Document 3Jw1Jw5gMVedE3EmL3r70N8y

? 64-86 HERCULES _- - j ---* - - - - - - ------- - - - - - -- ! NEWS RELEASE ! HERCULES POWDER COMPANY 1 INCORPORATED. HERCULES TOWER 910 MARKET STREET WILMINGTON DELAWARE PHONE OL 6-9811 T A-1..1 L-- -'LT.:.'VTTT- *" L-'-'-:*-. -1 ..'...f ^--1.'.`W A'W.1- 1 I < I II J HENRY A. TH0UR0N PRESIDENT "i. PLAINTIFF'S EXHIBIT HAV-14 rJLk ^_sJL _9Ji JL*L 93JHJ May 25, 1964............Henry A. Thouron, president of Hercules Powder Company, and John H. Lux, president of Haveg Industries, Inc. , announced today approval by the Board of Directors of both companies of a plan for the acquisition of Haveg Industries by Hercules Powder Company, subject to the approval of the stockholders of Haveg Industries, Inc. The proposed acquisition calls for the issuance of a new series of V Hercules Powder Cumulative Class A stock at the rate of 2 shares for each V- 5 shares of Haveg common. The new Hercules A stock is to be eniitled to cumulative dividends of $1. 65 per annum and, like the currently outstand ing Cumulative Class A stock, will have no par value. It is to rank pari passu with the outstanding $2 convertible series and will itself be convert ible into three shares of Hercules Powder Common during the first year, into three and one-eighth shares during the second and third years, and into three and three-eights shares from the fourth through the sixth year. The issue is to be non-callable during the six years of convertibility, becoming callable at $150 per share thereafter. \ nk. urn Mr. Thouron said that it is planned to continue the operations of Haveg . (more) NEWS RELEASE HERCULES POWDER COMPANY INCONPOMATtO 2- - Industries and its subsidiaries with its present management and personnel and in Haveg's present plant facilities. Dr. Lux said the ability of Haveg Industries rapidly to develop and exploit its plastics technology will be en hanced and assured by effective utilization of the combined financial and technical resources. Both Hercules and Haveg have their headquarters in Wilmington, Delaware. The common stocks of both companies are listed on the New York Stock Exchange. Haveg Industries has 1, 024, 772 Common, and Hercules Powder Company, in addition to 18, 293, 450 Common, presently has 141, 164 Cumulative Class A and 87,488 Preferred shares outstanding. Both com panies are incorporated in Delaware and were established in 1929 and 1912, respectively. The negotiations leading to the acquisition were assisted by American Securities Corporation, Investment Bankers, and Nye & Whitehead, mem bers N. Y. S. E. .####### We were glad to be able to announce re'cently that the boards of Haveg Industries and of your company had approved the terms for a merger of the two companies, subject to approval by the stockholders of Haveg Industries. This we hope they will do and that we will soon be able to welcome the men and women of Haveg into the Hercules family. It is planned to continue the operations of Haveg Industries and its subsidiaries with its present management and personnel in Haveg*s present plant facilities. In fact, for the indefinite future, we would expect it to remain as a wholly separate corporation. Haveg has had an outstanding growth record, averaging better than 30% growth per year, and we would hope and expect that they would continue their rapid growth. There has been and is little or no business between the two companies. However, both of us are in somewhat parallel lines in defense and plastics fields. For example, both of us are active in the fast growing field of foamed plastics. In these and other areas of mutual interest we expect to be able to help each other and thus provide the true basis for any successful merger; namely, to be able to do better together than either one can alone. In the judgment of your board of directors, the merger should improve the earnings of your company both now and, more importantly, for the long pull. JJBF:T J TABLE OF CONTENTS Introduction Hercules Need in Engineering Skills Abilities of Company Z Foam Possible New Large Volume Outlets for Hercules Polyolefins Company Z .Patent Assets Financial Summary 1956-1963 Growth Forecast 1964-1966 - Company Z Information Internal Sources of Capital Purchase Price Analysis Stock Market Prices - Hercules and Company Z - 1961-1964 Personnel and Benefit Plans Company Z Record of Acquisitions 1 5 6 7 10 12 16 17 18 19 21 22 23 May 21, 1964 INTRODUCTION We initiated exploratory merger discussions with Z in late February 1964. A booklet on Z was prepared and circulated to Hercules Directors on March 26. Hercules Board authority was obtained on April 1 to negotiate with Z within prescribed limits subject to Board approval of a definite agree ment. Since April 1, we have had a number of discussions with Z which has provided us with additional information and resulted in a specific merger proposal. The additional information obtained largely amplifies the information contained in our booklet of March 26. This supplemental booklet on Z will summarize pertinent changes in information, give revised financial pages based on our specific merger proposal, and explain in detail the advantages to Hercules of this merger proposal. The pertinent changes in information are summarized below: Z is presently negotiating for the sale of the assets of their blown drum liner division along with know-how and patent rights on plastic drum liners (having minimum capacity of 15 gallons) for $250,000. The sale of this unprofitable division will not affect