchase") and the related Letter of Transmittal (which, as amended from time to time, together constitute the "Offer"). Unless the context otherwise requires, all references to Rights shall include the benefits that may inure to holders of the Rights pursuant to the Rights Agreement. Unless the Rights are redeemed prior to the Expiration Date (as defined below), holders of Shares will be required to tender one associated Right for each Share tendered in order to effect a valid tender of such Share. Unless and until the Separation Time (as defined in the Offer to Purchase) occurs, the Rights are represented by and transferred with the Shares. Accordingly, if the Separation Time does not occur prior to the Expiration Date, a tender of shares of Common Stock will constitute a tender of the associated Rights. If the Separation Time has occurred, certificates representing a number of Rights equal to the number of shares of Common Stock being tendered must be delivered to the Depositary (as defined herein) in order for such shares of Common Stock to be validly tendered. THE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY TIME, ON WEDNESDAY, JANUARY 14, 1998, UNLESS THE OFFER IS EXTENDED. THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (1) THERE BEING VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION OF THE OFFER AT LEAST THE MINIMUM NUMBER OF SHARES, (2) THE EXPIRATION OR TERMINATION OF ANY APPLICABLE WAITING PERIODS UNDER THE HART-SCOTT-RODINO ANTITRUST IMPROVEMENTS ACT OF 1976, AS AMENDED, (3) KOLLMORGEN AND PURCHASER HAVING OBTAINED, PRIOR TO THE EXPIRATION OF THE OFFER, ON TERMS SATISFACTORY TO KOLLMORGEN IN ITS SOLE DISCRETION, SUFFICIENT FINANCING TO ENABLE CONSUMMATION OF THE OFFER AND THE PROPOSED MERGER DESCRIBED BELOW, (4) PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE RIGHTS HAVE BEEN REDEEMED OR INVALIDATED OR ARE OTHERWISE INAPPLICABLE TO THE OFFER AND THE PROPOSED MERGER, (5) PURCHASER BEING SATISFIED, IN ITS SOLE DISCRETION, THAT THE OFFER AND THE PROPOSED MERGER HAVE BEEN APPROVED FOR PURPOSES OF ARTICLE FIFTH OF PACIFIC SCIENTIFIC'S ARTICLES OF INCORPORATION (IF NECESSARY) OR ARTICLE FIFTH OF PACIFIC SCIENTIFIC'S ARTICLES OF INCORPORATION HAS BEEN INVALIDATED OR IS OTHERWISE SATISFIED WITH RESPECT TO THE OFFER AND PROPOSED MERGER AND (6) THE APPROVAL BY KOLLMORGEN'S SHAREHOLDERS OF THE ISSUANCE OF COMMON STOCK, PAR VALUE $2.50 PER SHARE, OF KOLLMORGEN ("KOLLMORGEN COMMON STOCK") IN THE PROPOSED MERGER. THE OFFER IS ALSO SUBJECT TO THE OTHER TERMS AND CONDITIONS WHICH ARE CONTAINED IN THE OFFER TO PURCHASE. The purpose of the Offer is to acquire control of, and ultimately the entire equity interest in, Pacific Scientific. Kollmorgen is seeking to negotiate with Pacific Scientific a definitive merger agreement pursuant to which Pacific Scientific would, as soon as practicable following consummation of the Offer, consummate a merger or similar business combination with Kollmorgen, Purchaser or another direct or indirect subsidiary of Kollmorgen (the "Proposed Merger"). At the effective time of the Proposed Merger (the "Effective Time"), each Share then outstanding (other than Shares held by Pacific Scientific or any wholly owned subsidiary of Pacific Scientific and Shares owned by Kollmorgen, Purchaser or any other direct or indirect wholly owned subsidiary of Kollmorgen and Shares held by shareholders who shall have demanded and perfected, and who shall not have withdrawn or otherwise lost, dissenters' rights, if any, under California law) would be converted into the right to receive $20.50 of Kollmorgen Common Stock. The exact number of shares of Kollmorgen Common Stock into which each Share will be converted in the Proposed Merger shall be determined by dividing $20.50 by the average, over the twenty consecutive trading days ending five days prior to the meeting of the shareholders of Pacific Scientific called for the purpose of voting on the Proposed Merger, of the daily average of the high and low per share sales price of Kollmorgen Common Stock (weighted by sales volume). In the event that such average during such period is less than $15.19 or greater than $18.56, the exchange ratio would be fixed at 1.350 shares of Kollmorgen Common Stock or 1.104 shares of Kollmorgen Common Stock, respectively, per Share. Kollmorgen intends