<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER , 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRANSCRYPT INTERNATIONAL, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3663 47-0801192
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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4800 NW 1ST STREET
LINCOLN, NEBRASKA 68521
(402) 474-4800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
JOHN T. CONNOR
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
4800 NW 1ST STREET
LINCOLN, NEBRASKA 68521
(402) 474-4800
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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WILLIAM T. QUICKSILVER, ESQ. ANDREW L. BLAIR, JR., ESQ.
ALAN E. MORELLI, ESQ. SHERMAN & HOWARD, L.L.C.
ALLEN Z. SUSSMAN, ESQ. 633 17TH STREET, SUITE 3000
MANATT, PHELPS & PHILLIPS, LLP DENVER, COLORADO 80202
11355 WEST OLYMPIC BOULEVARD
LOS ANGELES, CALIFORNIA 90064
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE FEE
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Common Stock, $0.01 par value...... 4,312,500 $14.00 $60,375,000 $18,296
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(1) Includes 562,500 shares that the Underwriters have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457 under the Securities Act of 1933.
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.
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<PAGE> 2
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 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.
SUBJECT TO COMPLETION, DATED OCTOBER , 1996
3,750,000 SHARES
LOGO
COMMON STOCK
------------------------
Of the 3,750,000 shares of Common Stock offered hereby, 2,500,000 are being
sold by Transcrypt International, Inc. and 1,250,000 shares are being sold by
the Selling Stockholders. See "Principal and Selling Stockholders." The Company
will not receive any of the proceeds from the sale of shares by the Selling
Stockholders.
Prior to this offering, there has been no public market for the Common
Stock of the Company. It is currently estimated that the initial public offering
price for the Common Stock will be between $12.00 and $14.00 per share. See
"Underwriting" for information relating to the method of determining the initial
public offering price.
The Company has applied for quotation of the Common Stock on the Nasdaq
National Market, subject to notice of issuance, under the symbol "TRII."
------------------------
SEE "RISK FACTORS," BEGINNING ON PAGE 7, FOR A DISCUSSION OF CERTAIN
FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
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UNDERWRITING PROCEEDS
PRICE TO DISCOUNTS AND PROCEEDS TO TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
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Per Share.......................... $ $ $ $
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Total(3)........................... $ $ $ $
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(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $800,000.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to 562,500 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discounts and Commissions, Proceeds
to Company and Proceeds to Selling Stockholders will be $ ,
$ , $ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them and subject to the
right of the Underwriters to withdraw, cancel or modify such offer and to reject
orders in whole or in part. It is expected that delivery of shares of the Common
Stock will be made on or about , 1996.
DAIN BOSWORTH
INCORPORATED
THE DATE OF THIS PROSPECTUS IS , 1996.
<PAGE> 3
[ARTWORK TO COME]
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT
A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto, included elsewhere in this Prospectus. Each prospective
investor is urged to read this Prospectus in its entirety. Unless otherwise
indicated, the information in this Prospectus (i) gives effect to a
1.3106311-for-1 stock split to be effected prior to the effectiveness of this
offering and (ii) assumes no exercise of the Underwriters' over-allotment
option. Unless the context otherwise provides, all references to "Transcrypt" or
the "Company" include Transcrypt International, Inc., its consolidated
subsidiaries and its predecessor entities.
THE COMPANY
The Company is a leading designer and manufacturer of information security
products which enable users to prevent unauthorized access to sensitive voice
and data communications. The Company focuses on developing and providing
information security products for telecommunications markets, including the land
mobile radio ("LMR"), telephony and data security markets. The Company's
products are based on a wide range of proprietary analog scrambling and digital
encryption technologies. The Company's core technologies offer a number of
significant benefits including high levels of information security and sound
quality, high-speed, real-time data transmission, low power consumption, small
size and cost effective manufacturing. The Company believes its expertise in
both analog and digital information security, including the ability to provide
"dual mode" analog and digital security in the same product, provides a
competitive advantage as communications products migrate from analog to digital
technology. Furthermore, the Company believes its core technological expertise
in analog scrambling and digital encryption enables it to bring new information
security products to market quickly with relatively low development costs.
Land Mobile Radio Products
The Company's principal market for wireless information security products
has historically been the LMR market. Land mobile radios consist of hand-held or
mobile (vehicle mounted) two-way radios commonly used by public safety workers
(e.g., police, fire and medical emergency personnel), businesses (e.g., fleet
operators, taxi dispatch, construction and other commercial users) and a wide
variety of United States and foreign government agencies. The Federal
Communications Commission ("FCC") estimated that in 1991, there were 18 million
licensed land mobile radios in use in the United States. The Company believes
that demand for information security products in the LMR market has grown in
recent years due, in part, to increased awareness of eavesdropping by members of
the press, commercial competitors and criminals.
The Company's LMR product line consists of a broad variety of add-on
information security modules which can be installed in land mobile radio
products from leading manufacturers, including Motorola, Inc. ("Motorola"),
Ericsson, Inc. ("Ericsson") and E.F. Johnson Co. Purchasers of the Company's
information security products have included federal government agencies, such as
the Department of Defense, Federal Bureau of Investigation, National Security
Agency and White House Security, public safety agencies, such as the Los Angeles
and New York City Police Departments, international customers, such as the
London Metropolitan Police Force (New Scotland Yard) and the Russian Ministries
of Defense and Internal Affairs, and a variety of commercial customers, such as
Motorola, Time Warner Inc., Walt Disney Co. and Salomon Brothers Inc.
In 1995, as a result of increasing frequency spectrum capacity constraints,
the FCC mandated that all new LMR equipment utilize a more spectrally-efficient,
narrow-band (12.5 kHz) transmission system, which will effectively require all
LMR users to migrate to digital LMR systems. In response to this mandate, the
Association of Public Safety Communications Officers, Inc. ("APCO") published an
industry standard for digital land mobile radios, known as "APCO 25," which was
adopted by several major LMR manufacturers, including Motorola, the leading LMR
manufacturer. In addition to meeting FCC requirements, the APCO 25 standard
provides for interoperability among different manufacturers' systems, backward
compatibility with existing analog LMRs and the ability to add advanced
encryption features. The Company believes that demand for APCO 25 compliant
systems will increase as LMR users upgrade or replace their existing
3
<PAGE> 5
systems. The Company developed and, in September 1996, began shipping a
Transcrypt-branded, hand-held digital LMR. This new product, known as the
Stealth 25, can operate in both digital and analog modes, is fully compatible
with the APCO 25 standard, contains, as a standard feature, the Company's
information security technology and includes several additional value-added
features, such as remote disabling if the radio is lost or stolen. Furthermore,
Motorola has licensed to the Company certain technology which enables the
Stealth 25 to be backwardly compatible with the installed base of LMRs that use
Motorola's proprietary Smartnet(TM) trunking technology. The Company intends to
introduce additional products, including a vehicle-mounted LMR, in the first
quarter of 1997. The Company believes the development of the APCO 25 standard
and the anticipated migration from analog to digital technology in the LMR
market represents a significant market opportunity for its new LMR products.
Telephony Products
The Company offers a variety of information security products for cellular
telephone systems, including add-on scrambling modules designed to be installed
into cellular telephones such as Motorola's MicroTAC(TM) and Elite(TM)
telephones. The Company also offers external plug-in scrambling devices for
wireline telephones and scrambling units, which can be added to public telephone
switches or private branch exchange units ("PBX"). Additionally, pursuant to an
agreement with Motorola, the Company introduced in September 1996 a
Transcrypt-branded MicroTAC(TM) cellular telephone upgraded to include the
Company's advanced add-on scrambling modules. According to Dataquest, Inc., the
cellular telephone subscriber base in the United States is projected to grow
30.1% to 41.8 million subscribers in 1996 and to 69.8 million subscribers by
2000. According to the MultiMedia Telecommunications Association ("MMTA"),
worldwide cellular service revenues are projected to grow over the next two
years at a 30.0% compounded annual growth rate, from $68.9 billion in 1996 to
$116.4 billion in 1998. Also, according to the MMTA, approximately 47% of new
subscribers for cellular service use a Motorola telephone, and no other single
manufacturer accounted for more than 10% of the market. The Company believes
that the demand for voice security products is growing with a heightened public
awareness of the unsecure nature of cellular telephone communications. The
Company believes that its expertise in both analog and digital information
security, including the ability to provide "dual mode" analog and digital
security in the same product, will provide a competitive advantage as cellular
telephone users migrate from analog to digital telephones.
Data Security Products
The Company is currently developing data security products based on its
core digital encryption technology. According to Frost & Sullivan, sales of data
security products (defined as stand-alone voice, fax and other security products
and data encryption, key control and access control products) are projected to
grow over the next four years at a 21.3% compound annual growth rate, from
approximately $505.0 million in 1996 to approximately $1.1 billion in 2000. The
Company's initial products, which it plans to introduce in 1997, are expected to
include authentication and encryption/decryption products to provide secure
remote access to computer networks and secure facsimile transmissions. The
Company believes that the shift from mainframe to distributed computing and the
widespread proliferation of local-area networks, servers, interconnected
networks and the Internet, will continue to increase demand for technologies
which solve access and security issues. The Company believes that its proposed
hardware-based information security products will complement existing
software-based data security products by providing an added level of security.
In addition, the Company believes the real-time nature of its digital
encryption/decryption technology, made possible by its high-speed transmission
capabilities, will enable users to achieve secure transmissions without user
delays common in current systems.
The Company's objective is to maintain its position as a leader in the
market for wireless voice security products used in LMRs and cellular
telephones, while building on its core technological competencies to enter new
markets for secure voice and data security products. The Company's strategy to
accomplish this objective includes developing new products based on existing
core technologies, offering complete secure products solutions, fostering key
strategic relationships, such as the Company's relationship with Motorola, and
exploring strategic acquisitions.
4
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The Company's predecessor was founded in 1978. In December 1991, an
investor group led by John T. Connor, the Company's Chairman and Chief Executive
Officer, acquired the Company's business. The Company's principal offices are
located at 4800 NW 1st Street, Lincoln, Nebraska 68521, and its telephone number
is (402) 474-4800.
THE OFFERING
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Common Stock offered:
By the Company.................................. 2,500,000 shares
By the Selling Stockholders..................... 1,250,000 shares
Common Stock to be outstanding after the 9,283,078 shares
offering(1).....................................
Use of proceeds................................. For repayment of approximately $1.2
million of indebtedness, working capital
and general corporate purposes, including
enhancement of the Company's sales and
distribution capabilities and expansion
of existing manufacturing facilities, and
potential acquisitions of complementary
businesses, products or technologies.
Proposed Nasdaq National Market symbol............ TRII
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(1) Excludes 716,916 shares of Common Stock reserved for issuance upon exercise
of options outstanding as of September 30, 1996 under the Company's stock
option plan at a weighted average exercise price of $1.81 per share and
325,000 shares issuable pursuant to options to be granted upon the
effectiveness of this offering at an exercise price equal to the initial
price to the public. See "Management -- 1996 Stock Incentive Plan."
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- -----------------
1991(1) 1992 1993 1994 1995 1995 1996
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STATEMENTS OF INCOME (LOSS) DATA:
Revenues........................... $ 224 $4,974 $6,900 $9,155 $ 8,128 $ 5,358 $ 9,275
Gross profit....................... 145 3,738 5,284 6,254 5,145 3,091 6,389
Income (loss) from operations
before amortization of intangible
assets and special compensation
expense.......................... 1 647 2,013 2,410 (108) (629) 2,145
Amortization of intangible
assets(2)........................ 89 1,100 1,092 1,092 1,093 829 819
Special compensation expense(3).... -- -- -- -- -- -- 5,568
Income (loss) from operations(4)... (88) (453) 921 1,318 (1,201) (1,363) (4,242)
Net income (loss)(4)............... $ (88) $ (596) $ 788 $1,207 $(1,338) $(1,458) $(2,563)
Pro forma provision (benefit) for
income taxes(5).................. (496) (541) (1,623)
Pro forma net loss(4).............. $ (841) $ (917) $(2,698)
Pro forma net loss per
share(4)(6)...................... $ (0.12) $ (0.13) $ (0.38)
Shares used to compute net loss per
share(6)......................... 7,013 7,013 7,013
</TABLE>
5
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<CAPTION>
SEPTEMBER 30, 1996
--------------------------
ACTUAL AS ADJUSTED(7)
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BALANCE SHEET DATA:
Working capital...................................................... $ 2,139 $ 30,564
Total assets......................................................... 10,891 38,916
Long-term debt, net of current portion............................... 1,510 855
Stockholders' equity................................................. 6,521 35,946
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(1) Reflects operations for the one-month period ended December 31, 1991, which
was the first fiscal period of the Company's operations after acquisition of
the Company's business by current stockholders.
(2) Reflects the amortization of intangible assets related to the acquisition of
the Company's business in December 1991. These intangible assets will be
fully amortized as of November 30, 1996, and thus no such amortization
expense will be incurred subsequent to November 30, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Amortization of Intangible Assets."
(3) Represents a non-recurring, non-cash compensation expense of $5.4 million
resulting from the vesting in September 1996 of 716,916 stock options for 10
executive officers and key employees of the Company at a weighted average
exercise price of $1.81 per share, and the accrual of a special compensation
expense of $210,000 in September 1996, which is payable to the Company's
Chief Executive Officer at least 15 days prior to the projected completion
date of this offering. See "Management -- 1996 Stock Incentive Plan" and
"Management -- Employment Agreements."
(4) Excluding the special compensation expense of $5.6 million, income (loss)
from operations, net income (loss), pro forma net income (loss) and pro
forma net income (loss) per share would have been $1.3 million, $1.2
million, $1.0 million and $0.14, respectively, for the nine-month period
ended September 30, 1996.
(5) Prior to June 30, 1996, the Company operated as a partnership. The pro forma
provision for income taxes reflects the provision for income taxes as if the
Company was taxed as a Subchapter "C" corporation under the Internal Revenue
Code.
(6) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute pro
forma net income (loss) per share.
(7) Adjusted to reflect the sale of the 2,500,000 shares of Common Stock offered
by the Company hereby at an assumed offering price of $13.00 per share (the
midpoint of the estimated range of the initial public offering price), after
deducting underwriting discounts and commissions and estimated offering
expenses, and the receipt of the net proceeds therefrom. See "Use of
Proceeds" and "Capitalization."
6
<PAGE> 8
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully by prospective investors in evaluating
the Company and its business before purchasing any of the shares of Common Stock
offered hereby.
RELIANCE ON MOTOROLA
Motorola is the Company's largest customer and a key supplier. During the
nine months ended September 30, 1996, 16.1% (approximately $1.5 million) of the
Company's sales were to Motorola, and the Company purchased an aggregate of $1.0
million in Motorola components during such time for use in its products. The
Company has an agreement with Motorola for the sale of approximately $3.7
million of private-labeled analog socket scramblers through September 1997, of
which $1.5 million was purchased as of September 30, 1996. In addition, the
Company relies on Motorola to provide MicroTAC(TM) cellular telephones for
resale by the Company as an upgraded, secure cellular telephone. Also, the
Company intends, from time to time, to bid for integrated LMR systems contracts,
which it intends to supply using its hand-held Stealth 25 radio along with
private-labeled base station and repeater equipment purchased from Motorola. The
Company's dependence on Motorola, both as a customer and supplier, is expected
to continue. The Company is also dependent on continuing access to certain
proprietary Motorola intellectual property used in its products. Although the
Company believes that its relationship with Motorola is good, there can be no
assurance that Motorola will continue to purchase products from or supply
components and technology to the Company on the scale or at the prices that it
now does. Internal decisions or allocations of resources within Motorola could
lead to reduced purchases of the Company's products or to the modification or
discontinuation of components used in the Company's products. In addition, the
Company may increasingly be perceived by Motorola as a competitor, which could
impact Motorola's willingness to do business with the Company. Although the
Company has certain contractual relationships with Motorola both as a customer
and a supplier, most of these agreements are subject to termination in certain
circumstances and expire by their terms within one to ten years. Any reduction
of the Company's contractual relations with Motorola or a decision by Motorola
to reduce purchases of the Company's products or to reduce or eliminate the
provision of components and technology to the Company would have a material
adverse effect on the Company. See "Business -- Motorola Relationship."
TRANSITION FROM ADD-ON TO STAND-ALONE WIRELESS SECURITY PRODUCTS
The Company believes that there has been, and will continue to be,
increasing demand for secure wireless communication devices, particularly in the
LMR and cellular telephone markets, and that in the future these markets will
migrate from analog to digital equipment, due primarily to increased bandwidth
capacity constraints and the perception that digital transmissions are more
secure than analog transmissions. The transition to digital communications could
lead to a decrease in demand for add-on analog security modules. The Company has
historically sold add-on products for use with LMRs and cellular telephones
manufactured by other, larger companies with widely recognized brand names and
established distribution networks. During the third quarter of 1996, the Company
introduced its first two stand-alone Transcrypt-branded products and intends to
develop and place increasing emphasis on stand-alone products in the future.
This represents a fundamental change in the nature of the Company's products and
necessitates the development of new manufacturing and sales and marketing
strategies and capabilities. To some extent, it also places the Company in
competition with larger corporations which have historically been customers and
suppliers of the Company's add-on products. There can be no assurance that the
Company will be successful in making the transition from add-on products to
stand-alone products or that its new position in the market will not cause other
companies with which it has historically dealt, to discontinue or limit their
dealings with the Company. The inability of the Company to successfully make
such transition, including the failure to meet manufacturing demands or the need
for additional development, testing or refinement following new product
introduction, or a significant decrease in sales of the Company's existing
add-on products during such transition period, would have a material adverse
effect on the Company. In addition, although gross profits may increase in the
future due to increased sales of the Company's new stand-alone products, the
stand-alone products generally
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<PAGE> 9
carry lower gross margins than add-on products. Therefore, to the extent that
sales of stand-alone products increase in the future relative to add-on product
sales, the Company's gross margins are likely to decline. See "Business -- The
Company's Strategy."
MANAGEMENT OF GROWTH
The Company has recently expanded and intends to continue to significantly
expand the scope of its operations and the products which it offers. Such
expansion has resulted and will continue to result in an expansion of the
Company's facilities and work force. This growth can be expected to place a
significant strain on the Company's financial, managerial and other resources.
To manage growth effectively, the Company will need to continue to improve and
upgrade its operational, financial and management information systems, and to
attract, train, motivate, manage and retain key executives and employees.
In the normal course of its business and in connection with its expansion
plans, the Company evaluates potential acquisitions of businesses, products and
technologies that could complement or expand the Company's information security
business. To date, the Company has not completed any acquisitions, although it
may do so in the future. If the Company were to identify an appropriate
acquisition candidate, there is no assurance that the Company would be able to
integrate the acquired business, products or technologies into the Company's
existing business and operations, or that the integration would not cause an
excessive diversion of management time and resources. See "Business -- The
Company's Strategy."
COMPETITION
The information security and wireless communications equipment industries,
and the LMR market segment in particular, are highly competitive. Competition in
the sale of stand-alone and digital products is more intense than for add-on and
analog products. Most of the Company's competitors or potential competitors have
significantly greater financial, managerial, technical and marketing resources
than the Company. In particular, Motorola holds a dominant position in the
market for wireless communication products, especially in the LMR and cellular
telephone market segments. Although the Company has no knowledge of any plans or
intentions by A. John Kuijvenhoven, the Company's founder, to compete with the
Company in the future, the non-compete agreement between the Company and Mr.
Kuijvenhoven, entered into at the time of the acquisition of the Company by the
current stockholders, expires on December 3, 1996. Accordingly, there can be no
assurance that the Company will be able to continue to compete effectively in
its markets, that competition will not intensify or that future competition will
not have a material adverse effect on the Company. See "Business -- Competition"
and "Certain Transactions."
RAPIDLY EVOLVING INDUSTRY
The market for analog and digital information security products is an
emerging market and can be expected to evolve rapidly in the future as a result
of changing technology, industry standards and customer requirements. The
Company's ability to compete effectively in this rapidly evolving industry will
depend upon its ability to anticipate and react to these changes in a timely
manner. The development of new technologies by existing or future competitors
may place the Company at a competitive disadvantage by rendering some or all of
the Company's existing or new products obsolete. The Company has invested
heavily in the introduction of LMR products that comply with the APCO 25
standard. The Company believes that the APCO 25 standard will be accepted in the
public safety and government markets. However, some manufacturers have adopted
and actively support other digital LMR transmission standards for the public
safety marketplace. The widespread acceptance of one or more other standard in
the public safety market would have a material adverse effect on the Company.
See "Business -- Competition."
RISKS ASSOCIATED WITH INTERNATIONAL SALES
International sales constituted approximately 57.3%, 71.4%, 57.3% and 39.0%
of the Company's revenues in the nine months ended September 30, 1996 and the
years ended December 31, 1995, 1994 and 1993, respectively. International sales
are subject to a number of risks not found in domestic sales, including
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<PAGE> 10
unexpected changes in regulatory requirements, tariffs and other trade barriers,
political and economic instability in foreign markets, difficulties in
establishing foreign distribution channels, longer payment cycles, uncertainty
in the collection of accounts receivable, increased costs associated with
maintaining international marketing efforts and difficulties in protecting
intellectual property. Because most of the Company's foreign sales are
denominated in U.S. dollars, fluctuations in the value of international
currencies relative to the U.S. dollar may also affect the price,
competitiveness and profitability of the Company's products sold in
international markets. Furthermore, the uncertainty of monetary exchange values
has caused, and may in the future cause, some foreign customers to delay new
orders or delay payment for existing orders. The Company's products are subject
to export controls under U.S. law, which in some cases require the approval of
the National Security Agency and the Department of Commerce. To date, the
Company has been able to secure most required U.S. export licenses. There can be
no assurance, however, that such approvals will be available to the Company or
its products in the future in a timely manner or at all or that the federal
government will not revise its export policies or the list of products and
countries for which export approval is required. The Company's inability to
obtain required export approvals could adversely affect the Company's
international sales, which would have a material adverse effect on the Company.
In addition, foreign companies not subject to United States export restrictions
may have a competitive advantage in the international information security
market. See "Business -- Government Regulation and Export Controls."
RELIANCE ON PUBLIC SECTOR MARKETS
Public safety agencies and other governmental entities comprise a
significant portion of the Company's current and anticipated customer base. As a
result of competitive bidding requirements, the price received by the Company
for sales to such customers tends to be lower and the sales cycle tends to be
longer. The Company is often required to comply with bidding procedures,
including the posting of bonds. Any inability by the Company to obtain requisite
bonds would prevent the Company from bidding on LMR systems contracts, which
would have a material adverse effect on the Company. See "Sales, Marketing and
Distribution."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon a number of key
employees, including members of senior management. The loss of the services of
one or more of these key employees could have a material adverse effect on the
Company. With the exception of policies covering John T. Connor and Jeffery L.
Fuller, the Company does not maintain any key-person life insurance policies.
The Company believes that its future success will depend in part on its ability
to attract, motivate and retain highly skilled technical, managerial and
marketing personnel. Competition for such personnel is intense and there can be
no assurance that Company will successfully attract, motivate or retain such
personnel. See "Management."
DEPENDENCE ON SUPPLIERS
Most of the Company's current and proposed products require essential
electronic components supplied by outside vendors. Certain components may be
available from only one source, which may occasionally experience shortages
resulting in allocations among its various customers. For example, in late 1993
and early 1994, Motorola placed its customers, including the Company, on
allocation for the supply of certain types of surface-mount microprocessors,
which resulted in increased component costs and component shortages for the
Company. The Company's inability to obtain key components could result in lost
sales, the need to maintain excessive inventory levels and higher component
costs, which could increase the cost of producing the Company's products and
result in a material adverse effect on the Company. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Results of
Operations -- Gross Profit" and "Business -- Manufacturing and Suppliers."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced and expects to continue to experience quarterly
variations in revenues and net income as a result of many factors, including the
timing of customer orders, the timing of the introduction of new products,
general economic conditions and the timing and mix of product sales. Due to the
buying
9
<PAGE> 11
patterns of governmental customers, revenues for the first quarter tend to be
lower than revenues for the fourth quarter of the preceding year. In addition,
the Company's anticipated expansion will result in significant fixed costs that
will be recognized before any related revenues are realized, which could
adversely affect the Company's quarterly operating results. The Company does not
maintain a significant backlog and is dependent upon the receipt of current
customer orders. Any deferral of customer purchasing decisions or delays in
shipments can produce significant variations in the Company's quarterly results.
The impact of such decisions can be especially significant in the case of
government orders, which tend to be quite large. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Quarterly
Results of Operations."
REGULATORY ENVIRONMENT
Wireless communications are subject to regulation by United States and
foreign laws and international treaties. The regulatory environment is
inherently uncertain and changes in the regulatory structure and laws and
regulations can adversely affect the Company and its customers. Such changes
could make existing or planned products of the Company obsolete or unsaleable in
one or more markets, which would have a material adverse effect on the Company.
See "Business -- Government Regulation and Export Controls."
LIMITED PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
The Company currently holds one patent and has filed applications for nine
additional patents since 1995. Although the Company assesses the advisability of
patenting any technological development, it has historically relied primarily on
copyright and trade secret law, as well as employee and third party
non-disclosure agreements, to protect its proprietary intellectual property and
rights. The protection afforded by such means is not as complete as patent
protection. In addition, the laws of some countries do not protect trade
secrets. The inability of the Company to preserve its proprietary intellectual
property and rights could have a material adverse effect on the Company. See
"Business -- Intellectual Property."
In addition, the information security and wireless communications
industries in which the Company sells its products are characterized by
substantial litigation regarding patent and other intellectual property rights.
The Company is not aware that its patents or the features or content of its
products wrongfully infringe on any valid intellectual property rights of
others. However, there can be no assurance that third parties will not assert
claims against the Company that result in litigation, which could result in
significant expense to the Company, diversion of management and other resources
and the discontinued usage and sale of certain processes and infringing
products.
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of this offering, the Company's existing stockholders will
own beneficially, in the aggregate, approximately 59.6% of the Company's
outstanding Common Stock (assuming no exercise of the Underwriters'
over-allotment option). These stockholders will have the ability to control the
outcome of all corporate actions requiring stockholder approval and the election
of the Company's directors. See "Management -- Principal and Selling
Stockholders."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF SHARE PRICES
Prior to this offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
after this offering or that the market price of the Common Stock will not
decline below the initial public offering price. The initial public offering
price will be determined by negotiations between the Company and the
Underwriters. See "Underwriting" for a discussion of the factors considered in
determining the initial public offering price.
Market prices for securities of new companies in general, and technology
companies in particular, tend to be highly volatile. The trading price of the
Common Stock may fluctuate widely in response to quarterly variations in
operating results, announcements of technical innovations or new products by the
Company or companies in the same or closely related fields, changes in financial
estimates by a securities analyst, the
10
<PAGE> 12
operating and stock price performance of other companies that investors may deem
comparable to the Company, general stock market and economic conditions, and
other events or factors which may be unrelated to the operating performance of
the Company. These broad market fluctuations may adversely affect the price of
the Common Stock.
DILUTION
Purchasers of shares of Common Stock in this offering will suffer immediate
and substantial dilution in the net tangible book value per share of Common
Stock of $9.15 per share, assuming an initial price of $13.00 per share (the
midpoint of the estimated range of initial public offering prices). See
"Dilution."
DIVIDENDS
No dividends have been paid on the Common Stock to date and the Company
does not anticipate paying dividends in the foreseeable future. See "Dividend
Policy."
UNALLOCATED NET PROCEEDS
The Company has not yet identified specific uses for the substantial
majority of the proposed net proceeds from this offering. Pending the
identification of such uses, the Company expects that it will invest the
proceeds in shortterm investment grade, interest-bearing instruments and use a
portion of the net proceeds for working capital, repayment of certain long-term
debt and general corporate purposes. The Company will have discretion in the use
and investment of such proceeds. See "Use of Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
9,283,078 shares of Common Stock, of which the 2,500,000 shares offered hereby
by the Company and the 1,250,000 shares offered hereby by the Selling
Stockholders will, subject to certain exceptions, be freely tradable without
restriction or registration under the Securities Act of 1933, as amended (the
"Securities Act"). The remaining 5,533,078 shares of Common Stock are
"restricted" securities under the Securities Act, which the Company believes
must, under current law, be held until at least June 30, 1998. All of the
Company's existing stockholders have agreed not to sell any Common Stock for a
period of 180 days after this offering without the consent of the Underwriter.
An aggregate of 1,200,000 shares of Common Stock have been reserved for issuance
under the Company's 1996 Stock Incentive Plan. As of September 30, 1996, 716,916
shares of Common Stock were issuable upon exercise of vested stock options
granted by the Company prior to the date of this Prospectus and 325,000 shares
will be issuable pursuant to options to be granted upon the effectiveness of
this offering. In addition, the Company intends, as soon as practicable after
the consummation of this offering, to file a registration statement on Form S-8
under the Securities Act covering the 1,200,000 shares of Common Stock reserved
for issuance under the Company's 1996 Stock Incentive Plan. Future sales of a
substantial number of shares of Common Stock, or the perception that such sales
could occur, could have a material adverse effect on the prevailing market price
for the Company's Common Stock. See "Shares Eligible for Future Sale" and
"Management -- 1996 Stock Incentive Plan."
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
2,500,000 shares of Common Stock offered by the Company in this offering are
estimated to be $29.4 million, based on an assumed offering price of $13.00 per
share (the midpoint of the estimated range of initial public offering prices in
this offering) and after deducting the estimated underwriting discounts and
commissions and offering expenses payable by the Company. The Company will not
receive any proceeds from the sale of shares by the Selling Stockholders. See
"Principal and Selling Stockholders."
The Company intends to use approximately $1.2 million of the net proceeds
of this offering to repay the Company's indebtedness on certain term notes with
variable interest rates ranging from 8.25% to 8.75% as of
11
<PAGE> 13
September 30, 1996. The approximately $28.2 million of the remaining net
proceeds are expected to be used for working capital purposes, to enhance the
Company's sales and distribution capabilities, for capital expenditures to
expand the Company's manufacturing facilities and for other general corporate
purposes. The Company may also use a portion of the net proceeds to fund
acquisitions of, or investments in, complementary businesses, products or
technologies. Although the Company frequently reviews potential acquisition and
investment opportunities, there are no current plans or agreements with respect
to any such transaction, and no portion of the net proceeds has been allocated
for any particular acquisition or investment. The amounts actually expended by
the Company for any of these purposes may vary significantly depending on a
number of factors, including future revenue growth, the amount of cash generated
by the Company's operations and the progress of the Company's development
efforts. Pending such uses, the Company intends to invest the net proceeds of
this offering in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
Although the Company's predecessor, a limited partnership, had paid out
distributions to its investors primarily to cover its partners' attributed tax
liabilities, the Company, since its reorganization as a corporation in June
1996, has not declared or paid any cash dividends on its capital stock. The
Company currently intends to retain earnings, if any, to support its growth
strategy and does not anticipate paying cash dividends in the foreseeable
future. Payment of future dividends, if any, will be at the discretion of the
Company's Board of Directors after taking into account various factors,
including the Company's financial condition, operating results, current and
anticipated cash needs and plans for expansion.
12
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 30, 1996 and on an as-adjusted basis to reflect the sale of 2,500,000
shares of Common Stock offered by the Company hereby at an assumed offering
price of $13.00 per share (the midpoint of the estimated range of initial public
offering prices in this offering) and the application of estimated net proceeds
therefrom as described in "Use of Proceeds." This table should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus:
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1996
--------------------
AS
ACTUAL ADJUSTED
------- --------
(IN THOUSANDS)
<S> <C> <C>
Long-term debt obligations (less current portion)(1)..................... $ 1,510 $ 855
Stockholders' equity:
Preferred Stock, $0.01 par value, 3,000,000 shares authorized, none
issued and outstanding(2)........................................... -- --
Common Stock, $0.01 par value, 19,400,000 voting shares authorized,
6,565,536 issued and outstanding, actual; 600,000 non-voting shares
authorized, 217,542 issued and outstanding, actual; 9,065,536 voting
shares issued and outstanding, as adjusted; 217,542 non-voting
shares issued and outstanding, as adjusted(2)....................... 52 93
Additional paid-in capital(3).......................................... 9,699 39,083
Retained deficit(3).................................................... (3,230) (3,230)
------- -------
Total stockholders' equity..................................... 6,521 35,946
------- -------
Total capitalization..................................................... $ 8,031 $ 36,801
======= =======
</TABLE>
- ---------------
(1) See Notes 6 and 7 of Notes to Consolidated Financial Statements.
(2) Shares issued and outstanding excludes 716,916 shares of Common Stock
reserved for issuance upon exercise of options outstanding as of September
30, 1996 under the Company's stock option plan at a weighted average
exercise price of $1.81 per share and 325,000 shares issuable pursuant to
options to be granted upon the effectiveness of this offering at an exercise
price equal to the initial price to the public. See "Management -- 1996
Stock Incentive Plan" and Note 13 of Notes to Consolidated Financial
Statements.
(3) Reflects a non-recurring, non-cash compensation expense of $5.4 million
resulting from the vesting in September 1996 of 716,916 stock options for 10
executive officers and key employees of the Company at a weighted average
exercise price of $1.81 per share, and the accrual of a special compensation
expense of $210,000 in September 1996, which is payable to the Company's
Chief Executive Officer at least 15 days prior to the projected completion
date of this offering. See "Management -- 1996 Stock Incentive Plan" and
"Management -- Employment Agreements."
13
<PAGE> 15
DILUTION
The net tangible book value of the Company as of September 30, 1996 was
$6.3 million or approximately $0.93 per share. Net tangible book value per share
is determined by dividing the Company's net tangible book value (total tangible
assets less total liabilities) by the shares of Common Stock outstanding. Net
tangible book value dilution per share represents the difference between the
amount per share paid by purchasers of shares of Common Stock in the offering
made hereby and the net tangible book value per share of Common Stock
immediately after completion of the offering. After giving effect to the sale by
the Company of 2,500,000 shares of Common Stock offered hereby at an assumed
offering price of $13.00 per share (the midpoint of the estimated range of
initial public offering prices in this offering) and the application of the
estimated net proceeds therefrom, the pro forma net tangible book value of the
Company as of September 30, 1996 would have been $35.7 million or $3.85 per
share. This represents an immediate increase in net tangible book value of $2.92
per share to existing stockholders and an immediate dilution in net tangible
book value of $9.15 per share to the purchasers of Common Stock in this
offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $13.00
Net tangible book value per share as of September 30, 1996........ $0.93
Increase in net tangible book value per share attributable to new
investors...................................................... 2.92
Net tangible book value per share after offering.................... 3.85
Dilution per share to new investors................................. $ 9.15
</TABLE>
The foregoing table assumes no exercise of the Underwriters' over-allotment
option or of any outstanding stock options to purchase Common Stock of the
Company.
The following table sets forth, on a pro forma basis as of September 30,
1996, the difference in the number of shares purchased from the Company, the
total consideration paid and the average price per share paid by the Company's
existing stockholders and the new investors in this offering. The calculations
in this table with respect to shares of Common Stock to be purchased by new
investors in this offering reflect the assumed initial public offering price of
$13.00 per share before deducting the underwriting discounts and commissions.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1)............... 6,783,078 73.1% $ 7,864,123 19.5% $ 1.16
New investors(1)....................... 2,500,000 26.9 32,500,000 80.5 13.00
--------- ----- ----------- ----- ------
Total........................ 9,283,078 100.0% $40,364,123 100.0% $ 4.35
========= ===== =========== ===== ======
</TABLE>
- ---------------
(1) Sales by the Selling Stockholders in this offering will reduce the number of
shares held by existing stockholders to 5,533,078, or 59.6% (or 53.5% if the
Underwriters' over-allotment option is exercised in full), of the total
number of shares of Common Stock to be outstanding after this offering, and
will increase the number of shares to be purchased by new investors to
3,750,000, or 40.4% (or 46.5% if the Underwriters' over-allotment option is
exercised in full) of the total shares of Common Stock to be outstanding.
See "Principal and Selling Stockholders."
The foregoing tables and calculations exclude 716,916 shares of Common
Stock issuable upon exercise of outstanding stock options as of September 30,
1996, with a weighted average exercise price of $1.81 per share. See
"Management -- 1996 Stock Incentive Plan" and Note 13 of Notes to Consolidated
Financial Statements.
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data of the Company is
qualified by reference to and should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations included elsewhere
herein. The Consolidated Statements of Income (Loss) data for the years ended
December 31, 1993, 1994 and 1995 and the Consolidated Balance Sheet data as of
December 31, 1994 and 1995 are derived from, and are qualified by reference to,
the audited Consolidated Financial Statements of the Company included elsewhere
in this Prospectus. The Consolidated Statements of Income (Loss) data for the
year ended December 31, 1992 and the Consolidated Balance Sheet data as of
December 31, 1991, 1992 and 1993 are derived from audited financial statements
not included herein. The Consolidated Statements of Income (Loss) data for the
one-month period ended December 31, 1991 (the first fiscal period of the
Company's operations subsequent to the acquisition of the Company's business by
current stockholders) and for the nine-month periods ended September 30, 1995
and 1996, and the Consolidated Balance Sheet data as of September 30, 1996, are
derived from unaudited financial statements that include all adjustments
(consisting of normal recurring adjustments and accruals) that the Company
considers necessary for a fair presentation of the consolidated financial data
included herein, in accordance with generally accepted accounting principles.
The Consolidated Statement of Income (Loss) for the nine months ended September
30, 1996 is not necessarily indicative of the results for the entire fiscal
year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------- ------------------
1991(1) 1992 1993 1994 1995 1995 1996
------- ------ ------ ------ ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME (LOSS) DATA:
Revenues.......................... $ 224 $4,974 $6,900 $9,155 $ 8,128 $ 5,358 $ 9,275
Cost of sales..................... 78 1,236 1,616 2,902 2,983 2,267 2,886
----- ------- ------- ------- ------- ------- --------
Gross profit...................... 145 3,738 5,284 6,254 5,145 3,091 6,389
Operating expenses:
Research and development........ 43 963 1,138 1,180 1,953 1,362 1,686
Sales and marketing............. 52 656 982 1,590 2,109 1,456 1,506
General and administrative...... 49 1,472 1,151 1,074 1,191 807 1,052
Amortization of intangible
assets(2).................... 89 1,100 1,092 1,092 1,093 829 819
Special compensation
expense(3)................... -- -- -- -- -- -- 5,568
----- ------- ------- ------- ------- ------- --------
Total operating expenses..... 233 4,191 4,363 4,936 6,346 4,454 10,631
----- ------- ------- ------- ------- ------- --------
Income (loss) from
operations(4)................... (88) (453) 921 1,318 (1,201) (1,363) (4,242)
Interest expense, net............. -- 143 134 111 137 95 79
Provision (benefit) for income
taxes(5)........................ -- -- -- -- -- -- (1,758)
----- ------- ------- ------- ------- ------- --------
Net income (loss)(4).............. $ (88) $ (596) $ 788 $1,207 $(1,338) $(1,458) $ (2,563)
===== ======= ======= ======= ======= ======= ========
Income (loss) before pro forma
taxes........................... $(1,338) $(1,458) $ (4,321)
Pro forma provision (benefit) for
income taxes(5)................. (496) (541) (1,623)
------- ------- --------
Pro forma net loss(4)............. $ (841) $ (917) $ (2,698)
======= ======= ========
Pro forma net loss per
share(4)(6)..................... $ (0.12) $ (0.13) $ (0.38)
======= ======= ========
Shares used to compute net loss
per share(6).................... 7,013 7,013 7,013
</TABLE>
15
<PAGE> 17
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------ SEPTEMBER 30,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------ ------ -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................ $ 53 $ 436 $1,726 $3,353 $1,684 $ 2,139
Total assets............................... 8,353 7,741 7,908 9,627 7,523 10,891
Long-term debt, net of current portion..... 2,560 2,552 2,035 2,164 1,847 1,510
Stockholders' equity....................... 4,862 3,821 4,599 5,945 3,907 6,521
</TABLE>
- ---------------
(1) Reflects operations for the one-month period ended December 31, 1991, which
was the first fiscal period of the Company's operations after acquisition of
the Company's business by current stockholders.
(2) Reflects the amortization of intangible assets related to the acquisition of
the Company's business in December 1991. These intangible assets will be
fully amortized as of November 30, 1996, and thus no such amortization
expense will be incurred subsequent to November 30, 1996. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Amortization of Intangible Assets."
(3) Represents a non-recurring, non-cash compensation expense of $5.4 million
resulting from the vesting in September 1996 of 716,916 stock options for 10
executive officers and key employees of the Company at a weighted average
exercise price of $1.81 per share, and the accrual of a special compensation
expense of $210,000 in September 1996, which is payable to the Company's
Chief Executive Officer at least 15 days prior to the projected completion
date of this offering. See "Management -- 1996 Stock Incentive Plan" and
"Management -- Employment Agreements."
(4) Excluding the special compensation expense of $5.6 million, income (loss)
from operations, net income (loss), pro forma net income (loss) and pro
forma net income (loss) per share would have been $1.3 million, $1.2
million, $1.0 million and $0.14, respectively, for the nine-month period
ended September 30, 1996.
(5) Prior to June 30, 1996, the Company operated as a partnership. The pro forma
provision for income taxes reflects the provision for income taxes as if the
Company was taxed as a Subchapter "C" corporation under the Internal Revenue
Code.
(6) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute pro
forma net income (loss) per share.
16
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This Prospectus, including the following Management's Discussion and
Analysis of Financial Condition and Results of Operations, contains
forward-looking statements that involve risks and uncertainties. The Company's
actual results may differ materially from the results discussed in the
forward-looking statements as a result of certain factors, including those set
forth under "Risk Factors" and elsewhere in this Prospectus. The following
discussion should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto appearing elsewhere herein.
OVERVIEW
The Company commenced operations in 1978 to manufacture and distribute
embedded voice privacy and specialized signaling add-on devices for LMR users.
In December 1991, an investor group led by John T. Connor, the Company's current
Chairman and Chief Executive Officer, acquired substantially all of the assets
of the Company and certain intellectual property rights held by the Company's
founders, creating intangible assets of approximately $5.5 million, which the
Company is amortizing on a straight-line basis over a 60-month period ending
November 30, 1996. Following the acquisition, management took steps to diversify
the Company's product lines and further exploit the Company's core competencies
in information security technologies.
In late 1993, the Company began marketing system-wide security upgrades to
large users of wireless communications, particularly foreign public safety and
government users. Primarily as a result of such sales to these foreign
customers, revenues in 1994 and 1995 generally increased while gross margins
were reduced by the lower unit prices associated with these larger orders. The
Company's gross margins were also negatively impacted during this period by a
worldwide shortage of surface-mount microprocessors of the type used in the
Company's add-on scrambling modules, which increased the Company's component
costs. In mid-1994, the Company signed a long-term preferred vendor agreement
with a large electronics component distributor, which contributed to a gradual
improvement in the Company's access to such components and reduced component
costs.
In order to take advantage of the growing demand for digital
communications, in 1993 the Company started to invest in digital product and
technology research and development. In mid-1994, the Company began developing
an APCO 25 compliant hand-held digital LMR. In connection with the development
of this new product, the Company hired 11 additional technical personnel to
focus on basic digital research and product development. In order to help
finance these additional research and development expenditures, in September
1994, the Company raised $1.0 million through the sale of additional equity to
its existing equityholders. As a result of these development efforts, the
Company introduced a digital landline telephone encryptor in October 1995 and an
APCO 25 compliant digital hand-held radio in August 1996, and plans to introduce
additional digital products in 1997.
In 1995, the Company's growth was interrupted when the Company experienced
a reduction in annual revenues and profitability before amortization of
intangible assets. The Company believes that these results were primarily
attributable to management conflict over the future direction and control of the
Company, which led to a management restructuring commencing in the second
quarter of 1995 that resulted in the departure of five executive officers. The
Company believes that these factors diverted management attention from
day-to-day operations, which negatively impacted operating results, particularly
in the first half of 1995. In addition, the Company incurred direct expenditures
in 1995 of approximately $305,000 in severance payments and recruiting and
relocation costs for new executives in connection with the restructuring.
The Company has benefited and continues to benefit from state tax credits
arising from a 1993 agreement with the State of Nebraska, which results in
annual state income tax credits through 1999. In addition, the Company utilizes
its foreign sales corporation subsidiary located in Guam to exempt from income
taxation a portion of the Company's foreign sales income. See "Provision for
Income Taxes."
17
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth certain Consolidated Statements of Income
(Loss) information as a percentage of revenues during the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
--------------------------- ----------------
1993 1994 1995 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................. 23.4 31.7 36.7 42.3 31.1
----- ----- ----- ----- -----
Gross profit................................... 76.6 68.3 63.3 57.7 68.9
Operating expenses:
Research and development..................... 16.5 12.9 24.0 25.4 18.2
Sales and marketing.......................... 14.2 17.4 26 27.2 16.2
General and administrative................... 16.7 11.7 14.7 15.0 11.4
Amortization of intangible assets............ 15.8 11.9 13.4 15.5 8.8
Special compensation expense................. -- -- -- -- 60.0
----- ----- ----- ----- -----
Total operating expenses............. 63.2 53.9 78.1 83.1 114.6
Income (loss) from operations.................. 13.4 14.4 (14.8) (25.4) (45.7)
Interest expense, net.......................... 1.9 1.2 1.7 1.8 0.9
Provision (benefit) for income taxes........... -- -- -- -- (19.0)
----- ----- ----- ----- -----
Net income (loss).............................. 11.4% 13.2% (16.5)% (27.2)% (27.6)%
===== ===== ===== ===== =====
Income (loss) before pro forma income taxes.... (16.5) (27.2) (46.6)
Pro forma provision (benefit) for income
taxes........................................ (6.1) (10.1) (17.5)
----- ----- -----
Pro forma net loss............................. (10.4)% (17.1)% (29.1)%
===== ===== =====
</TABLE>
Revenues
The Company recognizes revenues upon shipment of products to its customers.
Revenues increased to $9.3 million in the nine months ended September 30, 1996
from $5.4 million in the nine months ended September 30, 1995. This increase was
attributable primarily to revenues during the 1996 period associated with
several large new sales contracts, including the commencement of shipments of
socket scramblers to Motorola. In addition, revenues for the nine months ended
September 30, 1995 were negatively impacted due to management conflicts over the
future direction and control of the Company, which led to a management
restructuring commencing in the second quarter of 1995 and resulted in the
departure of five senior executive officers.
Revenues declined to $8.1 million in 1995 from $9.2 million in 1994, due
primarily to lower sales volumes in the first half of 1995, which management
believes resulted primarily from the internal management conflicts discussed
above. Revenues increased to $9.2 million in 1994 from $6.9 million in 1993, due
primarily to several significant international orders in 1994.
International sales as a percentage of revenues were 57.3% and 65.2% during
the nine-month periods ended September 30, 1996 and 1995, respectively, and
71.4%, 57.3% and 39.0% in 1995, 1994 and 1993, respectively. The Company
believes that the 1995 international sales volumes were unusual, however,
reflecting several large sales to Egypt and Turkey. The Company anticipates that
international sales will continue to represent a significant portion of revenues
in the future, although domestic sales may increase as a percentage of revenues
in the future due to an increased marketing emphasis on domestic sales,
including scrambler sales to Motorola, and the introduction and expanded
marketing domestically of the Company's current and proposed digital radio
products in the remainder of 1996 and 1997.
18
<PAGE> 20
Gross Profit
Cost of sales includes materials, labor, depreciation and overhead costs
associated with the production of the Company's products, as well as shipping,
royalty and warranty product costs. Gross profit increased to $6.4 million in
the nine months ended September 30, 1996 from $3.1 million in the nine months
ended September 30, 1995. In addition, gross margin increased to 68.9% in the
nine months ended September 30, 1996 from 57.7% in the same period in 1995, due
primarily to greater revenues in the nine months ended September 30, 1996
without a comparable increase in fixed overhead costs. In addition, gross
margins were negatively impacted during the 1995 period due to the sale to
international customers of large system-wide security upgrades at reduced unit
prices. The Company began shipment of its first stand-alone products in
September 1996, which generally have lower gross margins than add-on products.
To the extent that sales of stand-alone products increase in the future relative
to add-on product sales, gross margins are likely to decline.
Gross profit was $5.1 million, $6.3 million and $5.3 million in 1995, 1994
and 1993, respectively. Gross margin declined to 63.3% in 1995 from 68.3% in
1994, due primarily to lower sales volumes during the first six months of 1995
without a comparable decline in fixed overhead costs. Gross margin declined to
68.3% in 1994 from 76.6% in 1993, due primarily to increased system-wide sales
to international customers at reduced unit prices and the shortage of
surface-mount microprocessors.
Research and Development
Research and development expenses consist primarily of the costs associated
with research and development personnel, materials and the depreciation of
research and development equipment and facilities. The Company expenses all
research and development costs as they are incurred. Research and development
expenses increased to $1.7 million in the nine months ended September 30, 1996
from $1.4 million in the same period in 1995. Research and development expenses
as a percentage of revenues decreased to 18.2% from 25.4% over this period, due
to greater revenues in the nine months ended September 30, 1996. The dollar
increase was due primarily to expenses related to the development of the
Company's APCO 25 digital LMRs and the related development of internal
manufacturing capabilities for certain radio components. The Company anticipates
that it will continue to devote increased resources to research and development
during the remainder of 1996 and 1997.
Research and development expenses increased to $2.0 million in 1995 from
$1.2 million in 1994 and $1.1 million in 1993. These increases were due
primarily to the commencement of development of the Company's APCO 25 compliant
digital LMRs, which began in September 1994, and the expanded development of
telephone security product lines. Research and development expenses as a
percentage of revenues were 24.0%, 12.9% and 16.5% in 1995, 1994 and 1993,
respectively.
Sales and Marketing
Sales and marketing expenses consist primarily of salaries and related
costs of sales personnel, including sales commissions and travel expenses, and
costs of advertising, public relations, seminars and trade show participation.
Sales and marketing expenses remained constant at $1.5 million in each of the
first nine months of 1996 and 1995. Sales and marketing expenses decreased as a
percentage of revenues to 16.2% during the nine months ended September 30, 1996
from 27.2% in the same period in 1995, due primarily to the increase in revenues
during the 1996 period. The Company expects to increase its sales and marketing
expenditures significantly during 1997 through the addition of direct sales and
marketing personnel, primarily to support the introduction of new products,
including digital radios.
Sales and marketing expenses increased to $2.1 million in 1995 from $1.6
million in 1994 and $982,000 in 1993. These increases were due primarily to an
increase in personnel and associated expenses relating to the development of
international markets and distribution channels. Sales and marketing expenses as
a percentage of revenues were 26.0%, 17.4% and 14.2% in 1995, 1994 and 1993,
respectively. The percentage increase from 1994 to 1995 was also due in part to
the Company's lower revenues in 1995.
19
<PAGE> 21
General and Administrative
General and administrative expenses consist primarily of salaries and other
expenses associated with the Company's management, accounting, finance and
administrative functions. General and administrative expenses increased to $1.1
million in the nine months ended September 30, 1996 from $807,000 in the same
period in 1995. This increase was attributable primarily to expenses associated
with completing the restructuring of the senior management team begun in 1995,
including recruiting and relocation of several additional senior managers. The
Company expects to incur additional increases in general and administrative
expenses in 1997 due to costs associated with maintaining its status as a
publicly-held company and upgrades to the Company's management information
systems. General and administrative expenses as a percentage of revenues
decreased to 11.4% in the nine months ended September 30, 1996 from 15.0% in the
same period in 1995.
General and administrative expenses remained generally constant at $1.2
million, $1.1 million and $1.2 million in 1995, 1994 and 1993, respectively.
General and administrative expenses as a percentage of revenues were 14.7%,
11.7% and 16.7% in 1995, 1994 and 1993, respectively.
Amortization of Intangible Assets
Intangible assets consist primarily of the costs associated with the
acquisition of the Company's business in December 1991, including proprietary
technology licenses, non-competition agreements and goodwill. The Company is
amortizing these intangible assets on a straight-line basis over a 60-month
period ending November 30, 1996, which resulted in an amortization expense of
$1.1 million in each of 1995, 1994 and 1993, and approximately $820,000 in each
of the first nine months of 1996 and 1995. These intangible assets will be fully
amortized as of November 30, 1996, and thus no such amortization expense will be
incurred subsequent to November 30, 1996.
Special Compensation Expense
In September 1996, the Company incurred a non-recurring, non-cash
compensation expense of $5.4 million, resulting from the vesting in September
1996 of 716,916 stock options for 10 executive officers and key employees of the
Company at a weighted average exercise price of $1.81 per share, and a special
compensation expense of $210,000 payable to the Company's Chief Executive
Officer at least 15 days prior to the projected completion date of this
offering. Excluding the special compensation expense of $5.6 million, income
(loss) from operations, net income (loss), pro forma net income (loss) and pro
forma net income (loss) per share would have been $1.3 million, $1.2 million,
$1.0 million and $0.14, respectively, for the nine-month period ended September
30, 1996. See "Management -- 1996 Stock Incentive Plan" and
"Management -- Employment Agreements."
Interest Expense, Net
Net interest expense consists of interest expense, including amounts
payable on the Company's term loans, net of interest income, including interest
earned on cash and investable funds. Net interest expense remained relatively
constant at $80,000 in the nine months ended September 30, 1996, a decrease from
$94,000 in the same period in 1995. Net interest expense was $137,000, $111,000
and $134,000 in 1995, 1994 and 1993, respectively.
Provision for Income Taxes
Prior to June 1996, the Company was organized as a partnership, and
therefore was not subject to income taxation except to the extent that its
earnings were attributed to its partners. The Company's benefit for income taxes
subsequent to reorganization as a corporation for the three-month period ended
September 30, 1996 was $(1.8) million, primarily resulting from a deferred tax
benefit in connection with the stock option related special compensation expense
of $5.4 million.
The Company benefits from state tax credits arising from a 1993 agreement
with the State of Nebraska (the "Nebraska Agreement") to create at least 30 new
jobs and invest at least $3.0 million in new equipment prior to December 31,
1999. This agreement results in annual state income tax credits through 1999 of
ten percent of the purchase price of new equipment and a refund of Nebraska
sales taxes (currently at a rate of
20
<PAGE> 22
6.5%) paid on purchases of new equipment during each year and, beginning on
January 1, 1996, a credit of five percent of the annual compensation paid to the
new employees exceeding the base year's aggregate compensation. Such credits
amounted to $454,000 in the first six months of 1996, of which $80,000 is
currently available to the Company, while the balance was accrued to the
partners of the Company's predecessor limited partnership. The Company believes
that sufficient tax credits will be available through the life of the Nebraska
Agreement to offset the Company's expected Nebraska state income tax liability
during such period. In addition, the Company utilizes its foreign sales
corporation ("FSC") subsidiary located in Guam to exempt from income taxation a
portion of the Company's foreign sales income.
Recently Issued Accounting Standards
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock Based
Compensation." SFAS No. 123 allows companies to continue the current method of
accounting for stock-based compensation plans under APB Opinion No. 25 or adopt
the fair value based method contained in SFAS No. 123. The Company plans to
continue to account for its stock-based compensation under APB Opinion No. 25.
21
<PAGE> 23
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited financial information in
dollars and as a percentage of revenues for the seven quarters ended September
30, 1996. In the opinion of the Company's management, this information has been
prepared on the same basis as the audited Consolidated Financial Statements
appearing elsewhere in this Prospectus and includes all adjustments, consisting
only of normal recurring adjustments, necessary to present fairly the unaudited
results set forth herein. The operating results for any quarter are not
necessarily indicative of results for any subsequent period or for the entire
fiscal year.
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------------
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1995 1995 1995 1995 1996 1996 1996
--------- -------- ------------- ------------ --------- -------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues.................................. $ 1,460 $1,562 $ 2,336 $2,770 $ 2,580 $3,148 $ 3,547
Cost of sales............................. 646 761 859 716 911 939 1,036
------ ------ ------ ------ ------ ------ ------
Gross profit.............................. 814 801 1,477 2,054 1,669 2,209 2,511
Operating expenses:
Research and development................ 397 457 508 591 436 649 601
Sales and marketing..................... 508 411 536 654 431 404 671
General and administrative.............. 285 265 257 383 349 345 357
Amortization of intangible assets(1).... 273 280 276 263 276 270 273
Special compensation expense(2)......... -- -- -- -- -- -- 5,568
------ ------ ------ ------ ------ ------ ------
Total operating expenses.............. 1,464 1,413 1,578 1,891 1,493 1,668 7,470
------ ------ ------ ------ ------ ------ ------
Income (loss) from operations(3).......... (650) (612) (101) 163 176 541 (4,959)
Interest expense, net..................... 29 24 42 43 18 32 29
Provision for income taxes(4)............. -- -- -- -- -- -- (1,758)
------ ------ ------ ------ ------ ------ ------
Net income (loss)(3)...................... $ (679) $ (636) $ (143) $ 120 $ 158 $ 509 $(3,230)
====== ====== ====== ====== ====== ====== ======
Income (loss) before pro forma taxes...... $ (679) $ (636) $ (143) $ 120 $ 158 $ 509 $(4,988)
Pro forma provision (benefit) for income
taxes................................... (252) (236) (53) 45 38 97 (1,758)
------ ------ ------ ------ ------ ------ ------
Pro forma net income (loss)(3)............ $ (427) $ (400) $ (90) $ 75 $ 120 $ 412 $(3,230)
====== ====== ====== ====== ====== ====== ======
Pro forma net income (loss) per
share(3)(5)............................. $ (0.06) $(0.06) $ (0.01) $ 0.01 $ 0.02 $ 0.06 $ (0.46)
====== ====== ====== ====== ====== ====== ======
Shares used to compute net income (loss)
per share(5)............................ 7,013 7,013 7,013 7,013 7,013 7,013 7,013
====== ====== ====== ====== ====== ====== ======
AS A PERCENTAGE OF REVENUES
------
Revenues.................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............................. 44.3 48.7 36.8 25.9 35.3 29.8 29.2
------ ------ ------ ------ ------ ------ ------
Gross margin.............................. 55.7 51.3 63.2 74.1 64.7 70.2 70.8
Operating expenses:
Research and development................ 27.2 29.3 21.8 21.3 16.9 20.6 16.9
Sales and marketing..................... 34.8 26.3 23.0 23.6 16.7 12.8 18.9
General and administrative.............. 19.5 17.0 11.0 13.8 13.5 11.0 10.1
Amortization of intangible assets(1).... 18.7 17.9 11.8 9.5 10.7 8.6 7.7
Special compensation expense(2)......... -- -- -- -- -- -- 157.0
------ ------ ------ ------ ------ ------ ------
Total operating expenses.............. 100.3 90.5 67.5 68.3 57.9 53.0 210.6
------ ------ ------ ------ ------ ------ ------
Income (loss) from operations(3).......... (44.5) (39.2) (4.3) 5.9 6.8 17.2 (139.8)
Interest expense, net..................... 2.0 1.5 1.8 1.5 0.7 1.0 0.8
Provision for income taxes(4)............. -- -- -- -- -- -- (49.6)
------ ------ ------ ------ ------ ------ ------
Net income (loss)(3)...................... (46.5)% (40.7)% (6.1)% 4.3% 6.1% 16.2% 91.0%
====== ====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(1) Reflects the amortization of intangible assets related to the acquisition of
the Company's business in December 1991. These intangible assets will be
fully amortized as of November 30, 1996, and thus no such amortization
expense will be incurred subsequent to November 30, 1996. See "-- Results of
Operations -- Amortization of Intangible Assets."
(2) Represents a non-recurring, non-cash compensation expense of $5.4 million
resulting from the vesting in September 1996 of 716,916 stock options for 10
executive officers and key employees of the Company at a weighted average
exercise price of $1.81 per share, and the accrual of a special compensation
expense of $210,000 in September 1996, which is payable to the Company's
Chief Executive Officer at least 15 days prior to the projected completion
date of this offering. See "Management -- 1996 Stock Incentive Plan" and
"Management -- Employment Agreements."
(3) Excluding the special compensation expense of $5.6 million, income (loss)
from operations, net income (loss), pro forma net income (loss) and pro
forma net income (loss) per share would have been $609,000, $541,000,
$541,000 and $0.08, respectively, for the three months ended September 30,
1996.
(4) Prior to June 30, 1996, the Company operated as a partnership. The pro forma
provision for income taxes reflects the provision for income taxes as if the
Company was taxed as a Subchapter "C" corporation under the Internal Revenue
Code.
(5) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of the method used to determine the number of shares used to compute pro
forma net income (loss) per share.
22
<PAGE> 24
The Company historically has experienced, and in the future expects to
continue to experience, substantial variability in its revenues and
profitability from quarter to quarter. The level of revenues in a particular
quarter vary primarily based upon the timing of large purchase orders, due
principally to the seasonal nature of governmental budgeting processes and the
needs of competing budgetary concerns of its customers during the year. Other
factors which affect the level of revenues in a particular quarter include the
timing of the introduction of new products, general economic conditions, the
timing and mix of product sales and specific economic conditions in the
information security and wireless communications industries. In addition, due to
the buying patterns of the Company's federal and state agency customers,
revenues for the first quarter of the Company's fiscal year tend to be lower
than revenues for the fourth quarter of the preceding year. The Company believes
that its quarterly results are likely to vary for the foreseeable future. See
"Risk Factors -- Fluctuations in Quarterly Operating Results."
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and met its capital requirements
primarily through cash flow generated from operations, short-term borrowings,
long-term debt and an additional capital investment from its investors. The
Company's operating activities generated cash of $1.4 million, $55,000, $2.9
million and $1.4 million in the nine months ended September 30, 1996 and in
1995, 1994 and 1993, respectively. Cash provided by operating activities in the
nine months ended September 30, 1996 consisted primarily of a net loss plus
depreciation and amortization and the special compensation expense and an
increase in accounts payable, offset in part by an increase in accounts
receivable, inventory and deferred tax assets. Cash provided by operating
activities in 1995 consisted primarily of a net loss plus depreciation and
amortization and an increase in accrued expenses, offset in part by an increase
in accounts receivable and a decrease in accounts payable. Cash provided by
operating activities in 1994 consisted primarily of net income plus depreciation
and amortization and a decrease in accrued expenses, offset in part by increases
in accounts receivable, inventory and prepaid and other assets.
The deferred tax assets totaling $1.9 million (which resulted primarily
from the stock option related special compensation expense of $5.4 million
incurred in September 1996) were 17.9% and 29.9% of total assets and
stockholders' equity, respectively, at September 30, 1996. Based on the current
level of taxable income, management believes that it is more likely than not
that future taxable income will be sufficient to fully utilize all deferred tax
assets recorded.
Cash used for investing activities is attributable primarily to capital
expenditures, which totaled $1.4 million, $1.3 million, $1.7 million and
$591,000 in the nine months ended September 30, 1996 and in 1995, 1994 and 1993,
respectively. Capital expenditures consisted primarily of computer and
networking equipment, office furniture and manufacturing equipment and, in 1994,
expenses related to the construction of the Company's Lincoln facility. In
August 1996, the Company began construction of a 21,000 square foot expansion of
its existing Lincoln facility at an estimated final cost of $1.0 million,
primarily to accommodate additional manufacturing capacity. The expansion is
expected to be completed in the first half of 1997. As of September 30, 1996,
the Company had no additional firm commitments for capital expenditures, but the
Company expects to purchase additional computer equipment and replace its
current management information system in 1997.
Financing activities have consisted primarily of borrowings under and
payments on an industrial development revenue bond issue arranged through the
Nebraska Industrial Financing Authority (the "IDR"), two term notes, an
installment note secured by equipment and a bank line of credit. Additionally,
in September 1994, the Company received an additional $1.0 million equity
investment from existing investors to help the Company finance the development
of its APCO 25 digital radio project.
The IDR bears interest at a fixed rate of 6.25%, is non-amortizing and
matures in January 2004. At September 30, 1996, the Company had an outstanding
principal amount of $850,000 under the IDR. Both of the term notes bear interest
at the bank's regional money market rate plus 0.5% (8.75% at September 30, 1996)
and are secured by substantially all of the Company's assets. One of the term
notes had a principal balance outstanding of $299,305 at September 30, 1996 and
matures in February 1998, while the other term
23
<PAGE> 25
note had a principal balance outstanding of $409,751 at September 30, 1996 and
matures in May 1999. The installment note is secured specifically by equipment
and bears interest at the bank's national prime rate plus 0.5% (8.25% at
September 30, 1996). The installment note is payable in monthly installments and
matures in May 2000, and had outstanding $383,373 in principal amount at
September 30, 1996. The bank line of credit provides for working capital
advances not to exceed $2.0 million, with specific advances calculated based
upon a percentage of eligible inventories and accounts receivable. Interest is
payable monthly on the bank line at the bank's money market rate (8.25% at
September 30, 1996) and is collateralized by substantially all of the Company's
assets. The Company had $64,000 of borrowings outstanding on the bank line at
September 30, 1996.
Prior to June 1996, the Company was organized as a partnership and, as
such, made distributions to its partners of $181,000, $700,000, $861,000 and
$360,000 in the six months ended June 30, 1996 and in 1995, 1994 and 1993,
respectively, primarily to cover its partners' attributed tax liabilities. The
Company currently intends to retain earnings, if any, to support its growth
strategy and does not anticipate paying cash dividends in the foreseeable
future.
The Company believes that cash generated from operations and the net
proceeds from the sale of Common Stock in this offering, together with the
Company's cash, cash equivalents and lines of credit will be sufficient to meet
its anticipated cash needs for working capital, capital expenditures and
business expansion plans at least through 1997.
24
<PAGE> 26
BUSINESS
GENERAL
The Company is a leading designer and manufacturer of information security
products which enable users to prevent unauthorized access to sensitive voice
and data communications. The Company focuses on developing and providing
information security products for telecommunications markets, including the land
mobile radio, telephony and data security markets. The Company's products are
based on a wide range of proprietary analog scrambling and digital encryption
technologies. The Company's core technologies offer a number of significant
benefits including high levels of information security and sound quality,
high-speed, real-time data transmission, low power consumption, small size and
cost effective manufacturing. The Company believes its expertise in both analog
and digital information security, including the ability to provide "dual mode"
analog and digital security in the same product, provides a competitive
advantage as communications products migrate from analog to digital technology.
Furthermore, the Company believes its core technological expertise in analog
scrambling and digital encryption enables it to bring new information security
products to market quickly with relatively low development costs.
The Company's objective is to maintain its position as a leader in the
market for wireless voice security products used in LMRs and cellular
telephones, while building on its core technological competencies to enter new
markets for secure voice and data security products. The Company's strategy to
accomplish this objective includes developing new products based on existing
core technologies, offering complete secure products solutions, fostering key
strategic relationships, such as the Company's relationship with Motorola, and
exploring strategic acquisitions.
INDUSTRY BACKGROUND
The electronic information security industry is generally comprised of
products designed to protect the transmission of voice and data communications
through both wireless and wireline mediums. Without such protection, many forms
of electronic communications, such as LMR and cellular telephone conversations
and remote data communications, are vulnerable to interception and theft.
Today's information security industry originated from the need to secure
sensitive wireless military communications. Through World War II, many sensitive
military communications were protected by the use of codes, most of which
required the use of a "key" to encode and decode transmissions. After World War
II, military contractors developed devices which provided real-time, secure
wireless voice communications, although the early available technology was
expensive and produced poor sound quality. By the late 1970s, the availability,
quality and cost of information security devices had improved such that the use
of these devices by non-military governmental users (i.e., law enforcement,
fire, emergency medical and public safety personnel) and large commercial users
became economically and functionally feasible. Although a variety of
manufacturers introduced new products throughout this time period, Motorola
emerged as the leader in wireless voice communications and a developer of
limited analog information security products.
Initially, all electronic communications were transmitted in analog format.