Z's projected earning forecast. Z is also negotiating for the acquisition of certain of the physical assets of Consolidated Molding Company for approximately $1 million. Consolidated Molding has plants at Binghamton, N. Y. and Scranton, Pa. , and their annual sales are approxi mately $7 million. With proper consolidation of facilities and personnel with Taunton, Z expects that this acquisition will give after tax profits of $225, 000 on their present business. We have confirmed previous information that Z's direct government sales represented 40 - 45% of Z's total sales in 1963 and first quarter of 1964.. We have also learned that Z's report to U. S. Govern ment on renegotiable sales would indicate that 63% of their 1963 sales and 56% of their first quarter 1964 sales were classified as renegotiable. This report to the U. S. Government includes Z's proprietary products that may or may not have been sold indirectly to U. S. Government on third and fourth tier business. The revised financial pages in this booklet updates previous financial information and give the pertinent details of the specific merger proposal. Rather than use Hercules common stock for this acquisition, we propose to use a new issue of Hercules Convertible Class A stock which offers advantages to both Hercules and Z. The new issue of Class A stock would have a guaran teed dividend rate 10% above Z's dividend rate of 1963 but considerably tinder the expected dividend rate on Hercules common stock. Z shareholders would have the option of either converting their Class A stock promptly for greater dividend income or holding their Class A stock to obtain slightly higher conversion rates. With the use of Class A stock, we were able to negotiate a somewhat lower acquisition price than would have been possible with Hercules common stock. The Class A stock also will improve Hercules share earnings prior to complete conversion of Class A stock. Treasurer's estimate that after complete conversion of Class A the exchange ratio of Hercules common (issued for conversion)to Z common will range from 1.23 to 1.27 to 1.0 ) r r"! r* approximately 30%. With growth prospects of their established markets plus their new developments, we have every reason to believe that Z's excellent past growth performance will continue in the future. The future performance and opportunities for both Hercules and Z will be greatly enhanced by this merger. r NEED FOR ENGINEERING SKILLS IN FABRICATION OF PRODUCTS In the last ten years we have become more and more involved in polymeric material, both in actual production and sale and on a much broader scale in research. As this trend has increased we have more and more felt the need for engineering ability in the conversion of these polymers into useful forms. This has been true whether we wish to teach our customers and their customers how to do the conversion or whether we wish to do one or more of the conversion steps ourselves. This is illustrated by our need to obtain from outside our company know-how and skilled people for the introduction of Pro-fax into fibers. Our efforts over several years to obtain the Plax Gorp. is another instance. In fact, we felt the need so keenly that we have had prepared a summary of 25 to 30 companies in the engineering field with a view to selecting one or two as possibilities to fill this need. Our products for which we have recognized this need include phenol, Vinsol, plasticizers, polyolefins, the various elastomers under development, DMT, copolyesters and a number of copolymers and new polymers still in the laboratory. Our recent interest in and development work in foams is a prime example that is described elsewhere. Most, if not all, of our competitors in the polymeric field have long since recognized this need and moved forward into conversion of their products to such items as fibers, film, pipe, extruded shapes, bottles, foamed sheet, calendered stock, elastomeric products, etc. Two recent examples are automobile bodies and Corfam, a leather-like sheet for shoes and other present leather uses. 'i 1 Company Z has shown unusual ability in converting almost all kinds - of plastics into those plastic products requiring a high degree of engineering skill and ingenuity. They have equipment for and a knowledge of most known methods for plastic forming, and to these have added new developments. Examples of this are in their nose cone work, Samson wrap, coating of wire in new ways for better performance in specific applications, silicon and carbon fibers, etc.- Because of their ability in engineered plastics, they have built up a wide variety of processes and types of products. We know of no company in the plastics field that cpmpares with them in this kind of work. ^ i Their engineering skills have been a major factor in their very fast growth rate. ^ Also, by taking on and solving new and difficult applications they have maintained a good profit margin of 8 or 9% of sales before tax and have kept away from the mundane, very low profit margin items, such as housewares and toys. They have been imaginative and creative, and so have stayed ahead of the field on a great many of their products. Company Z has another attribute which will be of great value to us. That is a feel for or understanding of the market place for plastic products. It is this market instinct, plus a wide knowledge of plastics matterials and forming processes, that has enabled them time and again to come up with new engineered plastic products. Examples are plastic cups, foamed bottles, egg cartons and crates, drum liners, new forms of milk bottles, etc. This combination will be most useful in helping us develop volume uses, either captive or otherwise, for our existing polymeric materials. And, finally, it will be extremely helpful in bringing back to our R & D men the needs of the market for polymers of new and different types and so guide our research to more profitable ends. Vf X \ . 