to solicit the consent of Pacific Scientific's shareholders to take action by written consent to call a special meeting in order to, among other things, remove from office the entire Pacific Scientific Board of Directors (the "Pacific Scientific Board") and fill the newly created vacancies on the Pacific Scientific Board by electing six persons nominated by Kollmorgen to the Pacific Scientific Board, who are expected to take such actions, subject to their fiduciary duties under applicable law, as may be necessary to consummate the Offer and the Proposed Merger. For purposes of the Offer, Purchaser will be deemed to have accepted for payment (and thereby purchased) Shares validly tendered and not properly withdrawn as, if and when Purchaser gives oral or written notice to Harris Trust Company of New York (the "Depositary") of Purchaser's acceptance for payment of such Shares pursuant to the Offer. Upon the terms and subject to the conditions of the Offer, payment for Shares accepted for payment pursuant to the Offer will be made by deposit of the purchase price therefor with the Depositary, which will act as agent for tendering shareholders for the purpose of receiving payments from Purchaser and transmitting such payments to tendering shareholders whose Shares have been accepted for payment. Under no circumstances will interest on the purchase price for Shares be paid, regardless of any delay in making such payment. In all cases, payment for Shares tendered and accepted for payment pursuant to the Offer will be made only after timely receipt by the Depositary of (i) the certificates evidencing such Shares (the "Share Certificates") and, if the Rights are at such time separately traded, certificates representing the Rights associated with the shares of Common Stock (the "Rights Certificates") or timely confirmation of a book-entry transfer of such Shares (and Rights, if applicable) into the Depositary's account at one of the Book-Entry Transfer Facilities (as defined in Section 2 ("Acceptance for Payment and Payment for Shares") of the Offer to Purchase) pursuant to the procedures set forth in Section 3 ("Procedures for Accepting the Offer and Tendering Shares") of the Offer to Purchase, (ii) the Letter of Transmittal (or a facsimile thereof), properly completed and duly executed, with any required signature guarantees, or, in the case of a book-entry transfer, an Agent's Message (as defined in Section 2 ("Acceptance for Payment and Payment for Shares") of the Offer to Purchase) and (iii) any other documents required under the Letter of Transmittal. Purchaser expressly reserves the right, in its sole discretion, at any time and from time to time, to extend for any reason the period of time during which the Offer is open, including the occurrence of any condition specified in Section 14 ("Certain Conditions of the Offer") of the Offer to Purchase, by giving oral or written notice of such extension to the Depositary. Any such extension will be followed as promptly as practicable by public announcement thereof, such announcement thereof to be made no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled Expiration Date of the Offer. During any such extension, all Shares previously tendered and not withdrawn will remain subject to the Offer, subject to the rights of tendering shareholders to withdraw their Shares. The term "Expiration Date" means 12:00 midnight, New York City time, on Wednesday, January 14, 1998, unless and until Purchaser, in its sole discretion, shall have extended the period of time during which the Offer is open, in which event the term "Expiration Date" shall mean the latest time and date at which the Offer, as so extended by Purchaser, will expire. If more than the Minimum Number of Shares shall be validly tendered and not withdrawn prior to the Expiration Date, Purchaser will, upon the terms and subject to the conditions of the Offer, purchase the Minimum Number of Shares on a pro rata basis (with adjustments to avoid purchases of fractional Shares) based upon the number of Shares validly tendered and not withdrawn prior to the Expiration Date. Because of the difficulty of determining the precise number of Shares validly tendered and not withdrawn, if proration is required, Purchaser does not expect to be able to announce the final proration