Analog transmissions typically consist of a voice or other signal modulated
directly onto a continuous radio "carrier" wave. An analog transmission can be
made secure by "scrambling" or manipulating the original signal at the point of
transmission and reconstituting the original signal at the receiving end. By the
late 1980s, accelerating use of wireless communications devices, such as LMRs
and cellular telephones, resulted in increased demand for limited radio
spectrum. In response to this demand, and enabled by the low-cost availability
of digital signal processors ("DSPs"), electronics manufacturers developed
spectrally efficient (i.e., low-bandwidth) digital communications devices. In
digital communications, an analog signal, such as a voice, is "digitized," or
converted into a series of discrete information "bits" in the form of ones and
zeroes prior to transmission. Digital transmissions can be made secure by a
process known as "encryption," which involves the use of a mathematical
algorithm to rearrange the bit-stream prior to transmission and a decoding
algorithm to reconstitute the transmitted information back into its original
form at the receiving end.
The Company believes that the demand for voice security products is growing
due to a global increase in the use of wireless voice products and an increasing
public awareness of the security limitations of existing
25
<PAGE> 27
wireless products. Wireless communication devices operate in specific,
designated frequency bands, and include cellular telephones, land mobile radios,
pagers and the new personal communication services devices. Relatively
inexpensive radio scanners, available from many consumer electronics stores, can
intercept or be easily modified to intercept most types of analog wireless voice
transmissions. The Company believes that public safety officers in particular,
significant users of LMR products, are increasingly concerned with the
interception of their sensitive radio conversations by eavesdroppers such as
members of the press and criminals. In addition, the recent interception and
publication of the supposedly private cellular telephone conversations of public
figures, as well as the widespread theft of cellular telephone services through
telephone "cloning," has increased public awareness of the need for cellular
security. As a result of these factors, the Company believes that the demand for
voice information security products will continue to grow in the foreseeable
future.
Land Mobile Radio Products
One of the earliest applications of information security technology outside
of the military was in protecting LMR voice communications. The LMR user market
is comprised principally of business/industrial users (e.g., shippers,
dispatchers and forestry companies), public safety workers (e.g., police, fire
and emergency medical personnel) and federal agency personnel, many of whom have
a well-defined and, in some cases, critical, need for privacy. A typical LMR
system consists of one or more base control stations networked with each other
and with several mobile (vehicle-mounted) or hand-held portable LMRs. The FCC
estimated that in 1991, there were 18 million licensed land mobile radios in use
in the United States.
As with all other major forms of wireless communications devices, LMRs
transmit information in either analog or digital format, although the
substantial majority of LMRs currently in use operate in analog format only. In
1995, as a result of increasing frequency spectrum capacity constraints, the FCC
mandated that all new LMR equipment utilize a more spectrally-efficient,
narrow-band (12.5 kHz) transmission system, which will effectively require all
LMR users to migrate to digital LMR systems. In response to this mandate, an
advisory body of the Association of Public Safety Communications Officers, Inc.
("APCO"), including a number of LMR manufacturers, recommended an industry
standard for digital LMR devices which would both meet the requirements of the
FCC mandate and provide solutions for several actual or potential problems which
increasingly troubled public safety LMR users. These problems included: (i) the
lack of interoperability, or the failure of existing systems to communicate with
other systems produced by the same or other manufacturers; (ii) the lack of
backwards compatibility between older analog LMR systems and the new proposed
digital LMR systems; and (iii) the interception of sensitive public safety
communications by third party eavesdroppers. As a result, the APCO advisory body
eventually promulgated an open standard for digital LMR products, which has come
to be known as the "APCO 25 standard."
In order to comply with the APCO 25 standard, a digital LMR system must
utilize a "common air interface" to achieve interoperability with other digital
systems, be compatible with existing analog LMR infrastructure and provide the
user with the ability to use advanced encryption technologies. Motorola, one of
the largest LMR manufacturers, played a significant role in the formulation of
the APCO 25 standard and has been a major proponent of its adoption by the LMR
public safety market. Certain competitive LMR system standards have been
proposed by other LMR manufacturers, primarily the "EDACS" standard proposed by
Ericsson. Ericsson's EDACS standard is based on time division multiple access
("TDMA") technology, compared with the APCO 25 frequency division multiple
access ("FDMA") technology. The Company believes that the APCO 25 standard is
the only "open" (i.e., non-proprietary) digital LMR transmission standard
currently in use or proposed.
Although public safety agencies are not required by the FCC or the APCO
body to purchase APCO 25 compliant LMR systems, or otherwise adopt the APCO 25
standard, the Company believes, based in part on specifications published by
certain public safety agencies seeking bids for LMR system equipment, that APCO
25 compatibility is one of the key purchasing factors for public safety LMR
purchasers and that the demand for APCO 25 compliant LMR systems will increase
as LMR users upgrade their existing systems to comply with the FCC mandate. For
example, in May 1996, the U.S. Air Force proposed to adopt the APCO 25 standard
as the mandatory LMR standard for all future Air Force LMR requirements and
acquisitions,
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involving replacement of an estimated 155,000 LMRs. Also, in March 1996, the
U.S. Department of the Interior announced similar plans to adopt the APCO 25
standard.
Telephony Products
In 1983, the FCC issued the first license to provide cellular telephone
service in the United States. Since that time, cellular telephone service has
grown rapidly and become available to most of the population of the United
States. According to Dataquest, Inc., the U.S. cellular telephone subscriber
base is projected to grow 30.1% in 1996 to 41.8 million subscribers from 32.1
million subscribers in 1995, and is projected to increase to 69.8 million
subscribers by 2000. In addition, aggregate cellular service revenues are
projected to grow to $36.0 billion in 2000 from $26.2 billion in 1996.
Cellular telephone subscribers and revenues have grown rapidly in recent
years. The increased volume has raised significant new security and privacy
issues and an increased sensitivity to the potential risks involved in
intercepted signals. Unprotected wireless transmissions generally provide
minimal or no security and allow eavesdropping by even casual listeners with
compatible scanners. In addition, industry losses from cellular telephone fraud
due to "cloning" have reached alarming levels. Cloning refers to the illegal
activity of using a cellular telephone whose electronic serial number and
telephone number have been altered to match those of a legitimate subscriber's
telephone. The Cellular Telecommunications Industry Association has estimated
that in 1995, cloning fraud resulted in costs and lost revenues to the cellular
industry in excess of $650 million. The Company believes that in 1996, cloning
fraud will result in even greater costs and lost revenues. While stolen air time
may not result in direct losses to cellular carriers in areas that have excess
transmission capacity, carriers whose numbers are cloned often must reimburse
other service providers for roaming and long-distance charges incurred on cloned
telephones. To stem cloning losses, cellular service providers can provide
customers the ability to use "scrambled" telephones, such as those offered by
the Company, which effectively makes a cloned copy of such a telephone unable to
communicate with any scrambled cellular system.
Data Security Products
The Company believes that the demand for secure methods of transmitting
data, including computer communications via modem and facsimiles, is growing and
will continue to grow in the future. The Company believes that during the past
decade, the volume of sensitive, proprietary information has grown
significantly, along with the number of reported incidents and severity of
information theft and corporate espionage. In addition, the shift from mainframe
to distributed computing and the widespread introduction of local-area networks
("LANs"), servers and interconnected LANs or wide-area networks has raised
significant new access and security issues. While the client/server environment
and availability of modem-based connections has enabled information sharing from
remote locations, the increased number of access points into computer networks
has generally made such networks increasingly vulnerable. Individuals have been
able to exploit system weaknesses to gain unauthorized access to networks, data
transmissions and individual computers, and have at times used such access to
alter or steal data or, in some instances, to launch destructive attacks on
stored information. The Company expects that these factors will contribute to
continued expansion in the data security market.
THE COMPANY'S STRATEGY
The Company believes that its expertise in both analog and digital
information security, including the ability to provide "dual-mode" analog and
digital security in the same product, provides a competitive advantage as
communication products migrate from analog to digital technology. The Company's
objective is to maintain its position as a leader in the analog add-on market
for wireless voice security products used in land mobile radios and cellular
telephones while building on its core technological competencies to enter new
markets for secure voice and data security products. The Company's strategy to
accomplish its objective includes the following elements:
Develop New Products Based on Existing Core Technologies. The Company has
developed or has acquired the rights to core technologies for scrambling analog
and encrypting digital signals in a variety of
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ways, most of which can be adapted readily to new applications. This enables the
Company to bring new products to market quickly and with relatively low
development costs. For example, in August 1996, the Company was one of the first
manufacturers to offer a hand-held APCO 25 compliant LMR, which was developed in
part using the Company's core technologies. The Company is currently developing
a product to provide secure data transmission using the encryption technology
developed for the APCO 25 LMR and the Company's landline encryption device (DME
9600). The Company believes that its core technologies, its application of those
technologies and its ability to create new products efficiently have provided,
and will continue to provide, a competitive advantage in responding to the
emerging markets for analog and digital information security.
Offer Complete Secure Product Solutions. Until recently, the Company's
products consisted primarily of devices designed to be added to communications
products produced by other manufacturers. The Company intends to expand its
product lines to include complete, stand-alone secure communications solutions.
The Company is developing a secure, APCO 25 compliant LMR system based on its
Stealth 25 hand-held LMR and using base stations and repeaters purchased on a
private-labeled basis from Motorola. The Company has also entered into an
agreement to provide its Crypto Phone and Voice Privacy Exchange Unit to a
cellular telephone service provider, which will enable the service provider to
offer its customers secure cellular service. The Company believes that providing
complete solutions will allow it to compete for larger sales orders than can be
obtained for add-on products.
Foster Key Strategic Relationships. The Company has entered into and
intends to continue to develop key strategic relationships with regard to
distribution, marketing and technology licensing. The Company plans to enhance
existing and identify new distribution channels for its information security
products and recently introduced radio products. For example, in August 1995,
the Company entered into an agreement to provide a minimum of $3.7 million of
socket scrambler modules to Motorola for resale under Motorola's name. The
Company has also agreed to provide a complete secure cellular telephone in
volume to one of the regional Bell operating companies. In addition, the Company
has licensed key technologies from companies such as Motorola and Digital Voice
Systems, Inc., which have enabled the Company to integrate multiple advanced
technologies into its add-on products and its existing and proposed line of
digital radios. For example, the Company has licensed from Motorola the rights
to use Motorola's proprietary analog trunking technology (Smartnet(TM)) and
Digital Encryption Standard ("DES") algorithms for use in its LMR products,
which the Company anticipates will allow it to sell its products in additional
markets. The Company believes that these and future strategic relationships will
be important to both the Company's new product development and future growth.
Explore Strategic Acquisitions. The information security industry is
comprised primarily of a relatively small number of companies comparable in size
to the Company and several large competitors, such as Motorola and Ericsson. The
Company believes that, as the migration from analog to digital technology
progresses and the industry expands and evolves, there will be consolidation
among the current competitors. The Company intends to explore opportunities to
acquire businesses and technologies that will complement its products and core
technologies and expand its existing customer base and manufacturing capability.
However, the Company has no present understandings or agreements concerning any
such acquisitions and is not presently negotiating with respect to any such
matter. There is no assurance that the Company will be able to identify an
appropriate acquisition candidate or complete such an acquisition.
CORE TECHNOLOGIES
The Company first entered the information security market in 1978 with
simple, transistor-based add-on scrambling modules for use in analog LMRs
employing basic single-inversion scrambling techniques, which the Company
marketed primarily to public safety agencies and international governments.
Since that time, the Company has further developed and improved upon its core
information security technologies, including its copyrighted Crypto Voice
Plus(R) technology, which the Company believes provide high levels of
information security and sound quality, high (real-time) data transmission rates
and low power consumption. The Company believes that its core technologies
provide it with a competitive advantage in the information security marketplace.
The Company has implemented its core technologies into its scrambler modules, as
well
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as in other types of products within the Company's two major product families,
LMR Security and Telephony Security. Such core technologies currently include
the following methods, listed in ascending order of sophistication of security
technique: (i) frequency inversion (inverting or otherwise adjusting the phase
of a signal based on a consistent method); (ii) split-band transmission
(spreading a signal across multiple channels); (iii) rolling code transmission
(incrementally stepping codes); (iv) hopping code transmission (randomly setting
codes based upon an algorithm); (v) frequency hopping transmission (changing
broadcast frequencies multiple times per second based upon an algorithm); and
(vi) digital encryption (encoding a digital bit-stream based upon a mathematical
encryption algorithm).
The Company typically charges higher prices for devices featuring more
advanced levels of security. Therefore, the types of end users at each level of
security tend to vary based upon the importance of the information for which
security is desired. Typical users of the most basic form of scrambler, the
frequency inversion scrambler, include taxi dispatchers, other types of consumer
businesses and football and other sports teams that need to provide real-time
secure communications between players and coaches. Typical users for
medium-level security devices include commercial and industrial users and
international customers for which an export license has not been obtained.
High-level scrambling devices are used primarily by public safety agencies and
federal government personnel.
PRODUCTS
Current Products
The following tables contain a summary of certain information concerning
the Company's current principal information security products:
LMR SECURITY FAMILY
<TABLE>
<CAPTION>
COMMERCIAL LATEST
PRODUCT DESCRIPTION/SECURITY LEVEL LIST PRICE INTRODUCTION UPDATE
- ----------------------------- ------------------------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C>
MODULAR ADD-ON SCRAMBLERS
SC20-400 Scrambler Single inversion scrambler/LOW $124 December 1988 October 1996
SC20-410 Scrambler Rolling code scrambler/MED $249 September 1994 June 1996
SC20-430 Scrambler Hopping code scrambler/MED $399 September 1994 June 1996
SC20-460 Scrambler Hopping code scrambler/HIGH $535-599 April 1989 June 1996
SC20-480 Scrambler Hopping code w/synch/HIGH $599 April 1993 July 1996
SC20-500 Scrambler DSP-based scrambler/VERY HIGH $699 July 1996 August 1996
SOCKET SCRAMBLERS
Plug-in version of
350 OEM Scrambler SC20-460/HIGH $280 April 1996 August 1996
Plug-in version of
316 OEM Scrambler SC20-460/HIGH $200 July 1996 --
Plug-in version of
460 OEM Scrambler SC20-460/HIGH $280 July 1996 --
Plug-in version of
416 OEM Scrambler SC20-460/HIGH $275 August 1996 --
SIGNALING
TR20-200 Series RF signaling modules $59-399 May 1990 June 1996
TR20-800 Series Complex signaling modules $59-399 April 1991 June 1996
APCO 25 DIGITAL RADIO
Hand-held Stealth 25 Radio Digital radio/VERY HIGH $2,250-4,650 September 1996 --
</TABLE>
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<TABLE>
<CAPTION>
TELEPHONY SECURITY FAMILY
COMMERCIAL LATEST
PRODUCT DESCRIPTION/SECURITY LEVEL LIST PRICE INTRODUCTION UPDATE
- ----------------------------- ------------------------------ ------------ ---------------- ------------
<S> <C> <C> <C> <C>
CELLULAR SCRAMBLERS
Transcrypt Crypto Phone Hopping code scrambler/HIGH $700-1,500 September 1996 --
MicroTAC Scrambler-PX Hopping code scrambler/HIGH $370-500 May 1994 January 1996
Mobile Scrambler-CX Hopping code scrambler/HIGH $250-380 September 1993 June 1996
DSP Scrambler GSU DSP-based scrambler/VERY HIGH $370-500 September 1996 --
Elite Scrambler DSP-based scrambler/VERY HIGH $800-1,000 October 1996 --
LANDLINE/DESKTOP SCRAMBLERS
LX30-33X0 Landline scrambler/HIGH $740-925 December 1993 June 1996
Voice Privacy Exchange Unit PBX scrambler/HIGH $7,495 November 1993 June 1996
DME 9600/9603 Landline encryptor/VERY HIGH $1,495-1,995 October 1995 June 1996
TSU-LX40-33X0 Generic landline/HIGH $895 September 1996 --
</TABLE>
As with all of the Company's information security products, the use of
scrambling equipment is required on both the transmitting and receiving sides of
communications in order to operate in secure mode. For example, in order to
achieve secure LMR communications, it would be necessary for both the
transmitting and receiving equipment, including hand-held and mobile devices and
base stations, to be equipped with one of the Company's scramblers, whether as
an add-on installation or in the form of one of the Company's complete LMRs. In
the Company's cellular telephony family, a scrambled cellular telephone may
communicate in secure mode only with another of the Company's secure cellular
telephones, a PBX interchange or cellular service provider that has installed
one of the Company's Voice Privacy Exchange Units, or a landline telephone
equipped with one of the Company's external desktop scrambling units. However,
all of the Company's products can be used in the clear, non-scrambled mode with
equipment that does not contain a Transcrypt security device.
LMR Security. The Company offers a variety of add-on LMR scrambling
products featuring the Company's different core technologies and varying levels
of security. Add-on scramblers are available in two packages, a modular package
consisting of a circuit board that is designed to be permanently soldered into
existing circuitry, and a socket package designed to be installed in sockets
with standard pin configurations installed by OEM manufacturers. Motorola
currently stocks and sells directly one of the Company's socket modules pursuant
to an August 1995 agreement with the Company. Other products sold by the Company
are compatible with sockets of other OEM manufacturers, including Icom America,
Inc. and Kenwood Radio. The Company also produces modules that add signaling
features to OEM radios, including "man-down" (emergency signal broadcast if
radio position becomes horizontal), "stun-kill" (disables lost or stolen radios
remotely) and "over-the-air reprogramming" (changes encryption and scrambling
codes remotely).
In August 1996, the Company introduced a hand-held digital LMR complying
with the APCO 25 "common air interface" standard and featuring the Company's
advanced core scrambling and digital encryption technologies. The Company
intends to introduce additional secure LMR models, including mobile radios, in
1997. All of the Company's APCO 25 compliant "dual-mode" digital radios are
expected to be compatible and fully interoperable with older analog radio
systems, as well as with Motorola's proprietary analog trunking technology
(Smartnet(TM)) and proprietary implementation of DES encryption. The Company
believes that such backward compatibility will allow early adopters of the APCO
25 standard, such as the federal government and many public safety agencies, the
ability to purchase new equipment without replacing entire older systems.
Telephony Security. The Company's add-on scramblers for cellular telephones
typically consist of a modular circuit board designed to be permanently soldered
into existing telephone circuitry. The add-on scrambler product line includes a
model designed specifically for Motorola's MicroTAC(TM) telephones as well as a
"generic" scrambler for use in a variety of OEM cellular telephone equipment and
featuring advanced digital signal processing technology. Additionally, pursuant
to an agreement with Motorola, the Company has recently begun marketing a
complete, Transcrypt-branded, Motorola MicroTAC(TM) cellular telephone upgraded
to include the Company's advanced add-on scrambling modules. The Company
believes that offering
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cellular telephone security through a complete telephone product offers certain
advantages to addon scrambler sales, such as presenting the customer with a
single vendor, overcoming customer resistance to surrendering their telephones
during installations and allowing the Company to market cellular security
directly to cellular service providers. The Company has recently agreed to sell
secure telephones and the Company's Voice Privacy Exchange Units to one of the
regional Bell operating companies, which intends to resell the telephones to its
customers and charge additional per-minute air time usage fees for operation of
the telephones in secure mode. In the area of landline telephone voice security,
the Company has, since 1995, produced landline scrambling and encryption devices
for installation between the handset and telephone base, which have been
purchased primarily by overseas government and corporate users.
Products Under Development
Consistent with the Company's development efforts for its existing
products, the Company designs new products around common core scrambling and
encryption technologies utilizing common signal processing platforms and
circuitry. Using this approach, the Company can generally incorporate
improvements in core technologies into its new products more quickly and with
relatively lower development costs compared to developing entire products
separately. The following discussion contains a summary of the Company's
principal products under development. No assurance can be given that the Company
will be able to successfully develop any of these products or, if developed,
that any such products will be commercially viable or result in material sales
by the Company.
LMR Security. The Company plans to introduce in 1997 additional models of
its hand-held digital LMRs containing different features, as well as a line of
mobile (vehicle mounted) digital LMRs, all of which will comply with the APCO 25
standard. The Company also intends shortly thereafter to introduce hand-held and
mobile radios that transmit in analog format for the existing analog market. All
of these radios will contain as standard features the Company's voice scrambling
and/or DES encryption technology. Such radios will be compatible and fully
interoperable with older analog LMRs, and some of the radios will offer
compatibility with Motorola's proprietary analog trunking technology
(Smartnet(TM)) and Motorola's implementation of the DES encryption standard.
While the Company is not planning on manufacturing LMR infrastructure, the
Company expects that base stations and repeaters will be available on a private
label basis for resale by the Company as part of an integrated system. The
Company is also developing a modular add-on LMR scrambler for use in OEM
equipment that would utilize the DES algorithms licensed from Motorola.
Telephony Security. In September 1996, the Company introduced a complete
Transcrypt-branded Motorola MicroTAC(TM) cellular telephone upgraded to include
the Company's advanced add-on scrambling modules. The Company intends to
introduce, in 1997, a complete secure digital cellular telephone featuring
built-in digital encryption (DES) technology. The Company also plans to
introduce various other products in 1997, including a "T1" network server
capable of encryption/decryption for up to 24 simultaneous voice users, a
DES-based add-on scrambling module for cellular telephone users and five new
landline security products. Additionally, the Company intends to introduce, in
late 1996, a "generic" analog scrambling module incorporating built-in digital
signal processing techniques, which is expected to provide improved voice
quality with less need for customization. Such device would be marketed
primarily to buyers of premiumpriced cellular telephones, such as Motorola's new
Elite(TM) and StarTAC(TM) telephones.
Data Security. The Company's planned data security products are expected to
incorporate real-time, high-speed digital encryption techniques originally
developed for the Company's digital radio products and landline encryption
device (DME 9600). Future data security products are expected to consist of a
"T1" network server capable of performing high speed, real-time authentication
and encryption/decryption for up to 24 simultaneous computer users, an encrypted
landline modem, an encrypted cellular modem, an encrypted fax/modem PCMCIA card
and a desktop facsimile encryption device. The Company plans to begin
introducing these types of products in 1997.
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MOTOROLA RELATIONSHIP
The Company depends to a large extent on a number of significant
relationships with Motorola. Motorola has been one of the Company's largest
customers since 1994, and the Company believes that Motorola is likely to
account for a significant portion of the Company's sales in the near future.
Sales to Motorola totaled $1.5 million in the first nine months of 1996,
$460,000 in 1995 and $2.0 million in 1994. Sales in 1996 consisted primarily of
Motorola-labeled LMR socket scrambling modules available for resale by Motorola
as an accessory to certain of Motorola's portable LMRs sold in North America. In
August 1995, the Company entered into a three-year supply agreement with
Motorola's Radio Products Americas Group to provide socket scrambler modules at
fixed prices in lots of 100 or more. Such agreement provides for minimum
purchases by Motorola of $3.7 million of socket scrambler modules during the
18-month period beginning on April 1, 1996 (of which $1.5 million was purchased
as of September 30, 1996), after which the agreement terminates in August 1998
or is otherwise terminable at will by either party upon 60 days' prior notice.
By providing these Motorola-branded socket scramblers to Motorola in volume
pursuant to a fixed-price agreement, the Company believes that it has helped
Motorola to round out its product offerings. The Company is currently seeking to
expand internationally the territories in which socket scrambling modules and
other information security products will be distributed under this type of
agreement.
Motorola is also a key manufacturer of electronic components used by the
Company, including microprocessors used in most of the Company's scramblers,
which are supplied to the Company through an electronics wholesaler. In
addition, Motorola has agreed to sell to the Company, at fixed prices and upon
the Company's request, radio frequency ("RF") platforms for use in various
products. Purchases by the Company of Motorola components totaled approximately
$1.0 million in the first nine months of 1996 and $726,000 in 1995. Furthermore,
pursuant to a product sales agreement executed in June 1996 with Motorola,
Motorola has agreed to sell to the Company, upon the Company's request, original
equipment cellular telephones and related accessories from Motorola's
MicroTAC(TM) line, which the Company intends to resell equipped with the
Company's DSP-based encryption devices and labeled with the Transcrypt logo.
Such agreement specifies fixed prices for purchases of such equipment, and its
original term expires on December 31, 1997, after which it is terminable at will
by either party upon 30 days' prior notice. The Company has, as of September 30,
1996, purchased $46,000 in cellular telephones from Motorola pursuant to such
agreement.
The Company has obtained from Motorola a royalty-bearing, irrevocable,
non-exclusive, worldwide license (the "IPR License") to manufacture products
containing certain proprietary LMR and digital encryption technology that the
Company believes will be important to the success of certain of the Company's
existing and proposed APCO 25 compliant LMR products. The IPR License includes
rights to use Motorola's proprietary analog trunking technology (Smartnet(TM))
and DES algorithms in LMR products. The DES technology may also be incorporated
into certain other information security products. The IPR License was obtained
initially in August 1994 and was amended to cover a broader range of products in
June 1996. The IPR License provides for minimum royalty payments and per unit
payments in amounts which the Company believes are standard for the LMR
industry. The Company believes that LMR products containing analog trunking and
backward compatibility to analog devices will be necessary for customers to
migrate to digital radios while avoiding replacing all analog radios
simultaneously. In addition, the Company believes that the incorporation of DES
will be important in marketing its products to federal agencies.
In addition to the direct benefits of the IPR License to the Company's APCO
25 development efforts, the Company believes that sales of its APCO 25 digital
LMR products have been, and expects that such sales will in the foreseeable
future be, substantially dependent upon Motorola's dominant position as a market
leader in the APCO 25 marketplace. Motorola is the largest manufacturer of APCO
25 compliant LMR products and has been the principal public supporter of the
APCO 25 digital transmission standard for the LMR market. Any reduction in such
support could lead to reduced demand for APCO 25 compliant LMR systems
generally. Additionally, the Company is currently negotiating with Motorola to
purchase from Motorola base station, repeater and other LMR infrastructure
components, in order to market such items under the Transcrypt brand name in
fulfilling systems contract requirements.
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SALES, MARKETING AND DISTRIBUTION
The Company sells its products domestically through six sales managers.
Add-on products are sold domestically primarily to dealers, OEMs and
self-servicing end users, while complete radio products are sold domestically
primarily to end users. The Company believes that there are approximately 2,500
domestic radio dealers that offer the Company's addon information security
products. The Company is actively seeking to hire an additional eight sales
persons for radio sales in the United States, and the Company also intends to
market its radio and other complete products to its existing add-on customer
base.
The Company conducts international sales through four sales managers, each
of whom focuses on specific regions of the world outside of the United States.
The majority of international sales are made by the sales managers in
conjunction with a Company-authorized distributor, which typically provides a
local contact and arranges for technical training in foreign countries.
International sales accounted for 57.3%, 71.4%, 57.3% and 39.0% of the Company's
revenues in the nine months ended September 30, 1996 and in 1995, 1994 and 1993,
respectively. International sales have been, in most cases, denominated in U.S.
dollars, and the Company seeks to reduce the risks of payment in foreign sales
by obtaining advance payment and confirmed, irrevocable letters of credit. See
"Risk Factors -- Risks Associated with International Sales."
The Company distributes its add-on information security products to both
end users in the LMR and telephony markets and to distributors, such as LMR
dealers, that resell the Company's products to end users. In 1995, sales of
information security products to distributors totaled approximately 80% of
aggregate domestic sales and 76% of aggregate international sales. To date, the
Company has sold its self-branded, complete, analog secure cellular telephone
primarily through distributors and cellular service resellers, and the Company
intends in the future to also sell this telephone and the digital version
through cellular service providers.
To date, sales to public safety agencies and other governmental entities
have comprised a significant portion of the Company's total sales. Such sales
often involve competitive, open bidding characteristic of public sector
procurement programs. Under the Company's plan to sell stand-alone communication
devices, such as LMR units, to such types of customers, the Company will likely
be required to increase its participation in public bidding and procurement
processes. Among other requirements, suppliers of LMR units in quantity are
often required by public sector end-users issuing requests for bids to supply a
bond from an approved surety company at the time that the bid is submitted and
at the time that the contract is awarded. The availability of such bonds is
limited by a number of factors, including the applicant's financial condition
and operating results, the applicant's record for completing similar systems
contracts in the past and the extent to which the applicant has bonds in place
for other projects.
The Company's basic marketing strategy has been to increase market
awareness of the need for information security products and to convey the
technical capabilities of the Company's products. The Company conducts
promotions through a mix of print advertising, trade shows, direct mail
campaigns, press releases, technical articles, white paper publication, periodic
newsletters, training and presentation material, and distribution of
demonstration and loaner equipment, which are sometimes coordinated with product
launches and trade shows.
The Company provides toll-free telephone access for technical and other
calls, 24-hour voicemail and 24-hour emergency pager contact for customers with
technical or other problems. Product training, which includes classes, seminars
and video programs, is available at both the customer's site and the Company's
Lincoln facility. The Company offers a standard warranty on all products, which
covers parts and labor for a period of one year from purchase, with an extended
warranty service option available at an additional cost.
The Company installs, for a fee, all models of the Company's scrambler
modules into customers' LMRs and telephones. During the first nine months of
1996, the Company performed installations in approximately eight percent of
total units sold. Scrambler modules not installed by the Company are generally
installed by local radio and cellular telephone dealers. The Company documents
installation instructions for its products in OEM devices ("application notes"),
and has developed application notes for more than 2,000 OEM products, including
almost all commercially available two-way radio models sold worldwide.
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CUSTOMERS
The Company's customers use information security products in a variety of
situations involving differing security needs. For example, domestic and
international police forces typically have a medium to high need for security,
while military users which are often faced with hostile and determined threats,
and therefore typically have a high need for security. The following is a
representative list of purchasers, directly or through distributors, of the
Company's add-on information security products since 1991. Other than Motorola,
no customer accounted for more than 10% of aggregate sales during the nine
months ended September 30, 1996.
REPRESENTATIVE PURCHASERS
<TABLE>
<CAPTION>
STATE AND CITY PUBLIC SAFETY FEDERAL GOVERNMENT INTERNATIONAL
- -------------------------------------- ---------------------------------- ---------------------------------------
<S> <C> <C>
Arizona Department of Public Safety Air Force Australian Navy
California Department of Justice Army Brazilian Presidential Security
City of Carlsbad (New Mexico) Border Patrol Canadian Border Patrol
City of Seattle Customs Service Columbian Army
Delaware State Patrol Department of Agriculture Egyptian National Police
Livingston County Sheriff Department of Defense German National Police
(Louisiana) Department of Fish and Wildlife Hong Kong Police Force
Hennepin County Sheriff (Minnesota) Department of the Interior London Metropolitan Police Force
Iowa State Highway Patrol Department of the Treasury Polish Border Guard
Los Angeles Police Department Drug Enforcement Agency Polish National Police
Michigan State Police Federal Bureau of Investigation Portuguese National Police
Missouri State Patrol National Forest Service Royal Canadian Mounted Police
Nebraska State Patrol National Security Agency Russian Ministry of Defense
New York City Police Department Navy Russian Ministry of Internal Affairs
Oklahoma State Bureau of Narcotics Secret Service Swedish Customs
Oregon State Patrol White House Security Turkish National Police
Vernal Police Department (Utah) Vietnam Ministry of Interior
</TABLE>
<TABLE>
<CAPTION>
CELLULAR SERVICE PROVIDERS BUSINESS AND INDUSTRIAL LMR MANUFACTURERS MEDIA/ENTERTAINMENT
- ----------------------------- ------------------------------ -------------------- ---------------------------
<S> <C> <C> <C>
AirTouch B.F. Goodrich, Inc. Allied Signal Corp. ABC News
Communications, Inc. Conoco Inc. E.F. Johnson Co. Charlotte Observer
AT&T Corporation Exxon Oil Co. Ericsson, Inc. Time Warner Inc.
Bell Atlantic/NYNEX Harris Corporation Glenayre Co. Walt Disney Co.
Bell Mobility (Canada) Loral Terracom Icom America, Inc. Warner Bros. Entertainment
GTE MobileNet Service Marathon Oil Co. Kenwood Radio Corp.
GTE/Contel Cellular NEXTEL Corp. Maxon, Inc.
Midland
Furst Group Inc. Pillsbury Co. International
Sprint Corporation Rockwell International, Inc. Motorola, Inc.
Stanilite Pacific
Salomon Brothers Inc Ltd.
Shell Oil Co. SEA Inc.
Union Pacific Railroad Yaesu USA, Inc.
</TABLE>
INTELLECTUAL PROPERTY
The Company presently holds seven registered copyrights, which cover
software containing algorithms for frequency hopping, scrambling and signaling
technologies for LMR and cellular telephony, and one domestic patent, which
covers continuous synchronization methods used in analog scrambling products.
The Company has also applied for nine additional domestic patents relating to
high-end scrambling techniques and methods of integrating after-market devices,
such as the Company's modules, into OEM products. These patent applications were
the result of the Company's expanded intellectual property program, which is
intended to enhance the patent protection afforded the Company's new and
advanced intellectual property rights. The Company also holds three registered
trademarks related to the "Transcrypt" name and product names.
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<PAGE> 36
In addition to copyright and patent laws, the Company relies on trade
secret law and employee and third-party non-disclosure agreements to protect its
proprietary intellectual property rights. Furthermore, the Company believes that
the design of its information security devices render the underlying software
and processes difficult to reverse engineer, which provides an additional level
of protection.
RESEARCH AND DEVELOPMENT
Since December 1991, the Company has invested approximately $7.0 million in
internal research and development related to its proprietary advances in
information security products. At September 30, 1996, the Company's research and
development department consisted of 31 individuals, including 24 engineers, with
expertise in various fields, including cryptography, analog hardware, digital
hardware, object-oriented software, RF design and mechanical design. The
research and development staff designs and develops products incorporating
digital signal processing, voice coding (including improved multi-band
excitation), encryption, spectral manipulation and rotation, systems simulation
and mixed signal scrambling. In order to facilitate the Company's new product
line development plans, research and development staffing has been augmented
with additional expertise in the areas of data networking, communications
systems software, RF design, mechanical design, cryptography and digital signal
processing. Based on current projections, management expects the Company's
research and development staff to grow significantly in the foreseeable future,
with the bulk of this growth in the areas of radio, signal processing and
digital logic development.
MANUFACTURING AND SUPPLIERS
The Company manufactures all of its products at its facility in Lincoln,
Nebraska, mostly from commercially available subassemblies, parts and
components, such as integrated circuits, printed circuit boards, and plastic and
metal parts, manufactured by the Company and by outside suppliers. Certain items
manufactured by suppliers are made to the Company's specific design criteria.
The Company's manufacturing processes utilize principles that conform to ISO
9001 standards, for which the Company received full certification in December
1995. In August 1996, the Company began construction of a 21,000 square foot
expansion to its existing Lincoln, Nebraska facility to house mostly
manufacturing and related functions, which the Company anticipates will be
completed in the first half of 1997. See "-- Properties."
The Company obtains most of its electronic parts and components from one
principal distributor, Arrow/Schwebber Electronics Group. The Company believes
that concentrating its purchases through one principal distributor lowers the
Company's procurement costs and enhances its ability to control the quality of
these components and subassemblies. The distributor stores several months'
supply of basic components, such as resistors, capacitors and connectors,
on-site at the Company's manufacturing location on a consignment basis, reducing
the Company's inventory maintenance costs. Additionally, certain high-end
subassemblies, such as RF boards for use in complete LMR units manufactured by
the Company, are expected to be purchased from other manufacturers such as
Motorola. See "Risk Factors -- Dependence on Suppliers."
GOVERNMENT REGULATION AND EXPORT CONTROLS
The Company's information security products are subject to export
restrictions administered by the National Security Agency, the Department of
State and the Department of Commerce, which permit the export of encryption
products only with the required level of export license. U.S. export laws also
prohibit the export of encryption products to a number of specified hostile
countries. Although to date the Company has been able to secure most required
U.S. export licenses, including to 105 countries since 1978, there can be no
assurance that the Company will continue to be able to secure such licenses in a
timely manner in the future or at all. Based on the Company's prior experience
in securing export approvals, the Company believes that it maintains good
relations with federal government agencies with jurisdiction over its products.
Additionally, in certain foreign countries, the Company's distributors are
required to secure licenses or formal permission before encryption products can
be imported.
The Company's radio and cellular telephone products are subject to FCC
regulations and regulations of the telecommunications regulatory authority in
each country where the Company sells its products. These
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<PAGE> 37
regulations are in the form of general approval to sell products within a given
country for operation in a given frequency band, one time equipment
certification, and, at times, local approval for installation. In the United
States, all Transcrypt wireless products are subject to FCC Part 15 rules on
unlicensed spread spectrum operation. In those countries that have accepted
certain worldwide standards, such as the FCC rulings or those from the European
Telecommunications Standards Institute, the Company has not experienced
significant regulatory issues in bringing its products to market. Approval in
these markets involves retaining local testing agencies to verify specific
product compliance. However, many developing countries, including certain
markets in Asia, have not fully developed or have no frequency allocation,
equipment certification or telecommunications regulatory standards.
COMPETITION
The markets for information security and wireless communications products
are highly competitive. Significant competitive factors in these markets include
product quality and performance, including the effectiveness of security
features and the quality of the resulting voice or data signal, the development
of new products and features, price, name recognition and the quality and
experience of sales, marketing and service personnel. A number of companies
currently offer add-on scramblers for LMRs that compete with the Company's
add-on information security products, including Selectone Corp., Midian
Electronics Inc. and MX-COM Inc. Also, Motorola and Ericsson offer high-end,
proprietary DESbased encryption for their LMR products. In addition, Cycomm
International Inc./Privaphone and Motorola offer add-on security products for
cellular telephones. Competitors to the Company's secure landline telephone
products include AT&T Corporation/Datatek, Motorola, Cycomm International Inc.
and Cylink Corporation. Motorola and Transcrypt are believed to be the only
current suppliers of APCO 25 LMR products as of the date of this Prospectus.
Other anticipated manufacturers of digital LMRs include E.F. Johnson Co., Garmin
Industries, Relm Communications, Midland Systems and Stanilite Pacific Ltd., all
of which have announced intentions to produce hand-held, mobile and/or
infrastructure products meeting the APCO 25 standard. In addition, Ericsson has
actively opposed the APCO 25 standard and has promoted its "EDACS" system as an
alternative standard for the public safety marketplace.
Competition in the data security market is dynamic and growing, as new
companies seek to provide solutions to network and Internet data security. There
are a number of different approaches to data security, including "firewall"
protection, privilege control, data encryption and user identification and
authentication. The Company expects that its planned data security products will
feature mostly data encryption and user authentication features. Competitors in
the data security market include Check Point Software Technologies Ltd., Cylink
Corporation, Secure Computing Corporation, Trusted Information Systems, Inc.,
Raptor Systems, Inc. and Sun Microsystems, Inc., all of which provide firewall
solutions. ActivCard Inc., CryptoCard Inc., Digital Pathways, Inc., Security
Dynamics Technologies, Inc., Vasco Corporation and Racal Electronics, Inc.
provide remote authentication products.
Many of the Company's competitors have substantially greater financial,
technical, marketing, distribution and other resources, greater name recognition
and longer standing relationships with customers than the Company. Competitors
with greater financial resources are better able to engage in sustained price
reductions in order to gain market share. Any period of sustained price
reductions would have a material adverse effect on the Company's financial
condition and results of operations. There can be no assurance that the Company
will be able to compete successfully in the future or that competitive pressures
will not materially and adversely affect the Company's financial condition and
results of operations.
BACKLOG
The Company presently ships only a small amount of products against
backlog, due to the typically short manufacturing cycle of the Company's
products. As a result, backlog amounts have historically been immaterial to the
Company, and the Company does not believe that backlog figures are necessarily
indicative of actual sales for future periods. However, to the extent that LMR
sales increase as a percentage of the Company's revenues, backlog may increase
due to the generally longer manufacturing cycle time required of its digital LMR
products.
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PROPERTIES
The Company conducts its business primarily through a 22,500 square foot
two-story administrative and manufacturing facility located at 4800 NW 1st
Street, Lincoln, Nebraska, 68521, which is located in the University of Nebraska
Technology Park. The Company owns this facility and approximately 10 acres of
surrounding land and, in August 1996, began construction of a 21,000 square foot
expansion to its existing Lincoln facility primarily to house additional
manufacturing and related functions, which the Company anticipates will be
completed in the first half of 1997. The Company believes that its current and
planned facilities are adequate to meet its present and immediately foreseeable
needs.
LEGAL PROCEEDINGS
From time to time, the Company is involved in certain legal proceedings
arising in the normal course of its business. Management believes that the
outcome of these matters will not have a material adverse effect on the Company.
EMPLOYEES
At September 30, 1996, the Company had 83.5 full-time equivalent employees,
substantially all of whom are employed at the Company's Lincoln, Nebraska
facility. None of the Company's employees are covered by a collective bargaining
agreement. Management believes its employee relations are good.
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<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company and their ages as of
the date of this Prospectus are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
------------------------------- --- --------------------------------------------------------
<S> <C> <C>
John T. Connor(1).............. 52 Chairman of the Board and Chief Executive Officer
Jeffery L. Fuller(1)........... 43 President, Chief Operating Officer and Director
C. Eric Baumann................ 30 Vice President of Sales and Marketing
Randal P. Hansen............... 33 Vice President of Finance and Chief Financial Officer
Michael P. Wallace............. 35 Vice President of Operations
Joel K. Young.................. 31 Vice President of Engineering
Terry L. Fairfield(1)(2)....... 47 Director (Vice Chairman of the Board of Directors)
Thomas R. Larsen(3)............ 52 Director
Harold S. Myers(1)(3).......... 65 Director (Vice Chairman of the Board of Directors)
Thomas C. Smith(3)............. 51 Director
Thomas R. Thomsen(2)........... 61 Director
Winston J. Wade(2)............. 57 Director
</TABLE>
- ---------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
JOHN T. CONNOR led the investor group which purchased the Company from its
founder in 1991. Mr. Connor has served as Chief Executive Officer and Chairman
of the Board of Directors of the Company since December 1991. From 1969 to June
1991, he held numerous senior management positions with Deloitte & Touche LLP,
an international accounting, tax and consulting firm, and its predecessor firm,
Touche Ross & Co., including National Director of Tax, Associate Managing
Partner, Mid-Atlantic Regional Managing Partner and a member of the management
committee and Board of Directors.
JEFFERY L. FULLER has served as the Company's President and Chief Operating
Officer since July 1995 and has served as a director since July 1996. Mr. Fuller
has served for over 20 years in managerial positions at various wireless
communications product manufacturers, including Motorola, General Electric
Mobile Radio Communications, Inc. and Icom America, Inc. From January 1990 to
July 1995, he held several management positions with E.F. Johnson Co., a
manufacturer and distributor of wireless communication products, serving most
recently as Vice President North American Sales and executive officer in charge
of the North American business unit.
C. ERIC BAUMANN has served as the Company's Vice President of Sales and
Marketing since January 1996. From November 1995 to January 1996, he served as
the Vice President of Sales. From January 1990 to November 1995, he held
numerous positions at E.F. Johnson Co., a manufacturer and distributor of
wireless communication products, serving most recently as Director North
American Sales and Telemetry.
RANDAL P. HANSEN joined the Company as Vice President of Finance and Chief
Financial Officer in August 1996. From January 1986 to August 1996, he held
numerous positions with KPMG Peat Marwick LLP, an international public
accounting firm, serving most recently as an Senior Audit Manager. Mr. Hansen is
a licensed Certified Public Accountant.
MICHAEL P. WALLACE joined the Company as Vice President of Operations in
February 1994. From December 1989 to February 1994, he served as the Electric
Card Assembly and Test Engineering Manager of Scientific Atlanta Inc., a
manufacturer and distributor of broadband communications products.
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JOEL K. YOUNG joined the Company as Vice President of Engineering in
February 1996. From 1986 to January 1996, he held numerous positions with AT&T
Bell Laboratories, a telecommunications research company, and specialized in
signaling, network implementation and voice processing. He served most recently
as District Manager, AT&T Business Communication Services. Mr. Young presently
holds five patents on various telecommunications systems and techniques.
TERRY L. FAIRFIELD has served as a director of the Company since December
1991. Since 1987, he has served as President and Chief Executive Officer of the
University of Nebraska Foundation, a nonprofit corporation. Mr. Fairfield also
serves as a director of Aliant Communications Inc., a Nasdaq NMS listed, public
telecommunications company.
THOMAS R. LARSEN has served as a director of the Company since October
1995. Mr. Larsen has been a certified public accountant since 1975 and is
currently the president and chief executive officer of Larsen, Bryant & Porter,
CPAs, P.C., a public accounting, tax and consulting firm. Mr. Larsen is also a
director of Smith Hayes Trust, Inc., a mutual fund management company.
HAROLD S. MYERS has served as a director of the Company since December
1991. Since 1958, he has been the President of United Security Bancorporation, a
one bank holding company and Chairman of the Board of Directors of Security
National Bank, Superior, Nebraska.
THOMAS C. SMITH has served as a director of the Company since October 1995.
Since December 1985, he has been Chairman of the Board of Directors and
President of Consolidated Investment Corporation, the parent company of Smith
Hayes Financial Services Corporation, a financial services firm, and Conley
Smith Inc., a registered investment advisor. Mr. Smith is the chairman of both
subsidiaries and President of Smith Hayes Financial Services Corporation. He is
also a director of the Nebraska Research and Development Authority and First
Mid-America Finance Corporation.
THOMAS R. THOMSEN has served as a director of the Company since July 1995.
Since August 1995, he has served as Chairman of the Board of Directors and Chief
Executive Officer of Lithium Technology Corporation ("LTC"), a public company
that manufactures rechargeable batteries. Mr. Thomsen has served as a director
of LTC since February 1995. In January 1990, Mr. Thomsen retired as President of
AT&T Technologies, after holding numerous senior management positions including
director of Sandia Labs, Lucent Technologies and Oliveti Inc. Mr. Thomsen also
serves as a director of the University of Nebraska Technology Park.
WINSTON J. WADE has served as a director of the Company since July 1996.
Since February 1996, he has served as managing director of BPL U.S. West
Cellular. From November 1990 to February 1996, he held numerous management
positions with U.S. West Communications, serving most recently as Vice President
of Network Operations. Mr. Wade also serves as a director of the University of
Nebraska Foundation.
Executive officers of the Company are appointed by the Board of Directors
and serve at the discretion of the Board. There are no family relationships
between any of the directors or executive officers of the Company.
BOARD COMMITTEES
The Board of Directors has three committees: an Audit Committee, a
Compensation Committee and an Executive Committee. The Audit Committee,
comprised of Messrs. Myers, Smith and Larsen, oversees actions taken by the
Company's independent auditors and reviews the Company's internal accounting
controls. The Compensation Committee, comprised of Messrs. Fairfield, Thomsen
and Wade, is responsible for determining the Company's compensation policies and
administering the Company's compensation plans and 1996 Stock Incentive Plan.
The Compensation Committee also reviews the compensation levels of the Company's
employees and makes recommendations to the Board regarding changes in
compensation. The Executive Committee, comprised of Messrs. Connor, Fuller,
Fairfield and Myers, has the power to act on behalf of the Board of Directors on
matters pertaining to the day-to-day operations of the Company.
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<PAGE> 41
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors consists of Messrs.
Fairfield, Thomsen and Wade, none of whom has been or is an officer or employee
of the Company. No interlocking relationship exists between any member of the
Compensation Committee and any member of any other company's board of directors
or compensation committee.
DIRECTOR COMPENSATION
The members of the Company's Board of Directors are reimbursed for
out-of-pocket and travel expenses incurred in attending Board meetings. After
consummation of this offering, the Company will pay to each director who is not
employed by the Company, subject to a limitation of $5,000 plus expenses per
calendar year, $1,000 for each board meeting attended and $400 for each
committee meeting attended. In addition, each director not employed by the
Company will receive an option to purchase up to 5,000 shares of the Common
Stock of the Company upon completion of this offering. Such options will have an
exercise price equal to the initial public offering price in this offering, will
vest in annual installments over a five year period and will have a term of ten
years.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Second Amended and Restated
Certificate of Incorporation that limit the liability of its directors for
monetary damages arising from a breach of their fiduciary duty as directors to
the fullest extent permitted by Delaware law. Such limitation of liability does
not affect the availability of equitable remedies such as injunctive relief or
rescission.
The Company's Amended and Restated Bylaws provide that the Company shall
indemnify its directors and officers to the fullest extent permitted by Delaware
law, including circumstances in which indemnification is otherwise discretionary
under Delaware law. The Company has also entered into indemnification agreements
with its directors and officers. The indemnification agreements may require the
Company, among other things, to indemnify its directors and officers against
certain liabilities that may arise by reason of their status or service as
directors or officers (other than liabilities arising from willful misconduct of
a culpable nature) and to advance their expenses incurred as a result of any
proceedings against them as to which they could be indemnified.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened litigation
or proceeding which may result in a claim for such indemnification.
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<PAGE> 42
EXECUTIVE COMPENSATION
The following table shows the compensation earned by or paid to, for
services rendered in 1995, the Company's Chief Executive Officer and the only
other executive officer who received cash compensation in excess of $100,000 in
such year (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
-------------
ANNUAL COMPENSATION SECURITIES
-------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION(S) SALARY BONUS STOCK OPTIONS COMPENSATION
- --------------------------------------------- -------- ------- ------------- ------------
<S> <C> <C> <C> <C>
John T. Connor............................... $169,808 $86,830(1) -- $ 4,760(2)
Chairman of the Board and
Chief Executive Officer
Jeffery L. Fuller............................ 66,346(3) 14,840 163,829 25,066(4)
President, Chief Operating
Officer and Director
</TABLE>
- ---------------
(1) Consists of $16,830 for services rendered in the 1995 fiscal year and
$70,000 in connection with the reduction of contingent indebtedness. See "--
Certain Transactions."
(2) Consists of a contribution to the Company's 401(k) Profit Sharing & Savings
Plan by the Company on behalf of Mr. Connor and personal use of a
Company-owned automobile.
(3) Represents salary at the rate of $150,000 per year beginning in July 1995.
(4) Consists of $24,834 in reimbursements for relocation expenses and $232 for
personal use of a Company-owned automobile.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options granted to
the Named Executive Officers during 1995.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE AT
PERCENT OF ASSUMED ANNUAL
NUMBER OF TOTAL RATE OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(2)
OPTIONS EMPLOYEES PRICE PER EXPIRATION -----------------------
NAME GRANTED IN 1995 SHARE DATE 5% 10%
- -------------------------------- --------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jeffery L. Fuller............... 163,829(1) 80.64% $ 3.05 06/02/05 $1,339,405 $3,394,316
</TABLE>
- ---------------
(1) The indicated number of options were originally granted by the Company's
predecessor under the terms of the 1992 Partnership Interest Option Plan and
were subsequently converted into options to purchase shares of Common Stock
in the Company under the 1996 Stock Incentive Plan. See "-- 1996 Stock
Incentive Plan."
(2) The amounts shown are hypothetical gains based on the indicated assumed
rates of appreciation of the Common Stock, compounded annually over a
ten-year period and assuming a market value of the Common Stock on the date
of grant of the assumed initial public offering price per share in this
offering of $13.00. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Common Stock and overall stock
market conditions. There can be no assurance that the Common Stock will
appreciate at any particular rate or at all in future years.
1996 STOCK INCENTIVE PLAN
Effective as of September 6, 1996, the Company established the 1996 Stock
Incentive Plan (the "Plan"), in order to enable the Company to attract, retain
and motivate its employees, non-employee directors and independent contractors
by providing for or increasing the proprietary interests of such employees, non-
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<PAGE> 43
employee directors and independent contractors in the Company. The Company's
stockholders approved the Plan on September 18, 1996. Any person, including any
director of the Company, who is an employee of the Company or any of its
subsidiaries (an "Employee"), and any nonemployee director (a "Non-Employee
Director") or independent contractor of the Company (an "Independent
Contractor," or, together with the Employees and the Non-Employee Directors, the
"Eligible Persons") is eligible to be considered for the issuance of (i) shares
of Common Stock, $0.01 par value per share, of the Company or of any other class
of security of the Company which is convertible into shares of the Company's
Common Stock ("Shares") or (ii) a right or interest with an exercise or
conversion privilege at a price related to the Common Stock or with a value
derived from the value of the Common Stock, which right or interest may, but
need not, constitute a "Derivative Security," as such term is defined in Rule
16a-1 promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as such Rule may be amended from time to time.
Effective as of June 30, 1996, the Company converted from a limited
partnership form of organization to a Subchapter "C" corporation (the
"Reorganization"). Pursuant to the Reorganization, the Company assumed all of
the outstanding options (the "Partnership Options") to acquire limited
partnership interests in the Company's predecessor (the "Partnership"), which
were granted pursuant to the terms of the Partnership's 1992 Partnership
Interest Option Plan (the "Partnership Option Plan"), with each Partnership
Option becoming an option to acquire the same number of shares of Common Stock
of the Company at the same exercise price and on the same terms and conditions
as set forth in the Partnership Option Agreement entered into with the optionee.
As a result of this arrangement, the Company issued an aggregate of 716,916
options under the Plan in the Reorganization in exchange for Partnership
Options, all of which are vested.
Grants made pursuant to the Plan are not restricted to any specified form
or structure and may include, without limitation, sales or bonuses of stock,
restricted stock, stock options, reload stock options, stock purchase warrants,
other rights to acquire stock, securities convertible into or redeemable for
stock, stock appreciation rights, limited stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares, and a
grant made pursuant to the Plan may consist of one such security or benefit, or
two or more of them in tandem or in the alternative.
With certain exceptions regarding "performance based compensation" as
defined under Section 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code"), the aggregate number of Shares which may be granted to any one
Eligible Person shall not exceed 400,000.
Subject to certain adjustment provisions under the Plan, the aggregate
number of Shares issued and issuable pursuant to all incentive stock options
granted under the Plan shall not exceed 1,200,000. Such maximum number does not
include the number of Shares subject to the unexercised portion of any incentive
stock option granted under the Plan that expires or is terminated. As of
September 30, 1996, there were outstanding options to purchase 716,916 shares of
Common Stock with a weighted average exercise price of $1.81 per share. The
Company intends to grant, prior to the effective date of this offering, stock
options for an additional 325,000 shares, including 30,000 shares to
Non-Employee Directors, with an exercise price equal to the price per share in
this offering.
The Plan will be administered by one or more committees of the Board of
Directors (any such committee, the "Committee") or, if no Committee is
designated by the Board of Directors, the Plan shall be administered by the
Board of Directors and all references herein to the Committee shall refer to the
Board of Directors. The Committee shall consist of (i) two or more directors,
each of whom is a "non-employee director" (as such term is defined in Rule 16b-3
promulgated under the Exchange Act, as such Rule may be amended from time to
time), (ii) with respect to any grant that is intended to qualify as
"performance based compensation" under Section 162(m) of the Code, the Committee
shall consist of two or more directors, each of whom is an "outside director"
(as such term is defined under Section 162(m) of the Code), and (iii) with
respect to any other grant, the Committee shall consist of one or more directors
(any of whom also may be an Eligible Person who has been granted or is eligible
to be granted Shares under the Plan).
Subject to the provisions of the Plan, the Committee is authorized to
determine which persons are Eligible Persons and to which of such Eligible
Persons, if any, and when Shares, options or other performance awards shall be
granted, the terms and conditions of any grant, including the number of Shares
subject thereto
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<PAGE> 44
and the circumstances under which the award will become exercisable or vested or
are forfeited or expire. The Committee is also authorized to interpret and
construe the Plan and adopt, amend and rescind rules and regulations relating to
administration of the Plan.
The Plan provides that unless otherwise provided by the Committee in the
written agreement evidencing the award, the terms of any stock option granted
under the Plan shall provide (i) that the exercise price thereof shall not be
less than 100% of the market value of a share of Common Stock on the date the
option is granted, (ii) that the term of such option shall be ten years from the
date of grant, (iii) that, upon an Employee ceasing to be employed by the
Company for any reason other than death or disability, or a Non-Employee
Director ceasing to be a Non-Employee Director of the Company, an option shall
not become exercisable to an extent greater than it could have been exercised on
the date the Employee's employment by the Company, or the Non-Employee
Director's incumbency, as the case may be, ceased, and (iv) that the option
shall expire ninety (90) days after the Employee ceases to be employed with the
Company or a Non-Employee Director ceases to be a Non-Employee Director of the
Company.
Pursuant to the Plan, the Committee is permitted to allow or require the
recipient of any award under the Plan, including any Eligible Person who is a
director or officer of the Company, or permitting any such recipient the right,
to pay the purchase price of the Shares or other property issuable pursuant to
such award, or such recipient's tax withholding obligation with respect to such
issuance, or both, in whole or in part, by any one or more of the following
means: the delivery of cash; the delivery of other property deemed acceptable by
the Committee; the delivery of previously owned shares of capital stock of the
Company (including "pyramiding") or other property; a reduction in the amount of
Shares or other property otherwise issuable pursuant to such award; or the
delivery of a promissory note of the Eligible Person or of a third party, the
terms and conditions of which shall be determined by the Committee.
If the outstanding securities of the class then subject to this Plan are
increased, decreased or exchanged for or converted into cash, property or a
different number or kind of shares or securities, or if cash, property or shares
or securities are distributed in respect of such outstanding securities, in
either as a result of a reorganization, merger, consolidation, recapitalization,
restructuring, reclassification, dividend (other than a regular, quarterly cash
dividend) or other distribution, stock split, reverse stock split, spin-off or
the like, or if substantially all of the property and assets of the Company are
sold, then, unless the terms of such transaction shall provide otherwise, the
Committee shall make appropriate and proportionate adjustments in (i) the number
and type of shares or other securities or cash or other property that may be
acquired pursuant to awards theretofore granted under this Plan and the exercise
or settlement price of such awards, and (ii) the maximum number and type of
shares or other securities that may be issued pursuant to such awards thereafter
granted under this Plan. The foregoing adjustments shall be applied to any
awards or Incentive Stock Options only to the extent permitted by Sections
162(m) and 422 of the Code, respectively.
Pursuant to the Plan, the Board of Directors may amend or terminate the
Plan at any time and in any manner; provided, however, that no such amendment or
termination shall deprive the recipient of any award theretofore granted under
this Plan, without the consent of such recipient, of any of his or her rights
thereunder or with respect thereto; provided, further, that if an amendment to
the Plan would affect the Plan's compliance with Rule 16b-3 under the Exchange
Act or Section 422 or 162(m) or other applicable provisions of the Code, the
amendment shall be approved by the Company's stockholders to the extent required
to comply with Rule 16b-3 under the Exchange Act, Sections 422 and 162(m) of the
Code, or other applicable provisions of or rules under the Code.
EMPLOYMENT AGREEMENTS
The Company entered into an employment agreement with John T. Connor, the
Company's Chairman and Chief Executive Officer, for a two-year term beginning
July 18, 1996. The agreement sets forth a base salary of $180,000 per year and
provides for an annual bonus to be determined by the Board of Directors. The
agreement provides for certain benefits to Mr. Connor, including paid vacations,
pension benefits, qualified profit-sharing plans, employee group insurance and
disability insurance. The agreement also provides for special compensation in
the amount of $210,000, to be paid to Mr. Connor at least 15 days prior to the
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<PAGE> 45
projected completion date of this offering. The agreement includes a Noncompete
Agreement, which is effective during the term of the agreement.
The Company entered into an employment agreement with Jeffery L. Fuller,
the Company's President and Chief Operating Officer, for a two-year term
beginning July 18, 1996. The agreement sets forth a base salary of $165,000 per
year and provides for an annual bonus in an amount to be determined by the Board
of Directors, provided the Company meets or exceeds certain performance
objectives provided to the Board of Directors. Mr. Fuller is entitled, at a
minimum, to receive a bonus of 20% of his annual salary if the Company meets its
annual sales goals and an additional 20% if the Company meets its annual profit
goals. The agreement also provides for certain benefits to Mr. Fuller, including
paid vacations, pension benefits, qualified profit-sharing plans, employee group
insurance and disability insurance. The agreement includes a Noncompete
Agreement, which is effective during the term of the agreement.
On September 30, 1996, Company entered into employment agreements with C.
Eric Baumann, Michael P. Wallace and Joel K. Young, each of whom is a Company
Vice President. The agreements set forth base salaries and provide for annual
bonuses to be determined by the Board of Directors, and provide for certain
benefits, including paid vacations, pension benefits, qualified profit-sharing
plans, employee group insurance and disability insurance. The term of each such
agreement continues for two years, unless otherwise terminated pursuant to the
terms of the agreements. Each of these individuals has entered into a Noncompete
Agreement effective during the term of each individual's employment agreement.
401(K) PROFIT SHARING & SAVINGS PLAN
In July 1992, the Company established the Transcrypt International
Employees Profit Sharing & Savings Plan (the "Benefit Plan"). The Benefit Plan
consists of a 401(k) eligible savings plan, which is intended to comply with
Sections 401(a) and 401(k) of the Code and the applicable provisions of the
Employee Retirement Income Security Act of 1974, and a profit sharing plan.
Amounts contributed to the Benefit Plan are held under a trust intended to be
exempt from income tax pursuant to Section 501(a) of the Code. Employees of the
Company that have completed at least one year of service are eligible to
participate in the profit sharing plan and employees that have completed six
months of service are eligible to participate in the 401(k) eligible savings
plan. Participating employees are entitled to make pre-tax contributions to
their 401(k) accounts, subject to certain maximum annual limits imposed by law
($9,500 in 1996), and certain other limitations. The Company may elect to make a
discretionary contribution to the Benefit Plan each year. Employees are always
fully vested in their own contributions, and the Company's contributions vest in
participating employees over a six-year period at 20% per year beginning in the
second year. Distributions generally are payable in a lump-sum after retirement,
disability or death and, in certain circumstances, upon termination of
employment with the Company for other reasons. The Company has accrued
contributions to the Benefit Plan (including the 401(k) eligible savings plan
and profit sharing plan) of $65,450 in the nine months ended September 30, 1996
and paid $40,500 in 1995.
44
<PAGE> 46
CERTAIN TRANSACTIONS
In 1991, the Company entered into a number of agreements with A. John and
Yvonne Kuijvenhoven, who are currently principal stockholders of the Company, in
connection with the acquisition of the Company's business and certain
intellectual property held by the Kuijvenhovens. Under a Purchase Agreement
dated December 3, 1991, the Company agreed to pay $340,000 annually, payable in
equal monthly installments, to John Kuijvenhoven in consideration for the
Kuijvenhovens' agreement not to compete against the Company for a period of five
years ending December 31, 1996. The Company paid the last payment due under this
agreement in August 1996, and the Company does not expect the non-compete
agreement to be renewed past December 1996. As security for the non-compete
agreement, the Company entered into a Security and Pledge Agreement dated
December 3, 1991, which was released by the Kuijvenhovens in October 1996,
whereby it granted to the Kuijvenhovens a security interest in real property
located in Lancaster, Nebraska owned by the Company. The Company also granted to
the Kuijvenhovens a security interest in its Digital Radio APCO 25 technology,
pursuant to a Security and Pledge Agreement dated August 8, 1994. The Company
believes that it has fully performed its obligations under the Purchase
Agreement and has taken steps to obtain a release of the 1994 Security and
Pledge Agreement.
On January 15, 1994, the Company borrowed from the Nebraska Investment
Finance Authority ("NIFA") $850,000 in proceeds through the issuance of
Industrial Development Revenue Bonds, Series 1994, issued pursuant to a Trust
Indenture by and between NIFA and Norwest Bank of Nebraska, N.A., as trustee. In
connection with the borrowing, the Company executed a non-amortizing promissory
note under which the principal is due in a balloon payment in January 2004. The
note bears interest at a rate of 6.25% per annum, with interest due quarterly on
July 15, October 15, January 15 and April 15 or each year. The note is secured
by a Deed of Trust and Construction Security Agreement from the Company to the
trustee. The Company has used the proceeds from the NIFA borrowing to finance
the construction of its Lincoln facility. The note was privately placed with
Security National Bank of Superior, which is owned and controlled by certain
stockholders of the Company, including Harold S. Myers, David Myers and Steve
Wright. The Company intends to repay the note in the fourth quarter of 1996 with
the proceeds of a new note in the amount of $2,100,000.
45
<PAGE> 47
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Company's Common Stock as of
September 30, 1996 and as adjusted to reflect the sale of shares offered
pursuant to this Prospectus, by (i) each person (or group of affiliated persons)
known by the Company to be the beneficial owner of more than five percent of the
Company's Common Stock, (ii) each director, (iii) each Named Executive Officer,
(iv) all executive officers and directors as a group, and (v) each Selling
Stockholder.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED SHARES BENEFICIALLY
PRIOR TO OWNED
OFFERING(1)(2) NUMBER OF AFTER OFFERING(1)(2)(3)
-------------------- SHARES ------------------------
NAME AND ADDRESS NUMBER PERCENT OFFERED NUMBER PERCENT
- -------------------------------------------- ---------- ------- ---------- -------------- -------
<S> <C> <C> <C> <C> <C>
John T. Connor(4)........................... 1,945,785 27.1% 1,945,785 20.1%
2504 Ridge Road
Lincoln, Nebraska 68512
Janice K. Connor(5)......................... 1,556,528 22.9 1,556,528 16.8
2504 Ridge Road
Lincoln, Nebraska 68512
Farm Bureau Insurance Company............... 1,265,279 18.7 347,222(6) 918,057 9.9
5400 University Avenue
Des Moines, Iowa 50265
University of Nebraska Foundation........... 1,056,622 15.6 1,056,622 11.4
1111 Lincoln Mall, Suite 200
P.O. Box 82555
Lincoln, Nebraska 68501-2555
John Kuijvenhoven and affiliates(7)......... 1,090,704 16.1 902,778(6) 187,926 2.0
P.O. Box 5917
Lincoln, Nebraska 68505
First Commerce Bancshares, Inc.(8).......... 681,692 10.0 681,692 7.3
NBC Center, 3rd Floor
13th & O Streets
Lincoln, Nebraska 68508
Harold S. Myers(9).......................... 791,281 11.7 791,281 8.5
635 South 14th Street, Suite 320
Lincoln, Nebraska 68508
Jeffery L. Fuller(10)....................... 163,829 2.4 163,829 1.7
Thomas R. Larsen............................ -- -- -- --
Terry L. Fairfield(11)...................... -- -- -- --
Thomas C. Smith............................. -- -- -- --
Thomas R. Thomsen(10)....................... 6,553 * 6,553 *
Winston J. Wade(10)(12)..................... 6,553 * 6,553 *
All executive officers and directors as a
group (12 persons)........................ 3,012,299 44.4% 3,012,299 32.4%
</TABLE>
- ---------------
* Less than 1%.
(1) Shares of Common Stock issuable upon exercise of stock options currently
exercisable, or exercisable within 60 days of the date of this offering,
are deemed outstanding for computing the percentage of the person or entity
holding such securities but are not outstanding for computing the
percentage of any other person or entity. Except as indicated by footnote,
and subject to community property laws where applicable, the persons named
in the table above have sole voting and investment power, if any, with
respect to all shares of Common Stock shown as beneficially owned by them.
(2) Percentage ownership is based on 6,783,078 shares of Common Stock
outstanding prior to this offering and 9,283,078 shares of Common Stock
outstanding after this offering.
46
<PAGE> 48
(3) Assumes that the Underwriters' over-allotment option is not exercised.
(4) Includes 809,391 shares held by or in trust by members of the Connor family
for which Mr. Connor disclaims beneficial ownership, and 389,257 shares
issuable upon the exercise of stock options that are exercisable within 60
days of the date of this Prospectus.
(5) Includes 842,495 shares held by or in trust by members of the Connor family
for which Mrs. Connor disclaims beneficial ownership.
(6) Does not include shares which may be sold to cover over-allotments, if any.
The Farm Bureau Insurance Company has granted the Underwriters a 30-day
option to purchase an additional 374,573 shares of Common Stock, and the
Kuijvenhoven group has granted the Underwriters a 30-day option to purchase
its remaining 187,926 shares of Common Stock, in each case solely to cover
the Underwriters' over-allotments, if any.