1i \ *-J f Foam Foamed plastics offer the most immediate opportunity for Hercules and Z to benefit from the interaction of merger. In 1963 the usage of all types of foamed plastics was 340 million pounds, and industry is forecasting this usage will reach 860 million pounds by 1968. Our own survey indicated the potential for polyolefin foams will be 400 million pounds in 1968. The enormous growth potential for foamed plastics is based on the economy of lower density foamed plastics (i. e., 5-25 lbs. /cu. ft. vs. 60 lbs. /cu. ft. and higher for conventional plastics) which will open up new markets held now by paper, glass, metal and conventional plastics. Z have developed a unique process for continuous extrusion of thin polystyrene sheets having a density in the range of 15 - 25 lbs. / cu. ft. Since 100% of their waste material is reworked, Z's extrusion process is economically attractive with an extrusion-foaming cost of only 2 - 3 cents per pound (i. e. , comparable to our cost of converting flake to molding powder). Early this year Z granted Lily-Tulip an exclusive license on this foamed process for nested containers, receiving a down payment of $425,000, royalties based on Lily-Tulip's sales, guaranteed annual minimum royalties, and these royalties are payable independent of whether patents are issued to Z. The foamed cup, we understand, is less expensive for "hot cup" uses. Lily-Tulip are fore casting their sales of foamed cups will reach $12 million annual rate by the end of 1965 (i. e. , only a 3% market penetration) which would give Z an annual before tax income of $270,000. Thereafter they expect increasingly higher volumes. Lily-Tulip currently have a team of six or eight overseas on sub licensing possibilities, and Z will receive 50% of payments from any sub-licensing agreements that are consummated. and Hercules much lower density Pro-fax foam will find unrelated markets. In summary, the interaction of Hercules and Z will greatly accelerate the development and commercialization of respective foams. Since many large chemical companies are already participating in this fast growing foam plastic.market, timing will be vitally important. The interaction of Hercules and Z would result in a healthy competitor in this already competitive field -- a result that cannot be reasonably anticipated if both companies go their separate ways. - - . n rT 7n Possible New Large Volume Outlets For Hercules Polyolefins__________ Z has a wide range of plastic fabrication skills but to date their management policy and limited resources have resulted in the direction of these skills solely to specialty products that command a premium price but consume relatively low volumes of plastic raw materials. Hercules and Z's skills could be utilized -- if considered desirable -- to develop new large volume markets for Hercules polyolefins. Two examples of such possibilities are summarized below merely to illustrate the opportunity of applying Z's skills to volume outlets for our polyolefins. The U. S. Army has approved use of high density polyethylene casings for 60 - 155 mm. t shells and current estimates indicate that 650 million pounds of high density polyethylene could be needed for these shell containers by 1968. Z has know-how to make these shell casings in large injection molding presses and, in fact, their contemplated acquisition of Consolidated Molding would give Z the large injection presses required to produce initial quantities of these shell casings. They have the first development order for such casings from the government. Although probably somewhat premature to discuss, Z's foam process offers some potentially significant advantages over paper in egg crates (advantages are raw material costs $10. 00 per 1,000 vs. $12 - $14 per 1,000 for paper, higher sales per dollar investment, and better physical properties). This potential market for plastic foam -- initially polystyrene and ultimately probably polypropylene -- is 80 million pounds per year, with the dairies and j. 1i I fi ) chain stores representing 60 - 70% of market. In addition to the possible volume outlet for Pro-fax, plastic foamed egg Crates are an example of Z's ability to generate $6 - $10 sales for each $1 invested in fabricating facilities. I I 1r COMPANY Z PATENT ASSETS Based on a one-day discussion with the outside patent attorney handling patent matters for Company Z, the following facts were developed: 1. The 24 issued U.S. patents include none of any particular interest to Hercules* present business. None of them covers inventions in the plastic foam or the blow molding fields. Twelve of the 24 will expire by 1970. 2. The pending docket of 75 U.S. applications is quite new,, with only 19 filed prior to 1963 and 46 filed in the last 12 months. This indicates a greatly increased tempo of patent activity starting in 1963. 3. Thirty-five of the pending applications cover inventions in the foamed plastics field and 6 are directed to blow molded foams. 4. Ten of the pending applications cover inventions which appear primarily useful in Government* . military use, several of which relate to nose cone compositions or carbon cloth products used in rocketry. 