factor until approximately five New York Stock Exchange, Inc. trading days after the Expiration Date. Preliminary results of proration will be announced by press release as promptly as practicable after the Expiration Date. Shareholders of Pacific Scientific may obtain such preliminary information from the Information Agent, and may be able to obtain such information from their brokers. Purchaser will not pay for any Shares accepted for payment pursuant to the Offer until the final proration factor is known. Tenders of Shares made pursuant to the Offer are irrevocable except that such Shares may be withdrawn at any time prior to 12:00 midnight, New York City time, on Wednesday, January 14, 1998 (or the latest time and date at which the Offer, if extended by Purchaser, shall expire) and, unless theretofore accepted for payment by Purchaser pursuant to the Offer, may also be withdrawn at any time after Thursday, February 12, 1998. For a withdrawal to be effective, a written, telegraphic or facsimile transmission notice of withdrawal must be timely received by the Depositary at one of its addresses set forth on the back cover page of the Offer to Purchase. Any such notice of withdrawal must specify the name of the person who tendered the Shares to be withdrawn, the number of Shares to be withdrawn and the name of the registered holder of such Shares, if different from that of the person who tendered such Shares. If Share Certificates evidencing Shares to be withdrawn have been delivered or otherwise identified to the Depositary, then, prior to the physical release of such Share Certificates, the serial numbers shown on such Share Certificates must be submitted to the Depositary and the signature(s) on the notice of withdrawal must be guaranteed by an Eligible Institution (as defined in Section 3 ("Procedures for Accepting the Offer and Tendering Shares") of the Offer to Purchase), unless such Shares have been tendered for the account of an Eligible Institution. If Shares have been tendered pursuant to the procedure for book-entry transfer as set forth in Section 3 ("Procedures for Accepting the Offer and Tendering Shares") of the Offer to Purchase, any notice of withdrawal must specify the name and number of the account at the Book-Entry Transfer Facility to be credited with the withdrawn Shares. All questions as to the form and validity (including the time of receipt) of any notice of withdrawal will be determined by Purchaser, in its sole discretion, whose determination will be final and binding. The information required to be disclosed by Rule 14d-6(e)(1)(vii) of the General Rules and Regulations under the Securities Exchange Act of 1934, as amended, is contained in the Offer to Purchase and is incorporated herein by reference. A request is being made to Pacific Scientific for the use of Pacific Scientific's shareholder list and security position listings for the purpose of disseminating the Offer to holders of Shares. Upon compliance by Pacific Scientific with such request, the Offer to Purchase and the related Letter of Transmittal will be mailed to record holders of Shares whose names appear on Pacific Scientific's shareholder list and will be furnished, for subsequent transmittal to beneficial owners of Shares, to brokers, dealers, commercial banks, trust companies and similar persons whose names, or the names of whose nominees, appear on the shareholder list or who are listed as participants in a clearing agency's security position listing. THE OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO THE OFFER. Questions and requests for assistance or for additional copies of the Offer to Purchase and the related Letter of Transmittal and other tender offer materials may be directed to the Information Agent or the Dealer Manager as set forth below, and copies will be furnished promptly at Purchaser's expense. No fees or commissions will be paid to brokers, dealers or other persons (other than the Information Agent and the Dealer Manager) for soliciting tenders of Shares pursuant to the Offer. The Information Agent for the Offer is: GEORGESON & COMPANY INC. Wall Street Plaza New York, New York 10005 Banks and Brokers call collect: (212) 440-9800 ALL OTHERS CALL TOLL-FREE: (800) 223-2064 The Dealer Manager for the Offer is: SALOMON SMITH BARNEY Seven World Trade