(7) Beneficial stock ownership amounts prior to the offering include 341,415
shares held by Mr. Kuijvenhoven and 272,676 shares held by Q.E. Dot, Inc.
Mr. Kuijvenhoven is President of Q.E. Dot, Inc., and may be deemed to share
voting and investment powers with respect to this entity but disclaims
beneficial ownership of shares held by Q.E. Dot, Inc., except to the extent
Mr. Kuijvenhoven has a pecuniary interest. Includes 476,613 shares held by
members of the Kuijvenhoven family, for which Mr. Kuijvenhoven disclaims
beneficial ownership.
(8) Shares of Common Stock owned by First Commerce Bancshares, Inc. include
217,542 shares of Non-Voting Common Stock. Pursuant to the Company's
Certificate of Incorporation, upon the disposition of the Non-Voting Common
Stock by First Commerce Bancshares, Inc., voting rights will be restored to
these shares. See "Description of Capital Stock."
(9) Includes 391,299 shares held by Harold S. Myers and 71,949 shares held by
the Harold S. Myers III Trust, for which Mr. Myers is the Trustee. Mr.
Myers disclaims beneficial ownership by the Harold S. Myers III Trust
except to the extent Mr. Myers has a pecuniary interest. Includes 328,033
shares held by or in trust by members of the Myers family, for which Mr.
Myers disclaims beneficial ownership.
(10) Consists of shares issuable upon the exercise of stock options that are
exercisable within 60 days of the date of this Prospectus.
(11) Does not include shares held by the University of Nebraska Foundation, of
which Mr. Fairfield serves as President and Chief Executive Officer.
(12) Does not include shares held by the University of Nebraska Foundation, of
which Mr. Wade serves as director.
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, the authorized capital stock of the
Company will consist of 20,000,000 shares of Common Stock, $0.01 par value, and
3,000,000 shares of Preferred Stock, $0.01 par value. At September 30, 1996,
there were 6,783,078 shares of Common Stock outstanding, held of record by 21
stockholders.
COMMON STOCK
Holders of Common Stock (other than the Non-Voting Common Stock) are
entitled to one vote per share in all matters to be voted on by the
stockholders. Subject to preferences that may be applicable to any Preferred
Stock outstanding at the time, holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared from time to time by the
Board of Directors out of funds legally available therefor. See "Dividend
Policy." In the event of a liquidation, dissolution or winding up of the
Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of the Company's liabilities and the liquidation
preference, if any, of any outstanding shares of Preferred Stock. Holders of
Common Stock have no preemptive rights and no rights to convert their Common
Stock into any other
47
<PAGE> 49
securities, and there are no redemption provisions with respect to such shares.
All of the outstanding shares of Common Stock are fully paid and non-assessable.
The rights, preferences and privileges of holders of Common Stock are subject
to, and may be adversely affected by, the rights of the holders of shares of any
series of Preferred Stock which the Company may designate and issue in the
future. Of the 20,000,000 shares of Common Stock authorized by the Company's
Certificate of Incorporation, 600,000 shares have been authorized for issuance
as Non-Voting Common Stock, of which 217,542 shares were outstanding at
September 30, 1996. All of the shares of Non-Voting Common Stock were issued to
a bank holding company which is restricted from owning more than five percent of
the voting Common Stock of the Company. Pursuant to the Company's Certificate of
Incorporation, upon the disposition of the outstanding Non-Voting Common Stock
by such stockholder, the voting rights will be restored to these shares.
PREFERRED STOCK
Effective upon the closing of this offering, the Board of Directors will
have the authority, without any further vote or action by the stockholders, to
issue up to 3,000,000 shares of Preferred Stock from time to time in one or more
series, to establish the number of shares to be included in each such series, to
fix the designations, preferences, limitations and relative, participating,
optional or other special rights and qualifications or restrictions of the
shares of each series, and to determine the voting powers, if any of, such
shares. The issuance of Preferred Stock could adversely affect, among other
things, the rights of existing stockholders or could delay or prevent a change
in control of the Company without further action by the stockholders. The
issuance of Preferred Stock could decrease the amount of earnings and assets
available for distribution to holders of Common Stock. In addition, any such
issuance could have the effect of delaying, deferring or preventing a change in
control of the Company and could make the removal of the present management of
the Company more difficult. The Company has no current plans to issue any
Preferred Stock.
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER PROVISIONS
Certain provisions of Delaware law and the Company's Certificate of
Incorporation could make more difficult the acquisition of the Company by means
of a tender offer, a proxy contest or otherwise and the removal of incumbent
officers and directors. These provisions are expected to discourage certain
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of the Company to first negotiate
with the Company. The Company believes that the benefits of increased protection
of the Company's potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure the Company
outweigh the disadvantages of discouraging such proposals because, among other
things, negotiation of such proposals could result in an improvement of their
terms.
The Company will be subject to the provisions of Section 203 of the
Delaware law. In general, this section prohibits a publicly-held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date that the person became
an interested stockholder unless (with certain exceptions) the business
combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of the corporation's voting
stock. This provision may have the effect of delaying, deferring or preventing a
change in control of the Company without further action by the stockholder.
The Company's Certificate of Incorporation provides that, upon the closing
of this offering, the Board of Directors will be divided into two classes, with
staggered two-year terms. As a result, only one class of directors will be
elected at each annual meeting of stockholders of the Company, with the other
class continuing for the remainder of its two-year term. The classification of
the Board of Directors makes it more difficult for the Company's existing
stockholders to replace the Board of Directors, as well as for another party to
obtain control of the Company by replacing the Board of Directors. Since the
Board of Directors has the power to retain and discharge officers of the
Company, these provisions could also make it more difficult for existing
stockholders or another party to effect a change in management.
48
<PAGE> 50
The Company's Certificate of Incorporation provides that stockholder action
can be taken only at an annual or special meeting of stockholders and may not be
taken by written consent. The bylaws provide that special meetings of
stockholders can be called only by the Board of Directors, the Chairman of the
Board, if any, or the President of the Company. Moreover, the business permitted
to be conducted at any special meeting of stockholders is limited to the
business brought before the meeting by the Board of Directors, the Chairman of
the Board, if any, or the President of the Company. The bylaws set forth an
advance notice procedure with regard to the nomination, other than by or at the
direction of the Board of Directors, of candidates for election as directors and
with regard to business to be brought before an annual meeting of stockholders
of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is Norwest
Bank Minnesota, N.A.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for the Common Stock of
the Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing from time to time. As
described below, no currently outstanding shares of Common Stock or shares
issuable pursuant to stock options issued by the Company, other than the
1,250,000 shares offered hereby by the Selling Stockholders (1,812,500 shares
assuming the Underwriters' over-allotment option is exercised in full), will be
available for sale shortly after this offering because of certain contractual
restrictions on resale and the restrictions of the Securities Act. Sales of
substantial amounts of Common Stock of the Company in the public market could
adversely affect the prevailing market price and the ability of the Company to
raise equity capital in the future.
Upon completion of this offering, the Company will have outstanding
9,283,078 shares of Common Stock, assuming no exercise of options granted under
the Company's 1996 Stock Incentive Plan. Of these shares, the 2,500,000 shares
offered hereby by the Company and the 1,250,000 shares offered hereby by the
Selling Stockholders (1,812,500 shares assuming the Underwriters' over-allotment
option is exercised in full) will be freely tradeable without restriction under
the Securities Act, unless purchased by "affiliates" of the Company, as that
term is defined for purposes of Rule 144 promulgated under the Securities Act
(i.e., directors, officers and 10% or greater stockholders). The remaining
5,533,078 shares of Common Stock are "restricted" securities under the
Securities Act (the "Restricted Shares"), of which 3,404,437 shares are deemed
to be held by "affiliates" of the Company.
None of the Restricted Shares (currently 5,533,078 shares) may be sold in
the public market unless registered under the Securities Act or upon
qualification under an exemption from registration under Rules 144 or 701
promulgated under the Securities Act. Under Rule 144 as currently in effect, any
person (or persons whose shares are aggregated), including an affiliate of the
Company, who has beneficially owned Restricted Shares for at least two years
(including in certain circumstances the holding period of a prior owner except
an affiliate), and any person who is an affiliate of the Company whose shares
are not restricted securities, is entitled to sell within any three-month period
a number of shares that does not exceed the greater of (i) one percent of the
number of shares of Common Stock then outstanding (approximately 92,831 shares
immediately following this offering), or (ii) the average weekly trading volume
of the Common Stock during the four calendar weeks preceding the filing of a
Form 144 with respect to such sale. The Company believes, under interpretations
of Rules 144 and 145 under the Securities Act, that the holding period
(currently two years) applicable to 5,464,913 of the Restricted Shares began on
June 30, 1996, while the holding period applicable to the remaining 68,165 of
the Restricted Shares began on September 30, 1996.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least three
years (including the holding period of any
49
<PAGE> 51
prior owner except an affiliate), is entitled to sell such shares without
complying with the manner of sale, public information, volume limitation or
notice provisions of Rule 144.
Subject to the contractual "lock-up" agreements discussed below, the
Company intends, after consummation of this offering, to enter into a
Registration Rights Agreement with each holder of Restricted Shares, entitling
each holder to certain rights with respect to the registration of such shares
under the Securities Act. Under such Registration Rights Agreement, if the
Company proposed to register any of its securities under the Securities Act
(except for a registration on Forms S-4 or S-8 or involving an issuance related
to a business combination), either for its own account or the account of other
securityholders, the holders of the Restricted Shares will be entitled to notice
of such registration and will be entitled to include their shares therein;
provided, however, among other conditions, that the underwriters of such
offering will have the right, subject to certain limitations, to limit the
number of such shares included in any such registration.
As of September 30, 1996, 716,916 shares of Common Stock were issuable upon
the exercise of vested stock options under the Company's 1996 Stock Incentive
Plan and 325,000 shares will be issuable pursuant to options to be granted upon
the effectiveness of this offering. An aggregate of 1,200,000 shares of Common
Stock have been reserved for issuance under the Company's 1996 Stock Incentive
Plan. In addition, the Company intends, as soon as practicable after the
consummation of this offering, to file a registration statement on Form S-8
under the Securities Act covering the 1,200,000 shares of Common Stock reserved
for issuance under the Company's 1996 Stock Incentive Plan. Such registration
statement will become effective automatically upon filing. Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates of the Company and the lock-up agreements
described below, be available for sale in the open market, subject to applicable
vesting restrictions on stock options.
All existing stockholders and all holders of stock options issued by the
Company have entered into contractual "lock-up" agreements providing that they
will not offer, sell, pledge, contract to sell, grant any option to purchase or
otherwise dispose of any Common Stock, nor any options, warrants or other
securities convertible into or exercisable or exchangeable for Common Stock,
whether now owned or hereafter acquired, or in any manner transfer all or a
portion of the economic consequences associated with their ownership of the
Common Stock of the Company, for 180 days after the effective date of this
offering, without the prior written consent of Dain Bosworth Incorporated. As a
result of these contractual restrictions, shares subject to lock-up agreements
will not be saleable until the agreements expire.
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<PAGE> 52
UNDERWRITING
Subject to the terms and conditions contained in an underwriting agreement
(the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), for which Dain Bosworth Incorporated is acting as
representative (the "Representative"), have severally agreed to purchase from
the Company and the Selling Stockholders the shares of Common Stock offered
hereby. Each Underwriter will purchase the number of shares set forth opposite
its name below, and will purchase such shares at the price to public, less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
------------------------------------------------------------------ ---------
<S> <C>
Dain Bosworth Incorporated........................................
---------
Total................................................... 3,750,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligations are
subject to conditions precedent and that the Underwriters are committed to
purchase all shares of Common Stock offered hereby (other than those covered by
the over-allotment option described below) if the Underwriters purchase any
shares. The Representative has advised the Company and the Selling Stockholders
that the several Underwriters may offer the shares of Common Stock directly to
the public at the price to public set forth on the cover page of this Prospectus
and to certain dealers at the price to public less a concession not exceeding
$ per share. The Underwriters may allow, and such dealers may re-allow,
a concession not exceeding $ per share to other dealers. After the
shares of Common Stock are released for sale to the public, the Representative
may change the initial price to public and other selling terms.
The Selling Stockholders have granted to the Underwriters an option,
exercisable for 30 days after the date of this Prospectus, to purchase up to an
aggregate of 1,250,000 additional shares of the Common Stock at the price to
public, less the underwriting discounts and commissions set forth on the cover
page of this Prospectus. See footnote 6 to the table under "Principal and
Selling Stockholders."
The Underwriting Agreement provides that the Company, the Selling
Stockholders and the Underwriters will indemnify each other against certain
liabilities, including liabilities under the Act, in connection with this
offering.
The Representative has informed the Company that the Underwriters do not
intend to confirm sales to any account over which they exercise discretionary
authority.
The Company and all of its current stockholders, directors and executive
officers have agreed not to offer, sell, pledge, grant an option to purchase or
otherwise dispose of any shares of Common Stock for a period of 180 days after
the date of this Prospectus (the "Lockup Period") without the prior written
consent of Dain Bosworth Incorporated. This restriction does not prevent the
Company from granting options under the Stock Plans or issuing unregistered
securities in a merger, consolidation, acquisition, joint venture or other
arrangement as long as those securities are not registered under the Securities
Act prior to the end of the 180-day period.
The Representative has reserved up to 150,000 of the shares of Common Stock
offered hereby for sale to directors and principal stockholders of the Company
(including their affiliated entities) and other persons identified by the
Company who have expressed an interest in purchasing shares of Common Stock. To
the extent shares are purchased by such persons, the number of shares available
for sale to the public will be reduced. Any such purchases will be made at the
initial public offering price to the public and on the same terms and conditions
as will be initially offered by the Representative to others in this offering.
The directors and principal stockholders (including their affiliated entities)
purchasing such shares have agreed not to offer,
51
<PAGE> 53
sell, pledge, grant an option to purchase or otherwise dispose of any shares of
Common Stock during the 180-day Lockup Period.
Prior to this offering, there has been no public market for the Common
Stock. The price to public has been determined by agreement among the Company,
the Selling Stockholders and the Representative. In determining the price to
public, the Company, the Selling Stockholders and the Representative considered,
among other things, the history of and prospects for the industry in which the
Company operates, past and present operations and earnings of the Company and
the trend of such earnings, the qualifications of the Company's management, the
general condition of the securities markets at the time of this offering and the
market prices for other publicly-traded companies.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Manatt, Phelps & Phillips, LLP, Los Angeles, California. Certain
legal matters will be passed upon for the Underwriters by Sherman & Howard,
L.L.C., Denver, Colorado.
EXPERTS
The financial statements as of December 31, 1994 and 1995 and for each of
the three years in the period ended December 31, 1995 included in this
Prospectus have been audited by Coopers & Lybrand L.L.P., independent auditors,
as stated in their report, which is included herein, and have been so included
in reliance upon the report of such firm given upon their authority as experts
in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement," which term shall include all amendments, exhibits, annexes and
schedules thereto) pursuant to the Securities Act, including the rules and
regulations promulgated thereunder, with respect to the shares of Common Stock
offered hereby. This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily complete.
With respect to each such contract, agreement or other document filed as an
exhibit to the Registration Statement, reference is made to the exhibit for a
more complete description of the matter involved, and each such statement shall
be deemed qualified in its entirety by such reference. All of these documents
may be inspected without charge at the public reference facilities maintained by
the Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the regional offices of the Commission located at Seven World
Trade Center, 13th Floor, New York, New York 10048, and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such materials may be obtained from the Public Reference Section of
the Commission located at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549 at prescribed rates. The Commission maintains a World Wide Web site
at http://www.sec.gov containing reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including the Company.
The Company intends to furnish to its stockholders annual reports
containing consolidated financial statements audited by its independent
accountants and quarterly reports for the first three quarters of each fiscal
year containing unaudited financial information.
52
<PAGE> 54
TRANSCRYPT INTERNATIONAL, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Income (Loss).............................................. F-4
Consolidated Statements of Stockholders' Equity....................................... F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 55
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors
Transcrypt International, Inc.
We have audited the accompanying consolidated balance sheets of Transcrypt
International, Ltd. (the Predecessor) as of December 31, 1994 and 1995, and the
related consolidated statements of income (loss), stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Transcrypt
International, Ltd. as of December 31, 1994 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
700 Cornhusker Plaza
Lincoln, Nebraska
February 23, 1996
F-2
<PAGE> 56
TRANSCRYPT INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1994 AND 1995 AND SEPTEMBER 30, 1996
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER 31, DECEMBER 31, SEPTEMBER 30,
1994 1995 1996
------------ ------------ -------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.................................... $2,135,460 $ 291,712 $ --
Accounts receivable, net of allowance for doubtful accounts
of $188,014, $181,659 and $363,169 in 1994, 1995 and 1996
respectively.............................................. 1,251,877 1,923,441 2,833,714
Receivable -- officers, employees and affiliate.............. 53,501 57,791 37,335
Inventory, net............................................... 1,251,996 1,119,763 1,689,175
Prepaid expenses............................................. 177,822 60,323 207,386
Deferred tax assets.......................................... -- -- 232,325
---------- ---------- -----------
Total current assets................................. 4,870,656 3,453,030 4,999,935
Property, plant and equipment, at cost net of accumulated
depreciation................................................. 2,661,702 3,066,740 3,961,057
Deferred tax assets............................................ -- -- 1,715,540
Intangible assets, net of accumulated amortization............. 2,094,636 1,002,860 214,719
---------- ---------- -----------
$9,626,994 $7,522,630 $ 10,891,251
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft............................................... $ -- $ -- $ 153,834
Revolving line of credit..................................... -- -- 64,000
Current portion of capitalized lease obligations............. 14,276 15,570 14,103
Current portion of long-term debt............................ 301,377 412,656 437,804
Current portion of obligations under non-compete
agreements................................................ 340,000 340,000 --
Accounts payable............................................. 279,717 176,496 681,334
Income taxes payable......................................... -- -- 154,326
Accrued expenses............................................. 416,002 767,246 1,353,378
Deferred revenue............................................. 153,018 56,814 1,759
Due to related parties....................................... 13,738 489 --
---------- ---------- -----------
Total current liabilities............................ 1,518,128 1,769,271 2,860,538
---------- ---------- -----------
Capitalized lease obligations, net of current portion.......... 30,882 15,099 4,995
Long-term debt, net of current portion......................... 1,793,480 1,831,493 1,504,625
Obligations under non-compete agreements, net of current
portion...................................................... 340,000 -- --
---------- ---------- -----------
2,164,362 1,846,592 1,509,620
---------- ---------- -----------
Commitments and contingencies (Note 11)
Stockholders' equity:
Partners' capital............................................ 5,944,504 3,906,767 --
Common stock ($.01 par value; 19,400,000 voting shares
authorized, 5,009,451 issued and outstanding; 600,000
non-voting shares authorized, 165,983 issued and
outstanding).............................................. -- -- 51,754
Additional paid-in capital................................... -- -- 9,699,458
Retained deficit............................................. -- -- (3,230,119)
---------- ---------- -----------
5,944,504 3,906,767 6,521,093
---------- ---------- -----------
$9,626,994 $7,522,630 $ 10,891,251
========== ========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 57
TRANSCRYPT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
NINE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1996
1993 1994 1995 ------------- -------------
------------ ------------ ------------ (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................... $6,900,000 $9,155,164 $ 8,128,200 $ 5,357,546 $ 9,275,168
Cost of sales.............................. 1,615,563 2,901,577 2,982,942 2,266,492 2,885,788
---------- ---------- ---------- ---------- ----------
Gross profit..................... 5,284,437 6,253,587 5,145,258 3,091,054 6,389,380
Operating costs and expenses:
Research and development................. 1,137,950 1,179,540 1,953,068 1,362,118 1,686,297
Sales and marketing...................... 982,354 1,589,632 2,109,393 1,455,616 1,505,939
General and administrative............... 1,151,099 1,074,408 1,190,751 807,355 1,051,474
Special compensation expense............. -- -- -- -- 5,568,250
Amortization of acquisition related
expense............................... 1,091,761 1,092,426 1,092,680 829,335 819,287
---------- ---------- ---------- ---------- ----------
Total operating costs and
expenses....................... 4,363,164 4,936,006 6,345,892 4,454,424 10,631,247
---------- ---------- ---------- ---------- ----------
Income (loss) from operations.............. 921,273 1,317,581 (1,200,634) (1,363,370) (4,241,867)
Interest income............................ 6,561 34,147 53,297 42,169 30,279
Interest expense........................... (140,082) (144,940) (190,403) (136,420) (109,874)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes.......... 787,752 1,206,788 (1,337,740) (1,457,621) (4,321,462)
Provision (benefit) for income taxes....... -- -- -- -- (1,758,539)
---------- ---------- ---------- ---------- ----------
Net income (loss)................ $ 787,752 $1,206,788 $ (1,337,740) $ (1,457,621) $ (2,562,923)
========== ========== ========== ========== ==========
Pro forma information:
Income (loss) before income taxes........ $ (1,337,740) $ (1,457,621) $ (4,321,462)
Pro forma provision (benefit) for income
taxes................................. (496,316) (540,793) (1,623,260)
---------- ---------- ----------
Pro forma net loss....................... $ (841,424) $ (916,828) $ (2,698,202)
========== ========== ==========
Pro forma net loss per share............. $ (.12) $ (.13) $ (.38)
========== ========== ==========
Weighted average common and common
equivalent shares outstanding......... 7,012,751 7,012,751 7,012,751
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 58
TRANSCRYPT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN RETAINED PARTNERS'
UNITS SHARES STOCK CAPITAL DEFICIT CAPITAL TOTAL
----------- ----------- ----------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992....... 4,727,842 -- $ -- $ -- $ -- $ 3,821,442 $ 3,821,442
Additional investment.......... 247,592 -- -- -- -- 350,000 350,000
Distributions.................. -- -- -- -- -- (360,003) (360,003)
Net income..................... -- -- -- -- -- 787,752 787,752
---------- --------- ------- --------- ---------- ---------- ----------
Balance, December 31, 1993....... 4,975,434 -- -- -- -- 4,599,191 4,599,191
Additional investment.......... 200,000 -- -- -- -- 1,000,007 1,000,007
Distributions.................. -- -- -- -- -- (861,482) (861,482)
Net income..................... -- -- -- -- -- 1,206,788 1,206,788
---------- --------- ------- --------- ---------- ---------- ----------
Balance, December 31, 1994....... 5,175,434 -- -- -- -- 5,944,504 5,944,504
Distributions.................. -- -- -- -- -- (699,997) (699,997)
Net loss....................... -- -- -- -- -- (1,337,740) (1,337,740)
---------- --------- ------- --------- ---------- ---------- ----------
Balance, December 31, 1995....... 5,175,434 -- -- -- -- 3,906,767 3,906,767
Distributions.................. -- -- -- -- -- (181,001) (181,001)
Net income (loss).............. -- -- -- -- (3,230,119) 667,196 (2,562,923)
Issuance of stock in exchange
for units of the
Predecessor.................. (5,175,434) 5,175,434 51,754 4,341,208 -- (4,392,962) --
Special compensation-options
issued....................... -- -- -- 5,358,250 -- -- 5,358,250
---------- --------- ------- --------- ---------- ---------- ----------
Balance, September 30, 1996
(unaudited).................... -- 5,175,434 $ 51,754 $9,699,458 $(3,230,119) $ -- $ 6,521,093
========== ========= ======= ========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 59
TRANSCRYPT INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1996
<TABLE>
<CAPTION>
NINE MONTH NINE MONTH
PERIOD ENDED PERIOD ENDED
YEAR ENDED YEAR ENDED YEAR ENDED SEPTEMBER 30, SEPTEMBER 30,
DECEMBER 31, DECEMBER 31, DECEMBER 31, 1995 1996
1993 1994 1995 -------------- --------------
------------- ------------- ------------- (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)............................ $ 787,752 $ 1,206,788 $(1,337,740) $ (1,457,621) $ (2,562,923)
----------- ----------- ----------- ----------- -----------
Adjustments to reconcile net income to net
cash (loss) provided by operating
activities:
Special compensation expense............... -- -- -- -- 5,358,250
Depreciation............................... 275,697 350,188 532,288 349,905 509,086
Amortization............................... 1,091,761 1,092,426 1,092,680 829,335 819,287
Loss (gain) on sale of fixed assets........ 14,894 42,449 (2,446) (1,223) 5,682
Provision for warranties, bad debts and
inventory reserve........................ 422,598 314,589 195,824 115,524 211,869
Deferred tax provision..................... -- -- -- -- (1,947,865)
Changes in:
Accounts receivable...................... (403,078) (63,090) (672,929) 179,619 (1,102,977)
Related party receivables................ (58,164) 44,571 (4,290) (198,336) 19,456
Inventory................................ (897,875) (174,916) 82,850 61,822 (565,225)
Prepaid expenses and other assets........ (14,885) (125,026) 117,499 46,423 (147,063)
Accounts payable......................... 4,213 23,122 (103,221) (137,767) 496,722
Income taxes payable..................... -- -- -- -- 154,326
Accrued expenses......................... 145,622 195,147 264,010 247,169 176,098
Related party payables................... (63,677) (12,328) (13,249) 79,643 (489)
Deferred revenue......................... 116,260 (35,394) (96,204) 205,325 (55,055)
----------- ----------- ----------- ----------- -----------
Total adjustments..................... 633,366 1,651,738 1,392,812 1,777,439 3,932,102
----------- ----------- ----------- ----------- -----------
Net cash provided by operating
activities.......................... 1,421,118 2,858,526 55,072 319,818 1,369,179
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Issue notes receivable....................... (25,000) (1,833) (11,846) -- --
Payments received on note receivable......... 5,000 5,000 10,394 -- --
Proceeds from sale of fixed assets........... 3,860 591,084 37,089 19,800 26,725
Purchase of fixed assets..................... (233,561) (1,992,017) (1,029,471) (822,589) (1,039,786)
Increase in patents and trademarks........... (1,625) (2,993) (904) -- (31,371)
Payments under non-compete agreement......... (340,000) (340,000) (340,000) (255,000) (340,000)
----------- ----------- ----------- ----------- -----------
Net cash used in investing
activities.......................... (591,326) (1,740,759) (1,334,738) (1,057,789) (1,384,432)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings on term loan and operating line of
credit..................................... 1,279,580 2,363,000 1,016,000 500,000 64,000
Payments on term loan and operating line of
credit..................................... (1,731,226) (1,743,792) (866,708) (248,384) (301,720)
Principal payments on capitalized leases..... (14,042) (13,648) (13,377) (11,019) (11,572)
Proceeds from issuance of partnership
interests.................................. 350,000 1,000,007 -- -- --
Partnership distributions paid............... (360,003) (861,482) (699,997) (699,997) (181,001)
Bank overdraft............................... (80,493) -- -- -- 153,834
----------- ----------- ----------- ----------- -----------
Net cash provided by (used in)
financing activities................ (556,184) 744,085 (564,082) (459,400) (276,459)
----------- ----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.................................. 273,608 1,861,852 (1,843,748) (1,197,371) (291,712)
Cash and cash equivalents, beginning of
period....................................... -- 273,608 2,135,460 2,135,460 291,712
----------- ----------- ----------- ----------- -----------
Cash and cash equivalents, end of period....... $ 273,608 $ 2,135,460 $ 291,712 $ 938,089 $ --
=========== =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid.............................. $ 140,082 $ 137,481 $ 190,403 $ 136,420 $ 109,874
Income taxes paid.......................... $ -- $ -- $ -- $ -- $ 35,000
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 60
TRANSCRYPT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES:
The following is a summary of significant accounting policies followed in
the preparation of these financial statements. Certain prior period amounts have
been reclassified to conform to the current period presentation.
(a) Organization:
Transcrypt International, LTD. (the "Predecessor") is a limited partnership
formed in 1991 composed of the general partner, Transcrypt International, Inc.
(a Nebraska corporation) and various limited partners. One percent of the
profits or losses is allocated to the general partner and the remaining 99% is
allocated to the limited partners based on their respective units of partnership
interest.
Effective June 30, 1996, the assets and liabilities of the partnership were
merged tax-free into a Delaware corporation, Transcrypt International, Inc. (the
"Company"). Each respective partnership unit was converted pro rata into common
shares of the Company.
The Company is engaged in the design, manufacture and marketing of
information security products for the land mobile radio and cellular telephone
markets. The Company markets its products to customers world-wide.
(b) Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All significant intercompany accounts and
transactions have been eliminated in the consolidation.
(c) Cash and Cash Equivalents:
The Company considers all highly liquid investments with original
maturities less than 90 days as cash equivalents. The Company places its
temporary cash investments with high credit qualified financial institutions.
(d) Inventory:
Inventory is recorded at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.
(e) Property, Plant and Equipment:
Property, plant and equipment are recorded at cost. The Company's policy is
to capitalize expenditures for major improvements and to charge to operating
expenses the cost of current maintenance and repairs. Depreciation is computed
on the straight line method over the estimated useful lives of the assets. The
cost and related accumulated depreciation of assets retired or otherwise
disposed of are eliminated from the respective accounts at the time of
disposition. Any resulting gain or loss is included in current operating
results. For the year ended December 31, 1994, $28,776 of interest expense was
capitalized.
(f) Intangible Assets:
Intangibles are carried at cost less applicable amortization. Provision for
amortization of intangible assets is based upon the estimated useful lives of
the related assets and is computed using the straight line method. All
intangible assets are being amortized over five years. Management reviews
intangible assets whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be fully recoverable.
F-7
<PAGE> 61
TRANSCRYPT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(g) Income Taxes:
The partnership as an entity is not subject to Federal or state income
taxes. Any tax liabilities arising from the Predecessor's operations are the
direct responsibility of the individual partners. Deferred tax assets and
liabilities are determined based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates and
laws applicable to the years in which the differences are expected to reverse.
(h) Pro Forma Provision for Income Taxes:
The pro forma provision for income taxes reflects the provision for income
taxes as if the Company was taxed as a C Corporation under the Internal Revenue
Code for the entire period presented.
(i) Revenue Recognition:
Revenues are recorded when products are shipped or services are rendered.
Costs associated with the installation and servicing of equipment are charged to
expense as incurred and allowances are provided for returns. The Company defers
income for prepayments of significant initial engineering costs which are
components of the selling price of certain products sold. Also included in
deferred revenue are prepayments from foreign customers for which goods cannot
be shipped until certain export regulations are met.
(j) Export Sales:
A significant portion of the Company's sales are made to customers outside
of the United States. Export sales are recorded and settled in U.S. dollars and
are generally shipped against prepayments or backed by irrevocable letters of
credit confirmed by U.S. banks. Total export sales were approximately
$2,688,000, $5,250,000 and $5,800,000, for the years ended December 31, 1993,
1994 and 1995.
(k) Warranty Costs:
The Company provides for warranty costs based on estimated future
expenditures that will be incurred under product guarantees and warranties
presently in force.
(l) Pro Forma Net Income (Loss) Per Share:
Pro forma net income (loss) per share is computed on the basis of the
weighted average number of partnership interest units outstanding during the
year converted into common shares on a one to one ratio, adjusted for a stock
split and including common stock equivalents (see Note 17).
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
YEAR ENDED ENDED ENDED
DECEMBER SEPTEMBER SEPTEMBER
31, 30, 30,
1995 1995 1996
---------- ----------- -----------
<S> <C> <C> <C>
Common stock............................... 6,783,078 6,783,078 6,783,078
Common stock equivalents -- stock
options.................................. 229,673 229,673 229,673
--------- --------- ---------
7,012,751 7,012,751 7,012,751
========= ========= =========
</TABLE>
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin
No. 83, options to purchase common stock granted with exercise prices below the
assumed initial public offering price per share during the 12 months preceding
the date of the initial filing of the Registration Statement are included in the
calculation of common equivalent shares, using the treasury stock method, as if
they were outstanding for all periods presented.
F-8
<PAGE> 62
TRANSCRYPT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(m) Management Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect carrying amounts of assets and liabilities and
disclosures of contingent assets and liabilities as of financial statement
dates, as well as the reported revenues and expenses for the years then ended.
Actual results may differ from management's estimates.
(n) Unaudited Information:
The financial information for the period as of September 30, 1995 and 1996
and the nine months then ended has been prepared by the Company and is
unaudited. In the opinion of management, the accompanying unaudited financial
information contains all adjustments, consisting only of normal recurring
adjustments, necessary to present fairly the consolidated financial position of
the Company and its Predecessor at September 30, 1996 and the results of their
operations and their cash flows for the nine month period ended September 30,
1995 and 1996. The consolidated statement of loss and consolidated statement of
cash flows for the nine month period ended September 30, 1996 reflects the
combined operating results of the Predecessor for the period January 1, 1996 to
June 30, 1996 and the Company for the period July 1, 1996 to September 30, 1996.
2. INVENTORY:
The following is a summary of inventory at December 31, 1994 and 1995 and
September 30, 1996:
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Raw materials and supplies, net of
reserve for obsolescence of $33,562,
$82,041 and $79,057 in 1994, 1995 and
1996, respectively................... $ 657,027 $ 879,587 $1,053,256
Work in process........................ 300,676 101,092 375,633
Finished goods......................... 294,293 139,084 260,286
---------- ---------- ----------
$1,251,996 $1,119,763 $1,689,175
========== ========== ==========
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consists of the following at December 31,
1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Land................................................ $ 150,000 $ 150,000
Building............................................ 1,289,452 1,302,388
Equipment........................................... 1,467,713 2,325,690
Leased equipment.................................... 74,329 74,329
Automobiles......................................... 58,232 64,647
Furniture and fixtures.............................. 345,802 371,160
--------- ---------
3,385,528 4,288,214
Less accumulated depreciation.................. 723,826 1,221,474
--------- ---------
$2,661,702 $3,066,740
========= =========
</TABLE>
F-9
<PAGE> 63
TRANSCRYPT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INTANGIBLE ASSETS:
Intangible assets consist of the following at December 31, 1994 and 1995:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Proprietary technology.............................. $3,355,630 $3,355,630
Non-compete agreements.............................. 1,700,000 1,700,000
Goodwill............................................ 290,516 290,516
Organization costs.................................. 116,910 116,910
Patents and trademarks.............................. 4,618 5,522
--------- ---------
5,467,674 5,468,578
Less accumulated amortization.................. 3,373,038 4,465,718
--------- ---------
$2,094,636 $1,002,860
========= =========
</TABLE>
5. REVOLVING LINE OF CREDIT:
The Company has a revolving line of credit not to exceed $2,000,000
calculated using a specified borrowing base of eligible inventories and accounts
receivable. Interest is payable monthly at a regional bank's national money
market rate. The line is collateralized by substantially all the Company's
assets.
6. CAPITALIZED LEASE OBLIGATIONS:
Future minimum lease payments under capitalized lease obligations at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
AMOUNT
-------
<S> <C>
1996............................................................... $17,289
1997............................................................... 15,846
-------
Total minimum obligations.......................................... 33,135
Less amount representing interest.................................. 2,466
-------
Present value of net minimum obligations........................... 30,669
Less current portion............................................... 15,570
-------
Long-term portion.................................................. $15,099
=======
</TABLE>
7. LONG-TERM DEBT:
Long-term debt at December 31, 1994 and 1995 consists of the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Term note payable to bank due in monthly installments
of $18,141 including interest at 7.75% beginning in
March 1993 until March 1996 when it can be adjusted
from time to time to a specified rate of a regional
bank. Principal is due in full in February 1998. The
note is collateralized by essentially all the assets
of the Company in addition to the personal
guarantees of certain shareholders.................. $613,123 $437,358
Term note payable to bank due in monthly installments
of $14,231 including interest at 8% beginning June
1994 until May 1996, when it can be adjusted to
one-percent above a specified rate of a regional
bank from time to time. Principal is due in full in
May 1999. The note is collateralized by essentially
all the assets of the Company in addition to
personal guarantees of certain shareholders......... 631,734 507,653
</TABLE>
F-10
<PAGE> 64
TRANSCRYPT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
Installment note for equipment purchase payable to
bank due in monthly installments of $10,506
including daily adjusted interest at a specified
rate above the prime rate (8.5% at December 31,
1995). The note is collateralized by specific
equipment purchased with proceeds as well as
inventory and other equipment. The note is
guaranteed by a shareholder......................... $ -- $ 449,138
Industrial development revenue bonds payable to bank
with quarterly interest only payments beginning
April 15, 1994 at 6.25% with principal due on
January 15, 2004. This note is collateralized by a
deed of trust....................................... 850,000 850,000
----------- -----------
2,094,857 2,244,149
Less current portion.................................. 301,377 412,656
----------- -----------
$1,793,480 $1,831,493
========= =========
</TABLE>
Maturities on long-term debt are summarized as follows:
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
1996............................................................. $ 412,656
1997............................................................. 447,973
1998............................................................. 303,590
1999............................................................. 182,900
2000............................................................. 47,030
Thereafter....................................................... 850,000
----------
$2,244,149
=========
</TABLE>
The agreements of the term note payable and the bank note payable discussed
in Note 5 require, among other things, that the Company maintain certain levels
of working capital, net worth and debt-to-equity ratios and limit capital
expenditures, investments, other indebtedness, distributions, mergers and
acquisitions.
8. OBLIGATIONS UNDER NON-COMPETE AGREEMENTS:
In connection with the purchase of the net assets of Transcrypt
International, Incorporated in 1991, the Company entered into non-compete
agreements with the former owners which call for the Company to pay a total of
$1,700,000 in consideration for the former owners' agreement not to compete for
a period of five years. As of December 31, 1995, the remaining payments are
payable in 1996 and amount to $340,000.
9. DEFERRED INCOME TAXES:
The components of the provision (benefit) for income taxes for the period
ending September 30, 1996 are as follows:
<TABLE>
<S> <C>
Current......................................................... $ 189,326
Deferred........................................................ (1,947,865)
-----------
$(1,758,539)
==========
</TABLE>
The entire provision is comprised of federal taxes, as no state taxes are
expected to be paid as a result of various state incentive tax credits for which
the Company has qualified.
F-11
<PAGE> 65
TRANSCRYPT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's tax provision effective tax rate on pretax income (loss)
differs from U.S. federal statutory tax rate as follows:
<TABLE>
<S> <C> <C>
U.S. federal tax at statutory tax rate................ $(1,469,297) (34.00)%
Income taxable directly to partners of the
Predecessor......................................... (226,847) (5.25)
Benefit of foreign sales corporation.................. (89,048) (2.06)
Other................................................. 26,653 0.62
----------- ------
$(1,758,539) (40.69)%
========== ======
</TABLE>
Temporary differences between the financial statement carrying amounts and
tax bases of assets and liabilities that give rise to deferred income taxes at
September 30, 1996 relate to the following:
<TABLE>
<S> <C>
Deferred tax assets:
Special compensation expense................................... $1,821,805
Allowance for bad debts........................................ 65,492
Reserves for warranties and inventory obsolesence.............. 41,172
Difference between tax and book liability accruals............. 127,166
----------
2,055,635
----------
Deferred tax liabilities:
Difference between tax and book depreciation................... 106,265
Difference between tax and book liability accruals............. 1,505
----------
107,770
----------
Net deferred asset............................................... $1,947,865
=========
</TABLE>
10. ACCRUED EXPENSES:
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1994 1995
------------ ------------
<S> <C> <C>
Payroll and bonuses.................................. $ 38,930 $151,130
Warranty reserve..................................... 47,221 64,455
Commissions.......................................... 33,513 265,440
Other expenses....................................... 296,338 286,221
-------- --------
$416,002 $767,246
======== ========
</TABLE>
11. COMMITMENTS AND CONTINGENCIES:
The Company has agreed to pay fees totaling $350,000 to its chairman and
chief executive officer for initiating the purchase of the net assets of
Transcrypt International, Incorporated in 1991. Payment is contingent upon the
original limited partners receiving capital distributions equal to their
original capital contributions or upon the approval of the Board of Directors of
the Company for the sale of equity interests in the Company to the public.
Payments of $70,000 have been made as of December 31, 1995 and an additional
payment of $70,000 was approved and paid during February 1996. These payments
were accounted for as a bonus and the officer has waived rights to receive fees
to the extent of such payments. Also see Note 17.
F-12
<PAGE> 66
TRANSCRYPT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In the normal course of its business activities, the Company is required
under a contract with foreign governmental authorities to provide letters of
credit that may be drawn upon if the Company fails to perform under their
contracts. The letters of credit, which expire on various dates in 1996, have a
total undrawn balance of $139,081 at December 31, 1995.
The Company is involved in certain disputes as part of the ordinary course
of its business. Management believes that the ultimate resolution of these
disputes will not have a material adverse effect on its financial position,
results of operations or cash flows.
12. RELATED PARTY TRANSACTIONS:
The Company, its partners and other related parties have participated in
various related party transactions. Amounts due to and from related parties are
as set forth in the balance sheet.
The remainder of amounts due to and from related parties primarily
represent amounts due to the general partner and sales commissions (which were
insignificant) due to a wholly-owned subsidiary of the general partner net of
administrative expenses paid on behalf of the subsidiary.
13. OPTION PLAN:
In January 1992, the Board of Directors approved a 1992 Partnership
Interest Option Plan which provides for the granting of up to 990,000 units of
non-qualified interest options to certain officers and key employees. Under the
Plan, the exercise price for the options will be the fair market value at the
date of grant as determined by the Board of Directors. Options granted under the
Plan are fully vested and generally become exercisable at the discretion of a
committee designated by the Board to administer the plan, however no options
shall be exercisable until the Board of Directors declare distributions that
will cause the original investors to have received a return of their initial
investment in the Company plus a 20% cumulative annual return on their
investment.
The committee shall also determine the term of each option granted, which
will in no event exceed ten years from the date of grant. Information with
respect to interest options under the above plan is as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
Units under option, at beginning of year.............. 693,000 733,500
Granted............................................... 40,500 21,000
Exercised............................................. -- --
Canceled or forfeited................................. -- (436,500)
-------- --------
Units under option, at end of year.................... 733,500 318,000
======== ========
Price of options granted.............................. $ 4.00 $ 4.00
Price of options outstanding.......................... $1.00-4.00 $1.00-4.00
</TABLE>
No units were exercisable at December 31, 1995. 672,000 units were
available for future grants under the 1992 agreement. Of the available units,
229,000 have been reserved for issuance contingent upon future employment or
attainment of specified criteria by the grantees.
Effective June 30, 1996, the unit options were converted to stock options
on a one to one ratio. Notwithstanding the restrictions stated above, the issued
options automatically become exercisable and the reserved options become
issuable, fully vested and exercisable if the Company successfully completes an
initial public offering. Also see Note 17.
F-13
<PAGE> 67
TRANSCRYPT INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. BENEFIT PLANS:
The Company has a profit sharing plan which covers substantially all
employees. Contribution levels are determined by the Board of Directors
annually. Profit sharing expense approximated $30,000, $45,000 and $27,500 for
the years ended December 31, 1993, 1994 and 1995, respectively.
The Company also has a 401(k) plan which covers substantially all
employees. Participants may contribute up to 10% of their annual compensation
and the Company makes matching contributions of 25% of the amount contributed by
participants. Contributions may not exceed the maximum allowable by law. Company
contributions approximated $8,000, $11,000 and $13,000 for the years ended
December 31, 1993, 1994 and 1995, respectively.
15. SALES TO MAJOR CUSTOMERS:
Sales to major customers totaling over $200,000 each were as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1993 1994 1995
------------ ------------ ------------
<S> <C> <C> <C>
Percent of total sales.................... 30% 49% 44%
Number of major customers................. 3 6 7
Individual customers representing 10% or
more of consolidated sales in each year:
Motorola -- Poland...................... -- $2,044,350 --
Ministry of Interior -- Egypt........... $1,622,452 -- $849,134
</TABLE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS:
The carrying amounts of all financial instruments in the consolidated
balance sheets approximate fair values.
17. OTHER MATTERS:
On September 30, 1996, the Board of Directors and the shareholders approved
an increase in the Company's authorized common shares from 10 million to 20
million shares. Prior to the effectiveness of a planned initial public offering,
the Company plans to declare a 1.3106311-for-1 stock split. The pro forma per
share information reflects this split.
The Board of Directors approved the payment of the remaining $210,000 fees
for initiating the 1991 purchase of the net assets of Transcrypt International,
Incorporated on September 30, 1996. These fees are included in special
compensation expense in the consolidated statements of operations (see Note 11).
The Board of Directors also approved granting of all reserved options and full
vesting of 547,000 stock options of outstanding stock options on September 30,
1996 (see Note 13). The vesting resulted in a special compensation charge of
$5,358,250 (before related tax benefits of $1,821,805) in the quarter ending
September 30, 1996.
F-14
<PAGE> 68
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ANY SELLING STOCKHOLDER OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, COMMON
STOCK IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN
OFFER OR SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF
THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary....................
Risk Factors..........................
The Offering..........................
Use Of Proceeds.......................
Dividend Policy.......................
Capitalization........................
Dilution..............................
Selected Consolidated Financial
Data................................
Management's Discussion And Analysis
Of Financial Condition And Results
Of Operations.......................
Business..............................
Management............................
Certain Transactions..................
Principal and Selling Stockholders....
Description Of Capital Stock..........
Shares Eligible for Future Sale.......
Underwriting..........................
Legal Matters.........................
Experts...............................
Additional Information................
Index To Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF
THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED
HEREBY, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,750,000 SHARES
LOGO
COMMON STOCK
---------------------
PROSPECTUS
---------------------
DAIN BOSWORTH
INCORPORATED
, 1996
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth estimates of those costs and expenses to be
incurred by the Registrant in connection with the offering of the securities
being registered hereby, all of which are estimated except for the SEC
registration, NASD and Nasdaq National Market application fees.
<TABLE>
<S> <C>
SEC registration fee............................................... $18,296
NASD fee........................................................... 6,540
Nasdaq National Market application fee............................. 40,700
Underwriters' nonaccountable expense allowance..................... *
Blue Sky filing fees and expenses.................................. *
Printing and engraving expenses.................................... *
Legal fees and expenses............................................ *
Accounting fees and expenses....................................... *
Registrar and transfer agent fees.................................. *
Miscellaneous...................................................... *
------
Total............................................................ $ *
======
</TABLE>
- ---------------
* To be completed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Delaware law, the directors and officers of the Registrant are
entitled, under certain circumstances, to be indemnified by the Registrant
against all expenses and liabilities incurred or imposed upon them as a result
of suits brought against them as such directors and officers, if they act in
good faith and in a manner they reasonably believe to be in or not opposed to
the best interests of the Registrant, and, with respect to any criminal action
or proceeding, have no reasonable cause to believe their conduct was unlawful,
except that no indemnification shall be made against expenses in respect of any
claim, issue or matter as to which they shall have been adjudged to be liable to
the Registrant, unless and only to the extent that the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, they
are fairly and reasonably entitled to be indemnified for such expenses which
such court shall deem proper. Any such indemnification may be made by the
Registrant only as authorized in each specific case upon a determination by the
stockholders or disinterested directors that indemnification is proper because
the indemnitee has met the applicable statutory standard of conduct.
Article Eight of the Registrant's Second Amended and Restated Certificate
of Incorporation, as amended, provides that a director shall not be liable to
the Registrant or its stockholders for monetary damages for a breach of
fiduciary duty as a director, except for liability (i) for any breach of the
director's duty of loyalty to the Registrant or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under the Delaware statutory provisions making
directors personally liable for unlawful dividends or unlawful stock repurchases
or redemptions or (iv) for any transaction from which the director derived an
improper personal benefit.
The Company's Amended and Restated Bylaws provide that the Company shall
indemnify its directors and officers to the fullest extent permitted by Delaware
law. The Company has also entered into indemnification agreements with its
directors and officers. The indemnification agreements may require the Company,
among other things, to indemnify its directors and officers against certain
liabilities that may arise by reason of their status or service as directors or
officers (other than liabilities arising from willful misconduct of a culpable
nature) and to advance their expenses incurred as a result of any proceedings
against them as to which they could be indemnified.
II-1
<PAGE> 70
The Registrant maintains a standard policy of officers' and directors'
liability insurance.
The Underwriting Agreement, a copy of which is filed as Exhibit 1.1 hereto,
provides for the indemnification of directors, officers, employees, agents and
controlling persons of the Registrant by the Underwriters under certain
circumstances.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) In connection with the merger of Transcrypt International, Ltd., a
Nebraska limited partnership (the "Partnership"), with and into the Registrant
effective June 30, 1996, pursuant to an Agreement of Merger between the
Partnership and the Registrant, the Registrant issued, in a transaction that was
not registered under the Securities Act of 1933, as amended (the "Act"),
5,175,434 (pre-split) shares of its Common Stock, $0.01 par value, as
consideration for the merger.
In connection with the merger of Transcrypt International, Inc., a Nebraska
corporation ("Transcrypt Nebraska"), the former general partner of the
Partnership, with and into the Registrant effective September 30, 1996, pursuant
to an Agreement of Merger between Transcrypt Nebraska and the Registrant, the
Registrant issued, in a transaction that was not registered under the Act,
52,010 shares of its Common Stock, $0.01 par value, as consideration for the
merger.
(b) In September 1994, the Partnership issued 200,000 limited partnership
units for $5.00 per unit, or aggregate consideration of $1,000,000, to certain
of the limited partners of the Partnership.
The sales and issuances of securities in the transactions described above
were deemed to be exempt from registration under the Act in reliance upon
Section 4(2) of the Securities Act as transactions by an issuer not involving
any public offering. Appropriate legends were affixed to the securities issued
in connection with such transactions.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Second Amended and Restated Certificate of Incorporation of the Registrant,
filed on September 30, 1996 with the Secretary of State of the State of
Delaware.
3.2 Amended and Restated Bylaws of the Registrant.
3.3 Certificate of Merger of Transcrypt International, Ltd., a Nebraska limited
partnership, with and into the Registrant, filed on June 28, 1996 with the
Secretary of State of the State of Delaware.
3.4* Certificate of Merger of Transcrypt International, Inc., a Nebraska
corporation, with and into the Registrant, filed on September 30, 1996 with
the Secretary of State of the State of Delaware.
4.1* Specimen Certificate for Common Stock.
5.1* Opinion of Manatt, Phelps & Phillips, LLP.
10.1 Employment Agreement between the Registrant and John T. Connor dated as of
September 10, 1996.
10.2 Employment Agreement between the Registrant and Jeffery L. Fuller dated as of
July 18, 1996.
10.3 Form of Employment Agreement between the Registrant and C. Eric Baumann,
Michael P. Wallace and Joel K. Young.
10.4 Form of 1996 Stock Incentive Plan, together with forms of non-qualified stock
option agreements.
</TABLE>
II-2
<PAGE> 71
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------------------------
<S> <C>
10.5* Form of Indemnification Agreement between the Registrant and each executive
officer and director of the Registrant.
10.6 License Agreement for APCO Project 25 Compliant Product between Motorola,
Inc. and the Registrant dated as of August 2, 1994.
10.7** Amendment, dated as of June 28, 1996, to License Agreement for APCO Project
25 Compliant Product between Motorola, Inc. and the Registrant dated as of
August 2, 1994.
10.8 OEM Agreement between Motorola, Inc. and the Registrant dated as of August 2,
1994.
10.9** Amendment, dated as of July 15, 1996, to OEM Agreement between Motorola, Inc.
and the Registrant dated as of August 2, 1994.
10.10** Private Label/Supplier Agreement for Analog Scrambling Modules between
Motorola, Inc. and the Registrant dated as of August 8, 1995.
10.11** Motorola Cellular Subscriber Products Sales Agreement, dated as of June 13,
1996, by and between Motorola, Inc. and the Registrant.
10.12 License Agreement for APCO Fed Project 25 Algorithm between Digital Voice
Systems, Inc. and the Registrant, dated as of August 14, 1995.
10.13 Consigned Inventory Agreement between Arrow/Schweber Electronics Group and
the Registrant, dated as of June 22, 1994.
10.14 Nebraska Investment Finance Authority $850,000 Industrial Revenue Bond
(Transcrypt International, Ltd. Project), Series 1994, dated as of January
15, 1994, and Note.
10.15 Trust Indenture, dated as of January 15, 1994, for $850,000 Industrial
Revenue Bond (Transcrypt International, Ltd. Project), Series 1994, between
Nebraska Investment Finance Authority as Issuer and Norwest Bank Nebraska,
N.A. as Trustee.
10.16 Loan Agreement, dated as of January 15, 1994, for $850,000 Industrial Revenue
Bond (Transcrypt International, Ltd. Project), Series 1994, between Nebraska
Investment Finance Authority as Issuer and the Registrant.
10.17 Amended and Restated Loan Agreement, dated as of May 18, 1994, by and between
Norwest Bank Nebraska, N.A., and the Registrant.
10.18 First Amendment, dated as of June 1, 1995, to Amended and Restated Loan
Agreement, dated as of May 18, 1994, by and between Norwest Bank Nebraska,
N.A., and the Registrant.
10.19 Second Amendment, dated as of April 10, 1996, to Amended and Restated Loan
Agreement, dated as of May 18, 1994, by and between Norwest Bank Nebraska,
N.A., and the Registrant.
10.20 Promissory Note, dated as of May 11, 1995, between West Gate Bank and the
Registrant.
10.21 Noncompete Agreement, dated as of December 3, 1991, between John Kuijvenhoven
and the Registrant.
10.22 Security and Pledge Agreement, dated as of December 3, 1991, by and among
John Kuijvenhoven, Yvonne Kuijvenhoven and the Registrant.
10.23 Security and Pledge Agreement, dated as of August 8, 1994, by and among John
Kuijvenhoven, Yvonne Kuijvenhoven and the Registrant.
11.1 Statement re: Computation of Per Share Earnings (see page S-3).
23.1* Consent of Coopers & Lybrand L.L.P.
</TABLE>
II-3
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------------------------------------------------------------------------
<S> <C>
23.2* Consent of Manatt, Phelps & Phillips, LLP (included in Exhibit 5.1).
24.1 Power of Attorney (see Page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** Confidential treatment requested for certain portions.
(b) FINANCIAL STATEMENT SCHEDULES:
Schedule III -- Valuation and Qualifying Accounts and Reserves
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide the underwriters in
this offering (the "Underwriters") at the closing specified in the applicable
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriters to permit prompt delivery to each
purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the provisions referenced in Item 14 of this Registration Statement
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 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 hereunder, the Registrant
will, 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 Act and will be governed by the final adjudication of such
issue.
The undersigned Registrant hereby undertakes:
(1) That for the purposes of determining any liability under the Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) That for the purpose of determining any liability under the Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 73
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 Lincoln, Nebraska, on
this 16th day of October, 1996.
TRANSCRYPT INTERNATIONAL, INC.
By: /s/ JOHN T. CONNOR
------------------------------------
John T. Connor
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below hereby constitutes and appoints John T. Connor and Randal P.
Hansen, and each of them acting individually, as his attorney-in-fact, each with
full power of substitution, for him in any and all capacities, to sign any and
all amendments to this Registration Statement, and to file the same, with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming our
signatures as they may be signed by our said attorney to any and all amendments
to said Registration Statement.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- ------------------
<C> <S> <C>
/s/ JOHN T. CONNOR Chief Executive Officer and October 16, 1996
- --------------------------------------------- Director (Principal
John T. Connor Executive Officer)
/s/ RANDAL P. HANSEN Vice President of Finance October 16, 1996
- --------------------------------------------- and Chief Financial
Randal P. Hansen Officer (Principal
Financial and Accounting
Officer)
/s/ TERRY L. FAIRFIELD Director October 16, 1996
- ---------------------------------------------
Terry L. Fairfield
/s/ JEFFERY L. FULLER Director October 16, 1996
- ---------------------------------------------
Jeffery L. Fuller
Director October , 1996
- ---------------------------------------------
Thomas R. Larsen
/s/ HAROLD S. MYERS Director October 16, 1996
- ---------------------------------------------
Harold S. Myers
</TABLE>
II-5
<PAGE> 74
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- --------------------------- ------------------
<C> <S> <C>
/s/ THOMAS C. SMITH Director October 16, 1996
- ---------------------------------------------
Thomas C. Smith
/s/ THOMAS R. THOMSEN Director October 16, 1996
- ---------------------------------------------
Thomas R. Thomsen
Director October , 1996
- ---------------------------------------------
Winston J. Wade
</TABLE>
II-6
<PAGE> 75
REPORT OF INDEPENDENT ACCOUNTANTS
In connection with our audits of the consolidated financial statements of
Transcrypt International, Inc. as of December 31, 1994 and 1995, and for each of
the three years in the period ended December 31, 1995, which financial
statements are included in the Prospectus, we have also audited the financial
statement schedule listed in Item 16 herein.
In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.
COOPERS & LYBRAND L.L.P.
Lincoln, Nebraska
February 23, 1996
S-1
<PAGE> 76
SCHEDULE III -- VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
ADDITIONS
----------------------
BALANCE AT CHARGED TO CHARGED BALANCE
BEGINNING EXPENSES TO OTHER DEDUCTIONS AT END
DESCRIPTION OF PERIOD (PROVISIONS) ACCOUNTS (WRITE-OFFS) OF PERIOD
- --------------------------------------------- ---------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Allowance for Bad Debts for the:
Year Ended December 31, 1993............... $ 20,000 $217,829 $ 0 $168,856 $ 68,973
Year Ended December 31, 1994............... 68,973 139,059 0 20,018 188,014
Year Ended December 31, 1995............... 188,014 94,285 0 100,640 181,659
-
------ ------- ------- -------
Inventory Obsolescence Reserves for the:
Year Ended December 31, 1993............... $ 0 $184,769 $ 0 $177,803 $ 6,966
Year Ended December 31, 1994............... 6,966 168,309 0 134,747 33,562
Year Ended December 31, 1995............... 33,562 61,495 0 13,016 82,041
-
------ ------- ------- -------
</TABLE>
S-2
<PAGE> 77
EXHIBIT 11.1
TRANSCRYPT INTERNATIONAL, INC.
CALCULATION OF PRO FORMA EARNINGS PER SHARE
FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 1995 AND 1996
AND FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA (UNAUDITED)
-----------------------------------
YEAR ENDED
DECEMBER NINE MONTHS ENDED
31, -------------------
1995 9/30/95 9/30/96
----------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
Pro forma net loss.......................................... $ (841) $ (917) $(2,698)
Weighted average common and common equivalent shares
outstanding............................................... 7,013 7,013 7,013
Pro forma net loss per share................................ (.12) (.13) (.38)
</TABLE>
CALCULATION OF PRO FORMA WEIGHTED AVERAGE SHARES OUTSTANDING
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------
<S> <C>
Common Stock................................................................. 6,783
Common Stock Equivalents - Stock Options(1).................................. 230
------
Weighted Average Common and Common Equivalent Shares Outstanding............. 7,013
======
</TABLE>
- ---------------
(1) Includes the effects of options to purchase 300,134 shares of Transcrypt
International, Inc. Common Stock with an exercise price of $3.05 per share.
Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No.
83, options to purchase common stock granted with exercise prices below the
assumed initial public offering price per share during the 12 months
preceding the date of the initial filing of the Registration Statement are
included in the calculation of common equivalent shares, using the treasury
stock method, as if they were outstanding for all periods presented.
S-3
<PAGE> 78
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
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1.1* Form of Underwriting Agreement........................................
3.1 Second Amended and Restated Certificate of Incorporation of the
Registrant, filed on September 30, 1996 with the Secretary of State of
the State of Delaware.................................................
3.2 Amended and Restated Bylaws of the Registrant.........................
3.3 Certificate of Merger of Transcrypt International, Ltd., a Nebraska
limited partnership, with and into the Registrant, filed on June 28,
1996 with the Secretary of State of the State of Delaware.............
3.4* Certificate of Merger of Transcrypt International, Inc., a Nebraska
corporation, with and into the Registrant, filed on September 30, 1996
with the Secretary of State of the State of Delaware..................
4.1* Specimen Certificate for Common Stock.................................
5.1* Opinion of Manatt, Phelps & Phillips, LLP.............................
10.1 Employment Agreement between the Registrant and John T. Connor dated
as of September 10, 1996..............................................
10.2 Employment Agreement between the Registrant and Jeffery L. Fuller
dated as of July 18, 1996.............................................
10.3 Form of Employment Agreement between the Registrant and C. Eric
Baumann, Michael P. Wallace and Joel K. Young.........................
10.4 Form of 1996 Stock Incentive Plan, together with forms of
non-qualified stock option agreements.................................
10.5* Form of Indemnification Agreement between the Registrant and each
executive officer and director of the Registrant......................
10.6 License Agreement for APCO Project 25 Compliant Product between
Motorola, Inc. and the Registrant dated as of August 2, 1994..........
10.7** Amendment, dated as of June 28, 1996, to License Agreement for APCO
Project 25 Compliant Product between Motorola, Inc. and the Registrant
dated as of August 2, 1994............................................
10.8 OEM Agreement between Motorola, Inc. and the Registrant dated as of
August 2, 1994........................................................
10.9** Amendment, dated as of July 15, 1996, to OEM Agreement between
Motorola, Inc. and the Registrant dated as of August 2, 1994..........
10.10** Private Label/Supplier Agreement for Analog Scrambling Modules between
Motorola, Inc. and the Registrant dated as of August 8, 1995..........
10.11** Motorola Cellular Subscriber Products Sales Agreement, dated as of
June 13, 1996, by and between Motorola, Inc. and the Registrant.......
10.12 License Agreement for APCO Fed Project 25 Algorithm between Digital
Voice Systems, Inc. and the Registrant, dated as of August 14, 1995...
10.13 Consigned Inventory Agreement between Arrow/Schweber Electronics Group
and the Registrant, dated as of June 22, 1994.........................
10.14 Nebraska Investment Finance Authority $850,000 Industrial Revenue Bond
(Transcrypt International, Ltd. Project), Series 1994, dated as of
January 15, 1994, and Note............................................
</TABLE>
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<TABLE>
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SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
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10.15 Trust Indenture, dated as of January 15, 1994, for $850,000 Industrial
Revenue Bond (Transcrypt International, Ltd. Project), Series 1994,
between Nebraska Investment Finance Authority as Issuer and Norwest
Bank Nebraska, N.A. as Trustee........................................
10.16 Loan Agreement, dated as of January 15, 1994, for $850,000 Industrial
Revenue Bond (Transcrypt International, Ltd. Project), Series 1994,
between Nebraska Investment Finance Authority as Issuer and the
Registrant............................................................
10.17 Amended and Restated Loan Agreement, dated as of May 18, 1994, by and
between Norwest Bank Nebraska, N.A., and the Registrant...............
10.18 First Amendment, dated as of June 1, 1995, to Amended and Restated
Loan Agreement, dated as of May 18, 1994, by and between Norwest Bank
Nebraska, N.A., and the Registrant....................................
10.19 Second Amendment, dated as of April 10, 1996, to Amended and Restated
Loan Agreement, dated as of May 18, 1994, by and between Norwest Bank
Nebraska, N.A., and the Registrant....................................
10.20 Promissory Note, dated as of May 11, 1995, between West Gate Bank and
the Registrant........................................................
10.21 Noncompete Agreement, dated as of December 3, 1991, between John
Kuijvenhoven and the Registrant.......................................
10.22 Security and Pledge Agreement, dated as of December 3, 1991, by and
among John Kuijvenhoven, Yvonne Kuijvenhoven and the Registrant.......
10.23 Security and Pledge Agreement, dated as of August 8, 1994, by and
among John Kuijvenhoven, Yvonne Kuijvenhoven and the Registrant.......
11.1 Statement re: Computation of Per Share Earnings (see page S-3)........
23.1* Consent of Coopers & Lybrand L.L.P....................................
23.2* Consent of Manatt, Phelps & Phillips, LLP (included in Exhibit 5.1)...
24.1 Power of Attorney (see Page II-5).....................................
27.1 Financial Data Schedule...............................................
</TABLE>
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* To be filed by amendment.
** Confidential treatment requested for certain portions.
<PAGE> 1
EXHIBIT 3.1
SECOND AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TRANSCRYPT INTERNATIONAL, INC.
This Second Amended and Restated Certificate of Incorporation of
Transcrypt International, Inc. (the "Corporation") supersedes and replaces in
its entirety the existing First Amended and Restated Certificate of
Incorporation of the Corporation which were filed pursuant to Section 241 of
the Delaware General Corporation Law on June 14, 1996. The undersigned, being
the Secretary of the Corporation, hereby certifies that this Second Amended and
Restated Certificate of Incorporation has been duly adopted by the Board of
Directors of the Corporation and approved by the holders of at least
seventy-five percent of the outstanding stock of the Corporation in accordance
with the provisions of Section 242 of the Delaware General Corporation Law.
ARTICLE I
The name of the Corporation is Transcrypt International, Inc.
ARTICLE II
The address of the registered office of the Corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, City of
Wilmington, County of New Castle, Delaware 19805, and the name of its
registered agent at the address of the Corporation's registered office is The
Corporation Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware.
ARTICLE IV
SECTION 4.1 The Corporation is authorized to issue three classes
of shares designated, respectively, "Common Stock," "Non-Voting Common Stock"
and "Preferred Stock." The number of shares of Common Stock which the
Corporation is authorized to issue is nineteen million four hundred thousand
(19,400,000) shares, par value $0.01 per share. The number of shares of
Non-Voting Common Stock which the Corporation is authorized to issue is six
hundred thousand (600,000), par value $0.01 per share. The number of shares of
Preferred Stock which the Corporation is authorized to issue is three million
(3,000,000) shares, par value $0.01 per share. All issued and outstanding
shares of Non-Voting Common Stock will become Common Stock when it ceases to be
owned by First Commerce Bancshares, Inc., its subsidiaries or affiliates, or
any of their successors and the Corporation will have the authority to issue
twenty million (20,000,000) shares of Common Stock, all of which will be voting
Common Stock.
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<PAGE> 2
SECTION 4.2 Holders of shares Common Stock shall be entitled to
one vote for each share of Common Stock held of record by such holder and shall
be entitled to vote with respect to all matters as to which a stockholder of a
Delaware corporation would be entitled to vote. Subject to the rights of the
Preferred Stock holders, if any, the holders of the Common Stock shall have the
exclusive right to vote for the election of directors and for all other
purposes and to receive notice of any meeting of stockholders, except as
otherwise required by law.
SECTION 4.3 Holders of shares of Non-Voting Common Stock shall
not be entitled to vote on any matters which come before the stockholders
except as otherwise expressly provided by law, in which case, each holder of
shares of Non-Voting Common Stock shall be entitled to one vote for each share
of Non-Voting Common Stock held. In all other respects, each holder of shares
of Non-Voting Common Stock shall posses all of the same rights as the holders
of shares of Common Stock including, without limitation, with respect to
notices of meetings, dividends and liquidation.
SECTION 4.4 Shares of Preferred Stock may be issued in one or
more series at such time or times and for such consideration as the Board of
Directors may determine, without further action by the holders of the
outstanding shares of Common Stock or Preferred Stock, if any. The Board of
Directors is authorized to fix the number of shares of any series of Preferred
Stock and to determine the designation of any such series. The Board of
Directors is also authorized to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and, within the limits and restrictions granted to or
imposed upon any wholly unissued series of Preferred Stock and, within the
limits and restrictions stated in any resolution or resolutions of the Board of
Directors originally fixing the number of shares constituting any series, to
increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any such series subsequent to the issue of
shares of that series.
SECTION 4.5 The Corporation shall be entitled to treat the person
in whose name any share of its Common Stock, Non-Voting Common Stock or
Preferred Stock, is registered as the owner thereof for all purposes and shall
not be bound to recognize any equitable or other claim to or interest in, such
share on the part of any other person, whether or not the Corporation shall
have notice thereof, except as expressly provided by applicable law.