5. The patent applications included in the Lily Tulip agreement of January 16, 1964, totalled 14, with several new filings now added. The presently pr e duced fully foamed cup, the composition used, and the method of formation are covered by a basic application filed in December, 1962, which covers thermoplastic resins broadly and polystyrene specifically. Two St. Regis Paper Company patents' are very pertinent references. The cup is defined as having bubble diameter of .01 to .5 microns, wall thickness of 10-50 mils and density of 18 to 45 lbs. /cu. ft. 6. U. S. 2,917,217 to St. Regis Paper Company may present an infringement question on the Lily Tulip type cup, according to the Company Z patent attorney. This is being checked. 7. Several of the foamed plastics inventions involve skin formation on the foamed sheet or article by a quick chilling process. While the prior art is close, good coverage is expected with emphasis on the skin. All thermoplastic resin foams are covered, including polystyrene, polyurethanes, polyethylene, polypropylene, etc. 8. Other applications cover use of foam scrap or reclaim and are based on process steps to give better product than obtained from virgin material. " p' r" _ - 1 ~1] i /r rr 9. Three applications on blow molding processes appear quite important, emphasis being on obtaining double skin, that is on both surfaces of the foam. Foamed blow molded container claims are included; for example, a container with foamed core and two skins of at least 50% of the total thickness. Such claims are believed patentable and could become of considerable significance. 10. Foreign coverage of the more important foamed plastics inventions is being obtained in 11 countries, including the major countries. The best blow molding invention has been filed in 6 foreign countries. The total pending Company Z foreign docket is approximately 115 applications. Without adequate opportunity to examine the disclosures of the pending applications and the prior art pertinent to each, it is our belief that the package includes about 7 inventions of significance to foamed plastics and 3 inventions of significance to blow molded foam articles. All of these include polystyrene, polyethylene and polypropylene within their scope. These inventions are distinguishable from those covered by pending Hercules applications and would represent a significant addition to the Hercules patent package on foamed plastics. Company Z inventions have not included the concept of cross-linking which forms the basis for many of the Hercules inventions. Company Z inventions appear to emphasize skin to \. } j rF formation, a feature not played up in Hercules disclosures. The Company Z patent attorney was impressed with the importance of skin. From casual inspection the Company Z applications appear well drafted by a competent patent attorney with substantial background knowledge and technical skill in the plastics field and particularly the foam field. His contribution to the defining of the inventions involved appears substantial and his ability to prosecute the applications to obtain maximum coverage is not questioned. 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Q-sf k k UNk 5k CM <5 CM CO J- CM CO UN CO ON 39 8383 UN I k COk UN> ok Hk H CO UN CO rH t- cvr s CM CM fc3 aa o Ox un 8 % CO s rH CO UN k CM &oo O UNk CO co O UN I4 s{ ^ 8 8 8 3 VO P ON UN<k UN UN < H C- 8 O UN o CO CM 9 g O o co I 1 11 1 oo o* O CM CO l o CM I CO o CO CO *To be done a t Hercules o p tio n 3 /1 0 /6 4 5 The Aerospace Division supplies all the plastic components for the first stage Polaris. Their range of aerospace products include nose cones, exit cones, high temperature insulators, complex electronic metal and plastic parts, and filament wound structures. Haveg has recently developed a high pressure process for large missile exit cones known a6 Sampson Wrap. This is a proprietary product of Haveg and could be a "sleeper." Haveg is actually fore casting a slight decrease in the Aerospace Division sales from $12 million in 1963 to $11 million in 1966. Foamed Plastics Division Haveg did not have any commercial sales of foamed plastics in 1963* However, they are extremely confident they can use their foam process with minor capital investment and develop sales of foamed extruded sheets and tubes within 6 to 12 months. As an indication of the small investment required, an extruder installation will cost approximately $300,000 and will have capacity for $8 million annual sales. In our initial discussions with Haveg, they forecasted $5 million sales in 1966 but have cut this forecast back to $3 million. Mid-West Taunton Satellite Plants Haveg is confident they can expand the sales of Taunton engineered plastics by having Mid-West Satellite plants to serve the electronic and automotive indus tries in this area. Haveg's approach is to acquire existing companies and convert them to Taunton products. Haveg has looked at 50 existing companies and narrowed their selection down to three companies. In their forecast, Haveg has anticipated acquisition of 2 existing plant facilities at a cost of $1. 