Center New York, New York 10048 (888) 746-7939 Salomon Brothers Inc, doing business as Salomon Smith Barney, is acting as Dealer Manager in connection with the Offer. Salomon Smith Barney is a service mark of Smith Barney Inc. Salomon Brothers Inc and Smith Barney Inc. are affiliated but separately registered broker/dealers under common control of Salomon Smith Barney Holdings Inc. Salomon Brothers Inc and Salomon Smith Barney Holding Inc. have been licensed to use the Salomon Smith Barney service mark. December 15, 1997 EX-99.9 14 FORM OF CONSENT CONSENT TO ACTION OF SHAREHOLDERS WITHOUT A MEETING REVOCABLE CONSENT SOLICITED ON BEHALF OF KOLLMORGEN CORPORATION The undersigned, a common shareholder of Pacific Scientific Company ("Pacific Scientific"), acting with respect to all of the shares of Common Stock, par value $1.00 per share (the "Common Stock"), held by the undersigned, hereby consents, withholds consent or abstains as specified on the reverse side with respect to the taking of corporate action without a meeting pursuant to Section 603 of the California General Corporation Law. All capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Consent Solicitation Statement/Preliminary Prospectus furnished herewith (the "Consent Solicitation Statement/Prospectus"). FAILURE TO EXECUTE AND RETURN THIS CONSENT CARD WILL BE DEEMED TO BE A VOTE TO ABSTAIN, AND A VOTE TO ABSTAIN WILL HAVE THE EFFECT OF A VOTE AGAINST THE CORPORATE ACTION DESCRIBED ON THE REVERSE SIDE OF THIS CARD. Shareholders wishing to approve the actions set forth herein should mark the "Consent" box on the reverse side of this consent card. Those opposing such action should register their position by marking the "Withhold Consent" or "Abstain" box on the reverse side of this consent card or by not returning this consent card. Unless you otherwise indicate on this consent card, this consent card will be voted as set forth on the reverse side with respect to all shares of Common Stock held by the undersigned, and if no choice is indicated but this consent card is otherwise completed, you will be deemed to have consented to the action set forth on the reverse side of this consent card. By executing this card the undersigned hereby revokes any and all prior consents or revocations of consent and hereby affirms that the undersigned has the power to deliver a consent for the number of shares represented by this consent. SIGNED BUT UNMARKED CARDS WILL BE DEEMED TO GIVE CONSENT TO THE ACTION SET FORTH ON THE REVERSE SIDE OF THIS CARD. Kollmorgen Corporation is soliciting consents to call a special meeting of Pacific Scientific shareholders (the "Special Meeting") for the purpose of voting on (i) the approval of a shareholder resolution to repeal any and all provisions of the bylaws of Pacific Scientific (the "Pacific Scientific Bylaws") that have not been duly filed by Pacific Scientific with the Securities and Exchange Commission prior to August 11, 1997, including any and all amendments to the Pacific Scientific Bylaws adopted on or after December 15, 1997 (the "Bylaw Repeal Proposal"), (ii) the removal from office of the entire Pacific Scientific Board of Directors (the "Pacific Scientific Board") and (iii) the election of six persons to be nominated by Kollmorgen Corporation (the "Kollmorgen Nominees") to fill the vacancies created thereby. The Special Meeting will be held on February 4, 1998 or, if later, on the thirty-sixth day following the date on which the requisite number of consents to call the Special Meeting are delivered to Pacific Scientific (the "Special Meeting Date"). Calling of the Special Meeting is conditioned upon receiving the consent of the holders of not less than 10% of the outstanding shares of Common Stock entitled to vote at the Special Meeting. Unless previously revoked, this consent will be effective when and if delivered to Pacific Scientific along with consents representing the percentage of shares indicated in the immediately preceding sentence. PLEASE SIGN AND DATE ON REVERSE SIDE YOUR CONSENT TO THE CALLING OF THE SPECIAL MEETING WILL NOT REQUIRE YOU TO VOTE FOR ANY OF THE PROPOSALS AT THE SPECIAL MEETING. YOU WILL STILL HAVE THE CHOICE OF HOW YOU WILL VOTE ON ANY MATTER TO BE PROPOSED AT THE SPECIAL MEETING. /X/ PLEASE MARK VOTES AS IN THIS EXAMPLE FAILURE TO EXECUTE AND RETURN THIS CONSENT CARD WILL BE DEEMED TO BE A VOTE TO ABSTAIN, AND A VOTE TO ABSTAIN WILL HAVE THE EFFECT OF A VOTE AGAINST THE CORPORATE ACTION DESCRIBED BELOW. PROPOSAL: CALLING THE SPECIAL MEETING CONSENT Calling of the Special Meeting on the Special Meeting Date for the purpose of voting on (i) the Bylaw Repeal / / Proposal, (ii) the removal from office of the entire Pacific Scientific Board and (iii) the election of the Kollmorgen Nominees to fill the vacancies created thereby.