ARTICLE V
Subject to the rights, if any, of holders of any series of Preferred
Stock, the Board of Directors is hereby authorized to create and issue, whether
or not in connection with the issuance and sale of any of its stock or other
securities or property, rights entitling the holders thereof to purchase from
the Corporation shares of stock or other securities of the Corporation or any
other corporation. The times at which and the terms upon which such rights are
to be issued will be determined by the Board of Directors and set forth in the
contracts or instruments that evidence such rights. The
2
<PAGE> 3
authority of the Board of Directors with respect to such rights shall include,
but not be limited to, determination of the following:
(a) the initial purchase price per share or other unit of
the stock or other securities or property to be purchased upon exercise of such
rights;
(b) provisions relating to the times at which and the
circumstances under which such rights may be exercised or sold or otherwise
transferred, either together with or separately from, any other stock or other
securities of the Corporation;
(c) provisions which adjust the number or exercise price
of such rights, or amount or nature of the stock or other securities or
property receivable upon exercise of such rights, in the event of a
combination, split or recapitalization of any stock of the Corporation, a
change in ownership of the Corporation's stock or other securities or a
reorganization, merger, consolidation, sale of assets or other occurrence
relating to the Corporation or any stock of the Corporation, and provisions
restricting the ability of the Corporation to enter into any such transaction
absent an assumption by the other party or parties thereto of the obligations
of the Corporation under such rights;
(d) provisions which deny the holder of a specified
percentage of the outstanding stock or other securities of the Corporation the
right to exercise such rights and/or cause the rights held by such holder to
become void;
(e) provisions which permit the Corporation to redeem
such rights; and
(f) the appointment of a rights agent with respect to
such rights.
ARTICLE VI
In furtherance and not in limitation of the powers conferred upon it
by law, the Board of Directors is expressly authorized to adopt, repeal, alter
or amend the Bylaws of the Corporation by the affirmative vote of 60% or more
of the entire Board of Directors. In addition to any requirements of law and
any provision of this Certificate of Incorporation, the stockholders of the
Corporation may adopt, repeal, alter or amend any provision of the Bylaws upon
the affirmative vote of the holders of 75% or more of the combined voting power
of the then outstanding stock of the Corporation entitled to vote generally in
the election of directors.
ARTICLE VII
SECTION 7.1. The business and affairs of the Corporation shall be
managed by or under the direction of its Board of Directors, which may exercise
all such powers of the Corporation and do
3
<PAGE> 4
all such lawful acts and things as are not by law or by this Certificate of
Incorporation directed or required to be exercised or done by the stockholders.
SECTION 7.2. (a) Subject to the rights, if any, of holders of any
series of Preferred Stock, the number of directors constituting the Board of
Directors shall be set forth in or pursuant to the Bylaws of the Corporation,
but shall not be less than five (5) nor more than fifteen (15).
(b) On the day following the date on which a registration
statement filed by the Corporation with the Securities and Exchange Commission
is first declared effective under the Securities Act of 1933, as amended (the
"Effective Date"), subject to the rights, if any, of holders of any series of
Preferred Stock, the directors, other than those who may be elected by any
series of Preferred Stock, shall be classified with respect to the time for
which they severally hold office, into three classes, designated Classes I, II
and III, which shall be as nearly equal in number as possible. The directors
of Class I shall hold office for an initial term expiring at the first annual
meeting of stockholders to be held after the Effective Date. The directors of
Class II shall hold office for an initial term expiring at the second annual
meeting of stockholders to be held after the Effective Date. The directors of
Class III shall hold office for an initial term expiring at the third annual
meeting of stockholders to be held after the Effective Date. At each annual
meeting of stockholders following such initial classification and election, the
respective successors of each class shall be elected for three-year terms.
Subject to the rights, if any, of holders of any series of Preferred Stock,
after the election or appointment of a director, the holders of a majority of
the shares then entitled to vote generally for the election of directors may
remove such director or the entire Board of Directors, but only for cause. Not
less than two of the directors shall be persons who are not officers or
employees of the Corporation or who are not beneficial owners of a controlling
interest in the Corporation.
SECTION 7.3. Subject to the rights, if any, of holders of any series
of Preferred Stock, advance notice of nominations for elections for the
election of directors shall be given in the manner and to the extent provided
in the Bylaws of the Corporation.
SECTION 7.4. Subject to the rights, if any, of holders of any series
of Preferred Stock, vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, remove from office or other cause
and newly created directorships resulting from any increase in the authorized
number of directors shall be filled in the manner provided in the Bylaws of the
Corporation.
ARTICLE VIII
SECTION 8.1. A director shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, provided that this provision shall not eliminate or limit
the liability of a director (a) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the General Corporation Law of the State of
Delaware or (d) for any transaction from which the director derived
4
<PAGE> 5
any improper personal benefit. If the General Corporation Law of the State of
Delaware is amended after the filing of this Certificate of Incorporation to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended.
SECTION 8.2. Any repeal or modification of the foregoing paragraph by
the stockholders of the Corporation shall not adversely affect any right or
protection of a director or the Corporation existing at the time of such repeal
or modification.
ARTICLE IX
A director of the Corporation, in determining what he or she
reasonably believes to be in the best interests of the Corporation, shall
consider the interests of the Corporation's stockholders and, in his
discretion, may consider any of the following:
(a) the interests of the Corporation's employees,
independent contractors, agents, suppliers, creditors and customers;
(b) the economy of the nation;
(c) community and societal interests; and
(d) the long-term as well as short-term interests of the
Corporation and its stockholders, including the possibility that these
interests may be best served by the continued independence of the Corporation.
ARTICLE X
SECTION 10.1 (a) Subject to the rights, if any, of holders of any
series of Preferred Stock, cumulative voting for the election of directors
shall not be permitted.
(b) Subject to the rights, if any, of holders of any
series of Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and the ability of the
stockholders to consent in writing to the taking of any action is hereby
specifically denied.
(c) The provisions of paragraphs (a) and (b) of this
Section 10.1 shall not take effect until the day following the Effective Date.
SECTION 10.2 (a) Except as otherwise required by law and subject to the
rights, if any, of holders of any series of Preferred Stock, special meetings
of stockholders, for any purpose or purposes, may only be called (i) by the
Chairman of the Board, (ii) the Chief Executive Officer or
5
<PAGE> 6
the President, (iii) by the Board of Directors pursuant to a resolution adopted
by a majority of the entire Board of Directors or (iv) at the written request
of not less than 25% of the combined voting power of the then outstanding stock
of the Corporation entitled to vote generally in the election of directors.
(b) Election of directors at an annual or special meeting
of stockholders need not be by written ballot unless the Bylaws of the
Corporation shall so provide.
ARTICLE XI
Subject to the rights, if any, of holders of any series of Preferred
Stock, the Corporation reserves the right at any time and from time to time to
amend, alter, change, or repeal any provision contained in this Certificate of
Incorporation, and any other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed herein or by applicable law, and all rights, preferences
and privileges of whatsoever nature conferred upon stockholders, directors or
any other persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are granted subject
to the right reserved in this Article XI; provided, however, that any amendment
or repeal of Article VIII of this Certificate of Incorporation shall not
adversely affect any right or protection existing hereunder immediately prior
to such amendment or repeal, and provided, further, that Articles V, VI, VII,
VIII, IX, X and XI of this Certificate of Incorporation shall not be amended,
altered, changed or repealed without the affirmative vote of the holders of at
least 75% of the then outstanding stock of the Corporation entitled to vote
generally in the election of directors.
ARTICLE XII
The name and address of the incorporator is Steven W. Seline, 1650 Farnam
Street, Omaha, Nebraska, 68102.
IN WITNESS WHEREOF, Rebecca L. Schultz, Secretary of the Corporation, has
caused this Second Amended and Restated Certificate of Incorporation to be
executed this ____ day of September, 1996.
-----------------------------------
Rebecca L. Schultz, Secretary
6
<PAGE> 1
EXHIBIT 3.2
BYLAWS OF
TRANSCRYPT INTERNATIONAL INC.
<PAGE> 2
TABLE OF CONTENTS
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ARTICLE I
STOCKHOLDERS
Section 1. Time and Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 2. Annual Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 3. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 4. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 5. Quorum and Adjournment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 6. Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 7. Stockholder Proposals and Nominations of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 8. Inspectors of Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 9. Opening and Closing of Polls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
ARTICLE II
DIRECTORS
Section 1. General Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2. Number and Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 5. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 7. Written Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 8. Participation in Meetings by Conference Telephone . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 9. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 10. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 11. Regulations; Manner of Acting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III
NOTICES
Section 1. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2. Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
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ARTICLE IV
OFFICERS
Section 1. Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3. Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4. Authority and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5. Removal and Resignation; Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6. Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 7. Chief Executive Officer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8. President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 9. Execution of Documents and Action With Respect
to Securities of Other Corporations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 10. Vice President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 11. Secretary and Assistant Secretaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 12. Treasurer and Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE V
INDEMNIFICATION
Section 1. Right to Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2. Right of Indemnitee To Bring Suit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 3. Nonexclusivity of Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 5. Indemnification of Agents of the Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 6. Indemnification Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 7. Effect of Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE VI
STOCK
Section 1. Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 2. Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 3. Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Section 4. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
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ARTICLE VII
GENERAL PROVISIONS
Section 1. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 2. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 3. Reliance Upon Books, Reports and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 4. Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5. Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VIII
AMENDMENT OF BYLAWS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE IX
PROVISIONS EXPIRING UPON
THE EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
</TABLE>
<PAGE> 5
ARTICLE I
STOCKHOLDERS
Section 1. TIME AND PLACE OF MEETINGS. All meetings of the
stockholders for the election of directors or for any other purpose shall be
held at such time and place, within or without the State of Delaware, as may be
designated by the Board of Directors, or by the Chairman of the Board, the
President or the Secretary in the absence of a designation by the Board of
Directors, and stated in the notice of the meeting or in a duly executed waiver
of notice thereof. [Sections 211(a), (b).](1)
Section 2. ANNUAL MEETINGS. An annual meeting of the
stockholders commencing with the year 1997 shall be held on the third Thursday
in April if not a legal holiday, and if a legal holiday, then on the next
business day following, at 10:00 a.m., or at such other date and time as shall
be designated from time to time by the Board of Directors, at which meeting the
stockholders shall elect by a plurality vote the directors to succeed those
whose terms expire at that meeting and shall transact such other business as
may properly be brought before the meeting.
Section 3. SPECIAL MEETINGS. Special meetings of the
stockholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the Certificate of Incorporation, may only be called (i) by the
Chairman of the Board, (ii) by the Board of Directors pursuant to a resolution
adopted by a majority of the entire Board of Directors, (iii) by the President
or (iv) at the request of not less than 25% of the combined voting power of the
then outstanding stock of the Corporation entitled to vote generally in the
election of directors. [Section 211(d).]
Section 4. NOTICE OF MEETINGS. Written notice of every meeting
of the stockholders, stating the place, date and hour of the meeting and, in
the case of a special meeting, the purpose or purposes for which the meeting is
called, shall be given not less than 10 nor more than 60 days before the date
of the meeting to each stockholder entitled to vote at such meeting, except as
otherwise provided herein or by law. When a meeting is adjourned to another
place, date or time, written notice need not be given of the adjourned meeting
if the place, date and time thereof are
- -----------------------
(1) Citations are to the General Corporation Law of the State of Delaware
as in effect on May 1, 1996 and are inserted for reference only, and do not
constitute a part of the Bylaws.
<PAGE> 6
announced at the meeting at which the adjournment is taken; provided, however,
that if the adjournment is for more than 30 days, or if after the adjournment a
new record date is fixed for the adjourned meeting, written notice of the
place, date and time of the adjourned meeting shall be given in conformity
herewith. At any adjourned meeting, any business may be transacted which might
have been transacted at the original meeting. [Section 222.]
Section 5. QUORUM AND ADJOURNMENT. The holders of a majority of
the stock issued and outstanding and entitled to vote thereat, present in
person or represented by proxy, shall constitute a quorum at all meetings of
the stockholders for the transaction of business except as otherwise provided
by law or by the Certificate of Incorporation. If, however, such quorum shall
not be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present
or represented; provided, however, that if the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting, conforming to the requirements of
Section 4 of Article I hereof, shall be given to each stockholder of record
entitled to vote at such meeting. At any adjourned meeting at which a quorum
is present, any business may be transacted that might have been transacted on
the original date of the meeting. [Sections 216, 222(c).]
Section 6. VOTING. Except as otherwise provided by law or by
the Certificate of Incorporation, each stockholder shall be entitled at every
meeting of the stockholders to one vote for each share of stock having voting
power standing in the name of such stockholder on the books of the Corporation
on the record date for the meeting, and such votes may be cast either in person
or by written proxy. Every proxy must be duly executed and filed with the
Secretary of the Corporation. A stockholder may revoke any proxy which is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the Secretary of the Corporation. No vote of the
stockholders need be taken by written ballot unless otherwise required by law.
Any vote which need not be taken by ballot may be conducted in any manner
approved by the meeting. Every vote taken by written ballot shall be counted
by one or more inspectors of election appointed by the Board of Directors.
When a quorum is present at any meeting, the vote of the holders of a majority
of the stock which has voting power present in person or represented by proxy
shall decide any question properly brought before such meeting, unless the
question is one upon which by express provision of law, the Certificate of
Incorporation or these Bylaws, a different vote is required, in which case such
express provision shall govern and control the decision of such question.
[Sections 212, 216.]
Section 7. STOCKHOLDER PROPOSALS AND NOMINATIONS OF DIRECTORS.
Nominations for election to the Board of Directors of the Corporation at a
meeting of the stockholders may be made by the Board of Directors, or on behalf
of the Board of Directors by a Nominating
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<PAGE> 7
Committee appointed by the Board of Directors, or by any stockholder of the
Corporation entitled to vote for the election of directors at such meeting.
Any nominations, other than those made by or on behalf of the Board of
Directors, and any proposal by any stockholder to transact any corporate
business at an annual or special stockholders meeting, shall be made by notice
in writing and mailed by certified mail to the Secretary of the Corporation and
(i) in the case of an annual meeting, received no later than 35 days prior to
the date of the annual meeting; provided, however, that if less than 35 days'
notice of a meeting of stockholders is given to the stockholders, such notice
of proposed business or nomination by such stockholder shall have been made or
delivered to the Secretary of the Corporation not later than the close of
business on the seventh day following the day on which the notice of a meeting
was mailed, and (ii) in the case of a special meeting of stockholders, received
not later than the close of business on the tenth day following the day on
which notice of the date of the meeting was mailed or public disclosure of the
date of the meeting was made, whichever occurs first. A notice of nominations
by stockholders shall set forth as to each proposed nominee who is not an
incumbent director (i) the name, age, business address and, if known, residence
address of each nominee proposed in such notice, (ii) the principal occupation
or employment of each such nominee, (iii) the number of shares of stock of the
Corporation which are beneficially owned by each such nominee and the
nominating stockholder and (iv) any other information concerning the nominee
that must be disclosed regarding nominees in proxy solicitations pursuant to
Section 14(a) of the Securities Exchange Act of 1934, as amended, and the rules
under such section.
The Chairman of the Board or, in his absence, any officer, may,
if the facts warrant, determine and declare to the meeting of stockholders that
a nomination was not made in accordance with the foregoing procedure and that
the defective nomination shall be disregarded.
Section 8. INSPECTORS OF ELECTIONS. Preceding any meeting of
the stockholders, the Board of Directors shall appoint one or more persons to
act as Inspectors of Elections and may designate one or more alternate
inspectors. In the event no inspector or alternate is able to act, the person
presiding at the meeting shall appoint one or more inspectors to act at the
meeting. Each inspector, before entering upon the discharge of the duties of
an inspector, shall take and sign an oath faithfully to execute the duties of
inspector with strict impartiality and according to the best of his or her
ability. The inspector shall:
(a) ascertain the number of shares outstanding and the
voting power of each;
(b) determine the shares represented at a meeting and the
validity of proxies and ballots;
(c) count all votes and ballots;
3
<PAGE> 8
(d) determine and retain for a reasonable period a record
of the disposition of any challenges made to any determination by the
inspectors; and
(e) certify his or her determination of the number of
shares represented at the meeting and his or her count of all votes
and ballots.
The inspector may appoint or retain other persons or entities to
assist in the performance of the duties of inspector.
When determining the shares represented and the validity of proxies
and ballots, the inspector shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, ballots and the regular books and
records of the Corporation. The inspector may consider reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers or their nominees or a similar person which represent
more votes than the holders of a proxy is authorized by the record owner to
cast or more votes than the stockholder holds of record. If the inspector
considers other reliable information as outlined in this Section, the
inspector, at the time of his or her certification (pursuant to (e) of this
Section), shall specify the precise information considered, the person or
persons from whom the information was obtained, when this information was
obtained, the means by which the information was obtained, and the basis for
the inspector's belief that such information is accurate and reliable.
[Sections 231(a), (b), (d).]
Section 9. OPENING AND CLOSING OF POLLS. The date and time for the
opening and the closing of the polls for each matter to be voted upon at a
meeting of stockholders shall be announced at the meeting. The inspector of
the election shall be prohibited from accepting any ballots, proxies or votes
nor any revocations thereof or changes thereto after the closing of the polls,
unless the Court of Chancery upon application by a stockholder shall determine
otherwise. [Section 231(c).]
ARTICLE II
DIRECTORS
Section 1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of its Board of
Directors, which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by law or by the Certificate of
Incorporation directed or required to be exercised or done by the stockholders.
[Section 141(a).]
Section 2. NUMBER AND TERM OF OFFICE. (a) On the day following the
date on which a registration statement filed by the Corporation with the
Securities and Exchange Commission is first declared effective under the
Securities Act of 1933, as amended (the "Effective Date"), the
4
<PAGE> 9
Board of Directors shall be divided into three classes, designated Classes I,
II and III, which shall be as nearly equal in number as possible. Directors of
Class I shall be elected to hold office for a term expiring at the first annual
meeting of stockholders to be held after the Effective Date, directors of Class
II shall be elected to hold office for a term expiring at the second annual
meeting of stockholders to be held after the Effective Date, and directors of
Class III shall be elected to hold office for a term expiring at the third
annual meeting of stockholders to be held after the Effective Date. At each
annual meeting of stockholders following such initial classification and
election, the respective successors of each class shall be elected for
three-year terms. The holders of a majority of the shares then entitled to
vote generally for the election of directors may remove any director or the
entire Board of Directors, but only for cause. Not less than two of the
directors shall be persons who are not officers or employees of the Corporation
or who are not beneficial owners of a controlling interest in the Corporation.
(b) The number of directors shall be fixed from time to time by
resolution of the Board of Directors. In case of any increase in the number of
directors in advance of an annual meeting of stockholders, each additional
director shall be elected by the directors then in office, although less than a
quorum, to hold office until the next election of the class for which such
director shall have been chosen (as provided in the last sentence of this
subsection (b)) or until his successor shall have been duly chosen. No
decrease in the number of directors shall shorten the term of any incumbent
director. Any newly created or eliminated directorships resulting from an
increase or decrease shall be apportioned by the Board among the three classes
of directors so as to maintain such classes as nearly equal as possible.
[Sections 141(b), (d), (l).]
Section 3. VACANCIES. Vacancies in the Board of Directors resulting
from death, resignation, retirement, disqualification, removal from office or
other cause, and newly created directorships resulting from any increase in the
authorized number of directors, may be filled only by the affirmative vote of a
majority of the remaining directors, though less than a quorum of the Board of
Directors. Directors chosen to fill vacancies in the Board of Directors shall
hold office for a term expiring at the annual meeting of stockholders at which
the term of office of the class of which they have been elected expires and
until such directors' successors shall have been duly elected or qualified.
[Section 223.]
Section 4. REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held without notice immediately after the annual meeting of
the stockholders and at such other times and places as shall from time to time
be determined by the Board of Directors. [Section 141(g).]
Section 5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board or the President or the
Secretary on one day's written notice to each director by whom such notice is
not waived, given either personally or by courier, mail, facsimile transmission
or telegram, and shall be called by the President or the Secretary in like
manner and on like notice on the written request of any two directors.
[Section 141(g).]
5
<PAGE> 10
Section 6. QUORUM. At all meetings of the Board of Directors, a
majority of the total number of directors then in office shall constitute a
quorum for the transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall be the act of
the Board of Directors. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time to another place, time or date, without notice other than
announcement at the meeting, until a quorum shall be present. [Section
141(b).]
Section 7. WRITTEN ACTION. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if all members of the Board or such committee, as
the case may be, consent thereto in writing and the writing or writings are
filed with the minutes or proceedings of the Board or such committee. [Section
141(f).]
Section 8. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or any such
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and such participation in a meeting shall constitute presence in person at the
meeting. [Section 141(i).]
Section 9. COMMITTEES. The Board of Directors may, by resolution
passed by a majority of the entire Board, designate one or more committees,
each committee to consist of one or more of the directors of the Corporation
and each to have such lawfully delegable powers and duties as the Board may
confer. Each such committee shall serve at the pleasure of the Board of
Directors. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. Except as otherwise provided by law, any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation and
may authorize the seal of the Corporation to be affixed to all papers which may
require it. Any committee or committees so designated by the Board shall have
such name or names as may be determined from time to time by resolution adopted
by the Board of Directors. Unless otherwise prescribed by the Board of
Directors, a majority of the members of the committee shall constitute a quorum
for the transaction of business, and the act of a majority of the members
present at a meeting at which there is a quorum shall be the act of such
committee. Each committee shall prescribe its own rules for calling and
holding meetings and its method of procedure, subject to any rules prescribed
by the Board of Directors, and shall keep a written record of all actions taken
by it. No such committee shall have the power or authority:
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<PAGE> 11
(a) to amend the Certificate of Incorporation (except
that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by
the Board of Directors as provided in Section 151(a) of the General
Corporation Law of the State of Delaware, fix the designations and any
of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation
or the conversion into, or the exchange of such shares for, shares of
any other class or classes or any other series of the same or any
other class or classes of stock of the Corporation or fix the number
of shares of any series of stock or authorize the increase or decrease
of the shares of any series);
(b) to adopt an agreement of merger or consolidation
under Section 251 or Section 252 of the General Corporation Law of the
State of Delaware;
(c) to recommend to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and
assets;
(d) to recommend to the stockholders a dissolution of the
Corporation or a revocation of a dissolution; or
(e) to amend the Bylaws of the Corporation.
Unless the resolution, Bylaws or Certificate of Incorporation expressly so
provides, no such committee shall have the power or authority to declare a
dividend, to authorize the issuance of stock or to adopt a certificate of
ownership and merger pursuant to the General Corporation Law of the State of
Delaware. [Section 141(c).]
Section 10. COMPENSATION. The Board of Directors may establish such
compensation for, and reimbursement of the expenses of, directors for
attendance at meetings of the Board of Directors or committees, or for other
services by directors to the Corporation, as the Board of Directors may
determine. [Section 141(h).]
Section 11. REGULATIONS; MANNER OF ACTING. To the extent consistent
with applicable law, the Certificate of Incorporation and these Bylaws, the
Board of Directors may adopt such special rules and regulations for the conduct
of their meetings and for the management of the property, affairs and business
of the Corporation as the Board of Directors may deem appropriate. The
directors shall act only as a Board, and the individual directors shall have no
power as such.
7
<PAGE> 12
ARTICLE III
NOTICES
Section 1. GENERALLY. Whenever by law or under the provisions of the
Certificate of Incorporation or these Bylaws notice is required to be given to
any director or stockholder, it shall not be construed to mean personal notice,
but such notice may be given in writing, by mail, addressed to such director or
stockholder, at his address as it appears on the records of the Corporation,
with postage thereon prepaid, and such notice shall be deemed to be given at
the time when the same shall be deposited in the United States mail. Notice to
directors may also be given by facsimile transmission, telegram or telephone.
[Section 222(b).]
Section 2. WAIVERS. Whenever any notice is required to be given by
law or under the provisions of the Certificate of Incorporation or these
Bylaws, a waiver thereof in writing, signed by the person or persons entitled
to such notice, whether before or after the time of the event for which notice
is to be given, shall be deemed equivalent to such notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. [Section 229.]
ARTICLE IV
OFFICERS
Section 1. GENERALLY. The officers of the Corporation shall be
elected by the Board of Directors and shall consist of a Chairman of the Board,
a Chief Executive Officer, a President, a Secretary and a Treasurer. The Board
of Directors may also appoint one or more Vice Presidents, Assistant
Secretaries and Assistant Treasurers or any other officers deemed necessary by
the Board of Directors. Any number of offices may be held by the same person.
[Section 142(a).]
Section 2. COMPENSATION. The compensation of all officers and agents
of the Corporation who are also directors of the Corporation shall be fixed by
the Board of Directors. The Board of Directors may delegate the power to fix
the compensation of other officers and agents of the Corporation to an officer
of the Corporation.
Section 3. ELECTION. The officers of the Corporation shall hold
office until their successors are elected and qualified. Any officer elected
or appointed by the Board of Directors may be removed at any time by the
affirmative vote of a majority of the directors. Any vacancy occurring in any
office of the Corporation may be filled by the Board of Directors. [Section
142(b).]
8
<PAGE> 13
Section 4. AUTHORITY AND DUTIES. Each of the officers of the
Corporation shall have such authority and shall perform such duties as are
customarily incident to their respective offices or as may be specified from
time to time by the Board of Directors in a resolution which is not
inconsistent with these Bylaws. [Section 142(a).]
Section 5. REMOVAL AND RESIGNATION; VACANCIES. Any officer may be
removed for or without cause at any time by the Board of Directors. Any
officer may resign at any time by delivering a written notice of resignation,
signed by such officer, to the Board of Directors. Unless otherwise specified
therein, such resignation shall take effect upon delivery. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise shall be filled by the Board of Directors. [Sections 142(b), (e).]
Section 6. CHAIRMAN. The Chairman of the Board of Directors shall
preside at all meetings of the stockholders and of the Board of Directors and
shall have such other duties and responsibilities as may be assigned to him or
her by the Board of Directors. The Chairman may delegate to any qualified
person authority to chair any meeting of the stockholders, either on a
temporary or a permanent basis. [Section 142(a).]
Section 7. CHIEF EXECUTIVE OFFICER. The Chief Executive Officer
shall be the principal executive officer of the Corporation and, subject to the
control of the Board of Directors, shall have general authority to supervise
and control all of the business and affairs of the Corporation, to execute
certificates for shares of the Corporation, any deeds, mortgages, bonds,
contracts or other instruments which the Board of Directors has authorized to
be executed. In case of the inability or failure of the Chairman to perform
the duties of that office, the Chief Executive Officer shall perform the duties
of the Chairman, unless otherwise determined by the Board of Directors.
[Section 142(a).]
Section 8. PRESIDENT. The President shall be authorized to execute
certificates for shares of the Corporation and shall perform such other duties
as may be assigned by the Board of Directors or Chief Executive Officer from
time to time. [Section 142(a).]
Section 9. EXECUTION OF DOCUMENTS AND ACTION WITH RESPECT TO
SECURITIES OF OTHER CORPORATIONS. The Chief Executive Officer and the
President shall have and are hereby given full power and authority, except as
otherwise required by law or directed by the Board of Directors, (a) to
execute, on behalf of the Corporation, all duly authorized contracts,
agreements, deeds, conveyances or other obligations of the Corporation,
applications, consents, proxies and other powers of attorney and other
documents and instruments and (b) to vote and otherwise act on behalf of the
Corporation, in person or by proxy, at any meeting of stockholders (or with
respect to any action of such stockholders) of any other corporation in which
the Corporation may hold securities and otherwise to exercise any and all
rights and powers which the Corporation may possess by reason of its ownership
of securities of such other corporation. In addition, the Chief
9
<PAGE> 14
Executive Officer or the President may delegate to the Secretary or to other
officers, employees and agents of the Corporation the power and authority to
take any action which the Chief Executive Officer or the President is
authorized to take under this Section 9 of this Article IV, with such
limitations as the Chief Executive Officer or the President may specify; such
authority so delegated by the Chief Executive Officer or the President shall
not be redelegated by the person to whom such execution authority has been
delegated. [Section 142(a).]
Section 10. VICE PRESIDENT. Each Vice President, however titled,
shall perform such duties and services and shall have such authority and
responsibilities as shall be assigned to or required from time to time by the
Board of Directors, the Chief Executive Officer or the President. [Section
142(a).]
Section 11. SECRETARY AND ASSISTANT SECRETARIES. (a) The Secretary
shall attend all meetings of the stockholders and all meetings of the Board of
Directors and record all proceedings of the meetings of the stockholders and of
the Board of Directors and shall perform like duties for the standing
committees when requested by the Board of Directors, the Chief Executive
Officer or the President. The Secretary shall give, or cause to be given,
notice of all meetings of the stockholders and meetings of the Board of
Directors. The Secretary shall perform such duties as may be prescribed by the
Board of Directors, the Chief Executive Officer or the President. The
Secretary shall have charge of the seal of the Corporation and authority to
affix the seal to any instrument. The Secretary or any Assistant Secretary may
attest to the corporate seal by handwritten or facsimile signature. The
Secretary shall keep and account for all books, documents, papers and records
of the Corporation except those for which some other officer or agent has been
designated or is otherwise properly accountable. The Secretary shall have
authority to attest to certificates for shares of the Corporation.
(b) Assistant Secretaries, in the order of their seniority, shall
assist the Secretary and, if the Secretary is unavailable or fails to act,
perform the duties and exercise the authorities of the Secretary. [Section
142(a).]
Section 12. TREASURER AND ASSISTANT TREASURERS. The Treasurer shall
have the custody of the funds and securities belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as may be designated by the
Treasurer with the prior approval of the Board of Directors or the President.
The Treasurer shall disburse the funds and pledge the credit of the Corporation
as may be directed by the Board of Directors and shall render to the Board of
Directors, the Chief Executive Officer and the President, as and when required
by them, or any of them, an account of all transactions by the Treasurer.
(b) Assistant Treasurers, in the order of their seniority, shall
assist the Treasurer and, if the Treasurer is unable or fails to act, perform
the duties and exercise the powers of the Treasurer. [Section 142(a).]
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<PAGE> 15
ARTICLE V
INDEMNIFICATION
Section 1. RIGHT TO INDEMNIFICATION. Each person who was or is made
a party or is threatened to be made a party to or is otherwise involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that he or
she is or was a director or officer of the Corporation or is or was serving at
the request of the Corporation as a director, officer or employee of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans (hereinafter an
"indemnitee"), whether the basis of such proceeding is alleged action in an
official capacity as a director, officer or employee or in any other capacity
while serving as a director, officer or employee, shall be indemnified and held
harmless by the Corporation to the fullest extent authorized by the General
Corporation Law of the State of Delaware, as the same exists or may hereafter
be amended (but, in the case of any such amendment, only to the extent that
such amendment permits the Corporation to provide broader indemnification
rights than such law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) reasonably incurred or suffered by such indemnitee in connection
therewith and such indemnification shall continue as to an indemnitee who has
ceased to be a director, officer, employee or agent and shall inure to the
benefit of the indemnitee's heirs, executors and administrators; provided,
however, that, except as provided in Section 2 of this Article V with respect
to proceedings to enforce rights to indemnification, the Corporation shall
indemnify any such indemnitee in connection with a proceeding (or part thereof)
initiated by such indemnitee only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section 2 of this Article V shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending any such proceeding in advance of its final
disposition (hereinafter an "advancement of expenses"); and provided, further,
that, if the General Corporation Law of the State of Delaware requires it, an
advancement of expenses incurred by an indemnitee in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such indemnitee, including, without limitation, service to an
employee benefit plan) shall be made only upon delivery to the Corporation of
an undertaking, by or on behalf of such indemnitee, to repay all amounts so
advanced if it shall ultimately be determined by final judicial decision from
which there is no further right to appeal that such indemnitee is not entitled
to be indemnified for such expenses under this Article V or otherwise
(hereinafter an "undertaking").
Section 2. RIGHT OF INDEMNITEE TO BRING SUIT. If a claim under
Section 1 of this Article V is not paid in full by the Corporation within 60
days after a written claim has been received by the Corporation, except in the
case of a claim for an advancement of expenses, in which case the applicable
period shall be 20 days, the indemnitee may at any time thereafter bring suit
against
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<PAGE> 16
the Corporation to recover the unpaid amount of the claim. If successful in
whole or part in any such suit or in a suit brought by the Corporation to
recover an advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall be entitled to be paid also the expense of prosecuting or
defending such suit. In (i) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the indemnitee
to enforce a right to an advancement of expenses) it shall be a defense that,
and (ii) any suit by the Corporation to recover an advancement of expenses
pursuant to the terms of an undertaking the Corporation shall be entitled to
recover such expenses upon a final adjudication that, the indemnitee has not
met the applicable standard of conduct set forth in the General Corporation Law
of the State of Delaware. Neither the failure of the Corporation (including
its Board of Directors, independent legal counsel or its stockholders) to have
made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances because the
indemnitee has met the applicable standard of conduct set forth in the General
Corporation Law of the State of Delaware, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel or its
stockholders) that the indemnitee has not met such applicable standard of
conduct, shall create a presumption that the indemnitee has not met the
applicable standard of conduct or, in the case of such a suit brought by
indemnitee, be a defense to such suit. In any suit brought by the indemnitee
to enforce a right hereunder, or by the Corporation to recover an advancement
of expenses pursuant to the terms of an undertaking, the burden of proving that
the indemnitee is not entitled to be indemnified or to such advancement of
expenses under this Article V or otherwise shall be on the Corporation.
Section 3. NONEXCLUSIVITY OF RIGHTS. The rights of indemnification
and to the advancement of expenses conferred in this Article V shall not be
exclusive of any other right which any person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, bylaw,
contract, agreement, vote of stockholders or disinterested directors or
otherwise.
Section 4. INSURANCE. The Corporation may maintain insurance, at its
expense, to protect itself and any indemnitee against any expense, liability or
loss, whether or not the Corporation would have the power to indemnify such
person against such expense, liability or loss under the General Corporation
Law of the State of Delaware.
Section 5. INDEMNIFICATION OF AGENTS OF THE CORPORATION. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article V or as otherwise permitted under the General
Corporation Law of the State of Delaware with respect to the indemnification
and advancement of expenses of directors and officers of the Corporation.
12
<PAGE> 17
Section 6. INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article V.
Section 7. EFFECT OF AMENDMENT. Any amendment, repeal or
modification of any provision of this Article V by the stockholders or the
directors of the Corporation shall not adversely affect any right or protection
of a director or officer of the Corporation existing at the time of such
amendment, repeal or modification. [Section 145.]
ARTICLE VI
STOCK
Section 1. CERTIFICATES. Certificates representing shares of stock
of the Corporation shall be in such form as shall be determined by the Board of
Directors, subject to applicable legal requirements. Such certificates shall
be numbered and their issuance recorded in the books of the Corporation, and
such certificates shall exhibit the holder's name and the number of shares and
shall be signed by, or in the name of the Corporation by, the Chief Executive
Officer or the President and shall be attested to by the Secretary or an
Assistant Secretary. Any or all of the signatures and the seal of the
Corporation, if any, upon such certificates may be facsimiles, engraved or
printed. [Section 158.]
Section 2. TRANSFER. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue, or to cause its
transfer agent to issue, a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books. [Section
151.]
Section 3. LOST, STOLEN OR DESTROYED CERTIFICATES. The Secretary may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed upon the making of an affidavit of that
fact, satisfactory to the Secretary, by the person claiming the certificate of
stock to be lost, stolen or destroyed. As a condition precedent to the
issuance of a new certificate or certificates, the Secretary may require the
owner of such lost, stolen or destroyed certificate or certificates to give the
Corporation a bond in such sum and with such surety or sureties as the
Secretary may direct as indemnity against any claims that may be made against
the Corporation with respect to the certificate alleged to have been lost,
stolen or destroyed or the issuance of the new certificate. [Section 167.]
13
<PAGE> 18
Section 4. RECORD DATE. (a) In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, the Board of Directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors, and
which record date shall not be more than 60 nor less than 10 days before the
date of such meeting. If no record date is fixed by the Board of Directors,
the record date for determining stockholders entitled to notice of or to vote
at a meeting of stockholders shall be at the close of business on the day next
preceding the day on which notice is given or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix a record date, which record date
shall not precede the date upon which the resolution fixing the record date is
adopted, and which record date shall be not more than 60 days prior to such
action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
[Section 213.]
ARTICLE VII
GENERAL PROVISIONS
Section 1. FISCAL YEAR. The fiscal year of the Corporation shall be
the calendar year or such other annual period as shall be fixed from time to
time by the Board of Directors.
Section 2. CORPORATE SEAL. The Board of Directors may adopt a
corporate seal and use the same by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
Section 3. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director,
each member of a committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his or her duties, be
fully protected in relying in good faith upon the records of the Corporation
and upon such information, opinions, reports or statements presented to the
Corporation by any of the Corporation's officers or employees, or committees of
the Board of Directors, or by any other person as to matters the director,
committee member or officer believes are within such other person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Corporation. [Section 141(e)]
14
<PAGE> 19
Section 4. TIME PERIODS. In applying any provision of these Bylaws
which requires that an act be done or not be done a specified number of days
prior to an event or that an act be done during a period of a specified number
of days prior to an event, calendar days shall be used, the day of the doing of
the act shall be excluded and the day of the event shall be included.
Section 5. DIVIDENDS. The Board of Directors may from time to time
declare and the Corporation may pay dividends upon its outstanding shares of
capital stock, in the manner and upon the terms and conditions provided by law
and the Certificate of Incorporation. [Section 173.]
ARTICLE VIII
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred upon it
by law, the Board of Directors is expressly authorized to adopt, repeal, alter
or amend the Bylaws of the Corporation by the vote of a majority of the entire
Board of Directors. In addition to any requirements of law and any provision
of the Certificate of Incorporation, the stockholders of the Corporation may
adopt, repeal, alter or amend any provision of the Bylaws upon the affirmative
vote of the holders of 75% or more of the combined voting power of the then
outstanding stock of the Corporation entitled to vote generally in the election
of directors. [Section 109(a).]
ARTICLE IX
PROVISIONS EXPIRING UPON
THE EFFECTIVE DATE
At each election for directors, every holder of the then outstanding
stock of the Corporation entitled to vote generally in the election of
directors shall have the right to vote, in person or by proxy, the number of
shares owned by him or her for as many persons as there are directors to be
elected at such time or to cumulate his or her votes by giving one candidate as
many votes as the number of directors to be elected at such time multiplied by
the number of his or her shares shall equal, or by distributing such votes on
the same principle among any number of nominees. The provisions of this
Section Article IX shall expire and be of no further force as of the day
following the Effective Date.
15
<PAGE> 20
CERTIFICATE OF SECRETARY
OF
TRANSCRYPT INTERNATIONAL INC.
(A DELAWARE CORPORATION)
I hereby certify that I am duly elected and acting Secretary of said
Corporation and that the foregoing Bylaws of said Corporation, comprising 15
pages, constitute the Bylaws of said Corporation as duly adopted by the Board
of Directors thereof by action taken at a special meeting.
Date: May 29, 1996
-----------------------------------
Secretary
<PAGE> 1
EXHIBIT 3.3
State of Delaware
Page 1
OFFICE OF THE SECRETARY OF STATE
--------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
MERGER, WHICH MERGES:
"TRANSCRYPT INTERNATIONAL, LTD.", A NEBRASKA LIMITED PARTNERSHIP,
WITH AND INTO "TRANSCRYPT INTERNATIONAL, INC." UNDER THE NAME OF
"TRANSCRYPT INTERNATIONAL, INC.", A CORPORATION ORGANIZED AND EXISTING UNDER
THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE
TWENTY-EIGHTH DAY OF JUNE, A.D. 1996, AT 10:30 O'CLOCK A.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
[SEAL OF Edward J. Freel,
SECRETARY'S ------------------------------------
OFFICE] Edward J. Freel, Secretary of State
AUTHENTICATION: 8010065
2571388 8100M
DATE: 06-28-96
960191062
<PAGE> 2
[SEAL]
CERTIFICATE OF MERGER
OF
TRANSCRYPT INTERNATIONAL, LTD., A NEBRASKA LIMITED PARTNERSHIP
WITH AND INTO
TRANSCRYPT INTERNATIONAL, INC., A DELAWARE CORPORATION
This certificate is prepared pursuant to Section 263 of the General
Corporation Law of the State of Delaware.
It is hereby certified that:
1. The constituent business corporation and limited partnership
participating in the merger herein certified are: (i) Transcrypt International,
Inc., which is incorporated under the laws of the State of Delaware (the
"Corporation"), and (ii) Transcrypt International, Ltd., which is a limited
partnership formed under the laws of the State of Nebraska (the "Partnership").
2. The Agreement and Plan of Merger, dated June 28, 1996,
providing for the merger of the Partnership with and into the Corporation (the
"Merger Agreement") has been approved, adopted, certified, executed and
acknowledged by the Corporation in accordance with provisions of Section 263 of
the General Corporation Law of the State of Delaware. In addition, the Merger
Agreement has been approved, adopted, certified, executed and acknowledged by
the Partnership in accordance with provisions of the Uniform Limited
Partnership Act of the State of Nebraska.
3. The name of the surviving entity of the merger herein
certified is Transcrypt International, Inc., which will continue its existence
as said surviving corporation upon the effective date of said merger pursuant
to the provisions of the General Corporation Law of the State of Delaware.
4. The certificate of incorporation of the Corporation shall be
the certificate of incorporation of the surviving entity of the merger.
5. The executed Merger Agreement between the Partnership and the
Corporation is on file at the principal place of business of the Corporation,
the address of which is 4800 NW First, Lincoln, Nebraska 68521. A copy of the
Merger Agreement will be furnished by the Corporation, upon request and without
cost, to any partner of the Partnership or shareholder of the Corporation.
6. The Corporation, as the surviving entity of the merger, agrees
that it may be served with process within or without the State of Nebraska in
any proceeding in the courts of the State of Nebraska for the enforcement of
any obligation of the Partnership and the
<PAGE> 3
Corporation hereby irrevocably appoints the Secretary of State of the State of
Nebraska as its agent to accept service of process in an action for the
enforcement of payment of any such obligation or amount. The Subsidiary
specifies 4800 NW First, Lincoln, Nebraska 68521 as the address to which a copy
of such process shall be mailed by the Secretary of State of the State of
Nebraska, unless it shall hereafter designate in writing to such Secretary of
State a different address for such purpose, in which case a copy of such
process shall be mailed to the last address so designated.
7. The Merger Agreement between the Partnership and the
Corporation provides that the merger herein certified shall become effective at
the later of (i) the filing of this Certificate of Merger in accordance with
applicable law or (ii) June 30, 1996.
Dated: June 28, 1996.
TRANSCRYPT INTERNATIONAL, LTD.,
a Nebraska limited partnership
By Transcrypt International, Inc., its
general partner
By JOHN T. CONNOR
---------------------------------
John T. Connor, Chairman and Chief
Executive Officer
Attest:
REBECCA L. MEYER-SCHULTZ
- -----------------------------------
Rebecca L. Meyer-Schultz, Secretary
TRANSCRYPT INTERNATIONAL, INC., a
Delaware corporation
By JOHN T. CONNOR
---------------------------------
John T. Connor, Chairman and Chief
Executive Officer
Attest:
REBECCA L. MEYER-SCHULTZ
- -----------------------------------
Rebecca L. Meyer-Schultz, Secretary
2
<PAGE> 4
STATE OF NEBRASKA )
) SS.
COUNTY OF LANCASTER )
Before me this 28th day of June, 1996, John T. Connor and Rebecca L.
Meyer-Schultz, personally known to me to be the Chairman and Chief Executive
Officer and the Secretary, respectively, of Transcrypt International, Inc., a
Delaware corporation, appeared and, being first duly sworn, did acknowledge the
execution of the foregoing instrument on behalf of such corporation in its
individual capacity and in its capacity as the general partner of Transcrypt
International, Ltd., a Nebraska limited partnership.
Steven P. Amen
[SEAL] -----------------------------------
Notary Public
3
<PAGE> 5
STATE OF NEBRASKA
[FLAG]
United States of America,
State of Nebraska } SS. Department of State
Lincoln, Nebraska
I, Scott Moore, Secretary of State of the State of Nebraska do hereby
certify;
the attached is a true and correct copy of Articles of Merger of
TRANSCRYPT INTERNATIONAL, LTD.
a Nebraska limited partnership, with registered office located in
Omaha, Nebraska, merging into
TRANSCRYPT INTERNATIONAL, INC.
a Delaware corporation not qualified in Nebraska, as filed in this
office on June 28, 1996.
In Testimony Whereof, I have hereunto set my hand and
affixed the Great Seal of the State
of Nebraska on June 28
in the year of our Lord, one thousand
nine hundred and ninety-six.
Scott Moore
SECRETARY OF STATE
[STATE SEAL]
<PAGE> 6
[SEAL]
ARTICLES OF MERGER
OF
TRANSCRYPT INTERNATIONAL, LTD.,
A NEBRASKA LIMITED PARTNERSHIP
INTO
TRANSCRYPT INTERNATIONAL, INC., A DELAWARE CORPORATION
Pursuant to the provisions of Section 67-248.02 of the Nebraska
Uniform Limited Partnership Act and Section 263 of the Delaware General
Corporation Law, Transcrypt International, Ltd., a Nebraska limited
partnership, and Transcrypt International, Inc., a Delaware corporation, hereby
adopt the following Articles of Merger:
ARTICLE I
The names of the merging limited partnership and corporation
and the state under the laws of which the are organized are:
Transcrypt International, Ltd., a Nebraska limited partnership
(the "Partnership")
Transcrypt International, Inc., a Delaware corporation (the
"Corporation").
ARTICLE II
The Corporation shall be the surviving entity of the Merger.
ARTICLE III
The Agreement and Plan of Merger, dated June 28, 1996 (the "Merger
Agreement"), is attached hereto as Exhibit A and the terms thereof are hereby
incorporated herein by reference.
As required by Section 67-248.02 of the Nebraska Uniform Limited
Partnership Act, the Merger Agreement has been approved by the sole general
partner of the Partnership and by the limited partners of the Partnership
holding more than 50% of the interests in the profits of the Partnership owned
by all limited partners of the Partnership.
As required by Section 263 of the Delaware General Corporation Law,
the Merger Agreement was adopted by the board of directors of the Corporation
and was approved by the shareholders holding a majority of the issued and
outstanding voting common stock of the Corporation.
<PAGE> 7
ARTICLE IV
The Merger Agreement shall become effective at the later of (i) the
filing of these Articles of Merger with the Secretary of State of the State of
Nebraska or (ii) June 30, 1996.
IN WITNESS WHEREOF, these Articles of Merger has been duly authorized,
executed and delivered by the parties as of this 28th day of June, 1996.
TRANSCRYPT INTERNATIONAL, LTD.,
By Transcrypt International, Inc., its
general partner
By JOHN T. CONNOR
----------------------------------
John T. Connor, Chairman and Chief
Executive Officer
Attest:
REBECCA L. MEYER-SCHULTZ
- -----------------------------------
Rebecca L. Meyer-Schultz, Secretary
TRANSCRYPT INTERNATIONAL, INC., a
Delaware corporation
By JOHN T. CONNOR
---------------------------------
John T. Connor, Chairman and Chief
Executive Officer
Attest:
REBECCA L. MEYER-SCHULTZ
- -----------------------------------
Rebecca L. Meyer-Schultz, Secretary
2
<PAGE> 8
STATE OF NEBRASKA )
) SS.
COUNTY OF LANCASTER )
Before me this 28th day of June, 1996, John T. Connor and Rebecca L.
Meyer-Schultz, personally known to me to be the Chairman and Chief Executive
Officer and the Secretary, respectively, of Transcrypt International, Inc., a
Delaware corporation, appeared and, being first duly sworn, did acknowledge the
execution of the foregoing instrument on behalf of such corporation in its
individual capacity and in its capacity as the general partner of Transcrypt
International, Ltd., a Nebraska limited partnership.
Steven P. Amen
[SEAL] -----------------------------------
Notary Public
B-3
<PAGE> 9
SCHEDULE 1
TO
ARTICLES OF MERGER
AGREEMENT AND PLAN OF MERGER
This Agreement of Merger (this "Agreement") is entered into as of the
28th day of June, 1996 by and between Transcrypt International, Ltd., a
Nebraska limited partnership (the "Partnership") and Transcrypt International,
Inc., a Delaware corporation (the "Corporation").
WHEREAS, the Partnership is a limited partnership duly formed and
existing under the laws of the State of Nebraska, having been formed on
November 19, 1991, whose sole general partner is Transcrypt International,
Inc., a Nebraska corporation (the "General Partner"), and whose limited
partners and the respective interests of each partner in the Partnership are
set forth in Schedule A hereto; and
WHEREAS, the Corporation is a corporation duly formed and existing
under the laws of the State of Delaware, having been formed on December 13,
1995; and
WHEREAS, the sole shareholder of the Corporation is the General
Partner which owns one share of the Corporation's common stock, par value $.01
per share (the "Common Stock"); and
WHEREAS, pursuant to Sections 67-248.02 of the Nebraska Uniform
Limited Partnership Act and Section 263 of the Delaware General Corporation
law, the Partnership and the Corporation agree to merge upon to the terms and
conditions set forth herein, with the Corporation as the surviving entity of
such merger;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants, representations, warranties and undertakings of the parties set
forth below, the parties agree as follows:
Section 1. THE MERGER. At the effective time, the separate
existence of the Partnership shall cease and the Partnership shall be merged
with and into the Corporation, which shall continue its existence and be the
entity surviving the merger (the "Merger"). Consummation of the Merger shall
be effected by the filing of a Certificate of Ownership and Merger (the "Merger
Certificate") in the State of Delaware and the Articles of Merger in the State
of Nebraska, in substantially the forms attached hereto as Exhibits A and B,
respectively. The effective time of the Merger shall be the later of (a) the
time at which the Merger Certificate and the Articles of Merger shall have been
filed in accordance with the laws of the States of Delaware and Nebraska or (b)
June 30, 1996.
Section 2. GOVERNING LAWS. The laws that shall govern the
Corporation as the surviving corporation are the laws of the State of Delaware.
Section 3. CERTIFICATE OF INCORPORATION AND BYLAWS. (a) The
certificate of incorporation of Corporation at the effective time of the Merger
shall become and continue to
<PAGE> 10
be the certificate of incorporation of Corporation as the surviving entity of
the Merger until such certificate of incorporation is altered or amended as
provided therein and by law.
(b) The bylaws of the Corporation at the effective time of the
Merger shall become and continue to be the bylaws of Corporation as the
surviving entity of the Merger until such bylaws are altered or amended in
accordance with the provisions thereof.
Section 4. DIRECTORS AND OFFICERS. The directors and officers
of Corporation at the effective time of the Merger shall become and continue to
be the directors and officers of Corporation as the surviving entity of the
Merger until their respective successors are chosen in the manner set forth in
the bylaws of the Corporation.
Section 5. ANNUAL MEETING OF STOCKHOLDERS. The first annual
meeting of the stockholders of the Corporation as the surviving entity of the
Merger after the effective time of the Merger shall be the next annual meeting
provided by the bylaws of the Corporation.
Section 6. CONTINUATION OF STOCK; TERMS OF CONVERSION OF LIMITED
PARTNERSHIP INTERESTS. (a) Upon the effective time of the Merger, by virtue of
the Merger and without any action on the part of the parties, each share of the
Corporation's Common Stock shall remain outstanding.
(b) Upon the effective time of the Merger, by virtue of the Merger
and without any action on the part of the parties:
(i) all Units representing interests in the Partnership
(the "Units"), shall be cancelled and extinguished and the Partnership
shall be merged with and into the Corporation;
(ii) holders of the Units other than the General Partner
shall each receive one (1) share of Common Stock for each Unit they
own as of the effective time of the Merger;
(iii) the General Partner will receive one (1) share of
Common Stock for each Unit it owns as of the effective time of the
Merger less one share; and
(iv) holders of options to acquire Units under the
Partnerships 1992 Partnership Interest Option Plan (the "Plan") will
receive an option to acquire one (1) share of Common Stock for each
Unit they had the option to acquire under the Plan as of the effective
time of the Merger.
Section 7. RIGHTS AND LIABILITIES. At the effective time of the
Merger, the Corporation shall succeed to, without other transfer, and shall
possess and enjoy, all the rights, privileges, powers and franchises both of a
public and a private nature and be subject to all the restrictions,
disabilities and duties of the Partnership; and all rights, privileges, powers
and
2
<PAGE> 11
franchises of the Partnership and all property, real, personal and mixed, and
all debts due to the Partnership on whatever account, shall be vested in the
Corporation; and all property, rights, privileges, powers, franchises and
interests shall be thereafter as effectually the property of the Corporation as
they were of the Partnership, and the title to any real estate vested by deed
or otherwise in the Partnership shall not revert or be in any way impaired by
reason of the Merger; provided, however, that all rights of creditors and all
liens upon any property of the Partnership shall be preserved unimpaired, and
all debts, liabilities and duties of the Partnership shall thenceforth attach
to the Corporation and may be enforced against it to the same extent as if said
debts, liabilities and duties had been incurred or contracted by the
Corporation.
Section 8. SERVICE OF PROCESS. The Corporation, as the
surviving entity of the Merger, agrees that it may be served with process
within or without the State of Nebraska in any proceeding in the courts of the
State of Nebraska for the enforcement of any obligation of the Partnership and
the Corporation hereby irrevocably appoints the Secretary of State of the State
of Nebraska as its agent to accept service of process in an action for the
enforcement of payment of any such obligation. The Corporation specifies 4800
NW First, Lincoln, Nebraska 68521 as the address to which a copy of such
process shall be mailed by the Secretary of State of the State of Nebraska,
unless it shall hereafter designate in writing to such Secretary of State a
different address for such purpose, in which case a copy of such process shall
be mailed to the last address so designated.
Section 9. CONDITIONS TO MERGER. The obligation of the
Corporation and of the Partnership to consummate the transactions contemplated
hereby shall be subject to:
(a) the approval hereof by the holders of at least a
majority of the outstanding voting Common Stock of the Corporation;
and
(b) the approval hereof by the holders of at least a
majority of the outstanding Units.
Section 10. DISSENTING STOCKHOLDERS. The Corporation agrees to
pay any dissenting stockholders of the Corporation the amount, if any, to which
they are entitled under Section 262 of the Delaware General Corporation Law
with respect to the rights of dissenting stockholders.
Section 11. SIGNATURES. This Agreement shall be signed by a duly
authorized officer of the Corporation and of the General Partner and attested
by the secretary or an assistant secretary of the Corporation and the General
Partner.
Section 12. TERMINATION. This Agreement may be terminated by the
mutual consent of the boards of directors of the Corporation and the General
Partner at any time prior to the effective time of the Merger as specified in
Section 1 hereof.
Section 13. FURTHER ASSURANCES. The Partnership agrees to
execute and deliver, or cause to be executed and delivered, from time to time
upon the request of the Corporation, all
3
<PAGE> 12
such deeds and other instruments, and will take or cause to be taken such
further or other actions, as the Corporation may deem necessary or desirable in
order to more fully vest in and confirm to the Corporation title to and
possession of all property, rights, privileges, powers and franchises of the
Partnership and to otherwise carry out the intent and purposes of this
Agreement.
IN WITNESS WHEREOF, this Agreement has been duly authorized, executed
and delivered by the parties on the date first set forth above.
TRANSCRYPT INTERNATIONAL, LTD.,
a Nebraska limited partnership
By Transcrypt International, Inc., its
general partner
By
---------------------------------
John T. Connor, Chairman and Chief
Executive Officer
Attest:
- -----------------------------------
Rebecca L. Meyer-Schultz, Secretary
TRANSCRYPT INTERNATIONAL, INC., a
Delaware corporation
By
---------------------------------
John T. Connor, Chairman and Chief
Executive Officer
Attest:
- -----------------------------------
Rebecca L. Meyer-Schultz, Secretary
4
<PAGE> 13
SCHEDULE A
<TABLE>
<CAPTION>
General Partner Units
--------------- -----
<S> <C>
Transcrypt International Inc. 52,010
Limited Partners
----------------
John Connor 564,309
Janice Connor 538,633
John T. Connor III Trust 33,050
John T. Connor III 3,329
Meredith Connor Trust 33,050
Meredith Connor 3,329
John Kuijvenhoven 257,361
Yvonne Kuijvenhoven 257,361
Amy Marie Kuijvenhoven 34,385
Natale Kuijvenhoven 34,385
Stephanie Lauerman 34,385
QE Dot, Inc. 205,959
University of Nebraska Foundation 798,092
Farm Bureau Insurance Co. 955,727
First Commerce Bank 514,898
Steven Wright 60,842
David C. Myers 132,562
Harold S. Myers III Trust 54,322
Harold Myers Trust 54,322
Harold Myers 295,578
Security Mutual Life Insurance Co. 257,545
---------
TOTAL UNITS 5,175,434
=========
</TABLE>
<PAGE> 14
State of Delaware
Office of the Secretary of State Page 1
______________________________________
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "TRANSCRYPT INTERNATIONAL, INC.", FILED IN THIS OFFICE ON THE
FOURTEENTH DAY OF JUNE, A.D. 1996, AT 12 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW
CASTLE COUNTY RECORDER OF DEEDS FOR RECORDING.
Edward J. Freel,
[SEAL] -----------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION:
2571388 8100 7993810
DATE:
960174288 06-19-96
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Employment Agreement") is entered into as
of the 10th day of September, 1996 between JOHN T. CONNOR (the "Employee") and
TRANSCRYPT INTERNATIONAL, INC., a Delaware corporation (the "Company").
The Company wishes to employ the Employee as Chairman and Chief Executive
Officer of the Company on the terms set forth in this Employment Agreement, and
the Employee wishes to accept such employment on such terms.
THEREFORE, in consideration of the mutual promises set forth herein, it is
mutually agreed between the parties as follows:
Section 1. EMPLOYMENT AND TERM. The Company hereby employs the Employee
and the Employee hereby accepts employment as Chairman and Chief Executive
Officer of the Company on the terms of this Employment Agreement, commencing as
of July 18, 1996 and continuing until the second anniversary of such date unless
terminated earlier in accordance with the provisions of Section 5 hereof.
Section 2. DUTIES AND AUTHORITY. The Employee's duties shall be as
determined by the Board of Directors.
Section 3. COMPENSATION.
(a) Base Salary. The Employee will receive a base salary during the
term of this Employment Agreement of $180,000 per year ("Base Salary"),
which shall be payable in approximately equal bi-weekly installments. Base
salary will be subject to annual review each January and can be increased
with concurrence of the Board of Directors.
(b) Bonus. The Employee shall receive an annual bonus in an amount
to be determined by the Company's Board of Directors if the Company meets
or exceeds the projections of the Company's performance set forth in the
Business Plan.
(c) Additional Benefits. The Employee will also receive such
additional employee benefits as the Company may from time to time make
available to its executive officers, including paid vacations, pension
benefits, qualified profit-sharing plans, employee group insurance and
disability insurance. Benefits will be at least equal to those received as
of the date of this Employment Agreement.
(d) Withholdings. All payments made to the Employee pursuant to this
Employment Agreement shall be reduced by all required federal, state and
local withholdings for taxes and similar charges and by all contributions
or payments required
<PAGE> 2
to be made by the Employee in connection with any employee benefit plan
maintained by the Company.
(e) Special Payment. As specified in the original offering documents
for Transcrypt International Limited Partnership (the "Partnership"), when
the Partnership's founding partners have received the return of their
initial investment or a purchase agreement has been entered into for the
sale of a majority in interest of the Company to another entity or
individual or the Board of Directors of the Company has approved the sale
of equity interests to the public in an amount that would value the
founding partner interests at an amount greater than their initial
investment then the Employee shall be entitled to a special payment of
$210,000. If the Company is sold or taken public said payment shall be due
and payable at least 15 days prior to the projected date of consummation
of such transaction. Payment will be made as cash flow allows.
Section 4. REIMBURSEMENT FOR EXPENSES. The Employee is expected to incur
certain expenses on behalf of the Company for travel, promotion, telephone,
entertainment and similar items. The Company will reimburse the Employee for all
ordinary, necessary and reasonable amounts of such expenses incurred by the
Employee, which amounts shall be payable promptly upon receipt of reasonable
written documentation signed by the Employee itemizing such expenses.
Section 5. EARLY TERMINATION OF TERM; SEVERANCE PAYMENT. This Employment
Agreement shall terminate prior to the date of termination set forth in Section
1 above upon the first to occur of:
(a) the determination by the Board of Directors that the Employee
has become disabled and shall not be able to continue his service to the
Company; or
(b) the Employee's death; or
(c) Employment Agreement is terminated by the Company by reason of
the Employee's continuing willful neglect of his duties under this
Employment Agreement, the theft or misappropriation of the Company's
assets by the Employee or fraud of the Employee under the Company.
Section 6. RESTRICTIVE COVENANT. The Employee shall execute, concurrently
with this Employment Agreement, a Noncompete Agreement in the form attached
hereto as Exhibit A.
Section 7. COMPANY OPTION PLAN. The Chairman is currently participating in
the Option Program dated December 1995 and due to his level of existing
ownership in the Company has chosen not to participate in any new options so
that employees can be motivated by broader investment in the program. The Board
will review other incentive programs for the Chairman instead of options
including vacation, etc.
2
<PAGE> 3
Section 8. AMENDMENTS. No change, modification, waiver, discharge,
amendment or addition to this Employment Agreement shall be binding unless it is
in writing and signed by the Company and the Employee.
Section 9. ENTIRE AGREEMENT. This Employment Agreement contains the entire
understanding and agreement between the Company and the Employee and supersedes
any prior agreements between them pertaining to the Employee's employment with
the Company. There are no representations, warranties, promises, covenants or
understandings between the Company and the Employee with respect to such
employment other than those expressly set forth in this Employment Agreement.
This Employment Agreement takes precedence over other conflicting agreements
with Employee.
Section 10. GOVERNING LAW. This Employment Agreement shall be governed by
the substantive laws of the State of Nebraska.
Section 11. NONASSIGNABILITY; SUCCESSORS. The obligations of the Employee
under this Employment Agreement are not assignable by him. Except as provided in
the immediately preceding sentence, this Employment Agreement shall be binding
upon and inure to the benefit of the parties hereto and their successors.
Section 12. NOTICES. Any notice required to be given in writing by any
party to this Employment Agreement may be personally delivered or mailed by
registered or certified mail to the last known address of the party to be
notified. Any such notice personally delivered shall be effective upon delivery
and any such notice mailed shall be effective four business days after the date
of mailing, by registered or certified mail with postage prepaid to the last
known address of the party to be notified.
Section 13. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Employment Agreement shall not affect the other
provisions of this Employment Agreement, and this Employment Agreement shall be
construed in all respects as if such invalid or unenforceable provision were
omitted.
Section 14. HEADINGS. The section and other headings contained in this
Employment Agreement are for reference purposes only and shall not affect the
interpretation of this Employment Agreement.
Section 15. CONSTRUCTION. Whenever required by the context, references to
the singular shall include the plural, and the masculine gender shall include
the feminine gender.
IN WITNESS WHEREOF, the Company has caused this Employment Agreement to be
executed on its behalf and the Employee has signed his name hereto, effective as
of the date first written above.
3
<PAGE> 4
TRANSCRYPT INTERNATIONAL, INC.,
a Delaware corporation
By Jeffery L. Fuller
------------------------------------------
Printed Name Jeffery L. Fuller
--------------------------------
Its President
-----------------------------------------
John T. Connor
-------------------------------------------
John T. Connor, Employee
4
<PAGE> 5
EXHIBIT A
NONCOMPETE AGREEMENT
TRANSCRYPT INTERNATIONAL, INC., a Delaware corporation (the "Company")
(for the purposes of this Noncompete Agreement, the term "Company" shall include
affiliates of Transcrypt International, Inc.) and JOHN T. CONNOR ("Employee")
agree as follows:
1. In consideration of the Company employing Employee as set forth in that
certain Employment Agreement (the "Agreement") of even date hereto executed by
and among the Company and Employee, Employee hereby agrees to adhere to the
following terms and conditions:
Employee expressly covenants and agrees that at no time during the
effective time of the Agreement will it for itself or on behalf of any
other person, partnership, firm, association or corporation other than
Transcrypt International, Inc. in any territory in which the Employee is
acting pursuant to the Agreement (1) open or operate a business which
would be a competitor of the Company, (2) act as an employee, agent,
advisor or consultant of any then existing competitor of the Company, (3)
solicit or accept business from any of the Company's competitors, unless
authorized by the Company, (4) divert any business from the Company by
influencing or attempting to influence any present customers or the
Company or (5) attempt to attract any supplier away from the Company or
use its information regarding the Company's suppliers in any way which
would detrimentally affect the Company. Employee further covenants and
agrees that for two years following the termination of the Agreement,
whether such termination is voluntary or involuntary, he will not for
himself or on behalf of any other person, partnership, firm, association
or corporation in any territory in which the Company has done business
during the 12 months immediately prior to the Agreement's termination (1)
directly or indirectly solicit or accept business from any of the
Company's present customers or customers it serviced in said territory
within the last 12 months of the effective term of the Agreement, (2)
divert any business from the Company by influencing or attempting to
influence any present customers of the Company or (3) attempt to attract
any supplier away from the Company or use its information regarding the
Company's suppliers in any way which would detrimentally affect the
Company.
2. By signing this agreement, Employee expressly acknowledges that the
territorial limitations, duration and scope of this agreement are fair and
reasonable. This Noncompete Agreement shall survive the termination of the
Agreement.
3. Employee further agrees that the Company shall be entitled to maintain
proceedings in any court of competent jurisdiction, either at law or in equity,
for any breach of this agreement by Employee to enforce the specific performance
of this agreement and/or to obtain damages for
5
<PAGE> 6
any breach thereof, and without regard to any or all remedies sought by the
Company, the Company shall be entitled to recover reasonable attorneys' fees
incurred in enforcing this agreement.
4. This agreement supersedes any prior agreement between the Employee and
the Company pertaining to the subject hereof. In the event that any portion of
this agreement is declared invalid or illegal by final judgment of any court of
competent jurisdiction, the remainder of this agreement shall remain in full
force and effect, notwithstanding the invalidity or illegality of the other
portion.
5. This agreement shall be governed by the laws of the State of Nebraska.
6. This agreement may be executed in duplicate counterparts, each of which
shall be deemed to be an original, and all of which shall constitute one in the
same agreement.
IN WITNESS WHEREOF, the parties have caused this agreement to be executed
as of the 10th day of September, 1996.
TRANSCRYPT INTERNATIONAL, INC.,
a Nebraska corporation
By Jeffery L. Fuller
------------------------------------------
Printed Name Jeffery L. Fuller
--------------------------------
Its President
-----------------------------------------
John T. Connor
-------------------------------------------
John T. Connor
6
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Employment Agreement") is entered into
as of the 18th day of July, 1996 between JEFFERY L. FULLER (the "Employee") and
TRANSCRYPT INTERNATIONAL, INC., a Delaware corporation (the "Company").
The Company wishes to employ the Employee as President and Chief
Operating Officer of the Company on the terms set forth in this Employment
Agreement, and the Employee wishes to accept such employment on such terms.
THEREFORE, in consideration of the mutual promises set forth herein,
it is mutually agreed between the parties as follows:
Section 1. EMPLOYMENT AND TERM. The Company hereby employs the
Employee and the Employee hereby accepts employment as President and Chief
Operating Officer of the Company on the terms of this Employment Agreement,
commencing as of the date hereof and continuing until the second anniversary of
such date unless terminated earlier in accordance with the provisions of
Section 5 hereof.
Section 2. DUTIES AND AUTHORITY. The Employee's duties shall be as
determined by the Board of Directors and Chairman of the Board of Directors.
Section 3. COMPENSATION.
(a) Base Salary. The Employee will receive a base salary
during the term of this Employment Agreement of $165,000 per year
("Base Salary"), which shall be payable in approximately equal
biweekly installments. Base salary will be subject to annual review
and can be increased with concurrence of the Board of Directors.