2 million and forecasted 1966 sales of $6.0 million from these satellite plants. Based on Haveg's excellent past sales performance at their Taunton facilities and the absence of any serious competition in this field, their sales forecast for these two Mid-West Satellite plants appears to be quite reasonable. Fluorcarbon Plastics V:; Haveg has advised us that they have surveyed a new market in the chemical industry for fluorcarbon plastics. Haveg has about finished a development program on these fluorcarbon plastics. They forecasted sales of $4 million in fluorcarbon plastics in 1966. They feel very strongly that if any of their 1966 sales forecasts have been underestimated, it has been this forecast for fluorcarbon plastics. , *! '' m r~'i pTT/l Schedule 3 - ------- Z-COMPANY Internal Sources of Capital ($1,000) Retained Earnings Depreciation Set Aside Amortization of Patents Total Expenditures* 1957 151 109 - 260 1958 296 272 - 568 1959 i960 365 587 467. 616 - 63 832 1,266 1961 51-3 728 63 1,304 1962 . 574 806 63 1,443 1963 721 815 46 1,582 Patents - - 388 - - - - Plant Expenditures Accounts Receivable Increase Inventory Increase Total Capital Overage or Shortage 705 478 2,678 1,055 1,069 768 1,384 205 87 2,4l4 (687) 131 850 111 272 387 691 172 157 323 201 1,182 952 6,171 54o 1,357 i,94i 1,696 (922) (384) (5,339) 726 (53) (498) (114) Price Earnings Ratio 29.2 33.5 46.5 36.i 48.0 24.0 26.3 ^Includes acquisitions: 1959 - General Electric asset purchase. \ 1958 - American Supertenperature Wires, Inc. 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Feb. Kar. Apr. Kay June July Aug. Sept. Oct. JJov. Dec. 1961 . 32.6 39.25 37.0 42.70 40.2 46. 41.4 50.3 37.6 45.5 33.875 4o. 36.5 40.75 37.25 47.25 36.75 45-375 37. 42.875 35.125 39025 32.25 36.5 Nev York Stock Exchange Lovs fc Hlgflis______ Z Canaany 1962 29.375 35.5 29.5 28. 33.875 32.25 21.625 28.75 15.5 24.75 13.125 19.625 14.625 19.5 17.5 22.375 15.875 21. 13. 17.25 15. 20.5 19. 22.375 1963 19.375 24.5 22.125 24.375 21.625 26. 26.125 32.5 29.75 36.25 33. 39. 32.125 37.875 36.375 44.5 39.75 47.875 40.125 48.375 34.5 46. 37.625 45. 1964 34.25 41.875 33.75 36.50 35.75 38.875 30.25 37.875 32.50 39.875* Share Turnover 19^T Jan. Feb. Mar. Apr. my Total Annual Outstanding Annual $ 133,100 65,000 67,900 108,900 253,000** 627,900 1,507,000 1,024,000 147 Jan. Feb. mr. Apr. my June July Aug. Sept. Oct. NOV. Dec. 39.5 42.75 44.56 45. 45.5 43.5 44.125 46. 50.06 48.75 50.25 47.75 49. 45.75 48. 47.44 48.75 48.375 46.94 53.31 53.50 55.25 52.875 52.75 Hercules 45. 46.125 46.5 42. 30.5 27.25 29. 33.25 34.625 35.375 38.75 41.625 52.625 46.94 50. 48. 45.25 36.875 34.375 37.375 39.375 4o. 44.125 44.25 39. 39.625 39.375 37.625 36. 38. 34.125 35. 36.125 36.375 34.25 35.75 43.5 43.375 42.875 40.25 39.625 39.625 38.375 36.75 39.25 38.50 37.50 38.875 38.5 42.25 41.50 42.25 43.50 44.375 46.125 44.125 45.375 45.75* Through Kay 20th. **vfith 6 trading days estimated at 9*300 a day. 5/21/64 Schedule 6 Personnel Name Office Age 1962 Salary 1963 Salary John H. Lux Robert L. Noland Harold B. Haney Ernest 0. Ohsol Arthur T. Bourgault Purnall L. McWhorter Frederick R. CronmiUer Wallace E. Eovan President Vice Pres. Vice Pres. Vice Pres. Vice Pres. Asst. Vice Pres. Controller, Treas. Asst. Sec. Sec. fis Asst. Treasurer 45 5^ 48 mm - 43 43 $57,OX Belov $30, OX Belov $30,OX Belov $30, OX Belov $30, OX Belov $30, OX Belov $30,OX Belov $30,OX $65,OX $45,333 Belov $30,OX Belov $30,OX Belov $30,OX Belov $30,OX Belov $30, OX Belov $30,OX All officers & directors 223,833 $250,683 Approximate number of employees 1,245, about 13$ technical. In the past, yearly legal fees of $75,000 in 1962 and $30,000 in 1963 vere paid to one director and a yearly consultant fee of $25,OX paid to another director. There are seven directors and John Lux is the only officer on the board. Pension Plan The salaried employees have a noncontributory plan adopted in 1959 It provides for regular retirement at age 65 vith disability benefits at earlier ages. Hie amount of pension is based on salary and service. Details of the plan vere not available. Hie nonsalaried employees also have a noncontributory plan vhich vas adopted in December 1962. Hie effective dates of the plan vary vith the location involved. Normal retirement age is 65 end mandatory retirement at 70. Maximum benefits range from $40 to $50 per month. A disability provision is also included. Hie total cost of the employees pension plan amounted to $184,000 for 19^3 At December 31, 1963, unfunded past service costs under the plans aggregated $575,OX. Stock Options Year Granted Price Range (a share) Shs. Outstanding Dec. 31, 1963 1961 1962 1963 $36.58 - $37.77 $15.92 - $21.08 $22.98 - $33.37 13,265 3,720 12,010 Prudential Insurance Co. $32.X 25,ox 53,995 Bhs. Expire 1966 1967 1968 1969 3/9/64 Schedule 7 Dscord of Acquteitlcns In 195? Patch Pa!ushl Fealty Corp. crned land upon vhich 3 buildings is Vest Marron, Mass., are located, re leased the entire space to the PLad-nh Division. Fln-penh, sninuficturung laminated and reinforced plastic cad Class products, vac fcreed cn acruisiticn, February 1955, for (205,COO. 1957^ Fauuhoid Engineering cud Plastics Cergany (ChfLifornia), picducers of LUinSoreed glass end plastic products and coatings for industrial use, vas aecuirod for 053C,CCC* Payment \oc (133,003 cast, 4,500 chares of Haves and an option to buy 550 additional shares at (5:4 a chare. Peiuhold's net vorth $343,CC0. Lass, five- nonius ending Ihy 1557, oo^O. Sales, 5 aonihs, (50,000. 1553 /uu-rican Supertsnperatura t'iros, due. (Vermont) on a pooling of interest basis. Paid 21,600 shares of steed: plus opticus to purchase additional 2,700 shares, American had a pue-_ . 