WITHHOLD Calling of the Special Meeting on the Special Meeting Date for the purpose of voting on (i) the Bylaw Repeal / / Proposal, (ii) the removal from office of the entire Pacific Scientific Board and (iii) the election of the Kollmorgen Nominees to fill the vacancies created thereby. ABSTAIN Calling of the Special Meeting on the Special Meeting Date for the purpose of voting on (i) the Bylaw Repeal / / Proposal, (ii) the removal from office of the entire Pacific Scientific Board and (iii) the election of the Kollmorgen Nominees to fill the vacancies created thereby. Calling of the Special Meeting on the Special Meeting Date for the purpose of voting on (i) the Bylaw Repeal Proposal, (ii) the removal from office of the entire Pacific Scientific Board and (iii) the election of the Kollmorgen Nominees to fill the vacancies created thereby.
When shares are held by joint tenants, both must sign. When signing as attorney-in-fact, executor, administrator, trustee, guardian, corporate officer or partner, please give full title as such. If a corporation, please sign in a corporate name by President or other authorized officer. If a partnership, please sign in partnership name by authorized person. Signature ___________________________ Dated: _______________ Signature ___________________________ Dated: _______________ EX-99.10 15 PARENT LETTER RESERVOIR PLACE [LOGO] 1601 TRAPELO ROAD WALTHAM, MA 02154 (781) 890-5655 DECEMBER 15, 1997 Dear Pacific Scientific Shareholders: Kollmorgen Corporation has proposed a business combination with Pacific Scientific Company (the "Proposed Combination") which Kollmorgen believes would offer exceptional benefits to the shareholders of both Pacific Scientific and Kollmorgen. To date, the Pacific Scientific Board of Directors (the "Board") has refused to enter into negotiations regarding the Proposed Combination despite Kollmorgen's repeated requests to do so. Because the Board is attempting to deny you the opportunity to share in the rewards of the combined company, Kollmorgen is presenting this opportunity directly to the Pacific Scientific shareholders. Kollmorgen urges you to join us in calling for a special meeting of Pacific Scientific shareholders (the "Special Meeting") in order to remove the entire Board and elect Kollmorgen's nominees to the Board. Kollmorgen expects that if they are elected, and subject to their fiduciary duties under applicable law, Kollmorgen's nominees would act to facilitate the Proposed Combination. WE HAVE PROVIDED YOU WITH A FORM OF CONSENT FOR USE IN CALLING THE SPECIAL MEETING. WE ASK THAT YOU COMPLETE IT, SIGN IT, AND RETURN IT TO US IN THE ENVELOPE PROVIDED. As part of the Proposed Combination, we have commenced a tender offer (the "Tender Offer") to acquire a majority of Pacific Scientific's outstanding common stock for $20.50 per share in cash. Assuming the Tender Offer is successful, Kollmorgen and Pacific Scientific will then merge (the "Proposed Merger"), and each remaining share of Pacific Scientific common stock will be exchanged for Kollmorgen common stock with a value of $20.50 per share, subject to a collar. If the Tender Offer is successful, the affirmative vote of Pacific Scientific's shareholders on the Proposed Merger is assured. If more than half of Pacific Scientific's outstanding common stock is tendered into the Tender Offer, tendered shares will be purchased on a pro rata basis. In such case, shareholders who tendered shares will receive a mix of cash and stock in the Proposed Combination. You are free to tender all, part or none of your Pacific Scientific common shares into the Tender Offer. However, to the extent that your shares are purchased in the Tender Offer, you will not receive Kollmorgen stock for such purchased shares and, as a result, you will not participate in any future growth of the