(b) Bonus. The Employee shall receive an annual bonus in
an amount to be determined by the Company's Board of Directors if the
Company meets or exceeds the projections of the Company's performance
set forth in the Strategic Plan distributed to the Board of Directors.
At a minimum, Employee shall receive a bonus equal to 20% of his
salary if the Company meets its annual sales goal and 20% of his
annual salary if the Company meets its profit goal. Such bonus shall
be due and payable on or after the 30th day following the close of the
Company's fiscal year.
(c) Additional Benefits. The Employee will also receive
such additional employee benefits as the Company may from time to time
make available to its executive officers, including paid vacations,
pension benefits, qualified profit-sharing plans, employee group
insurance and disability insurance. Benefits will be at least equal
to those received as of the date of this Employment Agreement.
<PAGE> 2
(d) Withholdings. All payments made to the Employee
pursuant to this Employment Agreement shall be reduced by all required
federal, state and local withholdings for taxes and similar charges
and by all contributions or payments required to be made by the
Employee in connection with any employee benefit plan maintained by
the Company.
Section 4. REIMBURSEMENT FOR EXPENSES. The Employee is expected to
incur certain expenses on behalf of the Company for travel, promotion,
telephone, entertainment and similar items. The Company will reimburse the
Employee for all ordinary, necessary and reasonable amounts of such expenses
incurred by the Employee, which amounts shall be payable promptly upon receipt
of reasonable written documentation signed by the Employee itemizing such
expenses.
Section 5. Early Termination of Term; Severance Payment. This
Employment Agreement shall terminate prior to the date of termination set forth
in Section I above upon the first to occur of:
(a) the determination by the Board of Directors that the
Employee has become disabled and shall not be able to continue his
service to the Company; or
(b) the Employee's death; or
(c) the Employment Agreement is terminated by the Company
by reason of the Employee's continuing willful neglect of his duties
under this Employment Agreement, the theft or misappropriation of the
Company's assets by the Employee or fraud of the Employee under the
Company.
Section 6. RESTRICTIVE COVENANT. The Employee shall execute,
concurrently with this Employment Agreement, a Noncompete Agreement in the form
attached hereto as Exhibit A.
Section 7. COMPANY OPTION PLAN. Within one year from the date of this
Agreement, the Company shall adopt a new Option Plan in which the Employee
shall participate on the terms and conditions approved by the Board of
Directors. The provisions of the old Option Plan dated December 1995 will
remain in effect.
Section 8. AMENDMENTS. No change, modification, waiver, discharge,
amendment or addition to this Employment Agreement shall be binding unless it
is in writing and signed by the Company and the Employee.
Section 9. ENTIRE AGREEMENT. This Employment Agreement contains the
entire understanding and agreement between the Company and the Employee and
supersedes any prior agreements between them pertaining to the Employee's
employment with the Company. There are no representations, warranties,
promises, covenants or understandings between the Company and the Employee with
respect to such employment other than those expressly set forth in this
2
<PAGE> 3
Employment Agreement. This Employment Agreement takes precedence over other
conflicting agreements with Employee.
Section 10. GOVERNING LAW. This Employment Agreement shall be
governed by the substantive laws of the State of Nebraska.
Section 11. NONASSIGNABILITY; SUCCESSORS. The obligations of the
Employee under this Employment Agreement are not assignable by him. Except as
provided in the immediately preceding sentence, this Employment Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
successors.
Section 12. NOTICES. Any notice required to be given in writing by
any party to this Employment Agreement may be personally delivered or mailed by
registered or certified mail to the last known address of the party to be
notified. Any such notice personally delivered shall be effective upon
delivery and any such notice mailed shall be effective four business days after
the date of mailing, by registered or certified mail with postage prepaid to
the last known address of the party to be notified.
Section 13. SEVERABILITY. The invalidity or unenforceability of any
particular provision of this Employment Agreement shall not affect the other
provisions of this Employment Agreement, and this Employment Agreement shall be
construed in all respects as if such invalid or unenforceable provision were
omitted.
Section 14. HEADINGS. The section and other headings contained in
this Employment Agreement are for reference purposes only and shall not affect
the interpretation of this Employment Agreement.
Section 15. CONSTRUCTION. Whenever required by the context,
references to the singular shall include the plural, and the masculine gender
shall include the feminine gender.
IN WITNESS WHEREOF, the Company has caused this Employment Agreement
to be executed on its behalf and the Employee has signed his name hereto,
effective as of the date first written above.
TRANSCRYPT INTERNATIONAL, INC.,
a Delaware corporation
By s/s John T. Connor
----------------------------------
Printed Name John T. Connor
------------------------
Its Chief Executive Officer
---------------------------------
Jeffery L. Fuller
-------------------------------------
JEFFERY L. FULLER, Employee
3
<PAGE> 4
EXHIBIT A
NONCOMPETE AGREEMENT
TRANSCRYPT INTERNATIONAL, INC., a Delaware corporation (the "Company")
(for the purposes of this Noncompete Agreement, the term "Company" shall
include affiliates of Transcrypt International, Inc.) and JEFFERY L. FULLER
("Employee") agree as follows:
1. In consideration of the Company employing Employee as set
forth in that certain Employment Agreement (the "Agreement") of even date
hereto executed by and among the Company and Employee, Employee hereby agrees
to adhere to the following terms and conditions:
Employee expressly covenants and agrees that at no time during the
effective time of the Agreement will it for itself or on behalf
of any other person, partnership, firm, association or corporation in
any territory in which the Employee is acting pursuant to the
Agreement (1) open or operate a business which would be a competitor
of the Company, (2) act as an employee, agent, advisor or consultant
of any then existing competitor of the Company, (3) solicit or accept
business from any of the Company's competitors, unless authorized by
the Company, (4) divert any business from the Company by influencing
or attempting to influence any present customers or the Company or (5)
attempt to attract any supplier away from the Company or use its
information regarding the Company's suppliers in any way which would
detrimentally affect the Company. Employee further covenants and
agrees that for two years following the termination of the Agreement,
whether such termination is voluntary or involuntary, he will not for
himself or on behalf of any other person, partnership, firm,
association or corporation in any territory in which the Company has
done business during the 12 months immediately prior to the
Agreement's termination (1) directly or indirectly solicit or accept
business from any of the Company's present customers or customers it
serviced in said territory within the last 12 months of the effective
term of the Agreement, (2) divert any business from the Company by
influencing or attempting to influence any present customers of the
Company or (3) attempt to attract any supplier away from the Company
or use its information regarding the Company's suppliers in any way
which would detrimentally affect the Company.
2. By signing this agreement, Employee expressly acknowledges
that the territorial limitations, duration and scope of this agreement are fair
and reasonable. This Noncompete Agreement shall survive the termination of the
Agreement.
3. Employee further agrees that the Company shall be entitled to
maintain proceedings in any court of competent jurisdiction, either at law or
in equity, for any breach of this agreement by Employee to enforce the specific
performance of this agreement and/or to obtain damages for any breach thereof,
and without regard to any or all remedies sought by the
4
<PAGE> 5
Company, the Company shall be entitled to recover reasonable attorneys' fees
incurred in enforcing this agreement.
4. This agreement supersedes any prior agreement between the
Employee and the Company pertaining to the subject hereof. In the event that
any portion of this agreement is declared invalid or illegal by final judgment
of any court of competent jurisdiction, the remainder of this agreement shall
remain in full force and effect, notwithstanding the invalidity or illegality
of the other portion.
5. This agreement shall be governed by the laws of the State of
Nebraska.
6. This agreement may be executed in duplicate counterparts, each
of which shall be deemed to be an original, and all of which shall constitute
one in the same agreement.
IN WITNESS WHEREOF, the parties have caused this agreement to be
executed as of the 18th day of July, 1996.
TRANSCRYPT INTERNATIONAL, INC.,
a Delaware corporation
By /s/ John T. Connor
-------------------------------------
Printed Name John T. Connor
-----------------------
Its Chief Executive Officer
--------------------------------
Jeffrey L. Fuller
-------------------------------------
JEFFERY L. FULLER
5
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Employment Agreement") is
entered into as of the ____ day of __________, 1996 between ____________ (the
"Employee") and TRANSCRYPT INTERNATIONAL, INC., a Delaware corporation (the
"Company").
WHEREAS, concurrent with the execution of this Employment
Agreement, the Company has granted Employee, pursuant to the Company's 1996
Stock Incentive Plan, an option to acquire shares of the Company's Common Stock,
$.01 par value ("New Option") in substitution for an option ("Old Option") which
had previously been granted to Employee by Transcrypt International, Ltd., a
Nebraska limited partnership which had been assumed by the Company in connection
with the merger of the partnership with and into the Company;
WHEREAS, the Employee acknowledges that the New Option
conferred benefits on the Employee which were not contained in the Old Option,
including, but not limited to, immediate vesting and exerciseability of the New
Option; and
WHEREAS, the Company wishes to employ the Employee on the
terms set forth in this Employment Agreement, and the Employee wishes to accept
such employment on such terms.
NOW THEREFORE, in consideration of the foregoing recitals and
covenants set forth herein, the parties hereto hereby agree as follows:
Section 1. Employment and Term. The Company hereby employs
the Employee, and the Employee hereby accepts employment, as a [TITLE] of the
Company on the terms of this Employment Agreement, commencing as of [September
30, 1996] and continuing until the second anniversary of such date (the
"Expiration Date"), unless terminated earlier in accordance with the provisions
of Section 5 hereof.
Section 2. Duties and Authority. The Employee's duties shall
be as determined by the Chief Executive Officer of the Company or such other
officer of the Company designated by the Chief Executive Officer or the Board
of Directors or a designated committee thereof (the Board of Directors or
committee being collectively referred to herein as the "Board of Directors").
Section 3. Compensation.
(a) Base Salary. The Employee will receive a
base salary during the term of this Employment Agreement of $________ per year
("Base Salary"), which shall be
1
<PAGE> 2
payable in approximately equal bi-weekly installments. Base salary will be
subject to annual review and can be increased with concurrence of the Board of
Directors.
(b) Bonus. The Employee shall receive an annual
bonus in an amount to be determined by the Company's Board of Directors if the
Company meets or exceeds the projections of the Company's performance set forth
in the Business Plan.
(c) Additional Benefits. The Employee will also
receive such additional employee benefits as the Company may from time to time
make available to all employees the Company, including paid vacations, pension
benefits, qualified profit-sharing plans, employees group insurance and
disability insurance.
(d) Withholdings. All payments made to the
Employee pursuant to this Employment Agreement shall be reduced by all required
federal, state and local withholdings for taxes and similar charges and by all
contributions or payments required to be made by the Employee in connection
with any employee benefit plan maintained by the Company.
Section 4. Reimbursement for Expenses. The Employee may from
time to time incur certain expenses on behalf of the Company for travel,
promotion, telephone, entertainment and similar items. The Company will
reimburse the Employee for all ordinary, necessary and reasonable amounts of
such expenses incurred by the Employee, which amounts shall be payable promptly
upon receipt of reasonable written documentation signed by the Employee
itemizing such expenses.
Section 5. Early Termination.
(a) Bases for Early Termination. This
Employment Agreement shall terminate prior to the Expiration Date upon the
first to occur of:
(i) the determination by the Board of
Directors that the Employee has become disabled and shall not
be able to continue his service to the Company; or
(ii) the Employee's death; or
(iii) a determination by the Board of
Directors that the Employee has engaged or participated in (i)
theft or embezzlement, or attempted theft or embezzlement, of
money or property of the Company or any subsidiary, the
perpetration or attempted perpetration of fraud on the Company
or any subsidiary, or the unauthorized appropriation of, or
attempt to misappropriate, any tangible or intangible assets
or property of the Company or any subsidiary, (ii) any act or
acts of disloyalty, dishonesty, misconduct, moral turpitude,
or any other
2
<PAGE> 3
act or acts injurious to the interest, property, operations,
business or reputation of the Company or any subsidiary, or
that the Employee has been convicted of a crime the commission
of which results in injury to the Company or any subsidiary,
or that the Employee has materially violated any restriction
on the disclosure or use of confidential information of the
Company or any subsidiary, or on competition with the Company
or any subsidiary, or any of their businesses then conducted
or planned to be conducted, in each case as determined in the
reasonable judgment of the Board of Directors; or
(iv) a determination by the Board of
Directors, in its sole and absolute discretion, that is in the
best interest of the Company to terminate Employee's
employment with the Company.
(b) Effective Date of Termination. The effective
date of termination of this Employment Agreement shall be the first to occur of
either the Expiration Date, the date of Employee's death or the date of the
determination by the Board of Directors pursuant to Section 5(a)(i), 5(a)(iii)
or 5(a)(iv) hereof (the "Effective Date of Termination").
(c) No Severance Payment. In the event of
termination pursuant to Section 5(a)(i), 5(a)(ii) or 5(c)(iii) hereof or the
occurrence of the Expiration Date, Employee or Employee's estate shall, on and
after the Effective Date of Termination, be entitled to no further payments or
benefits under this Employment Agreement except the payment of Base Salary and
benefits accrued but unpaid as of the Effective Date of Termination.
[(d) Severance Payment. In the event of
termination pursuant to Section 5(c)(iv) hereof, Employee shall, on and after
the Effective Date of Termination, be entitled to no further payments or
benefits under this Employment Agreement, except the payment of Base Salary
and benefits accrued but unpaid as of the Effective Date of Termination and an
amount equal to 25% of Employee's then Base Salary.]
Section 6. Restrictive Covenant. The Employee shall
execute concurrently with this Employment Agreement, a Noncompete Agreement in
the form attached hereto as Exhibit A.
Section 7. Amendments. No change, modification, waiver,
discharge, amendment or addition to this Employment Agreement shall be binding
unless it is in writing and signed by the Company and the Employee.
Section 8. Entire Agreement. This Employment Agreement
contains the entire understanding and agreement between the Company and the
Employee and supersedes any prior agreements between them pertaining to the
Employee's employment with the Company. There are no representations,
warranties, promises, covenants or understandings between the Company and the
Employee with respect to such employment other than those expressly set
3
<PAGE> 4
forth in this Employment Agreement. This Employment Agreement takes precedence
over other conflicting agreements with Employee.
Section 9. Governing Laws. This Employment Agreement
shall be governed by the substantive laws of the State of Nebraska.
Section 10. Nonassignability; Successors. The
obligations of the Employee under this Employment Agreement are not assignable
by him. Except as provided in the immediately preceding sentence, this
Employment Agreement shall be binding upon and inure to the benefit of the
parties hereto and their successors.
Section 11. Notices. Any notice required to be given in
writing by any party to this Employment Agreement may be personally delivered
or mailed by registered or certified mail to the last known address of the
party to be notified. Any such notice personally delivered shall be effective
upon delivery and any such notice mailed shall be effective four business days
after the date of mailing, by registered or certified mail with postage prepaid
to the last know address of the party to be notified.
Section 12. Severability. The invalidity or
unenforceability of any particular provision of this Employment Agreement shall
not affect the other provisions of this Employment Agreement, and this
Employment Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
Section 13. Headings. The section and other headings
contained in this Employment Agreement are for reference purposes only and
shall not affect the interpretation of this Employment Agreement.
Section 14. Construction. Whenever required by the
context, references to the singular shall include the plural, and the masculine
gender shall include the feminine gender.
4
<PAGE> 5
IN WITNESS WHEREOF, the Company has caused this Employment
Agreement to be executed on its behalf and the Employee has signed his name
hereto, effective as of the date first written above.
TRANSCRYPT INTERNATIONAL, INC.,
a Delaware corporation
By_____________________________________
Printed Name___________________________
Its____________________________________
_______________________________________
_____________________________, Employee
5
<PAGE> 6
EXHIBIT A
NONCOMPETE AGREEMENT
TRANSCRYPT INTERNATIONAL, INC., a Delaware corporation (the "Company")
(for the purposes of this Noncompete Agreement, the term "Company" shall
include affiliates of Transcrypt International, Inc.) and______________________
("Employee") agree as follows:
1. In consideration of the Company employing Employee as set forth in
that certain Employment Agreement (the "Agreement") of even date hereto
executed by and among the Company and Employee, Employee hereby agrees to
adhere to the following terms and conditions:
Employee expressly covenants and agrees that at no time during the
effective time of the Agreement will it for itself or on behalf of any other
person, partnership, firm, association or corporation in any territory in which
the Employee is acting pursuant to the Agreement (1) open or operate a business
which would be a competitor of the Company, (2) act as an employee, agent,
advisor or consultant of any then existing competitor of the Company, (3)
solicit or accept business from any of the Company's competitors, unless
authorized by the Company, (4) divert any business from the Company by
influencing or attempting to influence any present customers or the Company or
(5) attempt to attract any supplier away from the Company or use its
information regarding the Company's suppliers in any way which would
detrimentally affect the Company. Employee further covenants and agrees that
for two years following the termination of the Agreement, whether such
termination is voluntary or involuntary, he will not for himself or on behalf
of any other person, partnership, firm, association or corporation in any
territory in which the Company has done business during the 12 months
immediately prior to the Agreement's termination (1) directly or indirectly
solicit or accept business from any of the Company's present customers or
customers it serviced in said territory within the last 12 months of the
effective term of the Agreement, (2) divert any business from the Company by
influencing or attempting to influence any present customers of the Company or
(3) attempt to attract any supplier away from the Company or use its
information regarding the Company's suppliers in any way which would
detrimentally affect the Company.
2. By signing this agreement, Employee expressly acknowledges
that the territorial limitations, duration and scope of this agreement are fair
and reasonable. This Noncompete Agreement shall survive the termination of the
Agreement,
3. Employee further agrees that the Company shall be entitled to
maintain proceedings in any court of competent jurisdiction, either at law or
in equity, for any breach of this agreement by Employee to enforce the specific
performance of this agreement and/or to obtain damages for any breach thereof,
and without regard to any or all remedies sought by the Company, the Company
shall be entitled to recover reasonable attorneys' fees incurred in enforcing
this agreement.
<PAGE> 7
4 This agreement supersedes any prior agreement between the
Employee and the Company pertaining to the subject hereof. In the event that any
portion of this agreement is declared invalid or illegal by final judgment of
any court of competent jurisdiction, the remainder of this agreement shall
remain in full force and effect, notwithstanding the invalidity or illegality
of the other portion.
5. This agreement shall be governed by the laws of the State of
Nebraska.
6. This agreement may be executed in duplicate counterparts, each
of which shall be deemed to be an original, and all of which shall constitute
one in the same agreement.
IN WITNESS WHEREOF, the parties have caused this agreement to be
executed as of the __________day of _____________________1996.
TRANSCRYPT INTERNATIONAL, INC.,
a Delaware corporation
By:__________________________________
Printed Name:________________________
Its:_________________________________
_____________________________________
John T. Connor
<PAGE> 1
EXHIBIT 10.4
TRANSCRYPT INTERNATIONAL, INC.
1996 STOCK INCENTIVE PLAN
Section 1. PURPOSE OF PLAN
The purpose of this 1996 Stock Incentive Plan ("Plan") of
Transcrypt International, Inc., a Delaware corporation (the "Company"), is to
enable the Company to attract, retain and motivate its employees, non-employee
directors and independent contractors by providing for or increasing the
proprietary interests of such employees, non-employee directors and independent
contractors in the Company.
Section 2. PERSONS ELIGIBLE UNDER PLAN
Any person, including any director of the Company, who is an
employee of the Company or any of its subsidiaries (an "Employee"), and any
non-employee director (a "Non-Employee Director") or independent contractor of
the Company (an "Independent Contractor," or, together with the Employees and
the Non-Employee Directors, the "Eligible Persons") shall be eligible to be
considered for the grant of Awards (as hereinafter defined) hereunder.
Section 3. AWARDS
(a) The Committee (as hereinafter defined), on behalf of
the Company, is authorized under this Plan to enter into any type of
arrangement with an Eligible Person that is not inconsistent with the
provisions of this Plan and that, by its terms, involves or might involve the
issuance of (i) shares of Common Stock, $.01 par value per share, of the
Company or of any other class of security of the Company which is convertible
into shares of the Company's Common Stock ("Shares") or (ii) a right or
interest with an exercise or conversion privilege at a price related to the
Shares or with a value derived from the value of the Shares, which right or
interest may, but need not, constitute a "Derivative Security," as such term is
defined in Rule 16a-1 promulgated under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), as such Rule may be amended from time to time.
The entering into of any such arrangement is referred to herein as the "grant"
of an "Award."
(b) Awards are not restricted to any specified form or
structure and may include, without limitation, sales or bonuses of stock,
restricted stock, stock options, reload stock options, stock purchase warrants,
other rights to acquire stock, securities convertible into or redeemable for
stock, stock appreciation rights, limited stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares, and an
Award may consist of one such security or benefit, or two or more of them in
tandem or in the alternative. The terms upon
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<PAGE> 2
which an Award is granted shall be evidenced by a written agreement executed by
the Company and the Eligible Person to whom such Award is granted.
(c) Subject to paragraph (d)(ii) below, Awards may be
issued, and Shares may be issued pursuant to an Award, for any lawful
consideration as determined by the Committee, including, without limitation,
services rendered by the Eligible Person.
(d) Subject to the provisions of this Plan, the
Committee, in its sole and absolute discretion, shall determine all of the
terms and conditions of each Award granted under this Plan, which terms and
conditions may include, among other things:
(i) provisions permitting the Committee to allow
or require the recipient of such Award, including any Eligible Person
who is a director or officer of the Company, or permitting any such
recipient the right, to pay the purchase price of the Shares or other
property issuable pursuant to such Award, or such recipient's tax
withholding obligation with respect to such issuance, or both, in whole
or in part, by any one or more of the following means:
(A) the delivery of cash;
(B) the delivery of other property
deemed acceptable by the Committee;
(C) the delivery of previously owned
shares of capital stock of the Company (including
"pyramiding") or other property;
(D) a reduction in the amount of Shares
or other property otherwise issuable pursuant to such
Award; or
(E) the delivery of a promissory note of
the Eligible Person or of a third party, the terms
and conditions of which shall be determined by the
Committee;
(ii) provisions specifying the exercise or
settlement price for any option, stock appreciation right or similar
Award, or specifying the method by which such price is determined,
provided that the exercise or settlement price of any option, stock
appreciation right or similar Award that is intended to qualify as
"performance based compensation" for purposes of Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code") shall be not
less than the fair market value of a Share on the date such Award is
granted;
(iii) provisions relating to the exercisability
and/or vesting of Awards, lapse and non-lapse restrictions upon the
Shares obtained or obtainable under
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<PAGE> 3
Awards or under the Plan and the termination, expiration
and/or forfeiture of Awards;
(iv) provisions conditioning or accelerating the
grant of an Award or the receipt of benefits pursuant to such
Award, either automatically or in the discretion of the
Committee, upon the occurrence of specified events, including,
without limitation, the achievement of performance goals, the
exercise or settlement of a previous Award, the satisfaction
of an event or condition within the control of the recipient
of the Award or within the control of others, a change of
control of the Company, an acquisition of a specified
percentage of the voting power of the Company, the dissolution
or liquidation of the Company, a sale of substantially all of
the property and assets of the Company or an event of the type
described in Section 7 hereof; and/or
(v) provisions required in order for such Award
to qualify as an incentive stock option under Section 422 of
the Code (an "Incentive Stock Option").
(e) Unless otherwise provided by the Committee in the
written agreement evidencing an Award, the terms of any stock option granted
under the Plan shall provide:
(i) that the exercise price thereof shall not be
less than 100% of the market value of a share of Common Stock
on the date the option is granted;
(ii) that the term of such option shall be ten
years from the date of grant;
(iii) that, upon an Employee ceasing to be employed
by the Company for any reason other than death or disability,
or a Non-Employee Director ceasing to be a Non-Employee
Director of the Company, an option shall not become
exercisable to an extent greater than it could have been
exercised on the date the Employee's employment by the
Company, or the Non-Employee Director's incumbency, as the
case may be, ceased; and
(iv) that the option shall expire ninety (90) days
after the Employee ceases to be employed with the Company or a
Non-Employee Director ceases to be a Non-Employee Director of
the Company.
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<PAGE> 4
Section 4. STOCK SUBJECT TO PLAN
(a) Subject to adjustment as provided in Section 7
hereof, at any time, the aggregate number of Shares issued and issuable
pursuant to all Awards (including all Incentive Stock Options) granted under
this Plan shall not exceed 1,200,000.
(b) The aggregate number of Shares subject to Awards
granted during any calendar year to any one Eligible Person (including the
number of shares involved in Awards having a value derived from the value of
Shares) shall not exceed 400,000; provided, however, that the limitation set
forth in this Section 4(b) shall not apply if such provision is not required in
order for Awards to qualify as "performance based compensation" under Section
162(m) of the Code. Further, such aggregate number of shares shall be subject
to adjustment under Section 7 only to the extent that such will not affect the
status of any Award intended to qualify as "performance based compensation"
under Section 162(m) of the Code.
(c) Subject to adjustment as provided in Section 7
hereof, the aggregate number of Shares issued and issuable pursuant to all
Incentive Stock Options granted under this Plan shall not exceed 1,200,000;
provided, however, that such aggregate number of shares shall be subject to
adjustment under Section 7 only to the extent that such adjustment will not
affect the status of any Incentive Stock Option under Section 422 of the Code.
Such maximum number does not include the number of Shares subject to the
unexercised portion of any Incentive Stock Option granted under this Plan that
expires or is terminated.
(d) The aggregate number of Shares issued under this Plan
at any time shall equal only the number of shares actually issued upon exercise
or settlement of an Award and shall not include Shares, or rights with respect
to shares, that have been canceled or returned to the Company upon forfeiture
of an Award or in payment or satisfaction of the purchase price, exercise price
or tax withholding obligation of an Award.
Section 5. NATURE AND DURATION OF PLAN
(a) This Plan is intended to constitute an unfunded
arrangement for a select group of management or other key employees.
(b) No Awards shall be made under this Plan after
December 31, 2006. Although Shares may be issued after December 31, 2006
pursuant to Awards made prior to such date, no Shares shall be issued under
this Plan after December 31, 2016.
Section 6. ADMINISTRATION OF PLAN
(a) This Plan shall be administered by one or more
committees of the Board (any such committee, the "Committee"). If no persons
are designated by the Board to serve on the Committee, the Plan shall be
administered by the Board and all references herein to the Committee shall
refer to the Board. The Board shall have the discretion to appoint, add,
remove
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<PAGE> 5
or replace members of the Committee, and shall have the sole authority to fill
vacancies on the committee. Unless otherwise provided by the Board: (i) with
respect to any Award for which such is necessary and desired for such Award to
be exempted by Rule 16b-3 of the Exchange Act, the Committee shall consist of
two or more directors, each of whom is a "non-employee director" (as such term
is defined in Rule 16b-3 promulgated under the Exchange Act, as such Rule may
be amended from time to time), (ii) with respect to any Award that is intended
to qualify as "performance based compensation" under Section 162(m) of the
Code, the Committee shall consist of two or more directors, each of whom is an
"outside director" (as such term is defined under Section 162(m) of the Code),
and (iii) with respect to any other Award, the Committee shall consist of one
or more directors (any of whom also may be an Eligible Person who has been
granted or is eligible to be granted Awards under the Plan).
(b) Subject to the provisions of this Plan, the Committee
shall be authorized and empowered to do all things necessary or desirable in
connection with the administration of this Plan with respect to the Awards over
which such Committee has authority, including, without limitation, the
following:
(i) adopt, amend and rescind rules and
regulations relating to this Plan;
(ii) determine which persons are Eligible Persons
and to which of such Eligible Persons, if any, and when Awards
shall be granted hereunder;
(iii) grant Awards to Eligible Persons and
determine the terms and conditions thereof, including the
number of Shares subject thereto and the circumstances under
which Awards become exercisable or vested or are forfeited or
expire, which terms may but need not be conditioned upon the
passage of time, continued employment, the satisfaction of
performance criteria, the occurrence of certain events
(including events which the Board or the Committee determine
constitute a change of control), or other factors;
(iv) at any time cancel an Award with the consent
of the holder and grant a new Award to such holder in lieu
thereof, which new Award may be for a greater or lesser number
of Shares and may have a higher or lower exercise or
settlement price;
(v) determine whether, and the extent to which
adjustments are required pursuant to Section 7 hereof; and
(vi) interpret and construe this Plan, any rules
and regulations under the Plan and the terms and conditions of
any Award granted hereunder.
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<PAGE> 6
All decisions, determinations, and interpretations of the Committee shall be
final and conclusive upon any Eligible Person to whom an Award has been granted
and to any other person holding an Award.
(c) The Committee may, in the terms of an Award or
otherwise, temporarily suspend the issuance of Shares under an Award if the
Committee determines that securities law considerations so warrant.
(d) The Committee from time to time may permit a
recipient holding any stock option granted by the Company to surrender for
cancellation any unexercised portion of such option and receive in exchange an
option or other Award for such number of Shares as may be designated by the
Committee. The Committee may, with the consent of the person entitled to
exercise any outstanding option, amend such option, including reducing the
exercise price of any option and/or extending the term thereof.
Section 7. ADJUSTMENTS
If the outstanding securities of the class then subject to
this Plan are increased, decreased or exchanged for or converted into cash,
property or a different number or kind of shares or securities, or if cash,
property or shares or securities are distributed in respect of such outstanding
securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, restructuring, reclassification, dividend
(other than a regular, quarterly cash dividend) or other distribution, stock
split, reverse stock split, spin-off or the like, or if substantially all of
the property and assets of the Company are sold, then, unless the terms of such
transaction shall provide otherwise, the Committee shall make appropriate and
proportionate adjustments in (i) the number and type of shares or other
securities or cash or other property that may be acquired pursuant to Awards
theretofore granted under this Plan and the exercise or settlement price of
such Awards, and (ii) the maximum number and type of shares or other securities
that may be issued pursuant to such Awards thereafter granted under this Plan.
The foregoing adjustments shall be applied to any Awards or Incentive Stock
Options only to the extent permitted by Sections 162(m) and 422 of the Code,
respectively.
Section 8. AMENDMENT AND TERMINATION OF PLAN
The Board may amend or terminate this Plan at any time and in
any manner; provided, however, that no such amendment or termination shall
deprive the recipient of any Award theretofore granted under this Plan, without
the consent of such recipient, of any of his or her rights thereunder or with
respect thereto; provided, further, that if an amendment to the Plan would
affect the Plan's compliance with Rule 16b-3 under the Exchange Act or Section
422 or 162(m) or other applicable provisions of the Code, the amendment shall
be approved by the Company's stockholders to the extent required to comply with
Rule 16b-3 under the Exchange Act, Sections 422 and 162(m) of the Code, or
other applicable provisions of or rules under the Code.
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<PAGE> 7
Section 9. EFFECTIVE DATE OF PLAN
This Plan shall be effective as of the date upon which it was
approved by the Board, subject however to approval of the plan by the
affirmative votes of the holders of a majority of the securities of the Company
present, or represented, and entitled to vote at a meeting duly held in
accordance with the laws of the State of Delaware.
Section 10. COMPLIANCE WITH OTHER LAWS AND REGULATIONS
The Plan, the grant and exercise of Awards thereunder, and the
obligation of the Company to sell and deliver shares under such Awards, shall
be subject to all applicable federal and state laws, rules and regulations and
to such approvals by any governmental or regulatory agency as may be required.
The Company shall not be required to issue or deliver any certificates for
shares of Common Stock prior to the completion of any registration or
qualification of such shares under any federal or state law or issuance of any
ruling or regulation of any government body which the Company shall, in its
sole discretion, determine to be necessary or advisable. Any adjustments
provided for in Section 7 shall be subject to any shareholder action required
by Delaware corporate law.
Section 11. NO RIGHT TO COMPANY EMPLOYMENT
Nothing in this Plan or as a result of any Award granted
pursuant to this Plan shall confer on any individual any right to continue in
the employ of the Company or interfere in any way with the right of the Company
to terminate an individual's employment at any time. The agreement evidencing
an Award may contain such provisions as the Committee may approve with
reference to the effect of approved leaves of absence.
Section 12. LIABILITY OF COMPANY
The Company and any affiliate which is in existence or
hereafter comes into existence shall not be liable to an Eligible Person or
other persons as to:
(a) The Non-Issuance of Shares. The non-issuance or sale
of shares as to which the Company has been unable to obtain from any regulatory
body having jurisdiction the authority deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any shares hereunder; and
(b) Tax Consequences. Any tax consequence expected, but
not realized, by any Eligible Person or other person due to the issuance,
exercise, settlement, cancellation or other transaction involving any Award
granted hereunder.
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Section 13. GOVERNING LAW
This Plan and any Awards and agreements hereunder shall be
interpreted and construed in accordance with the laws of the State of Delaware
and applicable federal law.
IN WITNESS WHEREOF, and as conclusive evidence of the adoption
of the foregoing by directors of the Company, __________________ has caused
these presents to be duly executed in its name and behalf by its proper
officers thereunto duly authorized as of this _________ day of
__________________ 1996.
TRANSCRYPT INTERNATIONAL, INC.
By:
---------------------------------
John Connor, Chief Executive
Officer and President
ATTEST:
- -----------------------------
Secretary
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<PAGE> 9
FORM NO. 1
TRANSCRYPT INTERNATIONAL, INC.
1996 STOCK INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered
into as of the Date of Grant indicated below by and between Transcrypt
International, Inc., a Delaware corporation (the "Company"), and the person
named below ("Participant").
WHEREAS, Participant is an employee or independent contractor
of the Company or one or more of its subsidiaries;
WHEREAS, pursuant to the terms of the merger of Transcrypt
International, Ltd., a Nebraska limited partnership (the "Partnership") with
and into the Company which was consummated on June 30, 1996, the Company
assumed the outstanding options granted by the Partnership to the Participant
to acquire limited partnership interests in the Partnership pursuant to the
terms of the Transcrypt International, Ltd. 1992 Partnership Interest Option
Plan and the Partnership Option Agreement attached hereto as Exhibit "A" (the
"Old Option"); and
WHEREAS, pursuant to the Company's 1996 Stock Incentive Plan
(the "Plan"), the committee of the Board of Directors of the Company
administering the Plan (the "Committee") has approved the grant to Participant
of an option to purchase shares of the common stock, $.01 par value of the
Company (the "Common Stock"), in substitution for the Old Option on the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and
the covenants set forth herein, the parties hereto hereby agree as follows:
1. Cancellation of Old Option. Effective as of the Date
of Grant indicated below, the Old Option and the Partnership Option Agreement
attached hereto as Exhibit "A" shall be terminated and all rights and
obligations of the Participant and Company under the Old Option and the
Partnership Option Agreement attached hereto as Exhibit "A" shall be
extinguished.
2. Grant Of Option; Certain Terms and Conditions. The
Company hereby grants to Participant, and Participant hereby accepts, as of the
Date of Grant, an option to purchase the number of shares of Common Stock
indicated below (the "Option Shares") at the Exercise Price per share indicated
below, which option shall expire at 5:00 p.m., Nebraska time, on the Expiration
Date indicated below and shall be subject to all of the terms and conditions
set forth in this Agreement (the "Option"). As of the Date of Grant, the
option shall become exercisable to purchase, and shall vest with respect to,
100% of the Option Shares.
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FORM NO. 1
Participant: ______________________
Date of Grant: September 30, 1996
Number of shares purchasable: __________
Exercise Price per share: __________
Expiration Date: __________
The Option is not intended to qualify as an incentive stock option under
Section 422 of the Internal Revenue Code of 1986, as amended (an "Incentive
Stock Option").
3. Acceleration and Termination of Option.
(a) Termination of Employment.
(i) Retirement. If Participant's Employment is
Terminated by reason of Participant's retirement with the approval of the
Committee or in accordance with the Company's then current retirement policy
("Retirement"), then the Option shall terminate upon the earlier of the
Expiration Date or 90 days after the date of such Termination of Employment.
(ii) Death or Permanent Disability. If Participant's
Employment is Terminated by reason of the death or Disability (as hereinafter
defined) of Participant, then the Option shall terminate upon the earlier of
the Expiration Date or the first anniversary of the date of such Termination of
Employment. "Disability shall mean the inability, due to illness, accident,
injury, physical or mental incapacity or other disability, of Participant to
carry out effectively his or her duties and obligations to the Company and to
participate effectively and actively in the management of the Company for a
period of at least 90 consecutive days or for shorter periods aggregating at
least 120 days (whether or not consecutive) during any twelve month period, as
determined in the reasonable judgment of the Committee. Any determination by
the Board or Committee that Participant does or does not have a Disability
shall be final and binding upon the Company and Participant.
(iii) Termination for Cause. If Participant's Employment
is Terminated for Cause then the Option shall terminate immediately on the
date of such Termination of Employment. "Cause" shall mean (i) your theft or
embezzlement, or attempted theft or embezzlement, or money or property of the
Company or a subsidiary, your perpetration or attempted perpetration of fraud,
or your participation in a fraud or attempted fraud, on the Company or a
subsidiary or your unauthorized appropriation of, or your attempt to
misappropriate, any tangible or intangible assets or property of the Company or
a subsidiary, (ii) any act or acts of disloyalty, dishonesty, misconduct, moral
turpitude, or any other act or acts by you injurious to the interest, property,
operations,
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FORM NO. 1
business or reputation of the Company or a subsidiary, (iii) your conviction of
a crime the commission of which results in injury to the Company or a
subsidiary, or (iv) any material violation of any restriction on the disclosure
or use of confidential information of the Company or a subsidiary, or in
competition with the Company or a subsidiary, or any of their businesses then
conducted or planned to be conducted, in each case as determined in the
reasonable judgment of the Board or Committee.
(iv) Other Termination. If Participant's Employment is
Terminated for any reason other than Retirement, death or Disability, or Cause,
then the Option shall terminate upon the earlier of the Expiration Date or 30
days after the date of such Termination of Employment.
(b) Death Following Termination of Employment.
Notwithstanding anything to the contrary contained in this Agreement, if
Participant shall die at any time after the Termination of his or her
Employment and prior to the Expiration Date, then the Option shall terminate on
the earlier of the Expiration Date or the first anniversary of the date of such
death.
(c) Other Events Causing Termination of Option.
Notwithstanding anything to the contrary contained in this Agreement, the
Option shall terminate upon the consummation of any of the following events,
or, if later, the thirtieth day following the first date upon which such event
shall have been approved by both the Board and the stockholders of the Company:
(i) the dissolution or liquidation of the
Company; or
(ii) a sale of substantially all of the property
and assets of the Company, unless the terms of such sale shall provide
otherwise.
4. Adjustments. In the event that the outstanding
securities of the class then subject to the Option are increased, decreased or
exchanged for or converted into cash, property or a different number or kind of
securities, or cash, property or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, reclassification, dividend (other than a
regular cash dividend) or other distribution, stock split, reverse stock split
or the like, or in the event that substantially all of the property and assets
of the Company are sold, then, unless the terms of such transactions shall
provide otherwise or such event shall cause the Option to terminate pursuant to
Section 3(c) hereof, the Committee shall make appropriate and proportionate
adjustments in the number and type of shares or other securities or cash or
other property that may thereafter be acquired upon the exercise of the Option
and the Exercise Price per share specified herein; provided, however, that any
such adjustments in the Option shall be made without changing the aggregate
Exercise Price of the then unexercised portion of the Option.
5. Exercise. The Option shall be exercisable
during Participant's lifetime only by Participant or by his or her guardian or
legal representative, and after Participant's death only
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<PAGE> 12
FORM NO. 1
by the person or entity entitled to do so under Participant's last will and
testament or applicable intestate law. The Option may only be exercised by the
delivery to the Company of a written notice of such exercise, which notice
shall specify the number of Option Shares to be purchased (the "Purchased
Shares") and the aggregate Exercise Price for such shares (the "Exercise
Notice"), together with payment in full of such aggregate Exercise Price in
cash or by check payable to the Company; provided, however, that after the
consummation of an initial public offering by the Company of shares of its
Common Stock registered under the Securities Action of 1933, as amended (the
"Securities Act") and the listing of the Company's Common Stock on the New York
Stock Exchange, the American Stock Exchange, or the Nasdaq National Market
System (an "IPO Transaction"), payment of such aggregate Exercise Price may
instead be made, in whole or in part,
(a) by the delivery to the Company of a
certificate or certificates representing shares of Common Stock, duly endorsed
or accompanied by a duly executed stock powers, which delivery effectively
transfers to the Company good and valid title to such shares, free and clear of
any pledge, commitment, lien, claim or other encumbrance (such shares to be
valued on the basis of the aggregate Fair Market Value (as defined below)
thereof on the date of such exercise), provided that the Company is not then
prohibited from purchasing or acquiring such shares of Common Stock; or
(b) by the delivery, concurrently with such
exercise and in accordance with applicable law and regulations, irrevocable
instructions to a broker promptly to deliver to the Company a specified dollar
amount of the proceeds of a sale of or a loan secured by the Purchased Shares
issuable upon exercise of such option.
6. Fair Market Value. For purposes of the
Agreement, the term "Fair Market Value" shall mean the market price of the
Common Stock on the applicable date, determined by the Committee as follows:
(i) If the Common Stock was traded
over-the-counter on the date in question but was not traded on the Nasdaq
system or the Nasdaq National Market System, then the Fair Market Value shall
be equal to the mean between the last reported representative bid and asked
prices quoted for such date by the principal automated inter-dealer quotation
system on which the Common Stock is quoted or, if Common Stock is not quoted on
any such system, by the "Pink Sheets" published by the National Quotation
Bureau, Inc.;
(ii) If the Common Stock was traded
over-the-counter on the date in question and was traded on the Nasdaq system or
the Nasdaq National Market System, then the Fair Market Value shall be equal
to the last-transaction price quoted for such date by the Nasdaq system or the
Nasdaq National Market System;
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FORM NO. 1
(iii) If the Common Stock was traded on a stock
exchange on the date in question, then the Fair Market Value shall be equal to
the closing price reported by the applicable composite transactions report for
such date; and
(iv) If none of the foregoing provisions is
applicable, then the Fair Market Value shall be determined by the Committee in
good faith on such basis as it deems appropriate.
In all cases, the determination of Fair Market Value by the Committee shall be
conclusive and binding on all persons.
7. Payment of Withholding Taxes. As a condition to the
exercise of an Option, Participant shall make such arrangements as the
Committee may require for the satisfaction of any federal, state, local or
foreign withholding tax obligations that arise in connection with such
exercise. The Participant shall also make such arrangements as the Committee
may require for the satisfaction of any federal, state, local or foreign
withholding tax obligations that may arise in connection with the disposition
of Option Shares acquired by exercising an Option. The Committee may permit
the Participant to satisfy all or part of his or her tax obligations related to
the Option or Option Shares by having the Company withhold a portion of any
Option Shares that otherwise would be issued to him or her or by surrendering
any shares of Common Stock that previously were acquired by him or her. Such
shares of Common Stock or Option Shares shall be valued at their Fair Market
Value on the date when taxes otherwise would be withheld in cash. The payment
of taxes by assigning shares of Common Stock to the Company, if permitted by
the Committee, shall be subject to such restrictions as the Committee may
impose.
8. Right to Purchase Option Shares Upon Termination of
Employment.
(a) Repurchase of Option Shares. If
Participant's Employment is Terminated for any reason whatsoever, then the
Company shall have the option to repurchase all or any part of the Option
Shares issued or issuable upon exercise of the Option, whether held by
Participant or his or her guardian or legal representatives or a person to whom
such Option Shares have been transferred ("Transferee"), at a price per share
equal to the Fair Market Value of the Common Stock on the date of Termination
of Employment.
(b) Repurchase by Company. The Company may elect
to purchase all or any portion of the Option Shares by delivery of written
notice (the "Repurchase Notice") to Participant or his or her guardian or legal
representatives within 120 days after the date of Termination of Employment.
The Repurchase Notice shall set forth the number of Option Shares to be
acquired from Participant and the Transferees, the aggregate consideration to
be paid for such Option Shares and the time and place for the closing of the
transaction. The number of Option Shares to be repurchased by the Company
shall first be satisfied to the extent possible from the Option Shares held by
Participant at the time of delivery of the Repurchase Notice. If the number of
Option Shares then held by you is less than the total number of Option Shares
the Company has
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<PAGE> 14
FORM NO. 1
elected to purchase, then the Company shall purchase the remaining Option
Shares elected to be purchased from the Transferees thereof, pro rata according
to the number of Option Shares held by each such holder at the time of delivery
of such Repurchase Notice.
(c) Repurchase by Original Interestholders. If
for any reason the Company does not elect to purchase all of the Option Shares
pursuant to the Repurchase Option, then the Original Interestholders (as
defined below) who are stockholders of the Company as of the date of
Termination of Employment shall be entitled to exercise the Company's
Repurchase Option in the manner set forth in paragraph 8(a) for all or any
portion of the number of Option Shares the Company has not elected to purchase
(the "Available Shares"). As soon as practicable after the Company has
determined that there will be Available Shares, but in any event within 90 days
after the date of Termination of Employment, the Company shall deliver written
notice (the "Option Notice") to the Original Interestholders setting forth the
number of Available Shares and the price for each Available Share. Each
Original Interestholder may elect to purchase any number of Available Shares by
delivering written notice to the Company within 20 days after receipt of the
Option Notice from the Company. If more than one Original Interestholder
elects to purchase the Available Shares, the number of Available Shares to be
purchased by the electing Original Interestholders will be allocated among them
pro rata based upon their relative applicable ownership percentages of the
Company's outstanding Common Stock as of the date of Termination of Employment.
As soon as practicable, and in any event within five days after the expiration
of such 20-day period, the Company shall notify Participant and any other
holder(s) of Option Shares as to the number of Option Shares being purchased by
the Original Interestholders (the "Supplemental Repurchase Notice"). At the
time the Company delivers the Supplemental Repurchase Notice, the Original
Interestholder shall also receive written notice from the Company setting forth
the number of Option Shares he, she or it is entitled to purchase, the
aggregate purchase price and the time and place of the closing of the
transaction. "Original Interestholders" shall mean the persons and entities
serving as limited partners of the Partnership on or before December 3, 1991:
John T. Connor, Janice K. Connor, John Kuijvenhoven, Vonnie Kuijvenhoven,
University of Nebraska Foundation, Transcrypt International Inc., FBL Ventures
of South Dakota, Inc., W.J. Hindman Partnership, First Commerce Bancshares,
Inc., Steven C. Wright, United Security Bancorporation, Alan and Dianne
Stewart, Harold S. Myers III Trust, Harold S. Myers Trust, Harold S. Myers,
Patrick and Sue Ann Bluthardt.
(d) Closing of Repurchase of Option Shares. The
purchase of Option Shares pursuant to this paragraph 8 will be closed at the
Company's executive offices within 20 days after the expiration of the 120-day
period referred to in paragraph 8(b). At the closing, the purchaser or
purchasers shall pay the purchase price in the manner specified in paragraph
8(e) and Participant and any other holders of Option Shares being purchased
shall deliver the certificate or certificates representing such shares to the
purchaser or purchasers or their nominees, accompanied by duly executed stock
powers. Any purchaser of Option Shares under this paragraph 8 shall be
entitled to receive customary representations and warranties from Participant
and any other selling holder(s)
6
<PAGE> 15
FORM NO. 1
of Option Shares regarding the sale of such Option Shares (including
representations and warranties regarding good title to such shares, free and
clear of any liens or encumbrances).
(e) Manner of Payment. If the Company elects to
purchase all or any part of the Option Shares including Option Shares held by
one or more Transferees, the Company shall pay for such shares: (i) first, by
certified check or wire transfer of funds to the extent such payment would not
cause the Company to violate applicable law and would not cause the Company to
breach any agreement to which it is a party relating to indebtedness for
borrowed money or other material agreement; and (ii) thereafter, with a
subordinated promissory note of the Company. Such subordinated promissory note
shall bear interest per annum at the national prime rate in effect at Norwest
Bank, N.A., Minneapolis, Minnesota on the date of issuance of such promissory
note (which shall be payable annually in cash unless otherwise prohibited),
shall have all principal payment due on the fifth anniversary of the date of
issuance and shall be subordinated on terms and conditions satisfactory to the
holders of the Company's indebtedness for borrowed money. If any Original
Interestholders elect to purchase all or any portion of the Available Shares,
such Original Interestholders shall pay for that portion of such Option Shares
by certified check or wire transfer of funds.
(f) Termination of Repurchase Option. The
provisions of this paragraph 8 will terminate when the Company has sold shares
of its Common Stock pursuant to a public offering registered under the
Securities Act.
9. Notices. All notices and other communications
required or permitted to be given pursuant to this Agreement shall be in
writing and shall be deemed given if delivered personally or five days after
mailing by certified or registered mail, postage prepaid, return receipt
requested, to the Company at 4800 NW 1st Street, Lincoln, Nebraska 68521-9918,
Attention: Chief Financial Officer, or to Participant at the address set forth
beneath his or her signature on the signature page hereto, or at such other
addresses as they may designate by written notice in the manner aforesaid.
10. Stock Exchange Requirements; Applicable Laws.
Notwithstanding anything to the contrary in this Agreement, no shares of stock
purchased upon exercise of the Option, and no certificate representing all or
any part of such shares, shall be issued or delivered if (a) such shares have
not been admitted to listing upon official notice of issuance on each stock
exchange upon which shares of that class are then listed or (b) in the opinion
of counsel to the Company, such issuance or delivery would cause the Company to
be in violation of or to incur liability under any federal, state or other
securities law, or any requirement of any stock exchange listing agreement to
which the Company is a party, or any other requirement of law or of any
administrative or regulatory body having jurisdiction over the Company.
Notwithstanding any other provision of this Agreement to the contrary,
Participant will not offer, sell or otherwise dispose of any Option Shares in
any manner which would: (i) require the Company to file any registration
statement with the Securities and Exchange Commission (or any similar filing
under state law) or to amend or supplement any such
7
<PAGE> 16
FORM NO. 1
filing or (ii) violate or cause the Company to violate the Securities Act, the
rules and regulation promulgated thereunder or any other state of federal law.
You further understand that the certificates for any Option Shares you purchase
will bear such legends as the Company deems necessary or desirable in
connection with the Securities Act or other rules, regulations or laws.
11. Nontransferability. Neither the Option nor any
interest therein may be sold, assigned, conveyed, gifted, pledged, hypothecated
or otherwise transferred in any manner other than by will or the laws of
descent and distribution.
12. Plan. The Option is granted pursuant to the Plan, as
in effect on the Date of Grant, and is subject to all the terms and conditions
of the Plan, as the same may be amended from time to time; provided, however,
that no such amendment shall deprive Participant, without his or her consent,
of the Option or of any of Participant's rights under this Agreement. The
interpretation and construction by the Committee of the Plan, this Agreement,
the Option and such rules and regulations as may be adopted by the Committee
for the purpose of administering the Plan shall be final and binding upon
Participant. Until the Option shall expire, terminate or be exercised in full,
the Company shall, upon written request therefor, send a copy of the Plan, in
its then-current form, to Participant or any other person or entity then
entitled to exercise the Option.
13. Stockholder Rights. No person or entity shall be
entitled to vote, receive dividends or be deemed for any purpose the holder of
any Option Shares until the Option shall have been duly exercised to purchase
such Option Shares in accordance with the provisions of this Agreement.
14. Employment or Contract Rights. No provision of this
Agreement or of the Option granted hereunder shall (i) confer upon Participant
any right to continue in the employ of or contract with the Company or any of
its subsidiaries, (ii) affect the right of the Company and each of its
subsidiaries to terminate the employment or contract of Participant, with or
without cause, or (iii) confer upon Participant any right to participate in any
employee welfare or benefit plan or other program of the Company or any of its
subsidiaries other than the Plan. PARTICIPANT HEREBY ACKNOWLEDGES AND AGREES
THAT THE COMPANY AND EACH OF ITS SUBSIDIARIES MAY TERMINATE THE EMPLOYMENT OR
CONTRACT OF PARTICIPANT AT ANY TIME AND FOR ANY REASON, OR FOR NO REASON,
UNLESS PARTICIPANT AND THE COMPANY OR SUCH SUBSIDIARY ARE PARTIES TO A WRITTEN
EMPLOYMENT OR INDEPENDENT CONTRACTOR AGREEMENT THAT EXPRESSLY PROVIDES
OTHERWISE.
15. Governing Law. This Agreement and the Option granted
hereunder shall be governed by and construed and enforced in accordance with
the laws of the State of Nebraska without reference to choice or conflict of
law principles.
IN WITNESS WHEREOF, the Company and Participant have duly
executed this Agreement as of the Date of Grant.
8
<PAGE> 17
FORM NO. 1
TRANSCRYPT INTERNATIONAL, INC.
By
---------------------------------
Authorized Representative
PARTICIPANT
-----------------------------------
Signature
-----------------------------------
Printed Name
-----------------------------------
Street Address
-----------------------------------
City, State and Zip Code
-----------------------------------
Social Security Number
9
<PAGE> 18
FORM NO. 2
TRANSCRYPT INTERNATIONAL, INC.
1996 STOCK INCENTIVE PLAN
NONQUALIFIED STOCK OPTION AGREEMENT
This Stock Option Agreement ("Agreement") is made and entered
into as of the Date of Grant indicated below by and between Transcrypt
International, Inc., a Delaware corporation (the "Company"), and the person
named below ("Participant").
WHEREAS, Participant is an employee or independent contractor
of the Company or one or more of its subsidiaries; and
WHEREAS, pursuant to the Company's 1996 Stock Incentive Plan
(the "Plan"), the committee of the Board of Directors of the Company
administering the Plan (the "Committee") has approved the grant to Participant
of an option to purchase shares of the common stock, $.01 par value of the
Company (the "Common Stock"), on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and
the covenants set forth herein, the parties hereto hereby agree as follows:
1. Grant Of Option; Certain Terms and Conditions. The Company
hereby grants to Participant, and Participant hereby accepts, as of the Date of
Grant, an option to purchase the number of shares of Common Stock indicated
below (the "Option Shares") at the Exercise Price per share indicated below,
which option shall expire at 5:00 p.m., Nebraska time, on the Expiration Date
indicated below and shall be subject to all of the terms and conditions set
forth in this Agreement (the "Option"). On each anniversary of the Date of
Grant, the option shall become exercisable to purchase, and shall vest with
respect to, the number of the Option Shares (rounded to the nearest whole share)
equal to the total number of Option Shares multiplied by the Annual Vesting Rate
indicated below.
Participant: ______________________
Date of Grant: __________
Number of shares purchasable: __________
Exercise Price per share: __________
Expiration Date: __________
1
<PAGE> 19
FORM NO. 2
Annual Vesting Rate: __________
The Option is not intended to qualify as an incentive stock option under Section
422 of the Internal Revenue Code of 1986, as amended (an "Incentive Stock
Option").
2. Acceleration and Termination of Option.
(a) Termination of Employment.
(i) Retirement. If Participant's Employment is Terminated by
reason of Participant's retirement with the approval of the Committee or in
accordance with the Company's then current retirement policy ("Retirement"),
then (A) the portion of the Option that has not vested on or prior to the date
of such Termination of Employment shall terminate on such date and (B) the
remaining vested portion of the Option shall terminate upon the earlier of the
Expiration Date or 90 days after the date of such Termination of Employment.
(ii) Death or Permanent Disability. If Participant's
Employment is Terminated by reason of the death or Disability (as hereinafter
defined) of Participant, then (A) the portion of the Option that has not vested
on or prior to the date of such Termination of Employment shall terminate on
such date and (B) the remaining vested portion of the Option shall terminate
upon the earlier of the Expiration Date or the first anniversary of the date of
such Termination of Employment. "Disability shall mean the inability, due to
illness, accident, injury, physical or mental incapacity or other disability, of
Participant to carry out effectively his or her duties and obligations to the
Company and to participate effectively and actively in the management of the
Company for a period of at least 90 consecutive days or for shorter periods
aggregating at least 120 days (whether or not consecutive) during any twelve
month period, as determined in the reasonable judgment of the Committee. Any
determination by the Board or Committee that Participant does or does not have a
Disability shall be final and binding upon the Company and Participant.
(iii) Termination for Cause. If Participant's Employment is
Terminated for Cause then (A) the portion of the Option that has not vested on
or prior to the date of such Termination of Employment and (B) the remaining
vested portion of the Option shall terminate immediately on the date of such
Termination of Employment. "Cause" shall mean (i) your theft or embezzlement, or
attempted theft or embezzlement, or money or property of the Company or a
subsidiary, your perpetration or attempted perpetration of fraud, or your
participation in a fraud or attempted fraud, on the Company or a subsidiary or
your unauthorized appropriation of, or your attempt to misappropriate, any
tangible or intangible assets or property of the Company or a subsidiary, (ii)
any act or acts of disloyalty, dishonesty, misconduct, moral turpitude, or any
other act or acts by you injurious to the interest, property, operations,
business or reputation of the Company or a subsidiary, (iii) your conviction of
a crime the commission of which results in injury to the Company or a
subsidiary, or (iv) any material violation of any restriction on the disclosure
or use of confidential information of the Company or a subsidiary, or in
competition with the Company or a subsidiary,
2
<PAGE> 20
FORM NO. 2
or any of their businesses then conducted or planned to be conducted, in each
case as determined in the reasonable judgment of the Board or Committee.
(iv) Other Termination. If Participant's Employment is
Terminated for any reason other than Retirement, death or Disability, or Cause,
then (A) the portion of the Option that has not vested on or prior to the date
of such Termination of Employment shall terminate on such date and (B) the
remaining vested portion of the Option shall terminate upon the earlier of the
Expiration Date or 30 days after the date of such Termination of Employment.
(b) Death Following Termination of Employment. Notwithstanding
anything to the contrary contained in this Agreement, if Participant shall die
at any time after the Termination of his or her Employment and prior to the
Expiration Date, then (i) the portion of the Option that has not vested on or
prior to the date of such death shall terminate on such date and (ii) the
remaining vested portion of the Option shall terminate on the earlier of the
Expiration Date or the first anniversary of the date of such death.
(c) Other Events Causing Acceleration of Option. The
Committee, in its sole discretion, may accelerate the exercisability of the
Option at any time and for any reason.
(d) Other Events Causing Termination of Option.
Notwithstanding anything to the contrary contained in this Agreement, the Option
shall terminate upon the consummation of any of the following events, or, if
later, the thirtieth day following the first date upon which such event shall
have been approved by both the Board and the stockholders of the Company:
(i) the dissolution or liquidation of the Company; or
(ii) a sale of substantially all of the property and
assets of the Company, unless the terms of such sale shall provide
otherwise.
3. Adjustments. In the event that the outstanding securities
of the class then subject to the Option are increased, decreased or exchanged
for or converted into cash, property or a different number or kind of
securities, or cash, property or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, reclassification, dividend (other than a
regular cash dividend) or other distribution, stock split, reverse stock split
or the like, or in the event that substantially all of the property and assets
of the Company are sold, then, unless the terms of such transactions shall
provide otherwise or such event shall cause the Option to terminate pursuant to
Section 2(d) hereof, the Committee shall make appropriate and proportionate
adjustments in the number and type of shares or other securities or cash or
other property that may thereafter be acquired upon the exercise of the Option
and the Exercise Price per share specified herein; provided, however, that any
such adjustments in the Option shall be made without changing the aggregate
Exercise Price of the then unexercised portion of the Option.
3
<PAGE> 21
FORM NO. 2
4. Exercise. The Option shall be exercisable during
Participant's lifetime only by Participant or by his or her guardian or legal
representative, and after Participant's death only by the person or entity
entitled to do so under Participant's last will and testament or applicable
intestate law. The Option may only be exercised by the delivery to the Company
of a written notice of such exercise, which notice shall specify the number of
Option Shares to be purchased (the "Purchased Shares") and the aggregate
Exercise Price for such shares (the "Exercise Notice"), together with payment in
full of such aggregate Exercise Price in cash or by check payable to the
Company; provided, however, that after the consummation of an initial public
offering by the Company of shares of its Common Stock registered under the
Securities Action of 1933, as amended (the "Securities Act") and the listing of
the Company's Common Stock on the New York Stock Exchange, the American Stock
Exchange, or the Nasdaq National Market System (an "IPO Transaction"), payment
of such aggregate Exercise Price may instead be made, in whole or in part,
(a) by the delivery to the Company of a certificate
or certificates representing shares of Common Stock, duly endorsed or
accompanied by a duly executed stock powers, which delivery effectively
transfers to the Company good and valid title to such shares, free and clear of
any pledge, commitment, lien, claim or other encumbrance (such shares to be
valued on the basis of the aggregate Fair Market Value (as defined below)
thereof on the date of such exercise), provided that the Company is not then
prohibited from purchasing or acquiring such shares of Common Stock; or
(b) by the delivery, concurrently with such exercise
and in accordance with applicable law and regulations, irrevocable instructions
to a broker promptly to deliver to the Company a specified dollar amount of the
proceeds of a sale of or a loan secured by the Purchased Shares issuable upon
exercise of such option.
5. Fair Market Value. For purposes of the Agreement, the term
"Fair Market Value" shall mean the market price of the Common Stock on the
applicable date, determined by the Committee as follows:
(i) If the Common Stock was traded over-the-counter
on the date in question but was not traded on the Nasdaq system or the Nasdaq
National Market System, then the Fair Market Value shall be equal to the mean
between the last reported representative bid and asked prices quoted for such
date by the principal automated inter-dealer quotation system on which the
Common Stock is quoted or, if Common Stock is not quoted on any such system, by
the "Pink Sheets" published by the National Quotation Bureau, Inc.;
(ii) If the Common Stock was traded over-the-counter
on the date in question and was traded on the Nasdaq system or the Nasdaq
National Market System, then the Fair Market Value shall be equal to the
last-transaction price quoted for such date by the Nasdaq system or the Nasdaq
National Market System;
4
<PAGE> 22
FORM NO. 2
(iii) If the Common Stock was traded on a stock
exchange on the date in question, then the Fair Market Value shall be equal to
the closing price reported by the applicable composite transactions report for
such date; and
(iv) If none of the foregoing provisions is
applicable, then the Fair Market Value shall be determined by the Committee in
good faith on such basis as it deems appropriate.
In all cases, the determination of Fair Market Value by the Committee shall be
conclusive and binding on all persons.
6. Payment of Withholding Taxes. As a condition to the
exercise of an Option, Participant shall make such arrangements as the Committee
may require for the satisfaction of any federal, state, local or foreign
withholding tax obligations that arise in connection with such exercise. The
Participant shall also make such arrangements as the Committee may require for
the satisfaction of any federal, state, local or foreign withholding tax
obligations that may arise in connection with the disposition of Option Shares
acquired by exercising an Option. The Committee may permit the Participant to
satisfy all or part of his or her tax obligations related to the Option or
Option Shares by having the Company withhold a portion of any Option Shares that
otherwise would be issued to him or her or by surrendering any shares of Common
Stock that previously were acquired by him or her. Such shares of Common Stock
or Option Shares shall be valued at their Fair Market Value on the date when
taxes otherwise would be withheld in cash. The payment of taxes by assigning
shares of Common Stock to the Company, if permitted by the Committee, shall be
subject to such restrictions as the Committee may impose.
7. Notices. All notices and other communications required or
permitted to be given pursuant to this Agreement shall be in writing and shall
be deemed given if delivered personally or five days after mailing by certified
or registered mail, postage prepaid, return receipt requested, to the Company at
4800 NW 1st Street, Lincoln, Nebraska 68521-9918, Attention: Chief Financial
Officer, or to Participant at the address set forth beneath his or her signature
on the signature page hereto, or at such other addresses as they may designate
by written notice in the manner aforesaid.
8. Stock Exchange Requirements; Applicable Laws.
Notwithstanding anything to the contrary in this Agreement, no shares of stock
purchased upon exercise of the Option, and no certificate representing all or
any part of such shares, shall be issued or delivered if (a) such shares have
not been admitted to listing upon official notice of issuance on each stock
exchange upon which shares of that class are then listed or (b) in the opinion
of counsel to the Company, such issuance or delivery would cause the Company to
be in violation of or to incur liability under any federal, state or other
securities law, or any requirement of any stock exchange listing agreement to
which the Company is a party, or any other requirement of law or of any
administrative or regulatory body having jurisdiction over the Company.
Notwithstanding any other provision of this Agreement to the contrary,
Participant will not offer, sell or otherwise dispose of any Option Shares in
any manner
5
<PAGE> 23
FORM NO. 2
which would: (i) require the Company to file any registration statement with the
Securities and Exchange Commission (or any similar filing under state law) or to
amend or supplement any such filing or (ii) violate or cause the Company to
violate the Securities Act, the rules and regulation promulgated thereunder or
any other state of federal law. You further understand that the certificates for
any Option Shares you purchase will bear such legends as the Company deems
necessary or desirable in connection with the Securities Act or other rules,
regulations or laws.
9. Nontransferability. Neither the Option nor any interest
therein may be sold, assigned, conveyed, gifted, pledged, hypothecated or
otherwise transferred in any manner other than by will or the laws of descent
and distribution.
10. Plan. The Option is granted pursuant to the Plan, as in
effect on the Date of Grant, and is subject to all the terms and conditions of
the Plan, as the same may be amended from time to time; provided, however, that
no such amendment shall deprive Participant, without his or her consent, of the
Option or of any of Participant's rights under this Agreement. The
interpretation and construction by the Committee of the Plan, this Agreement,
the Option and such rules and regulations as may be adopted by the Committee for
the purpose of administering the Plan shall be final and binding upon
Participant. Until the Option shall expire, terminate or be exercised in full,
the Company shall, upon written request therefor, send a copy of the Plan, in
its then-current form, to Participant or any other person or entity then
entitled to exercise the Option.
11. Stockholder Rights. No person or entity shall be entitled
to vote, receive dividends or be deemed for any purpose the holder of any Option
Shares until the Option shall have been duly exercised to purchase such Option
Shares in accordance with the provisions of this Agreement.
12. Employment or Contract Rights. No provision of this
Agreement or of the Option granted hereunder shall (i) confer upon Participant
any right to continue in the employ of or contract with the Company or any of
its subsidiaries, (ii) affect the right of the Company and each of its
subsidiaries to terminate the employment or contract of Participant, with or
without cause, or (iii) confer upon Participant any right to participate in any
employee welfare or benefit plan or other program of the Company or any of its
subsidiaries other than the Plan. PARTICIPANT HEREBY ACKNOWLEDGES AND AGREES
THAT THE COMPANY AND EACH OF ITS SUBSIDIARIES MAY TERMINATE THE EMPLOYMENT OR
CONTRACT OF PARTICIPANT AT ANY TIME AND FOR ANY REASON, OR FOR NO REASON, UNLESS
PARTICIPANT AND THE COMPANY OR SUCH SUBSIDIARY ARE PARTIES TO A WRITTEN
EMPLOYMENT OR INDEPENDENT CONTRACTOR AGREEMENT THAT EXPRESSLY PROVIDES
OTHERWISE.
13. Governing Law. This Agreement and the Option granted
hereunder shall be governed by and construed and enforced in accordance with the
laws of the State of Nebraska without reference to choice or conflict of law
principles.
6
<PAGE> 24
FORM NO. 2
IN WITNESS WHEREOF, the Company and Participant have duly
executed this Agreement as of the Date of Grant.
TRANSCRYPT INTERNATIONAL, INC.
By____________________________
Authorized Representative
PARTICIPANT
------------------------------
Signature
------------------------------
Printed Name
------------------------------
Street Address
------------------------------
City, State and Zip Code
------------------------------
Social Security Number
7
<PAGE> 1
EXHIBIT 10.6
LICENSE AGREEMENT
APCO PROJECT 25 COMPLIANT PRODUCT
This Agreement is effective as of the 2nd day of August 1994, between Motorola,
Inc., a corporation of the State of Delaware ("Motorola"), by and through its
Land Mobile Products Sector, having a principal place of business at 1301 East
Algonquin Road, Schaumburg, Illinois 60196; and Transcrypt International a
corporation having a principal place of business at 1620 North 20th Street,
Lincoln, Nebraska 68503 ("Licensee").