0 Piccu subsidiary, not then in operation, cub uith a 10-year Industrial Tan umongticn Certificate. Hot vorbh of American \a: (230,000 on July 1, 1953* Year's sales to latter date $1,977,000; net in cone, (ISO;COO. Manufactures high-terporaturo hsoh-up, vrappod and magnet vire, Cwwll^ CCiblO ;* 1 * # 1559; asruirod from General 1`lcctric Co. certain plastics cpemtiens, invmitoriaa and roco-ivablc-s at Taunton, Mass, and Decatur, 111, for (2,633,000 including (431,000 for patents, payable in installments. (See "1963 debt" for re... az'.nmg onomt a. --`corns.) 15o0 acruiro-d assets of Blcr-c-Mntic Core. (Conn.) and Caine Industries (Ohio); also certain assets of Persian Co. (H.J.). Ko facts. 13SI acquired Elsc'tricable, Inc. end Service Cable and Ulre Co. (Calif.) Mo facts. 1963 Subsidiary Peirhold acquired1 fined assets and inventory cf California division cf Cariceh, Inc. Ho facts. TABLE OF CONTENTS Background and Histry ; Earnings Chart Divisional Background and Forecast Financial Summary 1956-1963 Growth Forecast 1964-1966 -Haveg Information Working Capital Analysis Five-Year Break-Even Target Stock Market Prices Hercules andHaveg 1961-1964 Personnel and Benefit Plans Record of Acquisitions Possible Acquisition Prices Page 1 2 3 6 7 8 9 10 11 12 13 March 26, 1964 7r BACKGROUND AND HISTORY OF HAVEG INDUSTRIES 1 This company was incorporated in 1929 as Continental Diamond Fibre " Company. In 1955 most of their assets were sold to the Budd Company and corporate name was changed to Haveg Industries. Haveg's sales have shown a spectacular increase from $4 million in 1956 to $30 million in 1963. Correspondingly, Haveg's after tax income has increased from $150, 000 in 1956 to $1, 335, 000 in 1963. The chart on the next page compares the growth in Hercules and Haveg share earnings. Part of Haveg's past growth has been due to four acquisitions made by Haveg since 1955. However, Haveg's growth has been largely due to the high degree of engineering skills they employ in their complex plastic fabrications plus their imaginative and aggresive leadership. Early this year Haveg granted an exclusive license to Lily-Tulip on Haveg's patented process for foaming plastics for use in nested cups. Lily-Tulip are conservatively forecasting that their sale of foamed cups will easily reach $10 million in 1966 and $20 million in 1967. As a result of Haveg's initial development work on foam process prior to granting a license to Lily-Tulip, Haveg reportedly has 25 - 30 patent applications on their foaming process. Recently a large blow molder -- with annual sales of approximately $60 million -- asked Haveg for an exclusive license on Haveg foam process for blow molded containers. Haveg has deferred negotiations with this blow molder temporarily pending the outcome of our negotiations for outright acquisition. Haveg visualizes that the economies of their foam process will enable such plastics to find large new markets presently held by paper, metal, and other materials. Also, they visualize foamed plastics replacing conventional plastics in many large volume applications. In 1963 Haveg spent approximately $1. 3 million on research, or 4% of net sales. They have approximately 140 engineers. Haveg's plant facilities.are located in Taunton, Massachusetts; Wilmington, Delaware; Burlington, Vermont and Santa Fe Springs, California. Haveg employs approximately 1400 people. n\ F DOLLARS 10.0 YEAR n Li L L vi L^ BACKGROUND ON HAVEG'S DIVISIONS AND SALES FORECAST FOR 1966 We have had three discussions with Haveg on their forecast of 1966 sales by division. As a result of these discussions, we believe that Haveg has been realistic in forecasting a growth in net sales from $30 million in 1963 to $55. 5 million in 1966. Their 1966 forecast of $55. 5 million consists of $42. 5 million of net sales from existing facilities plus $13 million in net sales from new facilities. In 1963, approximately 37% of Haveg1 s sales went to the government. Haveg is forecasting a slight decrease in their net sales to the government during the next three years. We are summarizing below for each division our available background information, the past sales growth, and basis for Haveg's 1966 sales forecast. Taunton Division These facilities and patents were acquired in 1959 from General Electric for $2. 6 million. They have large injection molding, compression molding and elastomer seal facilities. Initially Haveg sold General Electric $6. 0 million from the Taunton facilities but Haveg has found $5. 0 million new markets for engineered plastics and reduced routine GE molding business to $2. 5 million annually. Sales of their Taunton Division have grown to $7. 5 million in 1963. Except for Western Electric's captive custom molding facilities, the Taunton plant is the largest custom molder of plastics in the world. They are essentially selling their engineering skills, since their plastic raw materials only represent approximately 25% of their sales prices. This year Haveg acquired the aircraft and missile seal product lines of Connecticut Hard Rubber Co.' These product lines are presently being merged into Taunton operations and will add $2 million in annual sales to the Taunton' Division. Taunton Division has recently come up with two engineering developments that offer substantial growth potential. One development is a composite molded structure for fuel cells that consists of 21 parts, 14 different plastic materials and made by 10 different processes. The second development is a line of molded products for micro-miniaturized transistor circuits. Based on the growth potential of these two developments and other Taunton products plus the acquisition this year from Connecticut Hard Rubber Co., Haveg's sales forecast of $12 million in 1966 for the Taunton Division is easily achievable. Container Division The origin of the Container Division was Haveg's acquisition of Blow-OMatic in I960. The initial facilities at Bridgeport, Connecticut have been trans ferred to Wilmington. The Container Division's 1963 net sales of $500,000 consisted largely of blow molded polyethylene liners for fiber and metal drums. This is a fairly recent development and Haveg forecasts conservatively that sales of their present blow molded products will reach $3. 