combined company. Enclosed with this letter is important information about the Proposed Combination. It is important that you understand the purpose of each of the documents you are receiving. First, we have sent you an Offer to Purchase, a Letter of Transmittal and other documents relating to the Tender Offer. These documents describe our offer to purchase your Pacific Scientific common stock for $20.50 per share in cash. Following the instructions contained in the Tender Offer documents, you can tender your shares to us as soon as you wish. The second set of materials sent to you relate to calling the Special Meeting. Accompanying this letter is a consent solicitation statement/preliminary prospectus, which describes the Proposed Combination in detail, along with a Form of Consent which you can use to join us in calling for the Special Meeting. After the Special Meeting has been called, we will send you proxy materials asking you to vote in favor of our proposals in connection with the Proposed Combination, namely the removal of the entire Board, the election of our nominees to the Board and the repeal of any bylaws not filed with the Securities and Exchange Commission prior to August 11, 1997, including any amendments adopted on or after December 15, 1997. In the next few weeks, we will make additional mailings to you. WE URGE YOU TO READ CAREFULLY EACH DOCUMENT SENT TO YOU. Kollmorgen is not currently seeking your proxy for the removal of the entire Pacific Scientific Board, the election of the Kollmorgen nominees to the Pacific Scientific Board or the approval of the bylaw repeal proposal. After the Special Meeting has been called, Kollmorgen will send you proxy materials urging you to take such actions. Kollmorgen is not currently soliciting proxies for a vote on the Proposed Merger. You may, however, be asked to vote on the Proposed Merger in the future. THE ONLY ACTION WE ARE CURRENTLY ASKING YOU TO TAKE IS GIVE YOUR CONSENT TO CALLING THE SPECIAL MEETING BY EXECUTING THE ENCLOSED FORM OF CONSENT. If consummated, the financial benefits of the Proposed Combination will include: - A PREMIUM OF 33%. The purchase price of $20.50 per common share represents approximately a 33% premium over Pacific Scientific's closing share price of $15.44 on the New York Stock Exchange on Friday, December 12, 1997, and approximately a 37% premium over the average of the company's closing share price for the preceding 30 trading days. - IMMEDIATE CASH PAYMENT FOR HALF OF PACIFIC SCIENTIFIC'S CAPITAL STOCK. Half of Pacific Scientific's outstanding shares will be purchased for a cash payment of $20.50 per share if the Tender Offer is successfully consummated. - CONTINUED PARTICIPATION IN THE FUTURE GROWTH OF THE COMBINED COMPANY. Because Pacific Scientific's shareholders have the ability to receive Kollmorgen common stock in the proposed merger, you will have the opportunity to participate in the future growth and success of the combined enterprise. Upon consummation of the Proposed Merger, Pacific Scientific shareholders will hold an equity stake of approximately 43% in the combined company, based upon an assumed market value for Kollmorgen common stock of $16.88 per share (the closing price of Kollmorgen common stock on December 12, 1997). - OPERATING AND REVENUE SYNERGIES. Based on public information, Kollmorgen management believes that the combined company can achieve more than $15 million of annual operating synergies in 1999, rising to more than $20 million in 2000 and increasing thereafter. Management believes these synergies can be achieved principally from cost savings in selling and marketing expenses and consolidation of research and development, and expects to realize additional synergies from cross-selling opportunities, joint purchasing savings and reduction in corporate expenses. - AN ACCRETIVE TRANSACTION. Kollmorgen is confident that the Proposed Combination will be accretive to earnings per share in 1999, the first full year of operations of the combined company, and increasingly so thereafter, based upon the anticipated synergies described above. Kollmorgen expects that, due to the substantial non-recurring charges associated with the Proposed Combination (which are not currently quantifiable) consisting of restructuring charges and a charge for acquired in-process