Pursuant to the APCO Project 25 IPR MOU, Motorola has agreed to license its
APCO 25 essential patent rights to third parties seeking to manufacture and
sell products that are compliant with the APCO Project 25 Standard and who have
signed the APCO Project 25 MOU. The Licensee wishes to manufacture and/or to
sell products that are compliant with the APCO Project 25 Standard.
Based upon these representations and understandings, the parties agree as
follows:
ARTICLE I - DEFINITIONS
A. "APCO Project 25 Standard" is defined as the system described
in the family of EIA/TIA documents in the 102 series starting with TSB102
Project 25 System & Standard Definition.
B. "Patent Claims" are defined as claims in any United States or
foreign patent that are technically essential to the specific modulation
technology and frame technology specified in the APCO Project 25 Standard.
C. "Licensed Products" are defined as two-way radio
communications products, including both infrastructure components and
subscriber units, that are fully compliant with the APCO Project 25 Standard.
"Licensed Products" include Motorola 12 kB DES-XL, but are limited to
implementation in an APCO 25 compliant digital subscriber radio, and only for
sale to customers who have a Motorola DES-XL system and who have procured, or
are in the process of procuring, APCO 25 compliant digital infrastructure, and
require backward interoperabilty to DES-XL as a condition of the procurement.
<PAGE> 2
ARTICLE II - GRANT OF LICENSE
Motorola hereby grants to Licensee a personal, nontransferable,
non-assignable, non-sublicenseable, non-exclusive license under Motorola's
Patent Claims: (1) to manufacture, anywhere in the world, Licensed Products;
and (2) to sell APCO Project 25 Standard compliant systems in any country
provided that this license or exercise of this license in such country is not
contrary to any United States law, regulation, or policy.
The Licensee hereby grants back to Motorola a personal,
nontransferable, non-assignable, non-sublicenseable, non-exclusive license
under Licensee's patents that are technically essential to the APCO Project 25
Standard: (1) to manufacture, anywhere in the world, Licensed Products; and (2)
to sell to users of APCO Project 25 Standard compliant systems in any country
provided that this license or exercise of this license in such country is not
contrary to any United States law, regulation, or policy.
ARTICLE III - ROYALTY
For the license of Motorola's Patent Claims as pertain to technically
essential modulation technology, there is no continuing royalty.
For the license of Motorola's Patent Claims as pertain to technically
essential frame technology, there is no continuing royalty for Licensed Products
that are substantially manufactured in North America. For Licensed Products
that are substantially manufactured outside of North America, there is a
continuing royalty of eight dollars ($8) per Product.
Within thirty (30) days of each January 1, the Licensee shall provide
to Motorola through an independent auditor a written royalty report for the
preceding year, which report shall include a count of all Licensed Products
manufactured by the Licensee during the report period requiring payment of
royalty, and a payment of any continuing royalties that may be due under this
Agreement.
Once each calendar year, Motorola shall have the right to audit the
Licensee's manufacture and sales activities to assure the accuracy of the
Licensee's royalty reports. At the Licensee's request,
<PAGE> 3
any such audit may be conducted by an independent third party that is
instructed to maintain the Licensee's information in confidence, and to only
provide such information to Motorola as is necessary to confirm previously
received royalty reports, or to establish the inaccuracy of previously received
royalty reports. Such audits shall be conducted with at least ten (10) days
written notice to the Licensee, and shall be conducted during normal business
hours. Such audits shall be conducted at Motorola's expense, unless the audit
reveals a shortfall in continuing royalty payments in excess of 5% of the
amount previously acknowledged by the Licensee, in which event the cost of the
audit shall be borne by the Licensee.
Each party will use its best endeavors to offer fair and reasonable
licensing terms for future IPR which is mutually deemed essential.
ARTICLE IV - TERM
This Agreement shall terminate with the expiration of the last patent
as licensed pursuant to this Agreement.
ARTICLE V - ENGINEERING CONSULTATION
No engineering consultation is provided by Motorola as part of this
agreement.
ARTICLE VI - ASSIGNMENT
This Agreement and the rights granted hereunder may not be assigned,
sublicensed, or otherwise transferred by either party.
ARTICLE VII- DISCLAIMER OF REPRESENTATION
Motorola makes no express or implied representations or warranties
regarding the modulation technology or the frame technology, their use, or
performance. Motorola disclaims any responsibility for technical accuracy,
improvement of the technology with enhancements, or any other product or
systems responsibility. Motorola further disclaims any representation that
Licensee will be able to use the technology in an effective way such that a
Licensed Product will result from Licensee's efforts in this regard.
<PAGE> 4
Nothing in this Agreement shall be construed as:
(a) A warranty or representation that anything made, used, sold,
or otherwise disposed of under any license granted in this agreement is or will
be free from infringement of patents of third persons; or
(b) An obligation to bring or prosecute actions or suits against
third parties for infringement of any patent.
FURTHER, MOTOROLA EXPRESSLY SPECIFICALLY EXCLUDES ALL WARRANTIES, EXPRESSED OR
IMPLIED, AND SPECIFICALLY EXCLUDES, WITHOUT LIMITATION, THE IMPLIED WARRANTIES
OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT SHALL
MOTOROLA BE LIABLE FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES TO THE FULL
EXTENT THAT SUCH MAY BE DISCLAIMED BY LAW.
ARTICLE VIII - INSPECTION
In the event that Motorola reasonably deems it necessary for the
purpose of maintaining compliance with this Agreement, to inspect any product
licensed hereunder, Licensee agrees to provide required access to such licensed
product including, but not limited to, hardware, firmware, software, object
code and related information and documentation provided that Motorola executes
a non-disclosure agreement with Licensee.
ARTICLE IX - NOTICES
For the purpose of any and all communications and deliveries between
Motorola and Licensee with reference to this Agreement, the respective
addresses, subject to change upon written notice, shall be:
For Motorola: Motorola, Inc.
1301 E. Algonquin Road
Schaumburg, IL 60196
Attn: Gary Houdek
<PAGE> 5
For Licensee: Transcrypt International
1620 North 20th Street
Lincoln, Nebraska 68503
Attn: Ron Kabler
ARTICLE X - MARKING
All Licensed Products made pursuant to this Agreement shall be marked:
"This device made under license under one or more of the following
U.S. Patents: 4,636,791; 4,590,473; 5,185,796; 5,148,482."
As additional patents issue, the Licensee agrees to change this notice
when reasonably convenient, provided that Motorola provides to the Licensee
written notice of the then current form of the notice.
ARTICLE XI - CHOICE OF FORUM
Any legal action relating to this agreement shall be commenced in Cook
County, State of Illinois.
ARTICLE XII - CHOICE OF LAW
This Agreement shall be governed by and construed in accordance with
the laws of the State of Illinois.
ARTICLE XIII - CONFIDENTIALITY
The specific terms, conditions, and details of this agreement are
confidential, and Licensee agrees not to divulge said terms, conditions, and
details to any 3rd party without the written consent of Motorola.
<PAGE> 6
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed, by their duly authorized officers.
Each person who signs below personally represents that he or she is
authorized to do so.
MOTOROLA, INC. TRANSCRYPT INTERNATIONAL
By: WAYNE LELAND By: [SIG]
--------------------------------- ------------------------------
Title: Vice President Title: President & COO
------------------------------ ---------------------------
Date: 8/4/94 Date: August 2, 1994
------------------------------ ---------------------------
<PAGE> 1
EXHIBIT 10.7
LICENSE AGREEMENT AMENDMENT
This Amendment to License Agreement is effective as of the 28th day of
June, 1996, between Motorola, Inc., a corporation of the State of Delaware
("Motorola"), by and through its Land Mobile Products Sector, having a
principal place of business at 1301 East Algonquin Road, Schaumburg, Illinois
60196; and Transcrypt International a corporation having a principal place of
business at 4800 NW First Street, Lincoln, Nebraska 68521 ("Licensee").
RECITALS
The parties to this Amendment have earlier entered into an OEM
Agreement dated August 2, 1994 and a License Agreement dated August 2, 1994.
The parties do also concurrently herewith enter into an Amendment to the
foregoing OEM Agreement.
Pursuant to these agreements, the parties have agreed that the
Licensee has the right to purchase certain APCO 25 compliant subscriber
products from Motorola and to resell these products to Licensee's customers.
The Licensee further received the right to sell such product and also include
Motorola's DES-XL encryption and analog trunking capabilities to customers who
were purchasing Astro(R) or APCO 25 infrastructure, where the customer required
such DES-XL and/or analog trunking capability to facilitate backwards
compatibility with other customer operated equipment.
In addition to the above rights to purchase and resell products from
Motorola, the Licensee also received a license under patent rights that
Motorola owns with respect to modulation and frame technologies that are
essential to APCO 25 to make APCO 25 compliant products and to sell APCO 25
compliant systems.
The Licensee would now like to receive specific implementation
information regarding Motorola's analog trunking and DES and DES-XL encryption
technologies, and to be provided a license to use such information to allow
manufacture of products that include such information.
Motorola is willing to provide the Licensee with such a license, and
is further willing to provide the Licensee with a limited amount of
implementation information,
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<PAGE> 2
provided the Licensee is willing to strictly observe certain precautions with
respect to the handling and use of such information and the practice of such a
license. The Licensee is willing to respect these conditions.
NOW, THEREFORE, in consideration of these premises and the following
terms and conditions, the parties hereby agree as follows:
This agreement shall be an Amendment to the License Agreement of
August 2, 1994 as previously entered into between the parties. In the event of
conflict in language as between this Amendment and the previous License
Agreement, this Amendment shall prevail. In all other instances, the terms and
conditions of the August 2, 1994 License Agreement shall continue in full force
and effect.
ARTICLE I - DEFINITIONS is hereby amended to include the following revised, and
new, definitions:
C. "Licensed Products" are defined as two-way radio
communications products, including both infrastructure components and
subscriber units, that are compliant with the APCO Project 25 Standard.
"Licensed Products" further includes products that are also compatible with
DES, DES-XL (including Proper Code Detection), and/or Motorola analog trunking,
but are limited to implementation in an APCO 25 compliant digital subscriber
radio, or a subscriber unit that has the capability to be APCO 25 compliant
within 12 months of the date this Amendment is signed or within 12 months of
the first shipment of a subscriber unit hereunder, whichever is later.
D. "Delivered Technology" shall mean the enabling information,
including confidential information and trade secret information, and in
whatever form such enabling information may exist including, wherever
applicable, source code, documentation, protocol, timing, and interface
specifications, assembler code, and software tools, and the like, as provided
by Motorola to the Licensee regarding the following technologies:
--Motorola's Smartnet, Smartnet II, SmartZone, Astro(R) and Digital
Astro(R) private systems trunking;
--the MTS 2000 Series portable radio side connector.
- 2 -
<PAGE> 3
With respect to DES and DES-XL encryption (including Proper Code
Detection technology), "Delivered Technology" shall be limited to only that
information that is technically necessary to interface the DES and DES-XL
modules and integrated circuits as provided by Motorola.
Such information may include executable object code and source code.
Some information regarding IMBE vocoding may not be available to provide as
Delivered Technology due to contractual limitations imposed on Motorola by
Digital Voice Systems, Inc., the latter being the source for the IMBE vocoding
information.
E. "Additional Motorola Patents" shall mean all present and
future issued patents (wherever and whenever issued), which patents are owned
and controlled by Motorola, and which patents cover the Delivered Technology,
such that the Delivered Technology could not be practiced by the Licensee
without infringing the patents; provided, however, that "Motorola Patents"
shall not include any patents that claim innovations related to materials used
in semiconductor manufacturing, semiconductor structures, and semiconductor
manufacturing processes.
F. "Additional Licensed Products" shall mean:
(i) subscriber radio products that are based on and compatible
with Motorola's Astro(R), Smartnet, Smartnet II and SmartZone subscriber radio
products, regardless of whether such products are compatible with the APCO
Project 25 Standard (hereinafter referred to as "Type I" subscriber radio
products);
(ii) Transcrypt-designed subscriber radio products that include the
side connector offered by Motorola on its MTS 2000 subscriber radio products;
and
(iii) subscriber radio products that are based on DES, DES-XL
(including Proper Code Detection) encryption technology.
ARTICLE II - GRANT OF LICENSE is hereby amended to include the following
paragraph:
Motorola further hereby grants to Licensee a personal,
nontransferable, nonassignable, non-sublicenseable, non-exclusive license under
Motorola's confidential
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<PAGE> 4
information rights in the Delivered Technology and under Motorola's pertinent
intellectual property rights including the Additional Motorola Patents to: (1)
manufacture, anywhere in the world, Licensed Products; and (2) to sell APCO
Project 25 Standard compliant systems in any country provided that this license
or exercise of this license in such country is not contrary to any United
States law, regulation, or policy. Under this license grant, the Licensee has
the right to manufacture and offer for sale under the Licensee's own trade name
or trademark products that are compatibly interoperable with Motorola's analog
Smartnet family of trunked radio systems or Motorola's DES or DES-XL systems
that include Motorola proprietary encryption capability.
At such time as the Licensee shall be recognized in the industry as a
supplier of APCO Project 25 Standard compliant products, as evidenced by a
continuing shipping level, then the Licensee shall also have a personal,
nontransferable, non-assignable, non-sublicenseable, non-exclusive license
under Motorola's confidential information rights in the Delivered Technology
and under Motorola's pertinent intellectual property rights including the
Additional Motorola Patents to: (1) manufacture, anywhere in the world,
Additional Licensed Products; and (2) to sell such Additional Licensed Products
in any country provided that this license or exercise of this license in such
country is not contrary to any United States law, regulation, or policy. Under
this license grant, the Licensee has the right to manufacture and offer for
sale under the Licensee's own tradename or trademark products that are
compatibly interoperable with Motorola's analog Smartnet family of trunked
radio systems or Motorola's DES or DES-XL systems that include Motorola
proprietary encryption capability.
ARTICLE III - ROYALTY is hereby amended to include the following paragraphs:
With respect to Licensee's radio products that are based, in whole or
in part, on Motorola's trunking, including Smartnet, Smartnet II, and Astro(R)
Delivered Technology, Licensee agrees to pay Motorola a three per-cent (3%)
royalty on Net Sales After Discount on such products.
In addition to the above, with respect to Licensee's radio products
that are based, in whole or in part, on Motorola's MTS 2000 Series portable
radio side connector Delivered Technology, Licensee agrees to pay Motorola a
royalty of $3.50 per unit on such products when these side connectors are not
purchased from Motorola.
-4-
<PAGE> 5
Payment of royalties will be for a period of 10 years. Royalty will
be paid quarterly based on actual Net selling price of radio products sold.
Payment will be made within 30 days following each quarter.
Royalties shall not apply to parts, components, kits, and the like,
that Licensee shall purchase from Motorola for use in Licensee's products, for
resale to others, or both. No royalty payments will be due on finished goods,
components and kits purchased from Motorola for use in Licensee's products. In
the case where Licensee's products contain both purchased kits and components
and also the above Delivered Technologies, then royalties will be paid on the
Net User Price of the radio product sold less the cost of the Motorola kits or
parts provided outlined in the appendix.
In the event that marketable value items are embedded in sold kits and
parts but are not part of the licensed technology, a royalty will be paid based
on an Appendix amended to this contract and negotiated annually based on
marketing value.
Licensee acknowledges that there may be some proprietary technology,
that has not been described herein, embedded in the DES, DES-XL, ASTRO(R),
SMARTNET or SMARTNET II chip sets. Should Licensee decide to implement these
additional technologies at a later date, then additional royalties may apply,
and the parties will negotiate in good faith at that time. It is agreed that
capabilities embedded in Motorola kits and integrated circuits and not marketed
by Licensee will not be subject to royalty payments. For example, if a
particular capability or function of additional market value is designed into a
particular purchased kit or part, but is not enabled, an additional license is
required to enable this capability and negotiated royalties will be paid by
Licensee based on the sale of this capability.
A new ARTICLE XIV is added as follows:
ARTICLE XIV - DELIVERED TECHNOLOGY
Upon the signing of this Amendment by both parties, Motorola shall
commence transferring Delivered Technology to the Licensee. Motorola shall use
reasonable efforts to complete such transfer in an expeditious manner.
-5-
<PAGE> 6
Both parties recognize that source code is a particularly sensitive
and valuable form of information. When source code is provided as an item of
Delivered Technology to the Licensee, the Licensee acknowledges that
appropriate safeguards are necessary in order to ensure that Motorola's source
code is properly used and cared for. Within ninety (90) days of receiving
source code, the Licensee shall either: (a) return the source; or (b) provide
Motorola with a written statement indicating that the Licensee will make
near-term actual use of the source code when exercising its rights under this
Amendment. When holding Motorola source code, in addition to observing all
other requirements set forth in this Amendment regarding confidential
information, the Licensee shall additionally number all copies of the source
code, and shall maintain a written record of the location of the original and
all copies at all times. When returning source code to Motorola, the Licensee
shall indicate in writing that the original and all copies have either been
returned or destroyed.
A new ARTICLE XV is added as follows:
ARTICLE XV - CHANGES IN PARTY
This Amendment is personal to each of the parties hereto, and either
party shall have the right to cancel this Amendment by giving written notice of
cancellation to the other party at any time upon or after: 1) the filing by the
other party of a petition commencing a proceeding with respect to itself in
bankruptcy or insolvency; 2) any adjudication by a court of competent
jurisdiction that the other party is bankrupt or insolvent; 3) the appointment
of a receiver for all or substantially all of the property of the other party
which appointment shall remain in effect for 180 days; or 4) the making by the
other party of any assignment or attempted assignment of this Amendment for the
benefit of creditors. Upon the giving of such notice of cancellation this
Amendment shall be terminated forthwith.
In the event a change of control of the Licensee occurs and control is
held, directly or indirectly by any of the following companies, or combination
thereof:
Telefonaktiebolaget LM Ericsson,
Alcatel Alsthom Compagnie Generale D'Electricite,
Alcatel Cit S.A.,
Hitachi, Ltd.,
Philips electronics N.V.,
- 6 -
<PAGE> 7
Toshiba Corporation,
Matsushita Electric Industrial Co., Ltd.,
Matsushita Electric Works, Ltd.,
NEC Corporation,
Matra, S.A.,
AT&T,
Lucent Technologies,
Sprint,
MCI,
or any RBOC, including
Nynex,
Bell Atlantic,
Southern Bell,
Southwestern Bell,
US West,
Pacific Telesis, or
Ameritech,
then Motorola shall have the right to immediately terminate this Amendment.
In the event a change of control over the Licensee occurs and control
is held, directly or indirectly by any third party manufacturer in the
telecommunications industry, other than those listed above, Motorola shall have
the right to cancel this Amendment at any time thereafter upon giving twelve
(12) months written notice thereof to the Licensee and/or the third party and,
upon the giving of such notice of cancellation, this Amendment shall terminate
in accordance therewith.
For purposes of this Amendment, "control" shall mean:
- -- that the controlling entity owns, directly or indirectly, stock or other
interest in the Licensee representing more than fifty (50) percent of the
aggregate stock or other interest entitled to vote for the election of
directors or other decisions reserved to a vote by owners of such stock or
other interests; or
- 7 -
<PAGE> 8
- --that the controlling entity has the power to direct the management or
policies of the Licensee, directly or indirectly, whether through the ownership
of voting securities, by contract, merger, or acquisition of assets of the
Licensee, or otherwise.
Notwithstanding the above, nothing contained herein shall prevent
Licensee from assigning this Agreement and any and all amendments hereto to the
successor in interest corporation or limited liability company which is
established to facilitate the public offering of equity interests in Licensee.
A new ARTICLE XVI is added as follows:
ARTICLE XVI - REPRESENTATIONS AND DISCLAIMERS
Nothing contained in this Amendment shall be construed as:
(a) a warranty or representation that the manufacture, sale,
lease, use, or other disposition of any product that is manufactured by other
than Motorola using Delivered Technology will be free from infringement of
third party patents, provided, however, that if promptly notified in writing,
Motorola will defend any claim against the Licensee that alleges that U.S.
patents, copyrights, or trade secrets of another have been infringed solely by:
- -- Motorola's unaltered software as provided to the Licensee as Delivered
Technology, provided, however, that this indemnity shall not apply to the IMBE
vocoder to the extent that the vocoder technology as included with Delivered
Technology shall be based on information provided by Digital Voice Systems,
Inc.; or
- -- the Licensee's software authored by the Licensee, provided such Licensee
software is substantially based upon and functionally substitutes for Motorola
software as provided in the Delivered Technology, and the claim of infringement
would exist regardless of whether the Licensee software or the corresponding
Motorola software, for which the Licensee software is a substitute, were used
by the Licensee, and the Licensee would otherwise be indemnified by Motorola
for use of such corresponding Motorola software;
and Motorola will save and hold the Licensee harmless from any judgment,
damages, or awards arising out of any such claim. Upon Motorola's request, the
Licensee agrees to reasonably assist in any defense and surrender control of
the suit to Motorola. Motorola may elect, at any time, to modify or replace
such software with
- 8 -
<PAGE> 9
equivalent non-infringing items, obtain the right to continue using the
software, or, if these remedies are not reasonably available, to accept return
of such software from the Licensee;
(b) a warranty that the Licensee will successfully manufacture
products based upon the Delivered Technology transferred hereunder.
A new ARTICLE XVII is added as follows:
ARTICLE XVII - TERMS
In addition to royalties payable under Article III entitled "ROYALTY"
as provided hereinabove, Licensee shall pay to Motorola the sum of ** in
accordance with paragraphs A-C as follows:
A. ** due at contract signing.
B. ** due one (1) year after the signing of this contract.
C. ** due and payable as follows:
1 . ** due upon Licensee having sold 2,500 total units of
Type I subscriber radio products, as defined in Article 1, paragraph F, clause
(i) above.
2. An additional ** due upon Licensee having sold 5,000
total units of Type I subscriber radio products.
3. An additional ** due upon Licensee having sold 7,500
total units of Type I subscriber radio products.
4. An additional ** due upon Licensee having sold 10,000
total units of Type I subscriber radio products.
5. An additional ** due upon Licensee having sold 12,500
total units of Type I subscriber radio products.
All sections marked with two asterisks ("**") reflect portions which
have been redacted and filed separately with the Securities and Exchange
Commission as part of a request for confidential treatment.
- 9 -
<PAGE> 10
6. An additional $** due upon Licensee having sold
15,000 total units of Type I subscriber radio products.
7. An additional $** due upon Licensee having sold
17,500 total units of Type I subscriber radio products.
8. An additional $** due upon Licensee having sold
20,000 total units of Type I subscriber radio products.
A new ARTICLE XVIII is added as follows:
ARTICLE XVIII - ENGINEERING SUPPORT
Motorola agrees to provide engineering support for the technologies
licensed in the LICENSE AMENDMENT in the amount of 500 staff/hours at Motorola
sites and 500 staff/hours of on-site support, with all travel and miscellaneous
expenses such as room, board, copy services and the like being paid for by
Licensee within 30 days of receipt of invoice. Additional hours beyond these
amounts will be paid by Licensee at the rate of $200 per hour, accruable in
10-minute increments.
A new ARTICLE XIX is added as follows:
ARTICLE XIX - MISCELLANEOUS
A. Motorola agrees to negotiate in good faith with respect to
licensing present and future encryption technologies.
B. Motorola having refused to license its proprietary DVP and
DVP-XL encryption technologies to Licensee, Motorola states as follows:
If, in the normal course of business, a domestic (U.S. markets only)
customer requests Licensee to provide Motorola DVP or DVP-XL encryption in one
of Licensee's subscriber products, for the purpose of in the future going to
APCO 25, Licensee may quote and deliver such a product and will be provided the
necessary
-10-
<PAGE> 11
modules (kits) by Motorola at the same price as the DES-XL module noted in the
Amendment to the OEM Agreement.
C. Motorola having refused to include its OTAR technology for DES
and DES-XL two-way radio products in this Amendment, Motorola agrees to
negotiate in good faith at a later date the numerous issues that are included
in this technology.
D. Pricing for all accessories as described in the attachment to
this License Amendment shall be at 55% off standard list prices per current
DNUP book.
E. Nothing herein shall be construed as granting any rights, by
license or otherwise, in the trademarks or trade names of either party.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by
their duly authorized officers.
Each person who signs below personally represents that he or she is
authorized to do so.
MOTOROLA, INC. Transcrypt International
By: BOB McCALL By: JEFFERY FULLER
--------------------------- -------------------------
Bob McCall Jeffery Fuller
V.P. & General Manager President
Date: 9/13/96 Date: 9/13/96
------------------------- ------------------------
By:
---------------------------
James W. Gillman
Senior Vice President
Motorola, Inc.
Patents, Trademarks and Licensing
Date:
-------------------------
- 11 -
<PAGE> 1
EXHIBIT 10.8
OEM AGREEMENT (APCO 25)
This Agreement is effective the 2nd day of August, 1994 ("EFFECTIVE
DATE") between Motorola, Inc., a Corporation of the State of Delaware, U.S.A.,
(hereinafter "MOTOROLA"), by and through its Land Mobile Products Sector, having
a principal place of business at 1301 East Algonquin Road, Schaumburg, Illinois
60196, and Transcrypt International, a corporation having a principal place of
business at 1620 North 20th, Lincoln, NE 68503 (hereinafter "Receiving Party").
RECITALS
WHEREAS, the Associated Public Safety Communication Officers, Inc. ("APCO"),
the National Association of State Telecommunications Directors ("NASTD") and
certain agencies of the Federal government have established the APCO Project 25
Steering Committee for the purpose of selecting various elements of a public
safety system advanced technology standard for interoperable digital public
safety radio communications; and
WHEREAS, MOTOROLA and Transcrypt have committed to support Project 25 and to be
active advocates therefor in APCO and Telecommunications Industry Association
("TIA") proceedings, as well as the marketplace; and
WHEREAS, MOTOROLA has designed and is manufacturing an APCO 25 compliant,
digital trunked two-way land mobile radio system known as ASTRO(R), and is in
rightful possession of certain proprietary rights in the valuable technology
related thereto; and
WHEREAS, Transcrypt is particularly qualified and otherwise particularly suited
to purchase certain ASTRO(R) Products from MOTOROLA for resale and MOTOROLA
desires to sell such products to Transcrypt, all upon the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, MOTOROLA and Transcrypt agree as follows:
Section 1 - Purchase and Sale; Commitments.
1.1 Agreement of Purchase and Sale. MOTOROLA agrees to sell, subject to
MOTOROLA standard terms and conditions, and Transcrypt agrees to purchase
ASTRO(R) products, only as requested, as defined in Appendix A (hereinafter
PRODUCTS), in such quantities as Transcrypt may order from time to time.
1
<PAGE> 2
MOTOROLA agrees to offer TRANSCRYPT certain next generation technology
enhancements, such as RF sub-assemblies or chip sets are these technologies
become viable product offerings.
Transcrypt may specify to MOTOROLA functional features and cosmetic design
(including color and labeling) of such PRODUCTS, it being understood that such
changes from MOTOROLA's standard products will impact MOTOROLA's price and
delivery to Transcrypt.
Motorola and Transcrypt will cooperate on a marketing effort at the front end
of the program in the form of Motorola providing photo ready art for
literature, manuals, and marketing pieces, that Transcrypt may edit and
reproduce.
1.2 Purchase Price. Terms and conditions, including unit prices, validity
period, and delivery schedule for PRODUCTS are contained in Appendix B.
1.3 Limited Warranty.
(a) MOTOROLA's standard warranty applies, except that 30 days shall be
added to the warranty period for both labor and material to allow Transcrypt
added time to ship to their customers.
(b) In the event of a defect during the applicable warranty periods above,
Transcrypt shall have the option of providing the warranty labor service itself
or requesting that MOTOROLA provide such labor service in the manner described
above. In the event Transcrypt decides to provide the warranty labor service,
MOTOROLA agrees to provide replacement parts, free of charge, for the full
warranty period. MOTOROLA's repair or replacement of the product or part
thereof shall be the full extent of MOTOROLA's liability. Travel and
associated expenses of Transcrypt are not covered by these warranties.
1.4 Spare Parts for Products. Within sixty (60) days of a request in
writing, MOTOROLA shall provide Transcrypt with a list of spare module and
component parts (including part number, description and price) which MOTOROLA
will make available to Transcrypt for Transcrypt's servicing, repair and
maintenance of the Products.
1.5 Backward Compatibility. Transcrypt may sell PRODUCTS incorporating
MOTOROLA analog trunking, or MOTOROLA proprietary 12 kBs encryption only to
those customers who have purchased or are in the process of purchasing ASTRO(R)
or APCO 25 compliant digital Infrastructure.
2
<PAGE> 3
Section 2 Term of Agreement. This Agreement shall remain in effect for 10 years
from the EFFECTIVE DATE, unless both parties agree in writing to extend or
terminate this Agreement.
Section 3 Confidentiality.
3.1 "Confidential Information" is defined as any device, graphics, written
information or information in other tangible forms that is disclosed by either
party to the other, and that is marked at the time of disclosure as being
"Confidential" or "Proprietary". Information disclosed orally or visually and
identified at that time as Confidential shall also be considered as
"Confidential Information" if such orally or visually disclosed information is
reduced to tangible form, appropriately marked or identified as being
confidential by the disclosing party and delivered to the Transcrypt within
thirty calendar days of its oral or visual disclosure to the Transcrypt.
3.2 Unless otherwise expressly authorized by the disclosing party, the
Transcrypt agrees to retain the Confidential Information in confidence for the
"Confidential Period" defined below, during which period the Transcrypt shall
not disclose the received Confidential Information to any third party, and
shall not use the received Confidential Information for any purpose other than
as authorized in this Agreement. The "Confidential Period" shall mean 7 years
from the date of receipt of the Confidential Information or until such time as
the information no longer qualifies as Confidential Information pursuant to
paragraph 3.4.
3.3. Each party shall use its best efforts to limit dissemination of the
other's Confidential Information to such of its employees who have a need to
know in performance of this Agreement.
3.4 Notwithstanding any other provisions of this Agreement, each party
acknowledges that Confidential Information shall not include any information
which:
(a) Is or becomes publicly known through no wrongful act on the
Transcrypt's part; or
(b) Is, at the time of disclosure under this Agreement, already known to
the Transcrypt without restriction on disclosure; or
(c) Is, or subsequently becomes, rightfully and without breach of this
Agreement, in the Transcrypt's possession without any obligation restricting
disclosure; or
3
<PAGE> 4
(d) Is independently developed by the Transcrypt without breach of this
Agreement; or
(e) Is furnished to a third party by the disclosing party without a
similar restriction on the third party's rights; or
(f) Is explicitly approved for release by written authorization of the
disclosing party.
3.5. Upon termination of this Agreement, each party agrees to return to the
disclosing party the devices, graphics, writings and information in other
tangible forms containing any of the Confidential Information referred to in
paragraph 3.1 and any copies of Confidential Information.
3.6. No license, express or implied, in the "Confidential Information," is
granted to either party other than to use the information in the manner and to
the extent authorized by this Agreement. No indemnification for damages of any
kind, sustained by either party, by reason of the disclosing party's disclosure
or the Transcrypt's use of the Confidential Information is granted or implied.
No warranty of any kind is granted or implied to either party.
Section 4 Disclosure of Agreement. Neither part shall disclose the terms and
conditions of this Agreement to any third party without the written permission
and consent of the other party, except as otherwise required by law.
Section 5 General Provisions.
5.1 Transcrypt agrees not to export or re export, or cause to be exported,
any technical data (including any TECHNICAL INFORMATION) received hereunder, or
the direct product of such technical data, to any country to which, under the
laws of the United States, either party is or may be prohibited from exporting
its technology or the direct product thereof.
5.2 The applicable law governing any cause of action arising out of this
Agreement, or the performance by either party hereto, shall be governed by the
laws of the State of Illinois, U.S.A.
5.3 Nothing contained herein, or done in pursuance of this Agreement,
shall constitute the parties as entering upon a joint venture or shall
constitute either party hereto the agent for the other party for any purpose or
in any sense whatsoever.
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<PAGE> 5
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of
the date below written.
MOTOROLA, INC. Transcrypt
By: ROBERT J. MCCALL By: PAUL D. MUELLER
--------------------------- ---------------------------
Signature Signature
Name: Robert J. McCall Name: Paul D. Mueller
--------------------------- ---------------------------
Vice President and
Title: General Manager, Title: President & COO
--------------------------- ---------------------------
North American Radio
Systems Division
Date: 7/28/94 Date: August 2, 1994
--------------------------- ---------------------------
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<PAGE> 6
APPENDIX A
Astro(R) Product Available to Transcrypt
All Astro(R) products listed on the following Motorola R01 pricebook pages:
Astro(R)Digital Saber Portable Series Section 5.0, pages 35-35M
dated 12/15/93 (page 35J dated 5/1/94)
Astro(R)Digital Spectra Mobile Series Section 5.0, pages 36-36N dated 12/15/93
(page 36D dated 5/1/94; 36L dated
dated 2/1/94)
The following Astro(R) kits:
Astro(R) Digital Saber Portable kits NTN7749B - Vocon board
NLD8892B - VHF RF board
NLE4244C2 - UHF RF board
NUF6411B - 800 MHz RF board
Astro(R) Digital Spectra Mobile kits HLN6458B - Vocon board
HRN6014A - VHF RF board
HRN6020A - UHF RF board
HRN6019A - 800 MHz RF board
The following Astro(R) integrated circuits:
ADSIC - P/N 5105457W19
ABACUS - P/N 5105457W20
SLIC IV - P/N 5105457W06
FRAC-N - P/N 5105625U31
5
<PAGE> 7
APPENDIX B
Astro(R) Product Available to Transcrypt
Unit Prices
All Astro(R) products listed on the following Motorola R01 pricebook pages:
Astro(R) Digital Saber Portable Series Section 5.0, pages 35-35M dated
12/15/93 (page 35J dated 5/1/94)
Astro(R) Digital Spectra Mobile Series Section 5.0, pages 36-36N dated
12/15/93 (page 36D dated 5/1/94;
36L dated 2/1/94)
To be sold at the following discounts from the DNUP price on the above price
pages as dated based on the annual quantity purchased:
<TABLE>
<CAPTION>
Annual Quantity Discount
<S> <C>
25 minimum - 100 37.5%
100 - 500 38.5%
500 - 1000 39.5%
1000 - 1500 40.5%
1500 - 2000 41.5%
Greater than 2000 42.5%
</TABLE>
The following Astro(R) kits:
<TABLE>
<S> <C> <C>
Astro(R) Digital Saber Portable kits NTN7749B - Vocon board $655.00
NLD8892B - VHF RF board $302.28
NLE4244C2 - UHF RF board $318.00
NUF6411B - 800 MHz RF board $281.55
Astro(R) Digital Spectra Mobile kits HLN6458B - Vocon board $614.54
HRN6014A - VHF RF board $210.29
HRN6020A - UHF RF board $211.54
HRN6019A - 800 MHz RIF board $222.90
</TABLE>
Five year price validity to be reviewed every 6 months. Price not to rise
greater than the wholesale price index. Will entertain learning curve price
reductions.
8
<PAGE> 8
The following Astro(R) integrated circuits:
<TABLE>
<S> <C>
ADSIC - P/N 5105457W19 $65.00
ABACUS - P/N 5105457W20 $38.00
SLIC IV - P/N 5105457W06 $31.00
FRAC-N - P/N 5105625U31 $17.00
</TABLE>
Five year price validity to be reviewed every 6 months. Price not to rise
greater than the wholesale price index. Will entertain learning curve price
reductions.
9
<PAGE> 9
TERMS & CONDITIONS
1. DEFINITIONS. "Motorola" shall mean Motorola, Inc. and Motorola Communications
and Electronics, Inc.; "Customer" shall mean the Customer named herein; and
"Products" shall collectively mean the Equipment and Software referred to in the
Agreement.
2. AGREEMENT. The terms and conditions set forth on the front and reverse of
this form and in Motorola's Equipment Warranty and, if applicable, in Motorola's
Software License and Software Warranty furnished to Customer and incorporated
herein by reference constitute an offer to purchase by Customer which will
become a contract ("Sales Agreement" or "Agreement") when acknowledged and
accepted in writing by Motorola's Schaumburg, Illinois office, and the banking,
negotiation or other use of any payment shall not constitute an acceptance
hereof by Motorola. In the absence of written acceptance from Motorola,
commencement of shipment of Products by Motorola hereunder shall constitute an
acceptance of the terms and conditions described above. It is agreed that sales
hereunder are made only on the terms and conditions set forth in the Agreement.
Motorola shall not be bound by terms and conditions in Customer's purchase order
or elsewhere. Upon acceptance by Motorola Communications and Electronics, Inc.,
this Agreement is assigned to Motorola, Inc.
3. SHIPPING. Shipping and handling charges shall be paid by Customer. Customer
agrees to pay such amount quoted without regard to the actual charges applicable
at the time of shipment.
4. DELIVERY, TITLE AND SECURITY. Unless otherwise stated in the Agreement, all
deliveries are FOB Motorola's shipping facility(ies) and title and risk of loss
to Products sold shall pass to Customer at the FOB point. Shipping or delivery
dates are best estimates only. Motorola reserves the right to make deliveries in
installments and the Agreement shall be severable as to such installments.
Delivery, delay or default of any installment shall not relieve Customer of its
obligation to accept and pay for remaining deliveries. Claims for shipment
shortage shall be deemed waived unless presented to Motorola in writing within
forty-five (45) days of delivery of each shipment. Motorola shall retain and
Customer hereby grants Motorola a security interest and right of possession in
the Products until Customer makes full payment. Customer agrees to cooperate in
whatever manner necessary to assist Motorola in perfection of said security
interest upon request.
5. PAYMENT. The Customer shall make net payment to Motorola in accordance with
the terms stated in the Agreement at Motorola's offices at 1301 E. Algonquin
Road, Schaumburg, Illinois 60196, or at such other place as Motorola may
designate in writing. Payment shall be made in ten (10) days after the date of
invoice for each product, accessory, or other charge, unless stated otherwise
in the Agreement. Service charges at the maximum rate permitted by applicable
law may be invoiced on accounts more than thirty (30) days past due and shall
be due and payable upon receipt of invoice.
6. TAXES. Except for the amount, if any, of State and Local tax stated in the
Agreement, the prices set forth in the Agreement are exclusive of any amount for
Federal, State and/or Local excise, sales, use, property, retailer's occupation
or similar taxes. If any such excluded tax is determined to be applicable to
this transaction or Motorola is required to pay or bear the burden thereof, the
prices set forth herein shall be increased by the amount of such tax and any
interest or penalty thereon, and Customer shall pay to Motorola the full amount
of any such increase no later than ten (10) days after receipt of an invoice
therefor.
7. PATENT, COPYRIGHT AND TRADEMARKS.
A. INDEMNIFICATION. Motorola agrees to defend, at its expense, any suits against
Customer based upon a claim that any Motorola manufactured Products furnished
hereunder directly infringe a U.S. patent or copyright and to pay costs and
damages finally awarded in any such suit, provided that Motorola is notified
promptly in writing of the suit and at Motorola's request and at its expense is
given control of said suit and all requested assistance for defense of same. If
the use or sale of any such Product(s) furnished hereunder is enjoined as a
result of such suit, Motorola, at its option and at no expense to Customer,
shall obtain for Customer the right to use or sell such Product(s) or shall
substitute an equivalent Product reasonably acceptable to Customer and extend
this indemnity thereto or shall accept the return of such Product(s) and
reimburse Customer the purchase price therefor, less a reasonable charge for
reasonable wear and tear. This indemnity does not extend to any suit based upon
any infringement or alleged infringement of any patent or copyright by the
combination of any such Product(s) furnished hereunder and other elements nor
does it extend to any such Product(s) of Customer's design or formula. The
foregoing states the entire liability of Motorola for patent or copyright
infringement. IN NO EVENT SHALL MOTOROLA BE LIABLE FOR INCIDENTAL OR
CONSEQUENTIAL DAMAGES ARISING FROM INFRINGEMENT OR ALLEGED INFRINGEMENT OF
PATENTS OR COPYRIGHTS.
B. COPYRIGHTS AND MASK WORKS. Laws in the United States and other countries
preserve for Motorola certain exclusive rights, in the Motorola Software, mask
works and other works of authorship furnished hereunder, including without
limitation the exclusive rights to prepare works derived from same, reproduce
same in copies and distribute copies of same. Such Motorola Software, mask works
and other works of authorship may be used in and redistributed with only the
Equipment associated with same. No other use, including without limitation
reproduction, modification, or disassembly of such Motorola Software, mask works
or other works of authorship or exercise of exclusive rights in same is
permitted.
C. REVERSE ENGINEERING. Customer acknowledges Motorola's claim that the Motorola
Software and Equipment furnished hereunder contain valuable trade secrets of
Motorola and therefore agree that it will not translate, reverse engineer,
decompile or disassemble or make any other unauthorized use of such Motorola
Software and Equipment. Since unauthorized use of such Motorola Software and
Equipment will greatly diminish the value of such trade secrets and cause
irreparable harm to Motorola, Customer agrees that Motorola, in addition to any
other remedies it may have, shall be entitled to equitable relief to protect
such trade secrets, including without limitation temporary and permanent
injunctive relief without the proving of damage by Motorola.
D. LOGOS AND TRADEMARKS.
1) The Products shipped under the terms and conditions of this Agreement will
carry Motorola's logo or such other logo as expressly agreed to by Motorola.
2) In order that Motorola may protect and preserve its trademarks, trade names,
corporate slogans, corporate logo, goodwill and Product designations, Customer,
without the express written consent of Motorola, shall have no right to use any
such marks, names, slogans or designations of Motorola in the sale, lease or
advertising of any Products or on any Product, Product container, component
part, business forms, sales, advertising and promotional materials or other
business supplies or materials, whether in writing, orally or otherwise.
E. LICENSE DISCLAIMER. Except for the right to use the Motorola Software and
Equipment for the purposes provided herein which arises by operation of law and
except as expressly provided herein, nothing contained in this Agreement shall
be deemed to grant to Customer either directly or by implication, estoppel, or
otherwise, any license or right under any patents, copyrights, trademarks or
trade secrets of Motorola or any third party.
8. SOFTWARE LICENSE AND SOFTWARE WARRANTY. If applicable, a copy of Motorola's
Software License and Software Warranty has been provided to Customer with the
Agreement. The Software Warranty shall apply only to individual items of
Software. The Software License shall apply to individual items of Software and
Software contained in Data Communications Products and Trunking Products
identified in the Sales Agreement and shall also apply to any other software
contained in other Equipment specifically referred to in the Sales Agreement as
subject to this License.
9. EXCUSABLE DELAY. In addition to other limitations on liability set forth in
this Agreement Motorola shall not be liable for any delay or failure to perform
due to any cause beyond its control. Causes include, but are not limited to,
strikes, acts of God, acts of the Customer, interruptions of transportation or
inability to obtain necessary labor, materials or facilities, default of any
supplier, or delay in FCC frequency authorization or license grant. In the event
Motorola is unable to wholly or partially perform because of any cause beyond
its control, Motorola may terminate the Agreement without any liability to
Customer.
10. CANCELLATION. Unless already accepted by Motorola, at Customer's
convenience, Customer may, by written notice to Motorola within fifteen (15)
days of the authorized Customer signature date, revoke the offer in which event
Customer shall pay Motorola twenty (20%) percent of the total price for all
Products listed in the Agreement as a restocking and administrative charge and
not as a penalty.
11. FCC AND OTHER GOVERNMENT MATTERS. Although Motorola may assist in
preparation of the FCC license application, Customer is solely responsible for
obtaining any licenses or other authorizations required by the Federal
Communications Commission ("FCC") or any other Federal, State or Local
governmental agency. Customer is solely responsible for complying with
applicable FCC rules and regulations and the applicable rules and regulations of
any other Federal, State or Local governmental agency. Neither Motorola nor any
of its employees is an agent of Customer in FCC or other governmental matters.
Motorola, however, may assist in preparation of the FCC license application at
no charge to Customer.
12. COMMUNICATIONS SERVICES. Customer agrees that communications services such
as Specialized Mobile Radio, community repeater or other communications services
are not provided under the Agreement. Customer must enter into separate
agreements with the service provider(s) to obtain such services. MOTOROLA
DISCLAIMS LIABILITY FOR RANGE, COVERAGE, AVAILABILITY OR OPERATION OF ANY
SYSTEM.
13. LIMITATIONS.
A. LIMITATION OF MOTOROLA LIABILITY. EXCEPT FOR PERSONAL INJURY AND EXCEPT AS
PROVIDED FOR IN THE SECTION "PATENT, COPYRIGHT AND TRADEMARKS", MOTOROLA'S TOTAL
LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT WHETHER FOR BREACH OF
CONTRACT, WARRANTY, MOTOROLA'S NEGLIGENCE, STRICT LIABILITY IN TORT OR
OTHERWISE, IS LIMITED TO THE PRICE OF THE PARTICULAR PRODUCTS SOLD HEREUNDER
WITH RESPECT TO WHICH LOSSES OR DAMAGES ARE CLAIMED. CUSTOMER'S SOLE REMEDY IS
TO REQUEST MOTOROLA AT MOTOROLA'S OPTION TO EITHER REFUND THE PURCHASE PRICE OR
REPAIR OR REPLACE PRODUCTS THAT ARE NOT AS WARRANTED. IN NO EVENT WHETHER FOR
BREACH OF CONTRACT, WARRANTY, MOTOROLA'S NEGLIGENCE, STRICT LIABILITY IN TORT,
OR OTHERWISE, WILL MOTOROLA BE LIABLE FOR INCIDENTAL, SPECIAL OR CONSEQUENT
DAMAGES, INCLUDING, BUT NOT LIMITED TO, FRUSTRATION OF ECONOMIC OR BUSINESS
EXPECTATIONS, LOSS OF PROFITS, LOSS OF DATA, COST OF CAPITAL, COST OF SUBSTITUTE
PRODUCT(S), FACILITIES OR SERVICES, DOWNTIME COST OR ANY CLAIM AGAINST CUSTOMER
BY ANY OTHER PARTY.
B. INSURANCE. It is further understood that Motorola is not an insurer and that
Customer shall obtain all insurance, if any, that is desired and that Motorola
does not represent or warrant that Motorola products will avert or prevent
occurrences, or the consequences therefrom, which are monitored, detected or
controlled with use of the products.
C. NO REPRESENTATIONS. Motorola sales representatives are only authorized to
fill in the blanks on this sales order with the information requested. Any and
all representations, promises or statements by Motorola representatives that
differ in any way from the Terms and Conditions on the front and reverse of this
sales order and any applicable warranties and licenses incorporated herein shall
be given no force or effect. The issuance of information, advice, approvals,
instructions or cost projections by Motorola's sales personnel or other
representatives shall be deemed expressions of personal opinion only and shall
not affect Motorola's and Customer's rights and obligations hereunder, unless
the same is in writing and signed by an officer of Motorola with the explicit
statement that it constitutes an amendment to this Agreement.
D. WARRANTIES AND DISCLAIMED WARRANTIES. AS PART OF THIS AGREEMENT MOTOROLA HAS
PROVIDED CUSTOMER WITH ITS EQUIPMENT WARRANTY AND, IF APPLICABLE, ITS SOFTWARE
LICENSE AND SOFTWARE WARRANTY, WHICH WARRANTIES AND LICENSE, TO THE EXTENT
APPLICABLE, ARE INCORPORATED INTO AND MADE A PART OF THIS AGREEMENT. THESE
WARRANTIES ARE GIVEN IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, WHICH
ARE SPECIFICALLY EXCLUDED, INCLUDING, WITHOUT LIMITATION, IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. CUSTOMER HEREBY
ACKNOWLEDGES RECEIPT OF SUCH WARRANTIES AND LICENSE.
14. GENERAL.
(A) Customer acknowledges that it has read and understands the terms and
conditions of this Agreement and agrees to be bound by them, that it is the
complete and conclusive statement of the agreement between the parties and that
this Agreement sets forth the entire agreement and understanding between the
parties relating to the subject matter hereof and all understanding and
agreements, oral and written, heretofore made between Motorola and Customer, are
merged in this Agreement which alone fully and completely expresses their
agreement. (B) No modification of or additions to the Agreement shall be binding
upon Motorola unless such modification is in writing and signed by an officer of
Motorola. (C) If any term or provision of this Agreement shall to any extent be
held by a court or other tribunal to be invalid, void or unenforceable, then
that term or provision shall be inoperative and void insofar as it is in
conflict with law, but the remaining terms and provisions shall nevertheless
continue in full force and effect and the rights and obligations of the parties
shall be construed and enforced as if this Agreement did not contain the
particular term or provision held to be invalid, void or unenforceable. (D)
Section and paragraph headings used herein are for convenience only and are not
to be deemed or construed to be part of this Agreement. (E) The failure of
Motorola to insist, in any one or more instances, upon the performance of any of
the terms, covenants or conditions of this Agreement, or to exercise any right
herein, shall not be construed as a waiver or relinquishment of the future
performance of any such term, covenant or condition or the future exercise of
such right, but the obligation of the Customer with respect to such future
performance shall continue in full force and effect. (F) THIS AGREEMENT AND THE
RIGHTS AND DUTIES OF THE PARTIES SHALL BE GOVERNED AND INTERPRETED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF ILLINOIS.
ACCEPTED: MOTOROLA COMMUNICATIONS |-------------------------------------------
AND ELECTRONICS, INC. | ORDER TYPE:
SCHAUMBURG, IL OFFICE. |N FIRST TIME USER K ADDITIONAL EQUIP-
| OF RADIO FOR MENT FOR EXISTING
- --------------------------------- | THIS COMPETITIVE OR
AUTHORIZED SIGNATURE | APPLICATION MIXED SYSTEM
|
- --------------------------------- |A ADDITIONAL EQUIP- C REPLACEMENT EQUIP-
TITLE | MENT FOR EXISTING MENT FOR EXISTING
| ALL MOTOROLA COMPETITIVE OR
| SYSTEM MIXED SYSTEM
|
|R REPLACING EQUIP- O OTHER
| MENT FOR EXISTING
| MOTOROLA SYSTEM
|------------------------------------------
<PAGE> 1
EXHIBIT 10.9
[LOGO]
MOTOROLA INC.
July 15, 1996
Mr. Jeffery L. Fuller
President and COO
Transcrypt International
4800 NW 1st Street
Lincoln, NE 68521-9918
Dear Jeff:
This letter is written in support of the license amendment currently in
process. It is expected that the amended license agreement will be executed
soon and that the attached documents will be needed to support your efforts
with respect to this amended license agreement.
In addition to the provisions of the OEM agreement dated August 2, 1994
(hereinafter the "Original OEM Agreement", the licensee now wishes to obtain
the rights to purchase additional products from Motorola and to resell them to
its own customers or to use these products in manufacturing its own products,
including reselling and distributing such products to its own customers.
NOW, THEREFORE, in consideration of these premises and the following terms and
conditions, the parties further agree as follows:
This letter shall serve as an amendment to the OEM Agreement of August 2, 1994
as previously entered into between the parties. In the event of conflict of
language as to between this letter and the "Original OEM Agreement" This letter
shall prevail. In all other instances, the terms and conditions of the OEM
agreement of August 2, 1994 shall continue in full force and effect.
1). In section 1.1 of the "Original OEM Agreement", Agreement of Purchase and
Sale," is amended as follows:
<PAGE> 2
In line 2, please add MTS 2000 accessory products and side connector
and related products as defined in the new appendix "A" and Appendix "B".
2). Appendix "A" and "B" attached to the "Original OEM Agreement" should
be deleted and have been replaced by New Appendix "A" (Price Catalog) Page 5,
dated 2-1-94, Page 5A, dated 3-1-96, Page 15H, G and J, dated 2-1-96, New
Appendix "B" pages 1 and 2 dated April 19, 1996, and New Appendix "C" dated
June 11, 1996.
Please sign this memo and return the original to me for our records.
Regards,
ROBERT J. McCALL
- -------------------------------------
Robert J. McCall Date: July 15, 1996
Vice President and General Manager ---------------------------
North American Radio Systems Division
JEFFREY FULLER
- -------------------------------------
Jeffrey Fuller Date: 9/13/96
President and COO ---------------------------
Transcrypt International Inc.
<PAGE> 3
APPENDIX A PAGE 1
ACCESSORIES - PRICE CATALOG
Price agreement valid only on items forecasted by Transcrypt International and
only on items available from RSNG-Items available from the America Parts
Division can be negotiated separately.
[LOGO] MOTOROLA
KEY VARIABLE LOADERS
OPTIONS AND ACCESSORIES
SECTION PAGE
5.0 5
- -----------------
DATE: 2-1-94 APC: 424
Except as noted
- --------------------------------------------------------------------------------
KEY VARIABLE LOADERS
Key Variable Loaders are required to load keys for all Secure equipped products
containing DES/DES-XL and DVP/DVP-XL. All models include a medium-to-high
capacity battery as standard. Interface cables, required for programming
Securenet equipment, must be ordered separately. The "D" version of the Key
Variable Loader (KVL) is also compatible with all existing Securenet and
Advanced Securenet equipment.
Key Loader selection is based on the type of encryption used in the system.
The DVP-XL Key Loader is compatible only with DVP-XL encryption. The DVP Key
Loader is compatible only with DVP encryption. NOTE: The T3011_X Key Variable
Loader is compatible with both DES and DES XL encryptions. The now obsolete
T3020_X Key Loader is compatible only with DES encryption.
FOR DVP ENCRYPTION
DVP KVL . . . . . . . . . . . T3010_X . . . 1725.00
FOR DES OR DES-XL ENCRYPTION
Key Variable Loader . . . . . T3011_X . . . 1960.00
Note: The T301 1_X DES Key Variable Loader is compatible with both DES and
DES-XL Encryption. The now obsolete T3020-X Key Loader is compatible only
with DES Encryption.
FOR DVP-XL ENCRYPTION
DVP-XL KVL . . . . . . . . . T3014_X . . . $1725.00
FIELD RETROFIT KITS
(LIST AS MAIN LINE ITEMS ON STIC-1)
Upgrade from "CX" models to "DX" models is required for all ASTRO radios. To
convert an existing "AX" or "BX" Key Variable Loader for Multikey operation or
to upgrade an existing "CX" Mufti Key Variable Loader to a "DX" model, replace
the EPROM with one of the kits listed below. There are limitations to the KVL's
Advanced Securenet capabilities when converting an existing key loader.
Specifically, upgraded "AX" and "BX" KVL's are not compatible with remote KVL
operation.
DVP (T3010AX) KVL . . . . . . . . . TLN3411 $150.00
DES/DES-XL (T3011AX/BX) KVL . . . . TLN3412 150.00
DES/DES-XL (T3011CX) KVL . . . . . . TLN3413 150.00
DVP-XL (T3014AX/BX) KVL . . . . . . TLN3418 150.00
DVP-XL (T3014C) KVL . . . . . . . . TLN3419 150.00
BATTERY OPTIONS
(LIST AS SUB LINE ITEMS ON STIC-1)
DEL: Battery........................... H207 -102.00
INTERFACE CABLE OPTIONS
(LIST AS SUB LINE ITEMS ON STIC-1)
<TABLE>
<S> <C> <C>
ADD: Cable for MX300S, STX Portables . . . . . . . . . . C540 $ 52.00
ADD: Cable for MICOR mobile and base, and
Portable Repeater . . . . . . . . . . . . . . . . . C541 52.00
ADD: Cable for SYNTOR, SYNTOR X, MCX1000
Mobile, Series II CIU, PX300-S Portable,
SVX1000 . . . . . . . . . . . . . . . . . . . . . . C542 52.00
ADD: Cable for EXPO Portable, SYNTOR X 9000,
SYNTOR X 9000E, SPECTRA, MSF5000 . . . . . . . . . . C543 52.00
ADD: Cable kit for SPECTRA (includes TKN8531
cable and TRN7111 Adapter) . . . . . . . . . . . . . C954 78.00
ADD: Cable for SABER Portable . . . . . . . . . . . . . . C544 52.00
ADD: Cable for remote KVL operation . . . . . . . . . . . C721 100.00
ADD: Cable for MTS2000 (APC 129) . . . . . . . . . . . . C724 89.00
</TABLE>
ACCESSORIES
(LIST AS MAIN LINE ITEMS ON STIC-1)
BATTERY CHARGERS (APC: 485)
All Chargers have 50-60 Hz input.
CHARGING TIME
Capacity-Input Voltage 1 Hour 14 Hours
1 Unit NLN8858 NLN8856
117 volt $194.00 $107.00
6 Unit NTN4831 NTN4832
117/220 Volt $813.00 $520.00
1 Unit NLN4038 NLN4036
220 Volts* $194.00 $107.00
*Unit is supplied without line cord plug.
Wall Mount Kit for 6 unit
charger (APC: 485) . . . . . . . . . NLN4127 $26.00
Rack Mount Kit for 6 unit
charger (APC: 485) . . . . . . . . . NLN4128 26.00
EXTRA BATTERIES
Medium-High Capacity (2 hour
recharge) (APC 362) . . . . . . . . NLN9998 $121.00
CARRYING ACCESSORIES
(LIST AS MAIN LINE ITEMS ON STIC-1)
Belt, black (APC: 476) . . . . . . . . . NLN6042 $16.00
Carrying Strap, black 1 3/4
inch (APC: 651) . . . . . . . . . . . NLN6349 16.00
Chest Pack (APC: 596) . . . . . . . . . SP7803701 37.50
Note: NLN8861 and NLN8862, carrying holders, are not usable with Key
Loaders.
Note: For DES/IDES-XL options, see page 24C
SHIPMENTS TO COUNTRIES OUTSIDE OF THE UNITED STATES REQUIRE A U. S. STATE
DEPARTMENT MUNITIONS LICENSE TO EXPORT.
<PAGE> 4
APPENDIX A PAGE 2
Accessories - Price Catalog
Price agreement valid on items forecasted by Transcrypt International and only
on items available from RNSG-Items available from the America Parts Division
can be negotiated separately.
[LOGO] MOTOROLA
SECTION PAGE KEY VARIABLE LOADERS
5.0 5A OPTIONS AND ACCESSORIES
- ---------------------
DATE: 3-1-96
APC: 424
Except as Noted
- --------------------------------------------------------------------------------
SPARE INTERFACE CABLES
(LIST AS MAIN LINE ITEMS ON STIC-1)
<TABLE>
<S> <C> <C>
Cable for MX300, MX300-S, MX300-R and STX Portable . . . . . . . . . . . . . . . . . . TKN8209 $ 52.00
Cable for MICOR mobile and base and Portable Repeater . . . . . . . . . . . . . . . . . TKN8210 52.00
Cable for SYNTOR, SYNTOR X, MCX100, MCX 1000 mobile, Series II CIU,
SVX-1000, ASTRO DIU, PX300-S Portable . . . . . . . . . . . . . . . . . . . . . . . . . TKN8229 52.00
Cable for EXPO portable, SYNTOR X 9000,
SYNTOR X 9000E, SPECTRA, and ASTRO SPECTRA . . . . . . . . . . . . . . . . . . . . . . TKN8531 52.00
Cable Adapter for SPECTRA (requires cable TKN8531 or TKN8359) to load
key into SPECTRA (APC: 271) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TRN7414 26.00
Cable for SABER and ASTRO Portable . . . . . . . . . . . . . . . . . . . . . . . . . . TKN8506 52.00
Cable for remote KVL operation (for use with the TDN7361 modem,
See Sec. 2.2, Page 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TKN8584 100.00
Cable for MTS2000 (APC: 129) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . TDN9390 129.00
</TABLE>
Note: Spare Programming Interface Cables are also available from Worldwide
System & Aftermarket Products Division.
<PAGE> 5
APPENDIX A PAGE 3 Accessories - Price Catalog
Price agreement valid only on items forecasted by Transcrypt International and
only on items available from RNSG-Items available from the America Parts
Division can be negotiated separately.
[LOGO] MOTOROLA
SECURE/CONVENTIONAL/TRUNKED RADIO SYSTEMS
MTS 2000 PORTABLE SERIES
SECTION PAGE VHF, UHF, 800, AND 900 MHZ BANDS
5.0 15H
- -----------------
ACCESSORIES
DATE: 2-1-96 APC: 476
Except as noted
- --------------------------------------------------------------------------------
ACCESSORIES (CONT'D)
(LIST AS MAIN LINE ITEMS ON STIC-1)
BATTERIES
NICKEL CADMIUM DUAL CHARGE (APC 402)
High Capacity (1300mAH) . . . . . . NTN7143 $85.00
Ultra Capacity (1500mAH) . . . . . . NTN7144 $110.00
FACTORY MUTUAL BATTERIES C
See pages 2B and 2C of Section 3.0 for details of Factory Mutual approvals.
<TABLE>
<S> <C>
Ni-Cd Ultra High Capacity, Intrinsically Safe, Class I,II,III
Division 1,2, Groups D,F,& G . . . . . . . . . . . . NTN7147 $152.00
Ni-Cd Ultra High Capacity, Intrinsically Safe, Class I,II,III
Division 1,2, Groups C,D,E,F,& G . . . . . . . . . . NTN7341 $152.00
Ni-Cd High Capacity, Intrinsically Safe, Class I,II,III
Division 1,2, Groups C,D,E,F,& G . . . . . . . . . . NTN7372 $121.00
Ni-Cd High Capacity, Intrinsically Safe, Class I,II,III
Division 1,2, Groups D,E,F,& G . . . . . . . . . . . NTN7146 $121.00
</TABLE>
BATTERY ACCESSORIES
Contact WSAPD (1-800-422-4210) for a additional information on the following
items:
BATTERY MAINTENANCE SYSTEM (BMS) (APC 129)
6 station, universal BMS adapts to various batteries using interchangeable
battery adapters (order separately). Capable of charging & discharging
batteries; tracking battery voltage & mAh.
110V AC, 50/60 Hz . . . . . . . . . . . . . . . . TDN9430
230V AC, 50/60 Hz . . . . . . . . . . . . . . . . TDN9431
Adapter, Universal Clip Lead . . . . . . . . . . TDN9432
Adapter, Universal Dip Switch . . . . . . . . . . TDN9527
Adapter, MTS2000 . . . . . . . . . . . . . . . . TDN9435
BATTERY ELIMINATOR (APC 596)
The following slides onto the radio in place of the portable battery drawing
power from the vehicle's battery.
Battery Eliminator . . . . . . . . . . . . . . . RLN4335
BATTERY TESTER (APC 372)
This unit will discharge the battery to determine it's capacity. A separate
charger must be ordered to recharge the battery. The battery tester must be
ordered with either the adapter, or with a cable/clip lead shown below.
Battery tester, Single Unit . . . . . . . . . . . RLN4201
Adapter . . . . . . . . . . . . . . . . . . . . . RLN4048
Cable/Clip Lead, 7.5V . . . . . . . . . . . . . . RKN4037
VEHICULAR CHARGER (APC 291)
Vehicular charger to Ni-Cd batteries . . . . . . TDN9816 $285.00
(Compatible with PAC/RT.)
AUDIO ACCESSORIES
REMOTE SPEAKER MICROPHONES
Includes a 6.0' coiled cord assembly, 3.5 mm earjack, swivel clip, quick
disconnect latch and FM approval.
Remote Speaker/Microphone . . . . . . NMN6193 $83.00
Noise Cancel Remote Spkr Mic . . . . . NMN6191 $92.00
PUBLIC SAFETY MICROPHONES
18" Public Safety Mic w/ Straight Cord NMN6243 $102.00
24" Public Safety Mic w/ Straight Cord NMN6244 $102.00
30" Public Safety Mic w/ Straight Cord NMN6228 $102.00
SURVEILLANCE ACCESSORIES (APC: 129)
The following accessories require the BDN6676 (3.5 mm adapter jack) that
attaches to the radio. (Cat Sheet R0-9-176)
<TABLE>
<S> <C> <C>
Earpiece with standard earphone . . . . . . . . . BDN6664 $34.00
Earpiece with Xloud earphone . . . . . . . . . .
(Exceeds OSHA limits) . . . . . . . . . . . . . . BDN6665 $36.00
Earpiece with volume control . . . . . . . . . . BDN6666 $47.00
Earpiece, Mic and PTT combined . . . . . . . . . BDN6667 $114.00
Earpiece, Mic and PTT separate . . . . . . . . . BDN6668 $150.00
Earpiece, Mic and PTT combined with extra
loud earpiece (exceeds OSHA limits) . . . . . . . BDN6669 $118.00
Earpiece, Mic and PTT separate with extra
loud earpiece (exceeds OSHA limits) . . . . . . . BDN6670 $160.00
Earpad, w/3.5mm threaded plug . . . . . . . . . . BDN6719 $35.00
Earbud, Single with Mic and PTT combined,
Black . . . . . . . . . . . . . . . . . . . . . . BDN6780 $52.00
Earbud, Single, Receive Only, Black . . . . . . . BDN6781 $25.00
Earbud, Dual, Receive Only, Black . . . . . . . . BDN6782 $28.00
3.5 mm jack adapter with quick disconnect latch
(Required for use with above) . . . . . . . . . . BDN6676 $50.00
</TABLE>
TILT SWITCH
The Tilt Switch is an FM approved external emergency switch that is activated
when the unit is tilted at a greater than 60 degree angle. The emergency feature
must be programmed into the radio to enable the tilt switch option.
Tilt Switch . . . . . . . . . . . . . . NTN7660 $150.00
THESE ARE FACTORY MUTUAL APPROVED OPTIONS. SEE SECTION 3.0 PAGES 2B AND 2C
FOR DETAILS.
ALL ITEMS ON THIS PAGE REQUIRE AN EXPORT LICENSE TO BE EXPORTED FROM
THE UNITED STATES/CANADA
<PAGE> 6
APPENDIX A PAGE 4 ACCESSORIES - PRICE CATALOG
Price agreement valid only on items forecasted by Transcrypt International
and only on items available from RNSQ - Items available from the America Parts
Division can be negotiated separately.
SECURE/CONVENTIONAL/TRUNKED RADIO SYSTEMS
MTS 2000 PORTABLE SERIES
SECTION PAGE VHF, UHF, 800, and 900 MHz Bands
5.0 15G
- ----------------- ACCESSORIES
Date: 2-1-96
APC: 476
Except as noted
- --------------------------------------------------------------------------------
ACCESSORIES
(LIST AS MAIN LINE ITEMS ON STIC-1)
<TABLE>
<CAPTION>
ANTENNAS
VHF BAND (APC: 271)
<S> <C> <C>
Helical 136-150.8 MHz ............... NAD6566 $15.00
Helical 150.8-162 MHz ............... NAD6567 $15.00
Helical 162-174 MHz ................. NAD6568 $15.00
Dipole 136-174 MHz .................. NAD6563 $20.00
UHF BAND (APC: 271)
Helical 403-435 MHz ................. NAE6546 $15.00
Helical 435-470 MHz ................. NAE6547 $15.00
Helical 470-520 MHz ................. NAE6548 $15.00
Whip 403-520 MHz .................... NAE6549 $20.00
800 MHz BAND
806-941 MHz 1/4 Wavelength Whip
(APC: 271) ........................ NAF5042 $22.00
806-870 MHz 1/2 Wavelength Whip
(Flex) (APC: 402) ................. NAF5037 $31.00
806-870 MHz Dipole (APC: 402)........ NAF5039 $31.00
900 MHz BAND
806-941 MHz 1/4 Wavelength Whip
(APC: 271)......................... NAF5042 $22.00
896-941 MHz 1/2 Wavelength Whip
(Flex) (APC: 402) ................. NAF5038 $31.00
996-941 MHz Dipole (APC: 402)........ NAF5040 $31.00
CARRYING ACCESSORIES
LEATHER CASES (include snap belt loop & t-Strap)
<S> <C> <C>
Case for High Capacity Battery ...... NTN7238 $51.00
Case for Ultra High Capacity
Battery ........................... NTN7239 $51.00
SWIVEL LEATHER CASES (Include belt loop & t-strap)
2.5" BELT LOOP:
Case for High Capacity Battery ...... NTN8035 $60.00
Case for Ultra High Capacity
Battery ........................... NTN8036 $60.00
3.0" belt loop:
Case for High Capacity Battery ...... NTN8037 $60.00
Case for Ultra High Capacity
Battery ........................... NTN8038 $60.00
SWIVEL LEATHER CASES WITH D-RING
Swivel D-Ring Case w/2.5" belt loop .. NTN1534 $25.00
Swivel D-Ring Case w/3.0" belt loop .. NTN1535 $25.00
D-Ring replacement ................... NTN8063 $16.00
NYLON CASE (Inc. snap belt loop & t-Strap
Case for High & Ultra Capacity
Battery ............................ NTN7247 $24.00
CHEST PACK (Inc. carry pouch & adjustable straps)
Chest Pack (for any battery)
(APC 129) .......................... TDN9326 $35.00
PORTABLE RADIO HANGER
The hanger slides over and hangs from the door panel in a
vehicle. The radio's bell clip slides onto the hanger
allowing convenient, easy mounting. 2 sizes are available.