0 million in 1966. b' fcijj _____ i- a __________ Li-i Ul . V u l.1 Haveg has excluded from their sales forecast for 1966 the possibility of developing a rigid foamed plastic drum to replace fiber drums. If this division's foam drum development is successful, the price could be reduced from approximately $6.00 to $4.50 and the Container Division's sales could reach $9 million. American Super-Temperature Wire, Inc. Haveg acquired this company in 1958 for 21,600 shares of Haveg common. The company has their plant facilities at Burlington, Vermont and produces specialty wires and cables, using mainly Teflon and silicone as insulation materials. Net sales of this division have increased from $3.4 million prior to acquisition to $4.5 million in 1963. However, this division has developed some newer products that offer good growth potential. These newer products include wire and cable capable of withstanding temperatures up to 1,000F., radiation resistant wire, and wire for micro miniaturization processes. This division forecasts sales growth to $7.5 million in 1966. If this division's current development work on irradiated polyethylene proves successful, Haveg forecasts that this division's sales could reach $10 million in 1966. Sil-Temp This is Haveg's trade name for pure silica fabric which is produced in Haveg's facilities in Wilmington. Until 1962, sales of Sil-Temp were entirely to the government as high temperature insulation material for missile cones and nozzles. In 1962 Haveg embarked on a commercial market development program for their silica fabric and by 1963 Sil-Temp sales of $3 million were divided 80% to the government and 20% commercial. Haveg is forecasting Sil-Temp sales will easily reach $5 million in 1966. Chemical Equipment This is Haveg's original line of corrosion resistant equipment that is produced in their Wilmington facilities. Haveg is forecasting that this division's net sales will increase fr-om $2.5 million in 1963 to $4 million in 1966. This division's forecasted sales growth is based on the normal projected growth of chemical equipment industry plus Haveg's announced plans to produce larger tanks (12 feet in diameter) which will broaden the market for this division. A large autoclave is now being installed to make such vessels. Aerospace Division Haveg has Aerospace facilities at both Wilmington and Santa Fe Springs, California. The latter facilities were acquired from Reinhold in 1957 for $500,000. -er- 04 c\a i& ea> <r o *3 & o o p w--4 & O dr o ST O i <3 as &V 3A fac* & S<33 C*3l o *-* 3 g g & o o d w c> H< U O 3 C2*. *(-3 55* g e* 1 Q& 3Q o i v V*. o I t IS ft to rovn M c? 5 H* ctO H M# k VOI %ro f 3 - so 04 M vn o 1 & vnvn 04 04 Q vo vn sho H -<3 04 o HU M 04 SO S3 vn to p* Vp# - vn CO <A 0V*4 -SJrV3oH vocvP lOe^f PS *3 3 3 ft 3& >J icr+ *i ? g 5? s *6 o 04 vn & fc\ o\ VO g 04 Wh *<,J Ow 2 0I4 HI 4 p* "ro' 04 #to* H R? v VO 8 W04 CO vn vn vn H 04 1 CN kg$ R vn 04 p* 04 ft s CO JO HU < P'-I'J so vn h 04 vn to 8 % vn 8 VP* 0vn4 VT *r o & CD P HU4 C\ c\ ro 04 to vOJjvMq Hvn Cv-3vo H & vn R? 8 vn VO ,H*H [O [\4 ro P* 04 Vi < HHi * rH3o OHi & ^r 3v ^r 1 prio*oh4votnj > 04 V Vvn %p* P P^ ^ Vro wfO~3 0o4 d T5 g>& H ro * Vn C3 o -~J 5>H 6i vsji H V vn wH O 8 & V & CV 0o4p* p* V04 H -~1 o wto w 0044P* VoHO Ho--4p-Hcv Vt H VI 04 04 ro H P It * V u t VH aUr o H g VO (O 3 c\ -<s o 4 V* 1 HH T- ^ roo4 ca -0 o vb H -P* vnvn ovo cyd p* VO PHO 04 03 04 & * & u H f* 4r-vo Hi Ui Ht 'co'p5'ru` wH O to H . ^ 04 O (O > vvnn W % g vH>n M wC\ Vrao Vv*o H VO* _ C o vn ~00444 vn & ^1 88 o -vj lf Co H* ro Q 04 0vn4 CV C(SD H 5 (OOOf T ft * t * s e q p s ytK> p,tcd x )- D ili r63iuisnaM i saAvir 03 & 8. CJ s. "1 I". \ b c.'i O V; v " '- CO V.-; < <o ;o k* 5, ;'o WjO V- o o`o v wTO SO!-^ I to < i- ? V/t VR OjO o O -P* UIO Jo ISVl *CO . ;Vi W id So ior-*|v8a jvn Ih fe io |8 `f t . i_ ib jr.j iO Io JO vn `8 200 200 H 1 ro I CO CO CoO CoO Ico I vn co t 8o f $o |M ft <rotIP* tf? a ^ihIt.j o P* < c*. q a>g?^ ts sr1\U9 w mo i sr&3 za 8 p\ 8 | Uooci* OMOD* e S' tto' haves Internal Sources of Capital ($1,000) Retained Earnings Depreciation Set Aside Amortization of Patents Total 1957 151 109 260 1958 296 272 568 1959 365 467 -- 832 i960 587 616 63 1,266 1961 513 728 63 1,304 1962 . 574 806 63 1,443 1963 721 815 46 1,582 Expenditures* Patents - - 388 - - - - Plant Expenditures 705 478 2,678 1,055 1,069 768 1,384 Accounts Receivable Increase Inventory Increase Total Capital Overage or Shortage 205 272 1,182 (922) 87 2,4l4 387 691 952 6,171 (384) (5,339) (687) 131 850 m 172 157 323 201 540 1,357 1,941 1,696 726 (53) (498) (114) Price Earnings Ratio 29.2 33-5 46.5 36.1 48.0 24.0 26.3 Includes acquisitions: 1959 - General Electric asset purchase. \ 1958 - American Supertenperature Vires, Inc. (pooling) 1957 - Reinhold Engineering and Plastic (pooling) and other minor acquisitions and purchases. 