research and development, the Proposed Combination will be substantially dilutive in fiscal 1998. - COMMITTED FINANCING. Kollmorgen has entered into a binding commitment letter with Salomon Smith Barney and its affiliate Salomon Brothers Holding Company Inc in which Salomon Brothers Holding Company Inc has committed to provide, subject to certain conditions, what Kollmorgen believes is a conservatively financed secured bank facility to fully finance the transaction, including the refinancing of existing indebtedness and the provision of a working capital facility for the combined company. Kollmorgen's management team and advisors have carefully analyzed the implications of the Proposed Combination between Kollmorgen and Pacific Scientific. We concluded that a combination offered real benefits to our respective shareholders, customers and employees. We then approached Pacific Scientific's management on several occasions to discuss our analysis and to pursue discussions we hoped would lead to a merger agreement between our two companies. Despite what we are convinced are the compelling benefits offered by such a combination, Pacific Scientific management decided not to enter into 2 a meaningful dialogue with us. We were surprised at Pacific Scientific management's reaction to the opportunities offered by this combination. We continue to firmly believe that consolidation in our industry is inevitable, and neither Pacific Scientific nor Kollmorgen can sit by idly while competitors, many of which are much larger than Pacific Scientific and Kollmorgen, create the international network and broad product offerings that our customers demand. Kollmorgen believes that this reality, coupled with the natural fit of our two companies, makes a Pacific Scientific-Kollmorgen combination compelling. Kollmorgen believes that the combined company will achieve financial results superior to that which either company could achieve on a stand-alone basis and will offer customers superior products and services. Among the many advantages contributing to the combined company's ability to achieve these goals would be: - CREATION OF AN INDUSTRY LEADER. A merger of Kollmorgen and Pacific Scientific will establish the combined enterprise as a leader in high performance electronic motion control--one of the fastest-growing segments of the motors and controls business. In a fragmented industry, the combined enterprise will be better-positioned to comprehensively serve the needs of customers and take advantage of consolidation opportunities. - STRATEGIC AND OPERATIONAL FIT. Highly complementary motion control product lines will enable the combined company to become a full-service provider. The combined company will be well-positioned to capitalize on the complementary product lines and differing strengths of Kollmorgen and Pacific Scientific, enabling it to offer a broader array of products and support services to an expanded customer base. In addition, the combined company would take advantage of cost savings and efficiencies resulting from economies of scale in research and development, marketing, production and sourcing. - ENHANCED CAPABILITY TO TAP FOREIGN MARKETS. The increased size and global scope of the combined company will enable it to more effectively market its products to customers around the world. Kollmorgen has already established a local presence in Germany, France, Israel, India, China and elsewhere. The combined enterprise will be well-positioned to build on this foundation, particularly in Europe and the Pacific Rim. Kollmorgen believes that the combined company will be able to expand its customer base and offer international on-site product support to customers, while conducting more effective and cost-efficient research and development, marketing, production and sourcing. - MANAGEMENT TEAM WITH PROVEN TRACK RECORD. Kollmorgen's management has delivered year over year growth in sales and operating income from continuing operations from 1994 through 1996, and will do so again in 1997. Kollmorgen has achieved this by focusing on its core operations. Kollmorgen also believes that its management has maximized its returns from non-strategic operations. In addition, Kollmorgen's management has considerable expertise in managing debt, having reduced Kollmorgen's debt and preferred