Made of black, powder-coated metal. (APC 129)
Hanger, for Door Panels up
to 2 1/4" .......................... TDN9327
Hanger, for Door Panels 2 3/4"
to 3 1/4"........................... TDN9373
SWIVELLER
Swiveller (includes clip button,
holster and belt; all items also
available separately) (APC 129) ...... TDN9684
Clip button (mounts on battery)..... TDN9690
Holster (compatible with all
buttons) ......................... TDN9688
Belt (2" wide nylon)................ TDN9687
Note: Buttons available for other radios; see radio pages
T-STRAPS
For All Leather Cases (APC: 372) ..... NTN7782 $6.00
For All Nylon Cases .................. NTN7376 $6.00
BELT LOOPS
2.5" swivel belt loop ................ NTN8039 $12.00
3.0" swivel belt loop ................ NTN8040 $12.00
BELT CLIPS
2.5" belt clip - black ............... NTN7317 $10.00
3.0" belt clip - black alum.
(APC: 402) ......................... NTN7318 $13.00
BELTS AND CARRY STRAPS
Black Belt 3.0" wide (APC: 653)....... NLN6042 $16.00
Shoulder Carry Strap (APC: 651)....... NLN6349 $16.00
CHARGERS
SINGLE UNIT COMPACT CHARGERS
Included are a compact stand alone charger stand & combination
line cord/transformer/adapter. Slow Compact Chargers require
16 hrs. of operation, Rapid Compact Chargers need less than
2 hrs.
110 V. Slow .......................... NTN1174 $30.00
110 V. Rapid ......................... NTN1171 $90.00
220 V. Slow (2 prong Euro plug) ...... NTN1175 $30.00
220 V. Rapid (2 prong Euro plug)...... NTN1172 $90.00
240 V. Slow (3 prong U.K. plug) ...... NTN1176 $30.00
240 V. Rapid (3 prong U.K. plug)...... NTN1173 $90.00
DESKTOP CHARGERS
These chargers typically need 1 hour for complete battery
charge. Multi Unit chargers can accommodate up to 6 batteries
at once. These chargers are designed for Domestic &
International operation through the use of interchangeable
plug-in line cords. Additional line cords may be purchased
separately. (See below)
ENHANCED SINGLE UNIT CHARGERS
110 V. Rapid ......................... NTN1168 $125.00
220 V. Rapid (2 prong Euro plug)...... NTN1169 $125.00
240 V. Rapid (3 prong U.K. plug)...... NTN1170 $125.00
MULTI UNIT CHARGERS
110 V. Rapid ......................... NTN1177 $675.00
220 V. Rapid (2 prong Euro plug) ..... NTN1178 $675.00
240 V. Rapid (3 prong U.K. plug) ..... NTN1179 $675.00
MULTI UNIT WALL MOUNT
Wall Mount Kit ....................... NLN7967 $ 20.00
ENHANCED & MULTI UNIT LINE CORDS
The following can be used on any Enhanced Single Unit Rapid
Chargers of the Multi Unit Rapid Charger providing for
Domestic or International charging capability.
110 V. Interchangeable Line Cord ..... NTN7373 $ 6.00
220 V. Interchangeable Line Cord
with 2 prong Euro plug ............. NTN7374 $ 15.00
240 V. interchangeable Line Cord
with 3 prong U.K. plug ............. NTN7375 $ 21.00
</TABLE>
ALL ITEMS ON THIS PAGE REQUIRE AN EXPORT LICENSE TO BE EXPORTED FROM
THE UNITED STATES/CANADA
<PAGE> 7
Accessories-Price Catalog
Price agreement valid only on items forecasted by Transcrypt International and
only on items available from RNSG. Items available from the America Parts
Division can be negotiated separately.
[MOTOROLA LOGO]
SECURE/CONVENTIONAL/TRUNKED RADIO SYSTEMS
Section Page
MTS 2000 PORTABLE SERIES
5.0 15J
- ---------------------- VHF, UHF, 800, AND 900 MHz BANDS
Date: 2-1-96
ACCESSORIES
APC AS NOTED
- --------------------------------------------------------------------------------
ACCESSORIES
(LIST AS MAIN LINE ITEMS ON STIC-1)
AUDIO ACCESSORIES (Cont'd)
EAR MICROPHONE SYSTEM (APC: 129)
This two-way communications device is designed to pick up the voice through
bone vibrations directly in the ear canal. A complete system consists of an Ear
Microphone and the corresponding Radio Interface Module (PTT or VOX).
EAR MICROPHONE (APC: 129
Standard Ear Microphone, black (for noise levels
up to 95 db).............................BDN6677 $198.00
Standard Ear Microphone, beige (for noise levels
up to 95 db).............................BDN6678 $198.00
High Noise level Ear Microphone, grey
(up to 105 db)...........................BDN6641 $247.00
(THE ABOVE ITEMS REQUIRE INTERFACE MODULE LISTED BELOW.)
RADIO INTERFACE MODULE (APC: 129)
Push-to-talk Interface Module............BDN6708 $284.00
Voice-activated Interface Module.........BDN6671 $347.00
HEADSET ACCESSORIES
Noise-Cancelling Boom Mic Headset with PTT on earcup
(use with BDN6673).......................BDN6645 $439.00
Headset adapter cable....................BDN6673 $205.00
MOBILE VEHICULAR ADAPTER (MTVA)
BASIC CONSOLE PACKAGE (APC 476)
Includes lockable holder, control unit, compact mic, mounting hardware &
cables. Control unit contains a battery charger that rapid charges batteries
in 2 hrs. Order mobile antenna separately from Worldwide System & Aftermarket
Products Division (1-800-422-4210). MTVA uses a mini UHF female connector.
(Cat Sheet R3-4-160)
NOTE: BASIC MTVA CANNOT BE RETROFITTED IN THE FIELD WITH POWER AMPLIFIER. POWER
AMPLIFIER OPTIONS MUST BE ORIGINALLY ORDERED FROM THE FACTORY.
ORDER AS MAIN LINE ITEM:
Basic MTVA Package.........................N1671 $415.00
ORDER AS OPTIONS:
ADD: 6 Watt Audio Speaker...................Q147 $99.00
ADD: Trunk Mount Cable Kit (w/o RFPA)........H24 $25.00
ALT: Palm Microphone (Deletes Compact)......Q757 $45.00
POWER AMPLIFIER (Option to the MTVA unit-N1671)
ADD: 25 Watt VHF Band (146-174 MHz)..........H34 $236.00
ADD: 25 watt UHF (449-470 MHz)..............Q149 $236.00
ADD: 15 Watt (806-870 MHz)..................Q150 $236.00
ADD: 12 Watt (896-941 MHz)..................Q151 $236.00
ADD: Trunk Mount Cable Kit (w/RFPA option)...H25 $40.00
FIELD INSTALLED SECURENET DIGITAL ENCRYPTION (APC 432)
Order one of the following field installed SECURENET encryption modules if the
radio it NOT currently equipped with SECURENET encryption. For installation
instructions, please reference the MTS 2000 Service Manual 68-81200C40.
(Digital Encryption is not available at 900MHz.)
DVP Encryption...........................NTN7281 $530.00
DVP-XL Encryption (Includes FRED)........NTN7282 $637.00
DES Encryption...........................NTN7279 $643.00
DES-XL Encryption (Includes FRED)........NTN7280 $749.00
NOTE: THE ABOVE SECURENET ENCRYPTION MODULES ARE NOT AVAILABLE WITH THE
STARTSITE SYSTEM SOFTWARE PACKAGE (H36); DVP (H794) AND DES (H388) ENCRYPTION
MODULES ARE NOT COMPATIBLE WITH SMARTNET (H37) OR ENHANCED SMARTNET (H38) SYSTEM
SOFTWARE PACKAGES. SECURENET IS NOT COMPATIBLE WITH 900MHz OR 12.5KHz
OPERATION.
FIELD PROGRAMMING
Contact the Worldwide System and Aftermarket Products Division (1-800-422-4210)
for pricing and ordering information on the following:
MTS 2000 Field Programming Software (Includes 3.5" disks
& associated instr. manuals).............RVN4097
SmartRib.................................RLN1015
120V Power Supply.....................0180302E27
Battery Pack (Optional)..................RLN4488
(Standard 9 to 9 or 9 to 25 pin serial connectors required
for computer to SRIB connection. 486 IBM compatible
computer with 4MB RAM recommended.)
MANUAL SHIPMENT PROCEDURE
Each MTS 2000 portable radio includes a "Portable Radio Operating Instructions
Manual". The customer may request all other manuals for the radio via the
Publication order form section of the Help Card that is packaged with every
radio.
CONTACT THE WORLDWIDE SYSTEM AND AFTERMARKET PRODUCTS DIVISION (1-800-422-4210)
FOR PRICING AND ORDERING INFORMATION ON THE FOLLOWING:
SERVICE MANUALS
Radio Theory/Troubleshooting..........6881200C15
Service Section-schematics, exploded views,
overlays, specs, model chart, assembly/
disassembly, encryption service.......6881200C40
OPERATOR MANUALS
Operator's Manual-"I" model...........6881072C15
Operator's Manual-"II, III" models....6881072C45
<PAGE> 8
Appendix B - Transcrypt International
OEM Amendment
Chip Sets (includes Kits) Pricing
<TABLE>
<S> <C> <C> <C>
Encryption Modules NTN1152D DES Encryption Board **
Astro/Saber NTN1153D DES-XL Encryption Board **
NTN1146D DVP Encryption** **
NTN1147D DVP-XL Encryption Board** **
Connector 0905415V02 Radio Univ. Con. **
MTS2000 Radio / Accessory Accessory Con. **
</TABLE>
** DVP and DVP-XL Encryption Boards are only to be sold to Domestic Customers
and only when associated with a future APCO 25 System. End user documentation
required.
Five year price validity to be reviewed every six months. Price not to rise
greater that the wholesale price index.
All sections marked with two asterisks ("**") reflect portions which have been
redacted and filed separately with the Securities and Exchange Commission as
part of a request for confidential treatment.
OEM AGREEMENT BETWEEN MOTOROLA AND TRANSCRYPT INTERNATIONAL INC.
JULY 15, 1996
1 July 15, 1996
<PAGE> 9
Appendix B - Cont. Transcrypt International
Chip Sets (includes Kits) Pricing
<TABLE>
<S> <C>
The following Astro integrated circuits:
ADSIC - P/N 5105457W19 **
ABACUS - P/N 5105457W20 **
SLIC IV - P/N 5105457W06 **
FRAN-N - P/N 5105625U31 **
The following Des and DES-XL Integrated Circuits:
DES Chip - P/N 5183977M69 **
Encryption REX Chip 5105414S21 **
DVP Encryption Chip 5105479G33 **
DVP-XL Encryption Chip 5105479G35 **
Encryption Module Controller (ASTRO) 51 **
Encryption Module Controller (APCO) 51* **
</TABLE>
The following connectors will be made available to Transcrypt as required
(price and delivery through Motorola National Parts).
Encryption module mating connector
FLASHport mating connector
Five year price validity to be reviewed every six months. Price not to rise
greater that the wholesale price index.
* Module requested but as of yet is not designed availability and pricing to be
made available at a later date.
OEM AGREEMENT BETWEEN MOTOROLA AND TRANSCRYPT INTERNATIONAL INC.
JULY 15, 1996
2 July 15, 1996
<PAGE> 10
Appendix C
Supplemental Charges
2. Custom Software Services per section 4.4
The cost per engineer shall be $** per year. Transcrypt International
shall allow sufficient time to identify and assign additional engineers from the
time of written notification by Transcrypt International of the requirement as
follows:
1 to 3 Engineers, 3 Months
4 to 8 Engineers, 6 Months
9 to 12 Engineers, 9 Months
LICENSE AGREEMENT BETWEEN MOTOROLA AND TRANSCRYPT INTERNATIONAL
JUNE 11, 1996
<PAGE> 1
EXHIBIT 10.10
Private-Label/Supplier Agreement
Analog Scrambling Modules
AGREEMENT
THIS AGREEMENT made this 8th day of August, 1995 between Transcrypt
International, having an office address at 4800 N.W. 1st Street, Lincoln,
Nebraska 68521-9918 (herein called "Transcrypt"), and Motorola, Inc., by and
through its Radio Products Americas Group, having an office at 8000 W. Sunrise
Blvd., Plantation, Florida 33322 (herein called "Motorola").
WITNESSETH
WHEREAS, Motorola has prepared requirements and specifications
for Motorola Private-labeled Analog scrambling modules (hereinafter the
"Module(s)"); and
WHEREAS, Transcrypt has well developed and proven expertise in the
design, manufacture, production, sale and support of certain types of analog
scrambling equipment; and
WHEREAS, Motorola desires to have Transcrypt design, manufacture and
produce exclusively for Motorola the said Modules; and
WHEREAS, Transcrypt is willing to design, manufacture, produce and
sell the Modules exclusively to Motorola for resale by Motorola.
In consideration of the mutual promises and agreements herein
contained and other valuable consideration, the parties mutually agree as
follows:
1. STATEMENT OF WORK. Transcrypt shall furnish all labor,
materials, equipment, personnel, facilities and services to design and
manufacture, the Modules, according to Motorola's requirements and
specifications attached hereto as Exhibit A and made a part hereof, and
according to the program schedule attached hereto as Exhibit B and made a part
hereof. The Module shall be manufactured exclusively for Motorola. The
Modules shall strictly comply to Motorola's requirements and specifications,
and shall meet or exceed Motorola's Acceptance Criteria, which is attached
hereto as Exhibit D and made a part hereof.
2. PURCHASE ORDERS. Motorola shall issue purchase orders to
Transcrypt for the Modules from time to time as needed by Motorola in lots of
100 or more Modules. Transcrypt shall fax acknowledgments of receipt of
purchase orders within one (1) day after receipt. A scheduled ship date for
the material being requested must be provided within fifteen (15) days after
receipt of the
<PAGE> 2
Private-Label/Supplier Agreement
Analog Scrambling Modules
purchase order. Transcrypt's failure to acknowledge will have no effect on the
validity or binding nature of the purchase order as Transcrypt shall be
conclusively presumed to have accepted all purchase orders which are issued
pursuant to and in conformance with the terms of this Agreement. Only the
terms and conditions contained in this document and in Motorola's standard
purchase order form, current at the time of purchase, shall apply to the
purchase of Modules pursuant to this Agreement. To the extent of any
inconsistency or conflict between this document and the terms and conditions of
such purchase order, this document shall control, Any terms and conditions
contained in Seller's acknowledgment forms or elsewhere shall not change, alter
or add to these terms and conditions in any way and shall be of no effect.
3. TIMING AND QUANTITY. The timing and quantity, other than the
minimum quantity, of each purchase of Modules by Motorola shall be as
determined by Motorola. Motorola shall not be obligated to purchase the
Modules exclusively from Transcrypt. Transcrypt will ship the Modules to
Motorola only in response to purchase orders submitted by Motorola to
Transcrypt. Module destination and delivery schedules shall be set forth in
purchase orders issued to Transcrypt by Motorola.
4. TERM. This Agreement shall commence as of the date hereof and
continue in force for a period of three (3) years. Thereafter the term may be
extended through the written agreement of both parties hereto.
5. EXCLUSIVE AGREEMENT. During the term of this Agreement and
any extension thereof, Transcrypt will design, manufacture, produce and sell
exclusively to Motorola, the Modules, and any and all alterations and
modifications thereto.
6. PRODUCT CHANGES. Either party may from time to time suggest
alterations or modifications in the design, materials, and specifications of
the Modules for the purpose of improving performance capabilities, reliability,
function or serviceability. However, no alteration or modification to the
Modules shall be made unless mutually agreed in writing by both parties. If
the change is due to the quality, performance, or material issue, and was the
result of Transcrypt's design, the related cost will be Transcrypt's
responsibility. If other changes are necessary, the responsibility for the
cost thereof shall be mutually agreed to between the parties.
7. MOTOROLA BRAND. Transcrypt agrees that it will, upon request
from Motorola, mark the Modules purchased by Motorola with the trademark
MOTOROLA in accordance with specifications as set by Motorola from time to
time. If no request is made by Motorola, the Module shall bear no brand name
<PAGE> 3
Private-Label/Supplier Agreement
Analog Scrambling Modules
or logo. No license, either express or implied, is intended by this Agreement
for the use of a Motorola trademark in connection with other Transcrypt
products. Except with respect to products specifically sold to Motorola,
Transcrypt shall have no right to use the trademark MOTOROLA, the trade name
"Motorola" or any other trademark owned by Motorola in the production, sale,
lease or advertising of any of its products or on any product container,
component, part, business forms, sales, advertising and promotional materials
or other business supplies or materials, whether in writing, orally or
otherwise.
8. PRICE. Motorola shall pay Transcrypt for the Modules in
accordance with the prices set forth on Exhibit C, attached hereto and made a
part hereof. Pricing may be reviewed and adjusted on each anniversary date of
this Agreement by mutual agreement of Motorola and Transcrypt. Upon the
agreement of a new price, both parties shall execute an addendum to the
Agreement stating the new prices for the then current year.
9. WARRANTY. Transcrypt agrees that all Modules delivered
hereunder, shall be free from defects in design, material and workmanship for a
period of one (1) year from the date of shipment, and shall conform to all
applicable specifications, requirements, and other descriptions specified by
Motorola. Such warranty shall cover the cost of replacement parts and
Transcrypt labor at no charge to Motorola or the Motorola customer/end user.
Transcrypt agrees to fulfill its warranty obligations hereunder as follows:
(a) Defective Modules must be returned to Transcrypt, 4800 N.W.
lst Street, Lincoln, Nebraska 68521-9918.
(b) Modules returned to Transcrypt are to be shipped best-way,
freight prepaid by the shipper.
(c) Transcrypt will promptly repair or replace, free of charge,
any Modules which have failed or do not perform properly in normal use
and operation or do not meet specifications. This warranty does not
cover any Modules which have been subject to improper installation or
operation, misuse, abuse, accident, neglect or damage, or if
unauthorized alterations have been made.
(d) Transcrypt will examine all products which are returned for
repair or replacement under warranty. Upon receipt thereof,
Transcrypt will determine if the product meets the above criteria for
coverage under the warranty. If the product has been subjected to
conditions which exclude coverage under the warranty, the shipper will
be so advised. Tne shipper may then authorize paid repair service or
other disposition of the product.
<PAGE> 4
Private-Label/Supplier Agreement
Analog Scrambling Modules
(e) Transcrypt will return all products under warranty UPS Second
Day, freight prepaid, to the original shipper or the shipper's
designee.
(f) Motorola may elect to make its own warranties of the Modules
to its end users or distributors but Transcrypt's warranty obligations
shall be governed solely by this Agreement.
THE FOREGOING WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES EXPRESS OR
IMPLIED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. IN NO EVENT
SHALL TRANSCRYPT BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES TO
THE FULL EXTENT SUCH MAY BE DISCLAIMED BY LAW.
10. DISCONTINUE MANUFACTURING. In the event Transcrypt discontinues
the manufacture of the Modules at the end of this Agreement, Transcrypt shall
provide replacement parts and repair capabilities for a period of seven (7)
years after termination of said Agreement, provided that Transcrypt has been
the exclusive manufacturer and seller to Motorola of the Modules at said
termination. Prices shall be mutually determined at the time of such
discontinuance. Transcrypt shall provide Motorola with written notice sixty
(60) days prior to such discontinuance.
11. PAYMENT. Payment terms shall be net thirty (30) days from
receipt of invoice by Motorola.
12. TAXES. All prices are exclusive of any amount for Federal,
state or local excise, sales, use, retailers' occupation, property or similar
taxes. If any such tax or taxes is or are determined to be applicable to any
transaction hereunder or Transcrypt is required to pay or bear the burden
thereof, the prices shall be increased by the amount of such taxes, and
Motorola shall pay Transcrypt the full amount of any such increase no later
than thirty (30) days after receipt of an invoice therefor. A request for
exemption from any tax must be accompanied by a properly executed tax exemption
certificate or resale exemption number.
13. ACCEPTANCE. Transcrypt will perform performance tests in
accordance with the test plan attached hereto in Exhibit D to determine whether
the Modules strictly comply in all details to the specifications and the
product requirements set forth in Exhibit A, and the testing requirements set
forth in the Motorola test documents listed in Exhibit D. Transcrypt will
submit historical and current test data to Motorola for review. The current
test data will be submitted as soon as possible but in no event later than
sixty (60) days from the date hereof. Motorola will promptly review such data
and perform any tests it
<PAGE> 5
Private-Label/Supplier Agreement
Analog Scrambling Modules
deems necessary and will notify Transcrypt within thirty (30) days thereof of
its acceptance or rejection of the Modules. In the event Motorola rejects any
test data, Transcrypt shall have sixty (60) days to correct any deficiencies.
If after such sixty (60) day period, the problems have not been resolved to
Motorola's satisfaction, Motorola shall have the option to either terminate
this Agreement or accept the units of Modules as provided with Transcrypt's
plan for compliance with the specifications.
14. CONFIDENTIAL INFORMATION. The parties further agree as
follows: (a) "Confidential Information" is defined as any
device, graphics, written information or information in other
tangible forms that is disclosed to the receiving party by the
disclosing party and that is marked at the time of disclosure
as being "Confidential" or "Proprietary". Information
disclosed orally or visually and identified at that time as
Confidential shall be considered as "Confidential Information"
if it is reduced to tangible form, marked Confidential and
transmitted to the receiving party within thirty (30) days
after the oral or visual disclosure.
(b) Unless otherwise expressly authorized by the
disclosing party, the receiving party agrees to retain the
"Confidential Information" in confidence for the "Confidential
Period" defined below, during which period the receiving party
shall not disclose the received "Confidential Information" to
any third party, and shall not use the received "Confidential
Information" other than in the manner and to the extent
authorized by this Agreement. The "Confidential Period" shall
mean two (2) years from the expiration or termination of this
Agreement or until such time as the information no longer
qualifies as "Confidential Information" pursuant to Paragraph
(d).
(c) Each party shall use its best efforts to limit
dissemination of the other's "Confidential Information" to
such of its employees who have a need to know for the purposes
of performing this Agreement.
(d) Notwithstanding any other provisions of this
Agreement, each party acknowledges that "Confidential
Information" shall not include any information which:
(1) Is or becomes publicly known through no
wrongful act on the receiving party's part;
or
(2) Is, at the time of the disclosure under this
Agreement, already known to the receiving
party without restriction on disclosure; or
<PAGE> 6
Private-Label/Supplier Agreement
Analog Scrambling Modules
(3) Is, or subsequently becomes, rightfully and
without breach of this Agreement, in the
receiving party's possession without any
obligation restricting disclosure; or
(4) Is independently developed by the receiving
party without breach of this Agreement; or
(5) Is furnished to a third party by the
disclosing party without a similar
restriction on the third party's rights; or
(6) Is explicitly approved for release by written
authorization of the disclosing party.
(e) Each party agrees to return to the disclosing party
upon request, the devices, graphics, writings and information
in other tangible forms containing any of the "Confidential
Information" referred to in Paragraph (a) and any copies of
"Confidential Information".
(f) No license, express or implied, in the "Confidential
Information" is granted to either party other than to use the
information in the manner and to the extent authorized by this
Agreement.
(g) The receiving party acknowledges that it is not
prohibited by the Office Of Export Administration for the US
Department of Commerce from receiving technical information,
know-how, data or other information and the receiving party
agrees not to export such information, or products
incorporating it, to any prohibited country. It should be
noted the modules described in Exhibit A require an export
license from the US State Department, and may not be exported
without approval from the US State Department, Office of
Munitions Control.
(h) Notwithstanding the foregoing, in the event it
becomes necessary for Transcrypt to disclose the
specifications for the Module in order to develop the Module,
then Transcrypt may disclose said specifications to the extent
necessary to develop the Module provided, however, Transcrypt
shall not (to the extent possible) reveal that Motorola was
the source of said specifications.
15. BACKGROUND PATENTS. Transcrypt and Transcrypt affiliates
agree not to assert any rights under any patent, copyright, trademark or any
claim of trade secret generated as a result of co-developed products, which
will or might inhibit,
<PAGE> 7
Private-Label/Supplier Agreement
Analog Scrambling Modules
prevent, or otherwise interfere with Motorola's ability to make, use, or sell,
or have made, or have sold, or cause to be sold, the co-developed products.
16. INTELLECTUAL PROPERTY RIGHTS. Transcrypt and Motorola agree to
maintain their respective ownership of all patents, copyrights and intellectual
property. Transcrypt and Motorola hereby agree to separately defend any claims
regarding Intellectual property rights and product warranty issues. Each party
will defend their separate claims at their own expense.
In the event Transcrypt defaults on the contract as specified herein,
Motorola reserves the rights to buy the modules for a period of seven years.
If Transcrypt is unable to comply with this (i.e., ceases to be in business),
Motorola reserves the right to license and access the technology, at a
reasonable fee, for the purpose of module production.
17. SUPPORT ARRANGEMENTS. In consideration of the prices
payable hereunder and other covenants of Motorola herein, Transcrypt agrees to
provide Motorola a reasonable level of support services with respect to the
repair and sale of the Modules, consulting services and technical advice on
field equipment problems. These services shall be provided by Transcrypt at no
additional charge. However, if Transcrypt intends to impose a charge for said
services, Transcrypt will notify Motorola in writing of the reason for
assessing such charges, and the amount thereof [at least sixty (60) days] prior
to the effective date of such [charges] services. Such services shall be
performed with reasonable notice and upon reasonable request by Motorola and
shall be made available at mutually satisfactory times and places.
18. LITERATURE. Transcrypt will supply reasonable quantities of
technical manuals and other technical materials pertinent to the Module. This
includes source material for generating marketing material as it pertains to
analog scrambling and their use in analog radio systems. Motorola, at its
expense or under a separate cooperative advertising agreement with Transcrypt,
will prepare normal, internal sales promotion, advertising and other printed
media pertaining to the Modules. Motorola will also prepare, at no charge to
Transcrypt, compatible, internal sales price schedules for the Modules. In
order to assist Transcrypt in providing the highest quality support under
Paragraph 17 Motorola agrees at its discretion, to provide Transcrypt with
copies of literature that is generated by Motorola relative to the Modules.
19. F.O.B. All products shall be sold and delivered by Transcrypt
F.O.B. Transcrypt's plant, Lincoln, Nebraska. Motorola agrees to pay
transportation and shipping charges from the F.O.B. point to destination. The
risk of loss of all products
<PAGE> 8
Private-Label/Supplier Agreement
Analog Scrambling Modules
is on Motorola when the products are delivered to the carrier. The choice of
carrier is up to Motorola, but if no carrier is specified, Transcrypt will ship
the best way.
20. DEFAULT. Motorola may terminate this Agreement without any
liability hereunder upon written notice to Transcrypt, in the event Transcrypt
fails to perform or comply, or so fails to make progress as to endanger
performance or compliance with any provisions of this Agreement, including
Transcrypt's warranties. No termination by Motorola for default or breach
shall be effective unless and until Transcrypt shall have failed to correct
such alleged default or breach within thirty (30) days after receipt by
Transcrypt of a written notice specifying such default. Notwithstanding the
above provisions of this paragraph, Transcrypt shall not be liable for delays
or defaults due to causes beyond its control and without its fault or
negligence if Transcrypt promptly notifies Motorola advising of such delay and
its cause.
21. TERMINATION. Either party, by written notice, may terminate
this Agreement at its convenience. Such termination to be effective sixty (60)
days after written notice is received by the defaulting party. In the event of
termination of this Agreement by Motorola, pursuant to this Paragraph, Motorola
agrees to purchase any and all module material which is imprinted or otherwise
marked with the trademark MOTOROLA, or if such material has been contracted for
but not delivered, Motorola shall reimburse Transcrypt for any cancellation
charge assessed against Transcrypt for the cancellation of any such material.
In addition, should such cancellation for Motorola's convenience, Motorola
shall also be liable for [up to a one hundred and eighty (180) day supply of
any unique (unique to the extent the components cannot be used by Transcrypt in
future production requirements) component cancellation and/or assessment charge
made against Transcrypt as quantity price restructuring for unique components
already delivered to Transcrypt. Such reimbursement of assessment by suppliers
of imprinted or marked materials and unique components against Transcrypt shall
be the total liability of Motorola in the event of termination of this
Agreement by Motorola, pursuant to this Paragraph. Termination of this
Agreement pursuant to this Paragraph shall not, however, release or relieve
either party from making payment or fulfilling obligations which may be owing
to the other party under the terms of this Agreement prior to the date of
termination.
After receipt of a notice of termination by Motorola, pursuant to this
Paragraph Transcrypt shall submit to Motorola its termination claim. Such
claim shall be submitted promptly, but no later than ninety (90) days after the
effective date of termination.
Transcrypt agrees that Motorola shall have a period of sixty (60) days
after receipt of Transcrypt's claim for reimbursement pursuant to this
Paragraph 21, to
<PAGE> 9
Private-Label/Supplier Agreement
Analog Scrambling Modules
inspect and audit all books and records at Transcrypt office at 4800 N.W. lst
Street, Lincoln, Nebraska 68521-9918, at all reasonable times during normal
business hours Monday through Friday, pertaining to such claim.
Upon payment by Motorola to Transcrypt for any materials imprinted or
marked with the name Motorola and any unique components, Transcrypt shall
promptly turn over to Motorola all such materials and unique components.
In the event of termination of this Agreement by Transcrypt pursuant
to this Paragraph, and the inability of Motorola to locate within a reasonable
time thereafter, another supplier of the Modules, Transcrypt agrees to
reimburse Motorola for all unused sales promotion, advertising and other
printed media material pertaining to the Modules which Motorola has on hand at
the time of such cancellation by Transcrypt.
Upon payment by Transcrypt to Motorola for all such sales literature, Motorola
will promptly turn over to Transcrypt all such material.
22. Force Majeure. If the performance of one of the parties
hereto is suspended by reason of Force Majeure, that party shall immediately
notify the other party in writing of the event, its cause and possible
consequences. Upon such notice, both parties may suspend performance of all or
part of its obligations, to the extent commercially reasonable, except for the
obligation to pay amounts due and owing but only to the extent and only for so
long as its performance is prevented by the event of Force Majeure. In the
event the Force Majeure prevents performance for more than ninety (90), or
greater number of days if mutually agreed to in writing by the parties hereto
within thirty (30) days after the written notice of Force Majeure is issued,
either party may terminate this Agreement on written notice to the other
without any liability hereunder, except the obligation to make payments that
are due to such date and those contained in Paragraph 14 herein.
23. TOOLING. Transcrypt retains rights and ownership to all
tooling incurred by Transcrypt
24. NOTICES. All notices, requests, demands or other
communications hereunder shall be in writing and sent United States registered
or certified mail, return receipt requested, or overnight mail, postage prepaid
as follows:
<PAGE> 10
Private-Label/Supplier Agreement
Analog Scrambling Modules
If to Motorola:
Motorola, Attention: Brian Holmes, 8000 W. Sunrise Blvd., Plantation,
FL 33322
If to Transcrypt:
Transcrypt International, Attention: Rob Kloefkorn, 4800 N.W. lst
Street, Lincoln, Nebraska 68521-9918.
Any party by notice given in conformity with the above provisions may
change the name and addresses above set forth.
25. OPTION TO RENEW. Any option to extend the term of this
Agreement as hereinafter in this Agreement granted to Motorola, may be
exercised by Motorola by giving Transcrypt notice, in writing, at least thirty
(30) days prior to the end of the initial term or any renewal term. Such
notice shall be sent in accordance with Paragraph above.
26. RENEWAL TERM. Transcrypt hereby grants to Motorola successive
options to extend the term of this Agreement for additional periods. Each such
option may be exercised only if all preceding options have been exercised,
i.e.:
First option for a period of one (1) year
Second option for a period of one (1) year
The exercise of each such option by Motorola shall extend the term of
this Agreement for the period indicated upon all the terms and conditions of
this Agreement.
27. RELATIONSHIP. This Agreement does not constitute an agreement
of partnership, agency or joint venture between Motorola and Transcrypt, the
sole relationship being that of independent supplier and purchaser under which
neither is authorized to bind the other.
28. ENTIRE AGREEMENT. This Agreement constitutes the entire and
final expression of the agreement between the parties pertaining to the subject
matter hereof and supersedes all prior and contemporaneous negotiations,
offers, discussions, arrangements, promises, representations, agreements and
understandings of the parties in connection therewith.
29. GOVERNING LAW. This Agreement shall be construed in
accordance with and governed by, the laws of the State of Florida.
<PAGE> 11
Private-Label/Supplier Agreement
Analog Scrambling Modules
30. HEADINGS. The headings of the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute a part
hereof.
31. ASSIGNMENT. Neither party hereto shall assign this Agreement
without the written consent of the other party. This Agreement shall be
binding upon, and shall inure to the benefit of, the parties hereto and their
successors and permitted assigns.
32. MODIFICATIONS. No revision or modification of this Agreement
shall be effective unless it is in writing and signed by authorized
representatives of the parties.
33. WAIVER. Failure or delay on the part of either party to
exercise any right, power, privilege or remedy hereunder shall not constitute a
waiver thereof. A waiver, to be effective, must be in writing and must be
signed by the party making the waiver. A written waiver of default shall not
operate as a waiver of any other default or of the same type of default on a
future occasion.
34. MINIMUM PURCHASE OBLIGATION. For consideration of Transcrypt's
agreement to sell exclusively to Motorola, notwithstanding anything else
contained in this agreement, Motorola agrees to purchase a minimum of ** modules
(in any combination) during an 18 month period beginning with the HT 1000 and
GP350 socketed product launches. Expected product launch dates are included in
the program schedule attached hereto as Exhibit B and made a part hereof. This
date can be changed by mutual agreement. A minimum initial order of ** modules
will be placed to meet the ship date requirements currently scheduled. The **
modules are broken down as ** modules for the HT1000, (scheduled for October
1995), and ** modules for the GP350, (currently scheduled for no later than the
4th quarter of 1995). Exact scheduling of the shipments to be determined.
35. USE OF TRANSCRYPT INTERNATIONAL TRADEMARKS. Transcrypt
licenses Motorola to use the Trademarks Transcrypt, Cypto-Voice-Plus (CVP) and
SC20-460 in Motorola's Sales and Marketing literature which pertains to the
marketing of the said modules in this agreement. The context in which these
Trademarks are used must be approved by Transcrypt prior to the release of such
material.
36. TRANSCRYPT'S RIGHT TO MOTOROLA's DISTRIBUTION CHANNEL. This
agreement does not give Transcrypt any right to information on Motorola's
distribution channel, or exclusive right to provide modules for Motorola's
distribution channel.
All sections marked with two asterisks ("**") reflect portions which
have been redacted and filed separately with the Securities and Exchange
Commission as part of a request for confidential treatment.
<PAGE> 12
Private-Label/Supplier Agreement
Analog Scrambling Modules
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed in two counterparts on the date first above-mentioned.
MOTOROLA.
Signature: BRIAN HOLMES
-----------------------------
Title: Brian Holmes
Director - Low Mid Tier Conventional Products
Radio Products America's Group
Motorola, Inc.
Date: August 8, 1996
-----------------------------
TRANSCRYPT INTERNATIONAL
Signature: JEFFERY L. FULLER
-----------------------------
Title: Jeffery L. Fuller
President and C.O.O.
Transcrypt International
Date: August 8, 1995
-----------------------------
<PAGE> 13
Private-Label/Supplier Agreement
Analog Scrambling Modules
EXHIBIT A
PRODUCT DESCRIPTION
<PAGE> 14
Private-Label/Supplier Agreement
Analog Scrambling Modules
PRODUCT DESCRIPTION
PRODUCT DESCRIPTION: HT 1000 & GP350 HOPPING CODE ANALOG SCRAMBLER
<TABLE>
<S> <C> <C>
HT 1000 Scrambler GP350 Scrambler
Number of Codes >100 Trillion >100 Trillion
Scramble Method Hopping Code Hopping Code
Install Method Plug-In Plug-In
Manufacturer Transcrypt for Motorola Transcrypt for Motorola
Distributor Motorola 2-Way Dealers Motorola 2-Way Dealers
Over Air ReKeying Yes Yes
Connector Configuration 25 Pin 15 Pin
Pre-Alert Tone Yes (Programmable On/Off) Yes (Programmable On/Off)
On/Off Selection A. Single Button Toggle A. Single Button Toggle
Alternatives B. Three Position Switch
C. C. Emergency Button
D. D. Concentric Switch (kit)
Audio On/Off Yes (Programmable On/Off) Yes (Programmable On/Off)
Visual On/Off A. LED Flash (Prog On/Off) A. LED Flash (Prog On/Off)
B. 3 Pos. Switch Setting (Front Cover LED
C. Concentric Switch (kit) Optional)
Transcrypt Part M020-460-01 M020-460-03
Number
Distribution Center Plantation, Florida Mt. Pleasant, Iowa
Schaumburg, Illinois (APD) Schaumburg, Illinois (APD)
Functionality Kits Concentric Switch Front
Available Cover (Std.)
Concentric Switch Front
Cover (DTMF)
Radio Incompatibility None Radios with DTMF Inst
</TABLE>
The analog scrambler module will be designed as a plug-in module for either the
GP350 or HT1000 portable. The GP350 will accommodate a 15 pin option board
interface, while the HT1000 will have a 25 pin interface.
Scrambler module programming will be accomplished using the existing radio
interface box (RIB) and GP350/HT1000 programming cables.
The scrambler software will be supplied by Transcrypt for distribution by
Motorola. A separate copy of programming software will be developed for the
HT1000 and GP350 radio. This programming software will be a DOS based program
designed to operate on PC compatible computers. All additional Motorola
products that use the M020-460-01 or M020-460-03 scrambling modules will have
scrambling programming software supplied by Transcrypt for distribution by
Motorola. This transaction will be detailed in a separate supplier agreement.
<PAGE> 15
Private-Label/Supplier Agreement
Analog Scrambling Modules
Both the HT1000 and GP350 scramblers will be compatible with Transcrypt's
analog encryption algorithm found on SC20-460 series of scramblers on the
market today.
The scramblers will use Transcrypt Flashcall signaling. This signaling is used
for synchronization of the scramblers, and also provides Over- The-Air (OTAR)
reprogramming capabilities.
<PAGE> 16
Private-Label/Supplier Agreement
Analog Scrambling Modules
EXHIBIT B
PROGRAM SCHEDULE
<PAGE> 17
Private-Label/Supplier Agreement
Analog Scrambling Modules
<TABLE>
<CAPTION>
Program Schedule
----------------
HT GP
GOAL GOAL Responsible
---- ---- -----------
<S> <C> <C> <C>
Full Staffing 3/20/95 Completed 5/08/95 Completed Schukai
Concept Design Review 4/18/95 Completed 4/18/95 Completed Schukai/
Transcrypt
Contract Book Complete 4/30/95 4/30/95 Milner/
Schukai
Schematic Updated 5/05/95 Completed 6/03/95 Completed Lorenzo/
Schaefer
Board Layout Complete 5/12/95 Completed 6/09/95 Completed Albertson
Transcrypt to Receive 6/17/95 Completed 6/17/95 Completed Lorenzo/
Alpha Radios to test Schaefer
Transcrypt to Supply 6/20/95 Completed 9/23/95 Transcrypt
Alpha Scramblers
Alpha Scrambler RSS to 7/04/95 Completed 9/23/95 Transcrypt
Motorola
Alpha Radio Electrical 6/30/95 Completed 9/30/95 Lorenzo/
Eval Schaefer
/Sign off Alpha
Scramblers
Pilot Radio Build (50) 8/11/95 10/07/95 Lorenzo/
Bond
Beta Scramblers to Mot. 8/02/95 Completed 10/17/95 Transcrypt
Alpha RSS Approval 8/4/95 Completed 10/17/95 Lorenzo/Sch
kai/Schaefei
Final RSS to Motorola 9/01/95 11/11/95 Transcrypt
Beta Mechanical 9/08/95 11/18/95 Kline/
Evaluation Gilmore
System Radio 9/08/95 11/30/95 Lorenzo/Sch
Evaluation kai/Schaefer
Ship Acceptance 10/27/95 11/30/95 Schukai
</TABLE>
<PAGE> 18
Private-Label/Supplier Agreement
Analog Scrambling Modules
EXHIBIT C
PRODUCT QUOTATION
<PAGE> 19
Private-Label/Supplier Agreement
Analog Scrambling Modules
PRODUCT QUOTATION
<TABLE>
<CAPTION>
PRODUCTS PRICE PER UNIT
<S> <C>
Analog Scrambling Module - 25 pin
M020-460-01 for HT 1000 Portable Radio **
Analog Scrambling Module - 15 pin
M020-460-03 for GP 350 Portable Radio **
</TABLE>
ALL SECTIONS MARKED WITH TWO ASTERISKS ("**") REFLECT PORTIONS WHICH
HAVE BEEN REDACTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION AS PART OF A REQUEST FOR CONFIDENTIAL TREATMENT
<PAGE> 20
Private-Label/Supplier Agreement
Analog Scrambling Modules
EXHIBIT D
PRODUCT TEST PLAN
<PAGE> 21
Private-Label/Supplier Agreement
Analog Scrambling Modules
PRODUCT TEST PLAN
TESTING
The quality and reliability tests for the new radio boards are as follows:
* Electrical performance
* Static Discharge
* Vibration (MIL Standard 810E Random Vibration)
* Salt spray
* Dust
* Humidity (MIL Standard 810E)
* Shock (MIL Standard 810E)
* Drop (4 foot concrete per internal ALT standards)
Field testing will include approximately 900 hours of beta-site testing with
selected dealers and customers.
Transcrypt will test for compatibility with SC20-460 CVP III scrambling
algorithm.
<PAGE> 1
EXHIBIT 10.11
MOTOROLA CELLULAR SUBSCRIBER
PRODUCT SALES AGREEMENT
This agreement ("Agreement") is made and entered into as of 13, June, 1996
("Agreement Date") by and between Motorola, Inc., through its Pan American
Cellular Subscriber Group, having a place of business at 600 North U.S. Highway
45, Libertyville, Illinois 60048-1286 ("Motorola" or "Seller") and Transcrypt
International, Inc., having a place of business at 4800 NW 1st Street, Lincoln,
NE 68521 ("Buyer").
PRODUCTS, QUANTITIES AND PRICES
Buyer may purchase the selected Motorola cellular subscriber products
("Products") at the prices described on Attachment A. Buyer acknowledges that
(i) purchase and sale shall occur only by Motorola's acceptance of Buyer's
orders, (ii) available Products and pricing may be changed by Motorola at its
discretion at any time, and (iii) the applicable purchase price is Motorola's
price current at the time of Motorola's acceptance of Buyer's purchase order.
TERMS AND CONDITIONS
Attachment B contains additional terms and conditions applicable to this
Agreement. Attachment C contains Motorola's standard terms and conditions
applicable to this Agreement. To the extent of any inconsistency between
Attachment B and Attachment C, Attachment B shall control.
TERM
This Agreement shall commence on the Agreement Date and shall expire on December
31 of the following calendar year. Unless this Agreement is superseded by a new
agreement, or otherwise terminated pursuant to the terms contained herein, this
Agreement will continue in effect beyond its initial term until terminated by
either party upon thirty (30) days' prior written notice.
ENTIRE AGREEMENT
Buyer acknowledges that it has read and understands these terms and conditions
and agrees to be bound by them, and that this Agreement, including the
Attachments, is the complete and exclusive statement of the agreement between
the parties pertaining to the purchase and sale of the Products, and supersedes
all proposals, oral or written, and all other communications between the parties
relating to same. No alterations or modifications of this Agreement shall be
binding upon either Buyer or Motorola unless made in writing and signed by an
authorized representative of each.
The parties deem this Agreement to be executed by their duly authorized
representatives on the Agreement Date.
SELLER: BUYER:
MOTOROLA, INC. TRANSCRIPT INTERNATIONAL, INC.
By: [SIG] By: [SIG]
---------------------- -------------------------
Title: V.P. & General Mgr. Title: President & COO
------------------- -------------------------
US Markets Div.
Attachments included in Agreement:
A. Products and Prices
B. Additional Terms and Conditions
C. Motorola Standard Terms and Conditions
<PAGE> 2
TRANSCRYPT, INC.
ATTACHMENT A
PRODUCTS AND PRICING
WIRELINE PRODUCT DISTRIBUTION
-----------------------------
All product dual NAM, except where indicated
EFFECTIVE DATE: Upon Full Execution of Agreement
PORTFOLIO PRODUCTS
- ------------------
<TABLE>
<CAPTION>
Invoice
Products Model Includes Price
- -------- ----- -------- -------
<S> <C> <C> <C>
PERSONAL COMMUNICATOR 76778SAREA Slow desk top charger, and **
DPC550 ENTRY PAK TALK Pak NiCD battery.
MICRO T.A.C Lite II(TM) 76779SAHBA Slow desk top charger, and **
BASE PAK Slim NiCD battery.
MICRO T.A.C Lite II 76832SAHPA Rapid desk top charger and **
PRO PAK Slim NiMH battery
MICRO T.A.C UltraLite 76831SATBA Rapid desk top charger and **
BASE PAK Slim NiMH battery
MICRO T.A.C Elite(TM) 76788SAXEA AC adaptor, slim NiMH battery, **
Entry PAK Model and internal EP charger.
</TABLE>
Confidential Business Information
Do Not copy or reproduce
5/10/96
ALL SECTIONS MARKED WITH TWO ASTERISKS ("**") REFLECT PORTIONS WHICH
HAVE BEEN REDACTED AND FILED WITH SECURITIES AND EXCHANGE COMMISSION AS PART OF
A REQUEST FOR CONFIDENTIAL TREATMENT.
<PAGE> 3
TRANSCRYPT, INC.
ATTACHMENT A
PRODUCTS AND PRICING
WIRELINE PRODUCT DISTRIBUTION
-----------------------------
EFFECTIVE DATE: Upon full Execution of Agreement
PORTFOLIO PRODUCTS
- ------------------
<TABLE>
<CAPTION>
Products Model Rebate
- -------- ----- ------
<S> <C> <C>
PERSONAL COMMUNICATOR 76778SAREA **
DPC550 ENTRY PAK
MICRO T.A.C Lite II(TM) 76779SAHBA **
BASE PAK
MICRO T.A.C. Lite II 76832SAHPA **
PRO PAK
MICRO T.A.C. UltraLite 76831SATBA **
BASE PAK
MICRO T.A.C. Elite(TM) 76788SAXEA **
Entry PAK Model
</TABLE>
Confidential Business Information
Do Not copy or reproduce
5/10/96
<PAGE> 4
TRANSCRYPT, INC.
ATTACHMENT A
<TABLE>
<CAPTION>
PRODUCT INVOICE REBATE $ CONTRACT NET
- ------- ------- -------- ------------
<S> <C> <C> <C>
DPC550 ENTRY PAK ** ** **
MICRO T.A.C LITE II(TM) ** ** **
MICRO T.A.C LITE II ** ** **
MICRO T.A.C UltraLite ** ** **
MICRO T.A.C Elite(TM) ** ** **
</TABLE>
Confidential Business Information
Do Not copy or reproduce
5/10/96
<PAGE> 5
Attachment B
ADDITIONAL TERMS AND CONDITIONS
1. Buyer is purchasing each Product for incorporation into a cellular
subscriber unit with voice scrambling capability ("Value Added Product").
Buyer agrees to limit its distribution of the Products to the incorporation
of said Products into such Value Added Product which Buyer shall market
under Buyer's name for sale, lease or rent to third-parties in the regular
course of Buyer's business. Products not so modified by Buyer may not be
resold by Buyer. Buyer is responsible for the selection of each Product,
its ability to achieve the results intended with other products, software
and/or peripherals of Buyer's design, assembly, manufacture or purchase,
and for the system performance of Buyer's Value Added Product. Buyer also
acknowledges that any technical support for Buyer's Value Added Product
shall be entirely Buyer's responsibility.
2. Buyer agrees that it will comply with all export control laws and that it
will not directly or indirectly export, reexport, resell, ship or divert
any products, materials, services or technical data or software furnished
hereunder to any customers or countries for which the U.S. Government at
the time of export or reexport had embargoed or which export or reexport
requires a validated license or other governmental approval without first
obtaining such license or approval. Buyer shall indemnify and hold
Motorola harmless for all claims, demands, damages, costs, fines,
penalties, fees and other expenses and losses arising from Buyer's failure,
intentional or unintentional, to comply with the foregoing paragraph.
3. This Agreement is an exclusive agreement as to Buyer, in that Buyer agrees
to purchase all Motorola cellular subscriber products directly from
Motorola and from no other source. Buyer acknowledges that this is a
non-exclusive agreement as to Motorola and that Motorola retains the right
to utilize other channels of distribution, including the right to appoint
other dealers, distributors and value added resellers, and to solicit and
make direct or indirect sales of the Products as Motorola in its sole and
unrestricted judgment may from time to time determine to be in the best
interest of Motorola without liability or obligation to Buyer.
4. Warranty Disclaimer.
(a) Buyer acknowledges and agrees that Motorola is selling the Products
with no warranty whatsoever, and that Buyer is purchasing the Products
"as is" and "with all faults." The description of the Products in
Attachment A, any description of the Products that may be contained in
advertisements or other documents of any kind, and any oral
representations with regard to the Products are for the sole purpose
of identifying and describing the Products and do not constitute a
representation or warranty that the Products will conform to that
description.
(b) Motorola represents and warrants that it is the owner of the Products
and that it has good and marketable title to the Products, free of
any liens or encumbrances. MOTOROLA DISCLAIMS ALL OTHER
REPRESENTATIONS AND WARRANTIES, WHETHER EXPRESS, IMPLIED, OR
STATUTORY, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. Motorola also
disclaims any implied warranty arising out of trade usage or out of a
course of dealing or course of performance.
(c) Buyer will provide a warranty or warranties on its Value Added
Products to its customers. Buyer understands and agrees that Motorola
will not be responsible in any way for any warranty which Buyer
extends to its customers.
(d) Notwithstanding the warranty disclaimer stated above, if Motorola
conducts a general recall of a Product: (i) Motorola will notify Buyer
of such general recall by means of direct letter or through Motorola's
Cellular Service Bulletin, at Motorola's sole choice and discretion,
and (ii) Motorola will include in any such general recall program the
Products sold to Buyer. Motorola's agreement in this regard shall not
be construed as an obligation to conduct a recall program for a
Product for any reason whatsoever; the determination to conduct any
recall program, and determination of the extent of any such program,
shall be made by Motorola in its sole discretion. In the event
Products sold to Buyer are recalled as part of any such recall
program, any corrective activity, replacement or other remedy provided
by Motorola will only pertain to the original Product sold by Motorola
to Buyer and will not pertain to the value added portion of the
product Buyer sold to its customer. In the event that Buyer's
modifications to the Product increase the cost or
<PAGE> 6
difficulty of Motorola's recall efforts, then Buyer will provide
reasonable financial and/or technical assistance and services at
Motorola's request and sole discretion. Other than stated herein,
Motorola disclaims all liability of any kind to Buyer caused by or
arising out of any such recall program.
5. Products will be packaged in boxes with no labeling or information of any
kind printed on the boxes.
6. Buyer's employees may participate in Motorola's "Master Shop" Training
Program at Buyer's request and expense, under the same terms and conditions
as offered to other Motorola customers. Training shall take place at
Motorola's Libertyville, IL facility. Buyer's access to spare parts and
training shall extend 12 months beyond the termination or expiration of
this Agreement.
7. Buyer will ensure that no Motorola Federal Communications Commission
("FCC") identification number appears on any of its Value Added Products.
With respect to its Value Added Products, Buyer assumes all responsibility
for compliance with the rules and regulations of the FCC relating to
devices which generate or emit radio frequency energy, including but not
limited to those rules relating to equipment authorization procedures. At
Buyer's request, Motorola will provide reasonable assistance and
information as is necessary to prepare any applications for FCC grants or
approvals, including but not limited to copies of appropriate FCC filings
by Motorola. Buyer shall keep and maintain all information and documents
provided by Motorola as Confidential and shall not disclose any such
information without the written approval of Motorola. Buyer shall
indemnify and hold Motorola harmless for all claims, demands, damages,
costs, fines, penalties, fees and other expenses and losses arising from
Buyer's failure, intentional or unintentional, to comply with these
requirements. Buyer's obligations under this paragraph shall survive the
termination or expiration of this Agreement.
<PAGE> 7
Attachment C
STANDARD TERMS AND CONDITIONS
1. PRICES The prices for the Products purchased hereunder shall be as set
forth in Attachment A to the Agreement.
2. ORDERS AND FORECASTS (a) Orders. All orders by Buyer shall be only
upon the terms and conditions of this Agreement. The only effect of any
terms and conditions in Buyer's orders or elsewhere shall be to request
the time and place of delivery and number of units to be delivered,
subject to Seller's acceptance, but they shall not change, alter or add
to the terms and conditions of this Agreement in any other way.
Seller's invoice shall also not change the terms and conditions of this
Agreement. (b) Forecasts. During the term of this Agreement, Buyer
shall use its best efforts to update, on a quarterly basis, a continuous
usage forecast to assist Seller in maintaining an orderly production
flow for the purpose of meeting Buyer's delivery requirements. Buyer's
failure to provide such information may be considered cause by Seller
for excusable delivery delay.
3. CANCELLATION Buyer may cancel orders placed in accordance with the
terms and conditions of this Agreement upon payment of cancellation
charges which shall include all costs incurred or committed for, and a
reasonable profit on such costs, unless (i) such costs are otherwise
recoverable through the sale of the product on a timely basis or (ii)
Buyer's cancellation is due to Motorola's failure to meet its forecasted
delivery schedule resulting in cancellation of Product orders by Buyer's
own customer. Payment of cancellation charges shall be due within
thirty (30) days of the date of invoice. Seller agrees to divert
completed material and work in process from canceled orders to other
requirements wherever possible in order to minimize cancellation
charges.
4. DELIVERY AND PAYMENT (a) All deliveries are FOB Motorola's plant. Each
such delivery will be separately invoiced and payment from Buyer shall
be due thirty (30) days from the date thereof without regard to other
deliveries. DELIVERY DATES ARE BEST ESTIMATES ONLY. (b) Title to the
Products sold shall pass to Buyer at the FOB point. Buyer hereby grants
to MOTOROLA a security interest and lien upon all of Buyer's now
existing or hereafter acquired inventory of the products, and all of
Buyer's account, chattel paper, instruments, contract rights, general
intangibles, accounts receivable and the proceeds thereof now existing
or hereafter arising out of Buyer's sale or other disposition of the
products. Buyer agrees to cooperate in whatever manner necessary to
assist MOTOROLA in perfecting and recording such security interest and
lien upon request.
5. FORCE MAJEURE MOTOROLA shall not be liable for any delay or failure to
perform due to any cause beyond its reasonable control. Causes include
but are not limited to strikes, acts of God, acts of the Buyer,
interruptions of transportation or inability to obtain necessary labor,
materials or facilities, or default of any supplier, or delays in FCC
frequency authorization or license grant. The delivery schedule shall
be considered extended by a period of time equal to the time lost
because of any excusable delay. To the extent that MOTOROLA is unable
to manufacture and deliver the annual commitment, it shall be reduced on
a pro rata basis. In the event MOTOROLA is unable to wholly or
partially perform for a period greater than forty-five (45) days because
of any cause beyond its reasonable control, either party may terminate
any delayed order without any liability.
6. PATENT AND COPYRIGHT INDEMNIFICATION (a) MOTOROLA agrees to defend, at
its expense, any suits against Buyer based upon a claim that any
products furnished hereunder directly infringes a U.S. patent or
copyright and to pay costs and damages finally awarded in any such suit,
provided that MOTOROLA is notified promptly in writing of the suit and
at Motorola's request and at its expense is given control of said suit
and all requested assistance for defense of same. If the use or sale of
any product(s) furnished hereunder is enjoined as a result of such suit,
MOTOROLA at its option and at no expense to Buyer, shall obtain for
Buyer the right to use or sell said product(s) or shall substitute an
equivalent product reasonably acceptable to Buyer and extend this
indemnity thereto or shall accept the return of the product(s) and
reimburse Buyer the purchase price therefor, less a reasonable charge
for reasonable wear and tear. This indemnity does not extend to any
suit based upon any infringement or alleged infringement of any patent
or copyright by the alteration of any products furnished by MOTOROLA or
by the combination of any product(s) furnished by MOTOROLA and other
elements nor does it extend to any product(s) of Buyer's design or
formula. The foregoing states the entire liability of MOTOROLA for
patent or copyright infringement. (b) IN NO EVENT SHALL MOTOROLA BE
LIABLE FOR INCIDENTAL OR
<PAGE> 8
CONSEQUENTIAL DAMAGES ARISING FROM INFRINGEMENT OR ALLEGED INFRINGEMENT
OF PATENTS, COPYRIGHTS, OR OTHER INTELLECTUAL PROPERTY RIGHTS.
7. LICENSE DISCLAIMER Nothing contained herein shall be deemed to grant
either directly or by implication, estoppel, or otherwise, any license
under any patents, copyrights, trademarks or trade secrets of MOTOROLA.
8. TAXES Except for the amount, if any, of state and local tax stated in
the Agreement, the prices set forth herein are exclusive of any amount
for Federal, State and/or Local excise, sales, use, property,
retailer's, occupation or any other assessment in the nature of taxes
however designated, on the products and/or services provided under this
Agreement. If any such excluded tax, exclusive however, of any taxes
measured by Seller's net income or taxes based on Seller's gross
receipts or based on Seller's franchise, is determined to be applicable
to this transaction or to the extent MOTOROLA is required to pay or bear
the burden thereof, one hundred percent (100%) thereof shall be added to
the prices set forth herein and paid by Buyer. Personal property taxes
assessable on the products shall be the responsibility of Buyer. In the
event Buyer claims exemption from sales, use or other such taxes under
this Agreement, Buyer shall hold Motorola harmless of any subsequent
assessments levied by a proper taxing authority for such taxes,
including interest, penalties, and late charges.
9. TECHNICAL ASSISTANCE Motorola's warranty shall not be enlarged, and no
obligation or liability shall arise out of Motorola's rendering of
technical advice, facilities or service in connection with Buyer's
purchase of the products furnished.
10. LIMITATION OF LIABILITY EXCEPT FOR PERSONAL INJURY, AND EXCEPT FOR
PARAGRAPH 7 PATENT AND COPYRIGHT INDEMNIFICATION, MOTOROLA'S TOTAL
LIABILITY, WHETHER FOR BREACH OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT
LIABILITY IN TORT OR OTHERWISE, IS LIMITED TO THE PRICE OF THE
PARTICULAR PRODUCTS SOLD HEREUNDER WITH RESPECT TO WHICH LOSSES OR
DAMAGES ARE CLAIMED. IN NO EVENT WILL MOTOROLA BE LIABLE FOR ANY LOSS
OF USE, LOSS OF TIME, INCONVENIENCE, COMMERCIAL LOSS, LOST PROFITS OR
SAVINGS OR OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES TO THE FULL EXTENT
SUCH MAY BE DISCLAIMED BY LAW. NO ACTION SHALL BE BROUGHT FOR ANY
BREACH OF THIS CONTRACT MORE THAN ONE (1) YEAR AFTER THE ACCRUAL OF SUCH
CAUSE OF ACTION EXCEPT FOR MONEY DUE UPON ACCOUNT.
12. LOGOS AND TRADEMARKS In order that Seller may protect its trademarks,
trade names, corporate slogans, corporate logo, goodwill and product
designations, Buyer, without the express written consent of Seller,
shall have no right to use any such marks, names, slogans or
designations of Seller in the sales, lease or advertising of any
products or on any product container, component part, business forms,
sales, advertising and promotional materials or other business supplies
or material, whether in writing, orally or otherwise.
13. PARTY RELATIONSHIP This Agreement does not create any agency, joint
venture or partnership between Buyer and Seller. Buyer shall not impose
or create any obligation or responsibility, express or implied, or make
any promises, representations or warranties on behalf of seller, other
than as expressly provided herein.
14. WAIVER The failure of either party to insist in any one or more
instances, upon the performance of any of the terms or conditions herein
or to exercise any right hereunder shall not be construed as a waiver or
relinquishment of the future performance of any such terms or conditions
or the future exercise of such right but the obligation of the other
party with respect to such future performance shall continue in full
force and effect.
15. DEFAULT In the event that Buyer shall be in breach or default of any of
the terms or conditions of this Agreement and such breach or default
shall continue for a period of thirty (30) days after the giving of
written notice by MOTOROLA to Buyer, then subject to the other terms and
conditions of this Agreement, MOTOROLA, in addition to other rights and
remedies it may have in law or equity, shall have the right to
immediately cancel this Agreement without any charge or liability
whatsoever.
16. U.S. GOVERNMENT SALES In the event that buyer elects to sell Motorola
products or services to the U.S. Government or a prime contractor
selling to the U.S. Government, Buyer remains solely and exclusively
responsible for compliance with all statutes and regulations governing
sales to the U.S. Government. Motorola makes no representations,
certifications or warranties whatsoever with respect to the
<PAGE> 9
ability of its goods, services or prices to satisfy any such statutes or
regulations. Failure of Buyer to conduct any sales to the U.S.
Government or to U.S. Government prime contractors in strict accordance
with U.S. law shall constitute a material breach of this Agreement.
17. DISPUTE RESOLUTION. The parties agree that any claims or disputes will
be submitted to non-binding mediation prior to initiation of any formal
legal process. Costs of mediation will be shared equally.
18. EDI. In order to facilitate transactions under this Agreement, the
parties may electronically transmit and receive data in agreed formats
in substitution for conventional paper-based documents as provided in
any Electronic Data Interchange Trading Partner Agreement that may be
in effect between the parties.
19. GENERAL. No alterations or modifications of this Agreement shall be
binding upon either Buyer or Seller unless made in writing and signed by
an authorized representative of each. If any term or condition of this
Agreement shall to any extent be held by a court or other tribunal to be
invalid, void or unenforceable, then that term or condition shall be
inoperative and void insofar as it is in conflict with law, but the
remaining rights and obligations of the parties shall be construed and
enforced as if this Agreement did not contain the particular term or
condition held to be invalid, void or unenforceable. No assignment of
this Agreement of any right granted herewith shall be made by Buyer
without the prior written consent of Motorola. This Agreement shall be
governed by the laws of the State of Illinois.
<PAGE> 1
EXHIBIT 10.12
APCO Fed Project 25
Algorithm only
LICENSE AGREEMENT
This License Agreement is between Digital Voice Systems, Inc. ("DVSI"), a
corporation organized under the laws of the Commonwealth of Massachusetts, with
a principal office at One Van de Graaff Drive, Burlington, MA 01803 and
Transcrypt International, Inc., Transcrypt International Limited, Transcrypt
International Washington and Transcrypt International Europe Limited, a limited
partnership organized under the laws of the State of Nebraska with principal
office at 4800 North West First Street Lincoln, Nebraska 68521 (hereinafter
called "Licensee").
The effective date of this Agreement is August 14, 1995.
PRELIMINARY STATEMENTS AND DEFINITIONS
(a) DVSI has developed a voice coding method and algorithm (the
"Technology") based on the Improved Multi-Band Excitation ("IMBE"(TM))
speech model;
(b) The Technology has been selected as the North American land mobile
radio standard for APCO Fed Project 25.
(c) DVSI has produced a written description of the Technology which has
been published by Telecommunications Industry Association ("TIA") in
document number IS102BABA, titled the APCO Project 25 Vocoder
Description. The Technology includes any updates and revisions which
are produced by DVSI and published by TIA as part of the APCO Project
25 Vocoder Description. The Technology does not include any method or
algorithm which is not specifically described in the APCO Project 25
Vocoder Description.
(d) DVSI claims certain "Proprietary Rights" in the Technology, including
patent rights trademarks and trade secrets. DVSI's Proprietary Rights
include patent rights granted under U.S. patents #5,226,084,
#5,216,747, #5,247,579, #5,081,681 and #5,226,108 and under DVSI's
pending applications, but only to the extent said patent rights cover
the Technology as described in the APCO Project 25 Vocoder
Description.
(e) "Project 25" applications are defined as those products that are
interoperable with the 7200 bps IMBE(TM) Voice Codec Standard and the
9600 bps Common Air Interface Standard established by APCO Fed Project
25.
(f) "Non-Project 25" applications are defined as all other products that
are not included in definition (e).
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein, the parties agree as follows:
1. LICENSE
1.1 DVSI hereby grants to Licensee a limited, non-exclusive,
worldwide right and license under DVSI's Proprietary Rights to
use the Technology solely for the purpose of developing,
manufacturing, integrating, marketing, selling and
incorporating the Technology in Licensee's hardware products.
<PAGE> 2
LICENSE AGREEMENT
1.2 Licensee shall have no right to sublicense the Technology to
any third party other than customers of hardware products
manufactured and sold by Licensee or its authorized
distributors for the limited purpose of using the Technology
without further modification on such products.
1.3 Licensee shall have no right to sublicense the Technology,
except as provided in Section 1.2 of this Agreement
1.4 Licensee shall affix in each such manufactured product or the
products owner's manual the following notice in such a manner
and location as to give reasonable notice to DVSI's claim of
intellectual property rights:
The IMBE(TM) voice coding technology embodied in this
product is protected by intellectual property rights
including patent rights of Digital Voice Systems,
Inc.
1.5 This Agreement shall continue indefinitely, unless sooner
terminated as provided in Section 7.
2. RESERVED RIGHTS
Except for the rights licensed hereunder to Licensee, neither Licensee
nor its customers shall acquire right, title or interest in the
Technology, or any applicable copyrights, trademarks, trade secret
rights, patents or patent applications.
3. PAYMENTS AND RECORDS
3.1 In consideration of the rights granted herein, Licensee agrees
to pay royalties to DVSI in accordance with the following
subsections of this Section 3.1 and Sections 3.2 and 3.3.
3.1.1 Commencing upon the effective date of this Agreement,
Licensee shall pay to DVSI a royalty due, and payable
within ninety (90) days of the last day of each of
four (4) calendar quarters based on the number of
embodiments (as determined in Sections 3.1.2-3.1.5
hereinafter called "Royalty Units") registered in
that calendar quarter.
3.1.2 The royalty due for Project 25 shall be U.S. $5 (Five
United States Dollars) per Royalty Unit so registered
for the first 100,000 Royalty Units, U.S. $4 (Four
United States Dollars) per Royalty Unit so registered
above 100,000 Royalty Units and up to 1,000,000
Royalty Units and U.S. $3 (Three United States
Dollars) per Royalty Unit so registered above
1,000,000 Royalty Units.
3.1.3 The royalty due for Non-Project 25 shall be U.S. $25
(Twenty Five United States Dollars) per Royalty Unit
so registered for the first 3000 Royalty Units, U.S.