3/31/64 Schedule 4 h?o c $44 Five Year (19-3) Break Even Tercet HVG Q $36 ^ 1,024,152 cho., $36,870,000 Bcuivaleat price Ecuivaleat value HVG chares Ecuivalcr.t IIPC chnre3 G $44 Additional liTC chares For nsv capital (coe fcelcv) Total HP3 chares H?G earnings, 1953 Break even iTvG earnings Annual eerpeund rate of ererth, 5 yrs. fren I9S3 HVG + 50/ $54 $55,304,000 1,296,900 2\-3,800 1,475,700 2.34 $3,453,000 20.92 HVG + 1002 $72 $73,739,000 1,675,900 386,300 2,062,200 2.34 $4,826,000 29.32 ratio net incane to coles Sales Sales over I5S3 Capital needed HVG earnings, 1954-1963 HVG retained earainss, 50* Her capital needed i H?C 19aa & $2.34 s ?/H 5 Shares for nor capital 4.432 $77,900,000 47,600,000 18,900,000 12,200,000 6,100,000 $12,800,000 - 53-1/2 213,800 4.4# $103,900,000 78,800,000 30,300,000 15,400,000 7,700,000 $22,600,000 53-1/2 336,300 Schedule 5 U w' 4' v ? *- Apr. oV_10 A,... k.wj U* Ccri. Ilev. Oae. 1951 32.0 39.25 37.0 42.70 40.2 45. 4l.4 50.3 37.6 45.5 3j*3f5 4o. 35.5 4-0.75 37.25 4-7.25 35.75 45-375 37. 42.675 3>.i25 39.125 32.25 33.5 I.'cv Ycrl: f'cedi Ilcclian^e _____ Lc::e r-. llirfos_ 15 <->,-I.-a--v--e*r'- 29.375 35-5 29.5 23. 33-375 32.25 21.625 3.75 15.5 24.75 13.125 19.625 14.625 19.5 17.5 22.375 15.375 21. 13. 17.25 15. 20.5 29. 22.375 1953 19.375 24.5 22.125 24.375 21.625 25. 25.125 32.5 29.75 35.25 33. 39. 32.125 37.875 35.375 44.5 39.75 47.875 40.225 43.375 34.5 46. 37.625 45. 1954 3^.2^ 41.875 33.75 35.50 glare Turnover 1964 Jan. 133,100 Feb. 65,000 193,100 Annual 1,163,000 Outotandlng 1,024,000 Annual 116 Jen. i* wJ V:n Apr. Ju~3 July Cat. ITcv. T-*- 39.5 42.75 44.56 45. 45.5 43.5 44.225 \/ 50.05 43.75 50.25 47.75 49. 45.75 43. 47.44 43.75 43.375 46.94 53.31 53.50 55* 5 52.875 52.75 Hercules 45. 45.225 45.5 42. 30.5 27.25 29. 33.25 34.625 35.375 33.75 41.625 52.625 46.94 50. 43. 45.25 35.675 34.375 37.375 39.375 4o. 44.225 44.25 39. 39*625 39.375 37.625 35. 33. 34.125 35. 35.125 35.375 34.25 35.75 43.5 43.375 42.3?5 40.25 39.625 39.625 33.375 35.75 39.25 33.50 37.50 33.875 33.5 42.25 44.375 45.125 J. 'v f Schedule- 6 1j . .. , At -- v John -i. Lux Robert L. I-oland Harold 3. Eaney Breast 0. Cbsol Arthur T. Bourgaiilt Purnell L. Ihf.'horter Frederick R. Cronniller V.'ullaca E. Covan ' Personnel^ Office Age President Vice Pros. Vice Pres. Vice Pros. Vice Pres. Asst. Vice Pres. Controller, Trees., Asst. Sec. A Asst. Trees. *\cc6 Sec. 45 -- 45 54 48 m 43 43 All officers A directors $57,000 - Av'oofi Belov $30,000 If If hm M ffl nn n. n O ft $223,838 Appro:-dnnte number of employees 1,400, about 10# Technical. In the past, yearly legal fees of $75,000 vara paid to One director end a yearly consultant fee of $25,000 paid to another director. There are seven-directors and John Lux is the only officer on the board. Pension Plan The salaried employees have a noncontributory plan adopted in 1959* It provides for regular rotirereent at age 6? vith disability benefits at earlier ages. The avaunt cf penoicn is based on salary and service. Details of the plan were not available. The noer.als.ried employees also have a noncontributory plan vhich vas adopted in Beceuber 1952. The effective dates of the plan vary vith the location involved. Ilorsal retirersat ape is 65 end mndatcry retireesnt at 70. Kuxisaa benefits mage frea ;'xO to $50 per canth. A disability provision is also included. The total cost of the employees pension plan amounted to $184,000 for 1983* At Dec-saber 31, 1953, unfunded past service costs under the plans aggregated 0575,000. Stock Options Year Granted Price Range (a share) Shs. Outstanding Dec. 31, 1953 I90I $35.53 - $37.77 13,265 1952 $15.92 - $21.08 3,720 1953 $22.93 - $33.37 Prudential Insurance Co. $32.00 12,010 25,000 53,995 ehs. Expire 1956 1957 1953 1959 Schedule 7 record of Acquisitions la 1557 Batch Pulaski Realty Corp. cvned land upon vhich 3 buildings in Vest Warren, Mass., are located. It leaned tho entire apace to the PlnTuak Division. Pla-Tank, manufacturing laminated and reinforced plastic and Class products, van formed on acquisition, February 1956, for $205,000. 1957, Feiraold Engineering tied Plastics Company (California), producers of reinforced e--ss end plastic products end coatings for industrial vise, vas acquired for $530,000. Payment van $133,000 cash, 4,500 chares of Unveg Gad an option to buy 950 additional shares at $44 a chare. P.einhold*s net vorth 0343,OCO. Less, five months ending I-lay 1957* $3^0. Sales, 5 months, $560,000. 195S American Svtpertesnerature Wires, Inc. (Vermont) on a pooling of interest basis. Paid 21,600 chares of stock plus options to purchase additional 2,700 chares. American had a Puerto Rican subsidiary, not then in operation, but vith a 10-year Industrial Tax Exemption Certificate. Het vorth of American vas $2>0,CG0 cn July 31* 1950* Year's sales to latter date $1,977*000; net in come, $120;GOO. Ihmufactures hish-tenje-rature hook-up, vrapped and ragoet vira, r*_l C3bls r^/? 1559* acesired from General Electric Co. certain plastics operations, inventories and receivables at Taunton, lines, and Decatur, HI, for $2,633,000 including $431,000 for patents. Payable in installments. (Sea "1963 debt" for remaining amount and terns.) 15a0 acquired assets of 31or-o-I-htic Corp. (Conn.) and Cains Industries (Chio); also certain assets of Fcrmiun Co. (H.J.). Uo facts. 15ol acquired Electricable, Inc. end Service Cable end Wire Co. (Calif.) To fact3. l$o3 Subsidiary Rcinhold acquired fixed assets and inventory of California division of Oarlock, Inc. Ko facts. 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