stock obligations by more than 40% during the past three fiscal years and transitioned from fully-secured to unsecured credit arrangements. - ENHANCED GROWTH OPPORTUNITIES. Kollmorgen believes that the combined enterprise will be well-positioned, strategically, operationally and financially, to aggressively pursue attractive opportunities for external and internal growth. Kollmorgen is confident that the combined company's increased size and scope will enable it to be a leader in the accelerating consolidation of the motion control industry and raise its visibility in the business and financial communities. Your execution of a Form of Consent to call the Special Meeting will not require you to tender your shares or to vote for any of the proposals at the Special Meeting. You will still have the choice of whether or not to tender and of how you will vote on any matter to be proposed at the Special Meeting. Even if you are currently undecided as to whether to embrace the Proposed Combination, calling the Special Meeting 3 will preserve your right and the right of your fellow shareholders to decide whether to receive $20.50 per share in the Tender Offer and the Proposed Merger. PLEASE EXECUTE THE ENCLOSED FORM OF CONSENT AND RETURN IT TO KOLLMORGEN, C/O GEORGESON & COMPANY INC., IN THE ENCLOSED ENVELOPE TO JOIN WITH US IN CALLING THE SPECIAL MEETING TO PERMIT SHAREHOLDERS TO CONSIDER AND VOTE UPON OUR PROPOSALS. We at Kollmorgen are excited at the prospect of combining our two fine companies. Once you have had the chance to review the enclosed materials, we are certain that you will share our vision and give us your support. Sincerely, [LOGO] Gideon Argov CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER Kollmorgen Corporation IF YOUR SHARES ARE HELD BY YOUR BANK OR BROKERAGE FIRM, ONLY THAT FIRM CAN EXECUTE YOUR FORM OF CONSENT TO CALL THE SPECIAL MEETING. CALL YOUR BANK OR BROKER WITH YOUR INSTRUCTIONS TO EXECUTE YOUR FORM OF CONSENT. IF YOU HAVE ANY QUESTIONS, PLEASE CALL GEORGESON & COMPANY INC., WHICH IS ASSISTING US, TOLL FREE AT 1-800-223-2064. 4 EX-99.11 16 FORM OF PRESS RELEASE 12/15/97 Contact: Roy Winnick or Mark Semer Kekst and Company (212) 521-4842 or 4802 RECORD DATE OF DECEMBER 15 SET TO CALL SPECIAL MEETING OF PACIFIC SCIENTIFIC SHAREHOLDERS IN CONNECTION WITH KOLLMORGEN OFFER WALTHAM, Massachusetts, December 15, 1997 -- Kollmorgen Corporation (NYSE: KOL) announced today that a record date of today, December 15, has been established for the consent solicitation to call a special meeting of shareholders of Pacific Scientific Company (NYSE: PSX) commenced earlier today by Kollmorgen. The consent solicitation is being undertaken in connection with the business combination proposal made today by Kollmorgen to acquire Pacific Scientific at a price of $20.50 per share. Torque Corporation, a wholly owned subsidiary of Kollmorgen and the record owner of 100 shares of Pacific Scientific common stock, has today delivered its written consent to the Secretary of Pacific Scientific to call a special meeting of Pacific Scientific shareholders. Under California law, the day that the first written consent is delivered is the record date for determining shareholders entitled to consent to the calling of the special meeting. At the meeting, if successfully called, Kollmorgen will ask Pacific Scientific shareholders to remove the entire Pacific Scientific Board of Directors and replace it with new directors nominated by Kollmorgen, who are expected, subject to their fiduciary duties under applicable law, to take actions to consummate the proposed business combination. In addition, Kollmorgen will propose a binding shareholder resolution at the special meeting that will preclude or rescind any attempt the Pacific Scientific Board has made or may make to amend the Pacific Scientific bylaws. Further, as part of the proposed business combination, Kollmorgen also commenced today a tender offer to acquire a majority of the outstanding shares of Pacific Scientific on a fully diluted basis at $20.50 per share. Under Kollmorgen's proposal, following successful consummation of the tender offer, Pacific Scientific shareholders would receive Kollmorgen common stock with a value of $20.50 (subject to a collar) in a second step merger. # # # -----END PRIVACY-ENHANCED MESSAGE-----