$18 (Eighteen United States Dollars) per Royalty Unit
so registered above 3,000 Royalty Units and up to
10,000 Royalty Units, U.S. $12 (Twelve United States
Dollars) per Royalty Unit so registered above 10,000
Royalty Units and up to 100,000 Royalty Units and
U.S. $8 (Eight United States Dollars) per Royalty
Unit so registered above 100,000 and up to 1,000,000
and U.S. $3 (Three United States Dollars) per Royalty
Unit so registered above 1,000,000 Royalty Units.
Page 2
<PAGE> 3
LICENSE AGREEMENT
3.1.4 The, Royalty Unit count shall be determined as
follows:
Should Licensee or its authorized distributors,
agents or retailers sell or lease a system that
includes a speech analysis, quantization or synthesis
capability incorporating the Technology or any of
DVSI's Proprietary Rights, Licensee agrees to pay
DVSI a royalty based on the maximum number of Coders
or Decoders used in such system.
3.1.5 Royalty Units shall be counted only when first sold,
leased, invoiced, delivered, shipped or mailed to a
customer. Deductions shall be allowed for units
returned by or refused by a customer and shall only
be recounted when reinvoiced, released, redeveloped,
shipped or remailed.
3.1.6 Licensee shall be also obligated to make
non-refundable, minimum royalty payments to DVSI to
ensure that the total royalty paid to DVSI during the
first (3) three years is not less than One Hundred
and Thirty Five Thousand United States Dollars ( U.S.
$135,000). During this period, Licensee's minimum
royalty obligation shall accumulate at a rate of
Forty Five Thousand United States Dollars (U.S.
$45,000) per year. If upon the end of the first
three, years of this Agreement (measured from the
Effective Date) the cumulative royalty paid by
Licensee to DVSI under Sections 3.1.2-3.1.5 of this
Agreement is less than Licensee's said accumulated
minimum royalty obligation then Licensee shall pay
the difference to DVSI within thirty (30) days, and
such difference shall be credited towards any future
royalty due to DVSI from Licensee, provided that such
credit does not reduce Licensees minimum royalty
obligation as specified herein.
3.2 Licensee shall keep full, true and accurate records containing
all particulars which may be necessary for the purpose of
validating the royalty payable to DVSI. Said records shall be
retained by the Licensee for a period of three (3) years
following the end of the calendar year to which they pertain.
DVSI shall have the right to retain an independent,
professionally registered accountant for the sole purpose of
inspecting and examining said books and records insofar as may
be necessary to verify the accuracy of the same and the
statements provided herein. Such inspection and examination
shall be made during business hours upon reasonable notice.
Licensee holds such books and records and any abstracts
obtained thereof as Proprietary Information of Licensee and
disclosure to DVSI or any third party except as provided
above, is specifically prohibited by Licensee. The cost of
any inspection or examination performed under this Section
shall be paid by DVSI with the following exception: If an
error is discovered which has resulted in an underpayment in
royalties due to DVSI, the cost of the inspection up to the
amount of the underpayment is to be reimbursed to DVSI by
Licensee. In the event of an underpayment of royalties due to
DVSI, Licensee shall also pay interest on the underpayment at
an annual rate of eighteen (18) percent in addition to the
amount of the underpayment.
Page 3
<PAGE> 4
LICENSE AGREEMENT
3.3 Licensee shall, within ninety (90) days after the close of
each calendar quarter of each year of this Agreement, deliver
to DVSI a true and accurate itemized statement giving such
particulars of the business conducted by Licensee during the
preceding calendar quarter as are pertinent to a royalty
accounting under this Agreement. These shall include at least
the following:
1. Total number of Royalty Units incorporating the
Technology (and any and all versions or parts
thereof), first sold.
2. The total amount of royalties due to DVSI.
3. Description of all products sold by Licensee that
incorporate the Technology for which royalties are
due and number of Royalty Units assigned each such
product.
4. REPRESENTATION AND WARRANTIES
4.1 DVSI disclaims all warranties expressed or implied, including
without limitation any implied warranty of merchantability or
fitness for a particular purpose.
4.2 DVSI disclaims and shall not be liable for any losses or
damages, whether direct, indirect, incidental, consequential,
special, or exemplary, arising from the design or use of any
of the Technology. DVSI's liability shall in any event be
limited to twenty percent (20%) of the aggregate amount of the
payments made to DVSI under this License.
4.3 DVSI accepts no responsibility for, and makes no
representations as to, the accuracy or reliability of any
communication encoded or decoded using the Technology.
4.4 Licensee assumes all risk as to the quality and performance of
the Technology. Licensee shall release DVSI from any claim,
damage, demand, or other liability arising from, or based
upon, the quality or performance of the Technology in
conjunction with the Licensee's product.
5. RELATIONSHIP OF THE PARTIES
Nothing contained herein shall be construed to place the parties in
the relationship of partners or joint venturers. Neither party has
the power to obligate or bind the other in any manner whatsoever.
6 NON-DISCLOSURE OF SOFTWARE
6.1 Nothing in this Agreement shall require DVSI to disclose,
provide, or grant any rights whatsoever with respect to any
methods or algorithms embodied in any software (including both
source and object codes) it has developed or may in the future
develop.
6.2 Licensee shall not decompile, reverse engineer or disassemble
any DVSI product which embodies the Technology. This
includes, but is not limited to, DVSI's VC-10 and VC-20 voice
codecs.
Page 4
<PAGE> 5
LICENSE AGREEMENT
7. TERMINATION
7.1 DVSI may terminate this Agreement for cause if:
7.1.1 Licensee materially breaches the Agreement, including
without limitation if it fails to pay the required
royalties when due, or if it fails to comply with the
protection and security provisions of Section 3 of
the Agreement, provided DVSI gives a written notice
to cure such failure(s) and Licensee has not cured
within thirty (30) days after its receipt.
7.1.2 There occurs the making or filing of an application
to wind up Licensee (other than for the purpose of
reconstruction or amalgamation) under any law or
government regulation relating to bankruptcy or
insolvency.
7.2 Licensee may terminate this Agreement for cause if:
7.2.1 DVSI materially breaches the Agreement, provided
Licensee gives a written notice to cure such
failure(s) and DVSI has not cured within thirty (30)
days after its receipt.
7.2.2 There occurs the making or filing of an application
to wind up DVSI (other than for the purpose of
reconstruction or amalgamation) under any law or
government regulation relating to bankruptcy or
insolvency.
7.3 Termination shall be effected by the serving of notice, by
certified mail at the address designated in Section 8 of this
Agreement.
7.4 Upon any termination of this Agreement, all rights and
licenses granted by this Agreement shall immediately cease
upon the effective date of said termination, and all past
royalties and payments accrued to the date of said termination
plus any other obligations, including Licensees total minimum
royalty obligation ($135,000) as specified in Section 3.1.6
herein, shall be paid to DVSI within thirty (30) days from the
effective date of said termination.
7.5 This Agreement shall terminate after all Proprietary Rights in
the Technology are lost through no fault of Licensee.
7.6 Licensee may terminate this Agreement without cause upon
giving ninety (90) days written notice to DVSI as specified in
Section 8.
8. NOTICES
Any notice or other communication pursuant to this Agreement shall be
sufficiently made or given on the date of mailing if sent to such
party by certified mail, postage prepaid, addressed to the party to
whom notice is being given at its address below or as it shall
designate by written notice given to the other party.
In the case of DVSI:
Jae Lim, Chairman of the Board, or
John C. Hardwick, President,
Digital Voice Systems, Inc.
One Van de Graaff Drive
Burlington, MA 01803
Page 5
<PAGE> 6
LICENSE AGREEMENT
In the case of Licensee:
Jeff Fuller
President and Chief Operations Officer
Transcrypt International
4800 North West First Street
Lincoln, Nebraska 68521
9. EXPORT CONTROL
9.1 U.S. export laws and regulations prohibit the exportation of
technical data which may be received from DVSI under this
Agreement from the United States to certain countries, except
under a special validated license. As of September 22, 1994
the restricted countries are: Libya, Cuba, North Korea, Iraq,
Serbia, Montenegro, and Haiti. Licensee hereby gives its
assurance to DVSI that Licensee win not knowingly, unless
prior authorization is obtained from the appropriate U.S.
export authority, export or re-export directly or indirectly
to any restricted countries the technical data received from
DVSI under this Agreement in violation of said Export Laws and
Regulations.
9.2 DVSI neither represents that a license is not required nor
that, if required, it will be issued by the U.S. Department of
Commerce. Licensee shall assume complete and sole
responsibility for obtaining any licenses required for export
purposes.
10. MISCELLANEOUS
10.1 Neither this Agreement nor any rights hereunder may be
assigned or otherwise transferred in any manner by Licensee
without the prior written consent of DVSI.
10.2 The parties hereto acknowledge that this instrument sets forth
the entire Agreement and understanding of the parties as to
the subject matter hereof and shall not be subject to any
change or modification, except by a written agreement signed
by the parties hereto.
10.3 In the event that any provisions are determined to be invalid
or unenforceable under any controlling body of law, such
invalidity or unenforceability shall not in any way affect the
validity or enforceability of the remaining provisions.
10.4 No waiver by either party of any rights hereunder shall be
valid unless it is in writing signed by that party. The
omission by either party to insist upon strict performance of
any provision of this Agreement shall not be construed as a
waiver of such provision.
10.5 Each party agrees not to disclose, publicize, or use for
promotional purposes the existence of terms of this Agreement
without the prior written consent of the other which consent
shall not be unreasonably withheld.
10.6 This Agreement shall be read and construed according to the
laws of the Commonwealth of Massachusetts, United States of
America, and the parties submit to the jurisdiction of the
courts of said Commonwealth.
Page 6
<PAGE> 7
LICENSE AGREEMENT
IN WITNESS WHEREOF, the parties hereto set their hands and seals and duly
execute this License Agreement as of the day and year first above written.
Digital Voice Systems, Inc.
JOHN C. HARDWICK 21 August 1995
- ------------------------------------ -----------------------
John C. Hardwick, President Date
Licensee
Transcrypt International Ltd.
JEFFERY L. FULLER 8/14/95
- ------------------------------------ -----------------------
Jeffery L. Fuller Date
President and COO
Page 7
<PAGE> 1
EXHIBIT 10.13
ARROW/SCHWEBER ELECTRONICS GROUP
CONSIGNED INVENTORY AGREEMENT
Agreement, made of this June 22, 1994, between Arrow/Schweber Electronics
Group, with its principal place of business at 25 Hub Drive, Melville, New
York, 11747 ("Arrow") and Transcrypt International ("Customer"), with a
principal place of business at 4800 Northwest First St., Lincoln, Nebraska,
68521.
1. Arrow shall maintain at Customer's location stocks of the device types
listed on Schedule A annexed hereto (hereinafter the "Products"). Schedule A
may be amended at any time by Agreement of both parties, subject to all of the
terms and conditions of this Agreement. All right and title to the Products on
Customer's premises shall remain with Arrow until delivery (as hereinafter
defined).
2. Customer shall maintain, at its sole cost and expense, a secure area
within which to store the Products. All Products described in Schedule A shall
be physically segregated from all other inventory and property. The consigned
inventory storage area ("CISA") shall be kept locked at all times, and may be
accessed by such Arrow employees as Arrow may designate and the following
Customer employee only: Arden Beck, Mike Wallace, Rebecca Meyer.
Arrow employees will have access to Customer's location and the CISA
at any time during Customer's normal business hours.
3. On a weekly basis, the Customer will inform Arrow of the quantity and
parts used, and will give Arrow a purchase order number on which these items
are to be billed. Customer will acknowledge receipt of each delivery of
Products to the CISA by promptly returning to Arrow a signed copy of Arrow's
packing slip.
4. The prices for all material ordered hereunder shall be as set forth in
Schedule A and shall remain fixed, but may be revised upward or downward
depending on price changes from manufacturer that would be passed through to
buyer. Buyer may accept or reject the new pricing and by mutual written
consent amend Schedule A, accordingly.
<PAGE> 2
Page 2 of 3
5. As often as once a month, and no less than once a quarter, a physical
count of the Consigned inventory will be performed by an Arrow representative.
Customer shall have an authorized representative review such physical inventory
and shall initial the physical inventory listing of parts and quantities. In
the event Customer does not make authorized personnel available for such
purposes, Customer hereby agrees that Arrow's count will be deemed by Customer
to be complete and accurate.
If the physical count does not agree with the on-hand quantity for
this warehouse according to the Arrow on-line system (after assuring that all
recent shipments to the Customer have been put into stock), the discrepancies
must be resolved with the Customer. The Customer is responsible for the
security and control of Arrow inventory on the site, and will be billed for any
unexplained shortages at the time of the audit. Customer shall at all times
bear risk of loss of Product in the CISA by any cause whatsoever, shall
maintain sufficient insurance coverage to cover any such loss, and will provide
to Arrow a certificate of insurance, naming Arrow as an additional insured,
evidencing such coverage.
6. Arrow reserves the right to cease or limit the replenishment of any
Product, or to remove Product from the CISA in the event that Customer fails to
keep its account current or if, and to the extent that, the total dollar value
of Product in the CISA together with the amount of the payable outstanding from
Customer to Arrow for more than 30 days (whether or not related to the purchase
of Product hereunder) exceeds Customer's then current Arrow credit limit.
7. This contract will continue in full force and effect for one year from
the date hereof, but may be terminated by either party, with or without cause,
on 60 day's notice to the other, or without further notice in the event that
either party gives written notice to the other of a substantial default
hereunder and the other party fails to cure the same within 30 days of its
receipt of such notice. In the event this Agreement is terminated by either
party and, as of the effective date of any such termination Customer has not
then purchased under the terms hereof all of its estimated annual requirement
for such Product, Customer shall purchase the Product in the CISA on the
effective date of such termination.
<PAGE> 3
Page 3 of 3
8. The Products will be covered by the manufacturers' standard warranty
therefor, the warranty period beginning to run on the date upon which said
Product was delivered to the CISA.
9. During the term of this Agreement, Customer's authorized personnel may
enter the CISA and remove Product for Customer's use (such removal constituting
"delivery" hereunder).
Title to the Product will pass to Customer upon delivery, but Arrow
will retain a security interest in such Products after delivery until payment
has been made therefor. At any time, and from time to time, during the term of
this Agreement, Arrow may file financing statements (UCC-1) with appropriate
authorities as evidence of its title in the Product maintained in the CISA and
its security interest in the delivered Products. Customer hereby authorizes
Arrow to execute and irrevocably appoints Arrow its attorney in fact for the
execution of such documents. Customer agrees that it will not permit any lien
or encumbrance of any sort to be created or executed against the Product in the
CISA. Customer warrants and represents that no part of this Agreement
constitutes a violation of the terms of, or default under, any other Agreement
it may have with suppliers, creditors or otherwise.
ARROW/SCHWEBER ELECTRONIC GROUP TRANSCRYPT INTERNATIONAL
By: JAMES M. ROSEBERG By: [SIG]
------------------------------ ------------------------------
James M. Rosenberg
Vice President, Strategic Sales
Date: 8-23-94 Date: 8-16-94
------------------------- ---------------------------
<PAGE> 4
ARROW/SCHWEBER ELECTRONICS GROUP
CONSIGNED INVENTORY AGREEMENT
SCHEDULE "A"
TRANSCRYPT INTERNATIONAL
<TABLE>
<CAPTION>
PART # NEDA CONSIGNMENT STOCK RESALE
------ ---- ----------------- ------
<S> <C> <C> <C>
MC68HC705C8FB 5236 5,000 11.25
LMT358D 5236 3,000 .39
LMT324D 5236 6,000 .36
MC14053BDR2 5236 5,000 .346
</TABLE>
<PAGE> 1
EXHIBIT 10.14
Registered Registered
No. 1 $850,000.00
UNITED STATES OF AMERICA
STATE OF NEBRASKA
NEBRASKA INVESTMENT FINANCE AUTHORITY
INDUSTRIAL DEVELOPMENT REVENUE BOND
(TRANSCRYPT INTERNATIONAL, LTD. PROJECT)
Series 1994
<TABLE>
<CAPTION>
Maturity Date Interest Rate Bond Date
------------- ------------- ---------
<S> <C> <C>
January 15, 2004 6.25% January 15, 1994
</TABLE>
REGISTERED HOLDER: Security National Bank
P.O. Box 348
Superior, NE 68978
PRINCIPAL AMOUNT: Eight Hundred Fifty Thousand and No/Hundredths
Dollars ($850,000.00)
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE ISSUER OR THE STATE OF
NEBRASKA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE
PRINCIPAL OF, PREMIUM, IF ANY, PURCHASE PRICE OF OR INTEREST ON THIS BOND. THE
ISSUER HAS NO TAXING POWER. THE BONDS ARE LIMITED OBLIGATIONS OF THE ISSUER
PAYABLE SOLELY FROM AMOUNTS PLEDGED THEREFOR PURSUANT TO THE INDENTURE.
NEITHER THE STATE, NOR ANY POLITICAL SUBDIVISION THEREOF, NOR ISSUER SHALL BE
OBLIGATED TO PAY THE PRINCIPAL OF THE BONDS OR THE INTEREST THEREON OR OTHER
COSTS INCIDENT THERETO EXCEPT FORM THE REVENUES AND MONEYS PLEDGED THEREFOR,
AND NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR ANY
POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF,
PREMIUM, IF ANY, OR INTEREST ON THE BONDS OR OTHER COSTS INCIDENTAL THERETO.
The Nebraska Investment Finance Authority (the "Issuer"),
1
<PAGE> 2
organized and existing under and by virtue of the laws of the State of
Nebraska, for value received hereby promises to pay, solely from the source and
as hereinafter provided, to the Registered Holder identified above, or
registered assigns, on the Maturity Date identified above (or earlier as
hereinafter referred to), the Principal Amount identified above, upon
presentation and surrender hereof at the office of the Trustee, Paying Agent
and Bond Registrar, Norwest Bank Nebraska, N.A., Omaha, Nebraska (the
"Trustee"), and in like manner to pay solely from said source interest
(computed on the basis of a 360-day year of twelve 30-day months) on said
principal sum at the Interest Rate identified above from the Bond Date
identified above or from the most recent date to which interest has been paid,
payable quarterly on April 15, 1994 and on each July 15, October 15, January 15
and April 15 thereafter until payment in full of such principal amount. Except
with respect to interest not punctually paid, the interest on this Bond will be
paid by check or draft mailed to the Registered Holder in whose name this Bond
is registered at the close of business on the fifteenth calendar day (whether
or not a business day), next preceding the applicable interest payment date at
his address as it appears on such bond registration books. The principal of
this Bond and the interest hereon are payable in any coin or currency of the
United States of America which on the respective dates of payment is legal
tender for the payment of public and private debts.
This Bond is one of a series designated Nebraska Investment
Finance Authority Industrial Development Revenue Bonds (Transcrypt
International, Ltd. Project), Series 1994, aggregating Eight Hundred Fifty
Thousand Dollars ($850,000) (the "Series 1994 Bonds") in principal amount which
have been issued pursuant to Sections 58-201 et. seq. of the Reissue Revised
Statutes of Nebraska, as amended and supplemented (the "Act") and under and
pursuant to a Resolution adopted by the Issuer (the "Resolution") and a Trust
Indenture between the Issuer and Trustee dated January 15, 1994 ("Indenture").
This Bond does not represent a debt or pledge of the faith or credit of the
Issuer or grant to the Registered Holder of this Bond any right to have the
Issuer levy any taxes or appropriate any funds for the payment of the principal
hereof or the interest hereon nor is this Bond a general obligation of the
Issuer or the individual officials, officers, members, directors, employees or
agents thereof. The Issuer has no taxing power. This Bond is payable solely
and only out of the rentals,
2
<PAGE> 3
revenues and other income, charges and monies to be produced and received with
respect to the Project (as defined in the Indenture), specifically including,
but not limited to, payment of principal and interest to the Issuer by the
Company pursuant to the Promissory Note of the Company executed pursuant to the
Loan Agreement (as defined in the Indenture), and from other sources as
provided in the Loan Agreement. Principal and Interest payments sufficient for
the prompt payment when due of the principal and interest on this Bond are to
be paid to the Trustee for payment to the registered owner by the Company for
the account of the Issuer. All such payments have been duly pledged for that
purpose and, in addition, the rights of the Issuer excluding certain rights to
payment of fees, expenses and indemnifications under the Loan Agreement have
been assigned to secure the payment of such principal and interest.
No recourse shall be had for the payment of the principal of
or interest on this Bond, or for any claim based hereon or upon any obligation,
covenant or agreement contained in the Resolution, or the Indenture against any
past, present or future officer, director, employee, member or agent of the
Issuer, or any officer, director, member, agent, employee or trustee of any
successor, as such, either directly or through the Issuer or any successor,
under any rule of law or equity, statute or constitution or by the enforcement
of any assessment or penalty or otherwise, and all such liability of any such
officer, director, agent, employee or member as such is hereby expressly waived
and released as a condition of and in consideration of the issuance of this
Bond.
It is hereby certified and recited that the Issuer has found,
as set out in its Resolution: that the Project is an eligible "project" as
defined in the Act; that the issuance of this Bond and the loan to finance the
acquisition of the Project will promote the public purposes of the Act by,
among other things, the promotion of employment and prosperity of residents of
the City of Lincoln and the State of Nebraska; that all acts, conditions and
things required to be done precedent to and in the issuance of this Bond have
been properly done, have happened and have been performed in regular and due
time, form and manner as required by law; and, that this Bond does not
constitute a debt of the Issuer within the meaning of any constitutional or
statutory limitations.
This Bond is transferable, as provided in the Trust
3
<PAGE> 4
Indenture, only upon the books of the Issuer kept for that purpose at the
office of the Trustee by the Registered Holder hereof in person, or by his duly
authorized attorney, upon surrender of this Bond together with a written
instrument of transfer satisfactory to the Trustee duly executed by the
Registered Holder or his duly authorized attorney, and together with an
Investment Letter in form and substance acceptable to the Issuer executed by
the person or persons to whom the Bonds shall be transferred, and thereupon a
new registered Bond or Bonds in the same aggregate principal amounts shall be
issued to the transferee in exchange therefor as provided in the Trust
Indenture, and upon payment of the charges therein prescribed. The Issuer, the
Trustee and any Paying Agent may deem and treat the person in whose name this
Bond is registered as the absolute owner hereof for the purpose of receiving
payment of, or on account of, the principal hereof and premium, if any, and
interest due hereon and for all other purposes.
The Bonds are issuable in the form of registered Bonds without
coupons. Subject to such conditions and upon the payment of such charges
provided in the Trust Indenture, the owner of any registered Bond or Bonds may
surrender the same (together with a written instrument of transfer satisfactory
to the Trustee duly executed by the registered owner or his duly authorized
attorney), in exchange for an equal aggregate principal amount of registered
Bonds of any other authorized denominations.
The Bonds shall bear interest at a Tax Equivalent Rate of
Eight and One/Fourth percent (8.25%) per annum upon a Determination of
Taxability from and after the Taxable Date, as defined and provided in the
Trust Indenture.
At the option of the Company, the Bonds shall be subject to
redemption in whole or in part at any time (and in the event that less than all
of the Bonds of a maturity are called for redemption, the particular Bonds of
such maturity to be redeemed shall be selected by lot by the Trustee), upon
notice mailed to the owner of each Bond not less than 30 days prior to the date
fixed for redemption, as provided in the Indenture, at the following redemption
prices plus accrued interest thereon to the date of such redemption.
4
<PAGE> 5
<TABLE>
<CAPTION>
Redemption Price
(expressed as
Redemption Date percentage of par)
--------------- ------------------
<S> <C>
January 15, 1994 through January 14, 1997 103%
January 15, 1997 through January 14, 2000 102%
January 15, 2000 and therafter 101%
</TABLE>
The Bonds are also subject to mandatory redemption pursuant to
the Indenture in the event of damage or destruction of the Project by casualty,
in the event of a condemnation of the Project, and to the extent monies in the
Acquisition Fund are not expended prior to the Completion Date (as defined in
the Indenture).
The Bonds of the issue of which this Bond is one are payable
upon redemption at the above-mentioned office of the Paying Agent. Notice of
redemption setting forth the place of payment shall be mailed as provided in
the Trust Indenture. If notice of redemption shall have been mailed and
published as aforesaid, the Bonds or portions thereof specified in said notice
shall become due and payable on the redemption date therein fixed, and if, on
the redemption date, moneys for the redemption of all the Bonds and portions
thereof to be redeemed, together with interest to the redemption date, shall be
available for such payment on said date, then from and after the redemption
date interest on such bonds or portions thereof so called for redemption shall
cease to accrue and be payable.
It is hereby certified and recited that all conditions, acts
and things required by law and the Resolution to exist, to have happened and to
have been performed precedent to and in the issuance of this Bond, exist, have
happened and have been performed and that the issue of this Bond, together with
all other indebtedness of the Issuer, is within every debt and other limit
prescribed by the laws of the State of Nebraska.
This Bond shall not be entitled to any benefit under the
Resolution or Indenture referred to herein or be valid or become obligatory for
any purpose until this Bond shall have been authenticated by the execution by
the Trustee of the Certificate of Authentication hereon.
IN WITNESS WHEREOF, THE Nebraska Investment Finance
5
<PAGE> 6
Authority, has caused this Bond to be signed in its name and on its behalf by
the manual or facsimile signature of its Chairperson, its corporate seal or a
facsimile thereof to be hereunto affixed, imprinted, engraved or otherwise
reproduced, and attested by the manual or facsimile signature of its Executive
Director, as of the Bond Date identified above.
The Nebraska Investment Finance
Authority
By:
---------------------------------
ATTEST: Its Chairperson
______________________________
Executive Director
( S E A L )
CERTIFICATE OF AUTHENTICATION
This Bond is delivered pursuant to the within-mentioned
Indenture.
Norwest Bank Nebraska, N.A.,
Date:_____________________ Omaha, Nebraska, Trustee
By:
--------------------------------
Authorized Signature
6
<PAGE> 7
ASSIGNMENT
_______________________________________________________________________________
Social Security or Other Identifying Number of Assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
_______________________________________________________________________________
(Name and Address of Assignee)
the within Bond, and does hereby irrevocably constitute and appoint
______________________________________ to transfer said Bond on the books kept
for registration thereof with full power of substitution in the premises.
Dated:_________________________
Signature Guaranteed:______________________________________________
Signature:_________________________________________________________
NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Bond in every particular, without
alteration or enlargement or any change whatever.
7
<PAGE> 8
Note
$850,000 January 15, 1994
FOR VALUE RECEIVED, the undersigned Transcrypt International,
Ltd., Lincoln, Nebraska, a Nebraska limited partnership ("Company"), hereby
promises to pay to The Nebraska Investment Finance Authority ("Issuer"), or its
assigns, at the principal banking office of Norwest Bank Nebraska, N.A., Omaha,
Nebraska, the principal sum of Eight Hundred Fifty Thousand Dollars ($850,000).
Principal and interest payments on this Promissory Note shall
be in the amount necessary to pay principal and interest, as the same fall due,
on Issuer's Industrial Development Revenue Bonds (Transcrypt International,
Ltd. Project), Series 1994 (the "Series 1994 Bonds"), issued pursuant to a
Trust Indenture dated as of January 15, 1994 (the "Indenture"), by and between
Issuer and Norwest Bank Nebraska, N.A., Omaha, Nebraska, as Trustee (the
"Trustee").
Interest on this Note shall be payable on April 15, 1994, and
quarterly thereafter on July 15, October 15, January 15 and April 15 of each
year. Principal on this Note shall be payable on January 15, 2004 and shall
bear interest from the date of this Note at the rate of 6.25% per annum,
computed on the basis of a 360 day year consisting of 12 thirty day months.
As provided in Section 2.11 of the Indenture, in the Event of
a Determination of Taxability, the outstanding principal amount due on the Note
shall bear interest at a rate of eight and one/fourth percent (8.25%) per annum
from and after the Taxable Date, all as defined in the Indenture.
This Note is issued pursuant to and is secured by a Loan
Agreement of even date herewith between Company and Issuer (the "Loan
Agreement") wherein, among other things, the Issuer has agreed to loan to the
Company and the Company has agreed to borrow from the Issuer the proceeds
derived by Issuer from the sale of the Series 1994 Bonds. The Bonds are issued
pursuant to the Indenture. This Note is also secured by a Deed of Trust and
Construction
B-1
<PAGE> 9
Security Agreement from Company to Trustee dated as of the date of the Note.
Upon the occurrence of any Event of Default as described in
the Loan Agreement, all unpaid principal and interest of this Note may be
declared to be forthwith due and payable if and in the manner and with the
effect provided in the Loan Agreement. Failure to exercise this right shall
not constitute a waiver of the right to exercise the same in the event of any
subsequent occurrence of such an event of default. If this Note shall be
placed in the hands of an attorney or attorneys for collection, Company agrees
to pay in addition to the amount due hereon, the reasonable costs and expenses
of collection, including reasonable attorney's fees.
Company may prepay the Note in whole or in part at any time,
or from time to time at a prepayment price equal to the redemption price for
any Series 1994 Bonds. Prepayments shall be applied first to interest, with
the remainder to principal. Company shall prepay the Note in full following
damage or destruction of the Project if Company elects not to repair or
reconstruct the Project as provided in the Indenture or in the event of a
taking in condemnation of the Project to the extent it cannot be reasonably
replaced or restored as provided in the Loan Agreement and in the Indenture.
The liability of Company and of any guarantor of the Note or
any successor, assign or personal representative of any of the foregoing to any
person or entity under this Note is joint and several, absolute and
irrevocable, and shall not be limited to Company's interest in the Project and
the Loan Agreement, and any person or entity shall not be required to look
exclusively thereto or to the Deed of Trust for payment of all obligations
arising out of this Note or any other agreement securing the obligations of the
Company or the Series 1994 Bonds.
All parties to this Note, whether principal, surety, guarantor
or endorser, hereby waive presentment for payment, demand, protest, notice of
protest and notice of dishonor.
Signed as of the 15th day of January, 1994.
B-2
<PAGE> 10
Transcrypt International, Ltd.,
a Nebraska limited partnership
By: Transcrypt International,
Inc., General Partner
By:
-----------------------------
Its Chairman
B-3
<PAGE> 11
FOR VALUE RECEIVED, the Nebraska Investment Finance Authority,
hereby assigns all of its right, title and interest in and to the above
Promissory Note, dated January 15, 1994, to Norwest Bank Nebraska, N.A., Omaha,
Nebraska, as Trustee, or to its successor or successors as Trustee, under that
certain Indenture of Trust, dated January 15, 1994, by and between the
undersigned and said Trustee. This assignment is made without recourse.
DATED as of January 15, 1994
Nebraska Investment Finance
Authority
By:
--------------------------------
Its Executive Director
B-1
<PAGE> 1
EXHIBIT 10.15
NEBRASKA INVESTMENT FINANCE AUTHORITY (Issuer)
and
NORWEST BANK NEBRASKA, N.A.
OMAHA, NEBRASKA
(Trustee)
TRUST INDENTURE
Dated as of January 15, 1994
$850,000
Nebraska Investment Finance Authority
Industrial Development Revenue Bonds
(Transcrypt International, Ltd., Project)
Series 1994
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I DEFINITIONS AND INTERPRETATION
<S> <C>
Section 1.01 Defined Terms ................................. 3
Section 1.02 Provisions as to Interpretation ............... 8
ARTICLE II THE BONDS
Section 2.01 Form, Maturity and Numeration
of the Series 1994 Bonds ......... 8
Section 2.02 Execution of Bonds ............................ 9
Section 2.03 Authentication and Registration
of the Bonds ..................... 9
Section 2.04 Conditions For Delivery of the Bonds .......... 10
Section 2.05 Registration of Bonds ......................... 11
Section 2.06 Ownership of Bonds ............................ 11
Section 2.07 Valid Obligations ............................. 12
Section 2.08 Loss or Destruction of Series 1994 Bonds ...... 12
Section 2.09 Optional Redemption of Series 1994 Bonds ...... 12
Section 2.10 Mandatory Redemption .......................... 13
Section 2.11 Additional Interest in the Event of a
Determination of Taxability ...... 13
Section 2.12 Written Notice to Trustee ..................... 14
Section 2.13 Mailing of Notice ............................. 14
Section 2.14 Deposit for Redemption ........................ 14
Section 2.15 Payment of Redeemed Bonds ..................... 15
Section 2.16 Bonds Deemed Not outstanding
After Deposit .................... 15
Section 2.17 Unclaimed Money ............................... 15
Section 2.18 Bonds; Limited Obligations .................... 15
ARTICLE III APPLICATION OF BOND PROCEEDS
Section 3.01 Creation of Acquisition Fund .................. 16
Section 3.02 Costs of Issuance Account ..................... 16
Section 3.03 Disbursements From Acquisition Fund ........... 17
Section 3.04 Company to Pay in Event Acquisition
Fund Insufficient ................ 17
Section 3.05 Responsibility for Completion of Project ...... 18
</TABLE>
ARTICLE IV DISPOSITION OF PLEDGED REVENUES
<PAGE> 3
<TABLE>
<S> <C>
Section 4.01 Bond Fund ..................................... 18
Section 4.02 Pledge of Bond Fund ........................... 18
Section 4.03 Funds Held in Trust ........................... 19
Section 4.04 Application of Funds .......................... 19
Section 4.05 Investment of Funds ........................... 21
Section 4.06 Rebate Fund ................................... 21
</TABLE>
<PAGE> 4
ARTICLE V PARTICULAR COVENANTS OF THE ISSUER
<TABLE>
<S> <C>
Section 5.01 Payment of Principal, Premium, if any, and Interest;
Limited Obligation ............... 22
Section 5.02 Performance of Covenants of Issuer ............ 24
Section 5.03 Instruments of Further Assurance .............. 24
Section 5.04 Recording and Filing .......................... 25
Section 5.05 Rights Under Agreement ........................ 25
Section 5.06 Arbitrage and Tax Covenants ................... 25
Section 5.07 No Disposition of Trust Estate ................ 26
Section 5.08 Access to Books ............................... 26
ARTICLE VI TAXES AND INSURANCE
Section 6.01 Taxes, Other Governmental Charges,
Liens and Utility Charges ........ 26
Section 6.02 Insurance ..................................... 27
Section 6.03 Advances ...................................... 28
ARTICLE VII DAMAGE, DESTRUCTION AND CONDEMNATION
Section 7.01 Application of Insurance Proceeds ............. 28
Section 7.02 Application of Condemnation Award ............. 28
ARTICLE VIII DEFAULT PROVISIONS AND REMEDIES OF BONDHOLDER
Section 8.01 Events of Default ............................. 29
Section 8.02 Remedies ...................................... 30
Section 8.03 Appointment of Receiver ....................... 33
Section 8.04 Proceeds of Sale or Other
Enforcement Remedies ............. 33
Section 8.05 Waiver of Event of Default; Forbearance ....... 34
Section 8.06 Limitation on Exercise of Remedies
by Bondholders ................... 34
Section 8.07 Right of Bondholders to Direct
Proceedings ...................... 34
ARTICLE IX THE TRUSTEE
Section 9.01 Acceptance of Trust and Prudent
Performance Thereof .............. 35
Section 9.02 Trustee May Rely Upon Certain Documents
and Opinions ..................... 36
Section 9.03 Trustee Not Responsible for Indenture
Statements, Validity ............. 36
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
Section 9.04 Limits on Duties and Liabilities of
Trustee .......................... 37
Section 9.05 Obligation of Trustee ......................... 37
Section 9.06 Notice to Holders ............................. 38
Section 9.07 Right of Trustee to Perform Certain
Acts on Failure of Company ....... 38
Section 9.08 Compensation of Trustee ....................... 38
Section 9.09 Trustee May Hold Series 1994 Bonds ............ 39
Section 9.10 Resignation or Removal of Trustee ............. 39
Section 9.11 Appointment of Successor Trustee .............. 39
Section 9.12 Transfer of Rights and Property to
Successor Trustee ................ 40
Section 9.13 Annual Reports ................................ 40
ARTICLE X THE BONDHOLDERS
Section 10.01 Execution of Instruments by Bondholders ....... 41
Section 10.02 Waiver of Notice .............................. 41
Section 10.03 Determination of Bondholder Concurrence ....... 41
Section 10.04 Bondholders' Meeting .......................... 42
ARTICLE XI PAYMENT AND DEFEASANCE
Section 11.01 Payment and Discharge of Indenture ............ 42
Section 11.02 Series 1994 Bonds Deemed Not Outstanding
After Deposit .................... 43
Section 11.03 Defeasance of Series 1994 Bonds ............... 44
ARTICLE XII SUPPLEMENTAL INDENTURES
Section 12.01 Purposes for Which Supplemental Indentures
May be Executed .................. 45
Section 12.02 Execution of Supplemental Indenture ........... 46
Section 12.03 Discretion of Trustee ......................... 46
Section 12.04 Modification of Indenture With Consent
of Bondholders ................... 47
Section 12.05 Supplemental Indentures to be Part of
Trust Indenture .................. 48
Section 12.06 Rights of Company Unaffected .................. 48
ARTICLE XIII MISCELLANEOUS
Section 13.01 Issuer's Obligations Limited .................. 49
Section 13.02 Covenants of Issuer to Bind Successors
and Assigns ...................... 49
</TABLE>
<PAGE> 6
<TABLE>
<S> <C>
Section 13.03 Immunity of Officers .......................... 49
Section 13.04 No Benefits to Outside Parties ................ 50
Section 13.05 Severability of Indenture Provisions .......... 50
Section 13.06 Execution of Indenture in Counterparts ........ 50
Section 13.07 Headings Not Controlling ...................... 50
Section 13.08 Notice to Parties ............................. 50
</TABLE>
EXHIBIT A Resolution
EXHIBIT B Form of Bond
EXHIBIT C Description of Site and Project
EXHIBIT D Additional Permitted Encumbrances
EXHIBIT E Form of Requisition
EXHIBIT F Investment Letter
<PAGE> 7
TRUST INDENTURE
THIS TRUST INDENTURE (the "Trust Indenture"), is made and entered into
this 15th day of January, 1994, by and between the NEBRASKA INVESTMENT FINANCE
AUTHORITY ("Issuer"), and NORWEST BANK NEBRASKA, N.A., OMAHA, NEBRASKA, as
Trustee ("Trustee").
W I T N E S S E T H:
WHEREAS, the Issuer is a body politic and corporate, not a state agency
but an independent instrumentality exercising essential public functions,
organized and existing under the laws of the State of Nebraska, with lawful
power and authority to enter into this Trust Indenture;
WHEREAS, the Issuer, in furtherance of the purposes and pursuant to the
provisions of Section 58-201 et. seq., Reissue Revised Statutes of Nebraska,
1943, as amended (collectively the "Act"), and pursuant to the terms of the
Resolution adopted by Issuer on January 18, 1994, the Issuer has issued a series
of its revenue bonds, designated "Nebraska Investment Finance Authority,
Industrial Development Revenue Bonds (Transcrypt International, Ltd. Project),
Series 1994," dated January 15, 1994, in the original principal amount of
$850,000 (the "Bonds"); and
WHEREAS, the proceeds from the sale of the Series 1994 Bonds are to be
used by the Issuer to make a loan to Transcrypt International, Ltd. ("Company")
pursuant to a Loan Agreement dated January 15, 1994, to be used to acquire,
construct and equip a manufacturing facility by Company ("Project"); and
WHEREAS, Issuer and Company have contracted for the sale of
the Series 1994 Bonds; and
NOW, THEREFORE, the Issuer, for the purpose of securing the payment of
the principal of, premium, if any, and interest on the Series 1994 Bonds and all
amounts now owed and hereafter owing under the Series 1994 Bonds according to
their tenor and effect and under the Trust Indenture, including, but not limited
to, any advances made pursuant to this Trust Indenture, and the faithful
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<PAGE> 8
performance and observance by the Issuer of all the covenants, conditions,
stipulations and agreements therein and herein contained, in consideration of
these premises and the sum of $1.00, and for the further purpose of securing all
amounts payable to the Bondholders and other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, has granted,
bargained, sold, conveyed, transferred, assigned, set over, mortgaged, granted a
security interest in and warranted, and does
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<PAGE> 9
hereby grant, bargain, sell, convey, transfer, assign, set over, mortgage, grant
a security interest in and warrant to the Trustee in trust and to its successors
and assigns forever, for the benefit and security of the Bondholders, the
following property:
I.
All right, title and interest of the Issuer under that certain Loan
Agreement, dated January 15, 1994, between the Issuer and the Company and the
Note executed and delivered in connection therewith, and all other sums, (but
not including payments to the Issuer pursuant to Section 4.04(a)(d) and (e) and
Section 9.07 of the Loan Agreement, rights to indemnification pursuant to
Section 7.08 of the Loan Agreement, and reimbursement, taxes and administrative
fees payable thereunder) due or to become due thereunder or during any extension
or renewal thereof;
II.
All right, title and interest of the Issuer in and to any monies and
investments in the funds established pursuant to this Trust Indenture (except
the Rebate Fund) including the Bond Fund and Acquisition Fund, as defined
herein;
III.
All right, title and interest, if any, of the Issuer in and to any of
the rents, royalties, issues, profits, revenue, income, security and other
deposits, and other benefits of the Project (hereinafter defined) or arising
from the use or enjoyment of all or any portion thereof or from any lease or
agreement appertaining thereto; and all right, title and interest of the Issuer
in and to the Project and all right, title and interest of the Issuer
thereunder, including, without limitation, cash or securities deposited to
secure performance by the Company of the obligations thereunder, whether such
cash or securities are to be held until the expiration of the term of such
agreements or are to be applied to obligations coming due immediately prior to
the expiration of such terms;
IV.
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<PAGE> 10
Any and all other items of property of every name and nature from time
to time hereafter by delivery or by writing of any kind conveyed, pledged,
assigned or transferred, or in which a security interest is granted, as and for
additional security hereunder by the Issuer or by the Company, or by anyone on
behalf of either of them or with either of their written consent, to the
Trustee, which is hereby authorized to receive any and all such property at any
time and all times and to hold and apply the same subject to the terms hereof;
TO HAVE AND TO HOLD the Trust Estate (hereinafter defined) and every
part thereof unto the Trustee, and unto its successors and assigns,
IN TRUST, to secure payment of the Series 1994 Bonds, and the debt
evidenced thereby and the performance of the covenants and agreements herein
undertaken to be performed by the Issuer and subject to the following terms,
conditions and uses:
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.01 Defined Terms.
Unless the context otherwise requires, the following terms
shall have the following meanings for all purposes of this Trust Indenture, such
definitions to be equally applicable to both the singular and plural forms and
masculine, feminine and neuter gender of any of the terms defined:
"Accountant" means a certified public accountant
acceptable to Trustee.
"Act" means Sections 58-201 et. seq., Reissue Revised
Statutes of Nebraska, 1943, and acts amendatory thereof and
supplemental thereto.
"Acquisition Fund" means the fund created pursuant to Section
3.01 of this Trust Indenture.
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<PAGE> 11
"Architect" means Design Associates of Lincoln, Inc., or any
other licensed architect acceptable to the Trustee, and assuming the obligation
of Architect under the Owner and Architect Agreement with respect to the
Project.
"Authorized Company Representative" means the person at the
time designated to act on behalf of the Company by written certificate furnished
to the Issuer and the Trustee, containing the specimen signature of such person
and signed on behalf of the Company by an authorized officer of the Company.
Such certificate may designate an alternate or alternates.
"Authorized Issuer Representative" means the Chairperson, Vice
Chairperson or Executive Director or such other person at the time designated to
act on behalf of the Issuer by written certificate furnished to the Company and
the Trustee, containing the specimen signature of such person and signed on
behalf of the Issuer by its Chairperson, Vice Chairperson or Executive Director.
Such certificate may designate an alternate or alternates.
"Bond Counsel" means Rembolt Ludtke Parker & Berger, or other
nationally recognized bond counsel acceptable to Issuer.
"Bond Documents" means this Trust Indenture, the Deed of
Trust, the Loan Agreement and all documents referred to in any of the foregoing.
"Bond Fund" means the fund created in paragraph 4.01 of this
Trust Indenture.
"Bondholder" means the holders of Series 1994 Bonds from time
to time outstanding.
"Bonds" or "Series 1994 Bonds" mean the Nebraska Investment
Finance Authority, Industrial Development Revenue Bonds (Transcrypt
International, Ltd. Project), Series 1994, dated January 15, 1994, in the
original principal amount of $850,000, authorized by the Resolution and issued
pursuant to the terms hereof.
"Closing" means the date of delivery of the Bonds
pursuant to the Indenture.
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<PAGE> 12
"Code" means the Internal Revenue Code of 1986, as amended,
and the applicable regulations issued thereunder.
"Collateral" means the property pledged to Trustee as security
for the Bondholders pursuant to Article X of the Loan Agreement.
"Company" means Transcrypt International, Ltd., a Nebraska
limited partnership, its successors and assigns, including any surviving,
resulting or transferee corporation or entity, permitted by Section 7.06 of the
Loan Agreement.
"Completion Date" means the earlier of the date of completion
of acquisition, construction and equipping of the Project or January 15, 1997.
"Costs of Issuance" means costs of issuance as defined in
Section 147(g)(1) of the Code, including but not limited to underwriting fees
and expenses, bond and other printing expenses, legal fees and expenses, initial
Trustee's fees, fees of the Issuer and other expenses incurred in connection
with the issuance and sale of the Bonds.
"Costs of Issuance Account" means the subaccount created in
the Acquisition Fund pursuant to Section 3.02 of this Indenture.
"Deed of Trust" means the Deed of Trust and Construction
Security Agreement between Issuer and Trustee dated January 15,
1994.
"Determination of Taxability" means (i) the entry of a final
decree or judgment of any federal court or the taking of a final action by the
Internal Revenue Service, which decree, judgment or action determines that
interest paid or payable on any Series 1994 Bond is or was includable in the
gross income of a holder of the Series 1994 Bonds for federal income tax
purposes under the Code (other than a holder who is a "substantial user" or a
"related person" within the meaning of Section 147 of the Code); or (ii) the
adoption of legislation by the United States Congress, the effect of which is,
in the opinion of Bond Counsel, to cause interest paid or payable on the Series
1994 bonds to be includable in the gross income of holders of the Series 1994
Bonds for federal
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<PAGE> 13
income tax purposes under the Code (other than a holder who is a "substantial
user" or "related person" within the meaning of Section 147 of the Code); or
(iii) the filing with the Trustee, with notice to the Issuer and to the Company,
of an opinion by Bond Counsel to the effect that interest on the Series 1994
Bonds has become includable in the gross income of holders of the Series 1994
Bonds for purposes of federal income taxation (other than a holder who is a
"substantial user" or "related person" within the meaning of Section 147 of the
Code). No decree or action described in clause (i) shall be considered "final,"
however, unless the Company has been given written notice and, if it so desires
and is legally allowed, has been afforded the opportunity to contest the same
either directly or in the name of any holder of Series 1994 Bonds, and until
conclusion of any appellate review, if sought.
"Event of Taxability" means (i) the failure of Company to
observe any covenant, agreement or representation herein, which failure results
in a Determination of Taxability; or (ii) the enactment of federal legislation
having the effect of retroactively rendering interest on the Series 1994 Bonds
taxable to the holder thereof.
"Independent Counsel" means any attorney duly admitted to
practice law before the highest court of any state and not an officer or a full
time employee of the Issuer or the Company.
"Issuer" means the Nebraska Investment Finance Authority, a
body politic and corporate, not a state agency but an independent
instrumentality exercising essential public functions, organized and existing
under the laws of the State of Nebraska, and any successors thereto.
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<PAGE> 14
"Loan Agreement" or "Agreement" means the Loan Agreement,
dated January 15, 1994, between the Issuer and the Company which provides for
the lending of proceeds of the Bonds by the Issuer to the Company.
"Note" means the Promissory Note from Company to Issuer in the
amount of $850,000 executed and delivered pursuant to the Loan Agreement.
"Resolution" means the Resolution of the Issuer adopted on
January 18, 1994, authorizing the issuance and sale of the Bonds, as the same
may be amended, modified or supplemented by any amendments or modifications
thereof.
"Original Purchaser" means the original purchaser of the
Bonds initially Security National Bank, Superior, Nebraska.
"Outstanding" means all Bonds issued, authenticated and
delivered pursuant to this Indenture except Bonds cancelled by Trustee or
delivered to Trustee for cancellation and Bonds the payment or redemption of
which has been made or provided for by depositing money or Governmental
Obligations as provided in this Indenture.
"Paying Agent" means Trustee and any successor paying
agent pursuant to the Indenture.
"Permitted Encumbrances" means, as of any particular time, (i)
this Trust Indenture; (ii) liens for ad valorem taxes and special assessments
not then delinquent; (iii) the Deed of Trust; (iv) the Loan Agreement; (v)
utility, access and other easements and rights-of-way, mineral rights,
reservations, restrictions and exceptions that are of record on January 15,
1994; (vi) such minor defects, irregularities, encumbrances, easements,
rights-of-way and clouds on title as normally exist with respect to properties
similar in character to the Site and as do not in the aggregate, in the opinion
of Independent Counsel, materially impair the property affected thereby for the
purposes for which it was acquired or is held by the Company; and (viii) those
additional encumbrances, if any, identified in Exhibit D attached hereto and
incorporated herein by this reference.
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<PAGE> 15
"Project" means the Site and the facility to be constructed
thereon, as generally described on Exhibit C, which constitute a facility
suitable for use for manufacturing or industrial enterprises and a "project"
under the Act.
"Project Costs" means only costs or expense incurred by
Company which are used to provide property of a character subject to the
allowance for depreciation under Sections 167 or 168 of the Code or amounts paid
or incurred which are, for federal income tax purposes, chargeable to Company's
capital account or would be chargeable either with a proper election by the
Company or but for a proper election by the Company to deduct such amounts,
which constitute a manufacturing facility within the meaning of Section
144(a)(12)(C) of the Code. Project Costs shall not include Costs of Issuance,
except to the extent Costs of Issuance not exceeding two percent of the amount
of the Bonds may be paid from the Costs of Issuance Account in the Bond Fund
pursuant to Section 3.02 of this Indenture.
"Site" means all that certain real property situated in
Lincoln, Nebraska, more particularly described on Exhibit C attached hereto and
incorporated herein by this reference, including all improvements thereon,
together with all of the shrubs, trees, plants, crops, easements, rights,
privileges, franchises, appurtenances, oil, gas, mineral, water and water rights
(whether riparian, appropriative or otherwise, and whether or not appurtenant),
used in connection therewith, thereunto belonging or in any way appertaining and
all of the estate, right, title, interest, claim or demand whatsoever of Company
therein or thereto, either in law or in equity, in possession or expectancy, now
or hereafter acquired.
"Tax Equivalent Rate" means interest on a Bond calculated at a
rate of eight and one/fourth percent (8.25%) per annum.
"Taxable Date" means, in the event of a Determination of
Taxability, the first date as of which interest on the Series 1994 Bonds is
included in gross income of a holder of a Series 1994 Bond.
"Trust Estate" means any and all property or interest therein,
whether real or personal or tangible or intangible,
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<PAGE> 16
mortgaged or pledged to the Trustee, or in which the Trustee is granted a
security interest, to secure the payment of principal, premium, if any, and
interest on the Bonds and all other obligations of the Issuer under the Bonds,
the Resolution and this Trust Indenture, and the obligations of the Company
under the Loan Agreement, the Note and the Deed of Trust, including, but not
limited to, the property described in paragraphs I, II, III and IV of the
granting clauses of this Trust Indenture.
"Trust Indenture" or "Indenture" means this Trust
Indenture.
"Trustee" means Norwest Bank Nebraska, N.A., Omaha, Nebraska,
its successor or successors in trust under this Trust Indenture.
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Section 1.02 Provisions as to Interpretation.
(a) Wherever in this Trust Indenture it is provided that any person may
do or perform any act or thing the word "may" shall be deemed permissive and not
mandatory and it shall be construed that such person shall have the right, but
shall not be obligated, to do and perform any such act or thing.
(b) The phrase "at any time" shall be construed as meaning "at any time
or from time to time."
(c) The word "including" shall be construed as meaning "including, but
not limited to."
(d) The words "will" and "shall" shall each be construed as mandatory.
(e) The words "herein," "hereof," "hereunder," "hereinafter" and words
of similar import shall refer to this Trust Indenture as a whole rather than to
any particular paragraph, section or subsection, unless the context specifically
refers thereto.
(f) Forms of words in the singular, plural, masculine, feminine or
neuter shall be construed to include the other forms as the context may require.
(g) The captions and headings to the sections and subsections of this
Trust Indenture are for convenience only and shall not be deemed part of the
text of the respective sections or subsections and shall not vary by implication
or otherwise any of the provisions hereof.
(h) The provisions of this Trust Indenture are to be construed as
covenants and agreements as though words importing such covenants and agreements
were used in each separate section, subsection or paragraph hereof.
(i) This Trust Indenture shall be interpreted in accordance
with and governed by the laws of the State of Nebraska.
ARTICLE II
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<PAGE> 18
THE BONDS
Section 2.01 Form, Maturity and Numeration of the Series 1994 Bonds.
The Series 1994 Bonds shall be dated January 15, 1994, and
shall be fully registered bonds without coupons substantially in the form and of
the tenor as set forth in Exhibit "B," with such appropriate variations,
omissions and insertions as are permitted or required by this Indenture.
The Series 1994 Bonds shall be issued in any denominations of
$5,000 or any integral multiple thereof, shall mature on January 15, 2004, and
shall bear interest computed on the basis of a 360-day year, from January 15,
1994, payable on April 15, 1994, and quarterly on each July 15, October 15,
January 15 and April 15 thereafter at the rate of 6.25% per annum.
Principal on the Bonds shall be paid by check or draft drawn
upon any account of the Trustee upon surrender of the Bond to the Trustee at its
principal corporate office. Interest shall be payable by check or draft mailed
to the Bondholders in whose name the Bonds are registered at the close of
business on the 15th calendar date (whether or not a business day) next
preceding the interest payment date at their addresses as such appear on the
bond registration books kept by the Trustee.
Section 2.02 Execution of Bonds.
The Bonds shall be executed in the name and on behalf of the
Issuer with the manual or facsimile signature of its Chairperson attested with
the manual or facsimile signature of its Executive Director and shall have
impressed or printed thereon the corporate seal or a facsimile of the corporate
seal of the Issuer. All authorized facsimile signatures shall have the same
force and effect as if manually signed. In the event that any of the officers
who shall have signed and sealed any of the Bonds shall cease to be officers of
the Issuer before the Bonds shall have been authenticated or delivered by the
Trustee, or issued by the Issuer, such Bonds may, nevertheless, be
authenticated, delivered and issued, and upon such authentication, delivery and
issuance shall be binding upon the Issuer as though those officers who signed
and
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sealed the same had continued to be such officers of the Issuer. Any Bonds may
be signed and sealed on behalf of the Issuer by such person who, at the actual
date of execution of such Bonds, shall be the proper officer of the Issuer,
although at the date of such Bonds such person shall not have been such an
officer of the Issuer. Upon the execution and delivery of this Indenture, the
Issuer shall execute and deliver the Bonds to the Trustee for authentication.
Section 2.03 Authentication and Registration of the Bonds.
No Bond shall be valid or obligatory for any purpose or be
entitled to any right or benefit hereunder unless there shall be endorsed on
such Bond the Trustee's Certificate of Authentication substantially in the form
as set forth in Exhibit B to the Indenture. Such Certificate of Authentication
upon any Bond shall be conclusive evidence that such Bond has been duly
authenticated by the Trustee that such Bond has been duly issued under this
Indenture, and that the registered holder thereof is entitled to the benefit of
this Indenture. The Trustee shall not be required to authenticate any Bond
except upon the written order of the Issuer signed by an Authorized Issuer
Representative, such directions as to delivery and such certified resolutions,
certificates, instruments or opinions of counsel as Trustee may reasonably
require with respect to the validity of the Bonds to be issued and the right and
authority of the Trustee to authenticate the Bonds.
Section 2.04 Conditions For Delivery of the Bonds.
The Trustee shall not authenticate and deliver the Bonds to be
issued and delivered pursuant to this Indenture unless theretofore or
simultaneously therewith shall have been delivered to the Trustee the following:
(a) A certified copy of the Resolution authorizing: (i) the execution
of the Loan Agreement; (ii) the execution and delivery of this Indenture; and
(iii) the issuance of the Bonds;
(b) An A.L.T.A. mortgagee's title insurance policy or a commitment to
issue an A.L.T.A. mortgagee's title insurance policy, in either case showing the
Deed of Trust as a first lien on the
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Project and subject only to permitted encumbrances which commitment
shall be acceptable to Trustee;
(c) Executed counterparts of each of the Bond Documents;
(d) The manually signed approving opinion of counsel for the Company
addressed to the Trustee and the Issuer to the effect that the Bond Documents
have been duly and validly authorized and approved by the Company and constitute
legal, binding obligations of Company enforceable in accordance with their
terms;
(e) The manually signed approving opinion of Rembolt Ludtke Parker &
Berger, bond counsel, addressed to the Trustee and the Issuer, to the effect
that the Bonds constitute valid and legally binding obligations of Issuer and
that interest on the Bonds is exempt from federal and Nebraska state income
taxes subject to such limitations and restrictions as shall be described
therein.
(f) The Investment Letter executed by the Original Purchaser in form
and substance satisfactory to Bond Counsel and the Issuer;
(g) A certificate of the Issuer pursuant to the Treasury regulations
under Section 148 of the Code as to the absence of arbitrage expectations.
(h) An order for authentication and delivery of the Series 1994 Bonds,
signed by the Executive Director of the Issuer, specifying the aggregate
principal amount of the Series 1994 Bonds to be issued and that such Series 1994
Bonds shall be registered by the Trustee in the name of the Original Purchaser.
(i) The purchase price of $850,000 by wire transfer, certified or
cashier's check in immediately available funds plus accrued interest from
January 15, 1994, to the date of delivery of the Series 1994 Bonds.
Section 2.05 Registration of Bonds.
As long as the Series 1994 Bonds issued hereunder shall remain
outstanding, the Trustee shall maintain and keep an office
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<PAGE> 21
or agency for the registration and transfer of the Series 1994 Bonds, and shall
also keep at such office books for such registration and transfer. The Issuer
does hereby appoint the Trustee, and its successors in the trust from time to
time, as its agent to maintain such office and agency at the office of the
Trustee. The Series 1994 Bonds issued hereunder shall be registered on such
books as to principal, premium, if any, and interest at such office of the
Trustee. After such registration, no transfer of any Series 1994 Bonds shall be
valid unless made on such books at the request of the Bondholder or its duly
authorized agent in writing and such Series 1994 Bonds may again, and from time
to time, be registered and transferred as before. No transfer of any Series 1994
Bond shall be registered by Trustee until Trustee has received an Investment
Letter, in substantially the form attached hereto as Exhibit F and duly executed
by the subsequent owner of the Bonds.
Section 2.06 Ownership of Bonds.
As to any Series 1994 Bonds, the Issuer and the Trustee, and
their respective successors, each in its discretion, may deem and treat the
person in whose name such Series 1994 Bonds for the time being shall be
registered as the absolute owner thereof for all purposes, and neither the
Issuer nor the Trustee, nor their respective successors, shall be affected by
any notice to the contrary. Payment of or on account of the principal, premium,
if any, and interest on any such Series 1994 Bonds shall be made only to or upon
the order of the registered owner thereof, but such registration may be changed
as provided herein. All such payments shall be valid and effective to satisfy
and discharge the liability upon such Bond to the extent of the sums or sums so
paid.
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Section 2.07 Valid Obligations.
The Series 1994 Bonds executed, authenticated and delivered as
in this Indenture provided shall be valid limited obligations of the Issuer,
payable solely out of the Trust Estate, and shall be entitled to all of the
benefits of this Indenture.
Section 2.08 Loss or Destruction of Series 1994 Bonds.
In case any Series 1994 Bonds shall become mutilated or be
destroyed or lost, the Issuer and Trustee shall, if not then prohibited by law,
cause to be executed and delivered a new Series 1994 Bond of like date, number,
maturity and tenor in exchange and substitution for and upon cancellation of
such mutilated Series 1994 Bond, or, in lieu of and substitution for such lost
Series 1994 Bond, upon the registered owner thereof paying the reasonable
expenses and charges of the Issuer and Trustee in connection therewith, and in
the event any Series 1994 Bond is destroyed or lost, the filing with the Issuer
and Trustee of evidence satisfactory to them that such Series 1994 Bond was
destroyed or lost, and furnishing the Issuer and Trustee with indemnities
satisfactory to the Issuer and Trustee.
Section 2.09 Optional Redemption of Series 1994 Bonds.
Any Series 1994 Bonds may be redeemed at any time upon notice
mailed to the owner of each Bond not less than 30 days prior to the date fixed
for redemption, at the option of the Company upon direction to the Issuer, in
whole or in part, at the following redemption prices plus accrued interest
thereon to the date of such redemption:
<TABLE>
<CAPTION>
Redemption Price
Redemption Date (expressed as
percentage of par)
<S> <C>
January 15, 1994 through January 14, 1997 103%
January 15, 1997 through January 14, 2000 102%
January 15, 2000 and thereafter 101%
</TABLE>
If less than all of the Series 1994 Bonds are to be redeemed,
the particular Series 1994 Bond or Series 1994 Bonds to
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<PAGE> 23
be redeemed shall be designated by the Company. If less than all of the Series
1994 Bonds of a single maturity are redeemed, the Bonds so redeemed shall be
selected by lot in a manner determined by the Trustee. The Issuer and the
Trustee agree, to the fullest extent feasible and upon payment by the Company to
the Trustee of the Redemption Price and subject to the provisions of this
Indenture, to comply with any request of the Company to redeem any Series 1994
Bond prior to its stated maturity as provided in this Section 2.09.
Section 2.10 Mandatory Redemption.
The Series 1994 Bonds are subject to mandatory redemption on
any date as specified in the notice of redemption given by the Trustee, in whole
or in part, upon the following events, at par plus accrued interest, and within
the following time as hereinafter provided:
(a) Within 60 days of the damage or destruction of the Project,
following which the Company elects not to repair or reconstruct the project as
provided in Section 6.02 of the Loan Agreement;
(b) Within 60 days of taking in condemnation of the Project to the
extent that it cannot be reasonably replaced or restored as provided in Section
6.03 of the Loan Agreement;
(c) From monies remaining in the Acquisition Fund as of the Completion
Date.
(d) Notwithstanding the foregoing, amounts so redeemed shall be
redeemed only in increments of $5,000, and any amounts less than $5,000 shall be
deposited in the Bond Fund and applied to the next regular principal payment.
Section 2.11 Additional Interest in the Event of a Determination
of Taxability.
Section 2.01 of this Trust Indenture notwithstanding, in the
event a Determination of Taxability shall have occurred, the Bonds shall bear
interest at the "Tax Equivalent Rate" from and after the Taxable Date.
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<PAGE> 24
If Trustee receives written notice from any Bondholder stating
that (i) the Bondholder has been notified in writing by the Internal Revenue
Service that it proposes to include the interest on any Bond in the gross income
of such Bondholder for the reasons described herein or any other proceeding has
been instituted against such Bondholder which may lead to a final decree or
action as described herein, and (ii) such Bondholder will afford Company the
opportunity to contest the same, either directly or in the name of the
Bondholder, and until a conclusion of any appellate review, if sought, and
Trustee is satisfied that such information is accurate, then Trustee shall
promptly give notice thereof to Company and Issuer and to the holder of each
Bond then outstanding. Trustee shall thereafter coordinate any similar notices
it may have received from other Bondholders and shall keep them informed of the
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<PAGE> 25
progress of any administrative proceedings or litigation. If a final decree or
action as described above thereafter occurs, Trustee shall make demand for
additional interest then accrued to be payable on the earliest practical date,
but not later than the next interest payment date. Company shall pay all costs
of any such contest.
Section 2.12 Written Notice to Trustee.
Written notice of the election of the Company to direct the
Issuer to prepay any Bond or Bonds pursuant to paragraph 2.09 shall be delivered
by the Company to the Trustee and the Issuer not less than 45 days prior to the
date to be fixed for redemption. Such notice shall be acknowledged by the
Issuer. Such notice by the Company, if less than all of the outstanding Series
1994 Bonds are to be prepaid, shall identify by number or maturity the Series
1994 Bonds to be prepaid.
Section 2.13 Mailing of Notice.
Upon receipt of notice pursuant to Section 2.12, or upon the
occurrence of an event requiring mandatory redemption of Bonds pursuant to
Section 2.10 of this Indenture, Trustee shall fix the redemption date and send
notice thereof, specifying the Bond or Bonds to be redeemed, not less than 30
days before the redemption date by certified or registered mail, postage
prepaid, to the registered owner at its last address appearing upon the registry
books of the Trustee, but no notice of redemption need be given if such
registered owner waives notice thereof in writing and such waiver is filed with
the Trustee.
Section 2.14 Deposit for Redemption.
At the time of delivery of its written notice to the Trustee
of its intention to redeem any Series 1994 Bonds, or in the case of a mandatory
redemption on the date on which Trustee must mail notice of the redemption, the
Company, on behalf of the Issuer, shall have deposited with the Trustee in cash,
or shall make arrangements satisfactory to the Trustee for the deposit on or
prior to the redemption date, an aggregate amount which shall be sufficient to
pay the redemption price of the Series 1994 Bonds to be redeemed, and interest
thereon to the redemption date, and the
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<PAGE> 26
Company shall deposit, or make arrangements with the Trustee to deposit, a sum
sufficient to pay the expenses and charges of the Trustee and the Issuer in
connection with such redemption. Upon such deposit by the Company with the
Trustee, such monies shall be set aside by the Trustee and held by it for the
account of the respective registered owner of the Series 1994 Bonds being
redeemed.
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<PAGE> 27
Section 2.15 Payment of Redeemed Bonds.
After notice of redemption shall have been given as provided
herein, the Series 1994 Bond or Series 1994 Bonds specified in such notice shall
become due and payable on the redemption date. Payment of the redemption price
and interest shall be made to or upon order of the registered owner thereof upon
surrender of the Series 1994 Bond or Series 1994 Bonds to the Trustee.
Section 2.16 Bonds Deemed Not Outstanding After Deposit.
When the Company, on behalf of the Issuer shall have deposited
at any time with the Trustee funds in the necessary amount to pay or redeem all
the Series 1994 Bonds then outstanding and any expenses of the Trustee and the
Issuer, then upon such deposit all such Series 1994 Bonds shall cease to be
entitled to any benefit or security of this Indenture except the right to
receive the funds so deposited, and the Series 1994 Bonds shall be deemed not to
be outstanding hereunder; and it shall be the duty of the Trustee to hold the
cash and securities so deposited for the benefit of the holders of such Series
1994 Bonds and from and after such date, redemption date or maturity, interest
on such Series 1994 Bonds thereof called for redemption shall cease to accrue.
Section 2.17 Unclaimed Money.
All moneys deposited with Trustee for the payment of principal
of, premium, if any, or interest on any Series 1994 Bonds, are presumed
abandoned unless, within five years after they become payable or distributable,
the Bondholder has accepted payment of principal or income, corresponded in
writing concerning the property, or otherwise indicated an interest as evidenced
by a memorandum on file with the Trustee. In such event, the Trustee shall
comply with the provisions of the laws of the State as to the disposition of
such moneys and Issuer and Trustee shall be relieved of all liability, to the
extent of the value of such moneys, for any claim which exists or may arise with
respect to such moneys.
Section 2.18 Bonds; Limited Obligations.
The Series 1994 Bonds are not general obligations of Issuer
but are limited obligations payable solely from Series 1994 Bond proceeds, the
revenues received pursuant to the Agreement and
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other moneys pledged thereto and held by Trustee hereunder which constitute the
Trust Estate. Such proceeds, revenues and other moneys are hereby pledged and
assigned as security for the equal and ratable payment of the Series 1994 Bonds
and shall be used for no other purpose than to pay the principal of, premium, if
any, and interest on the Series 1994 Bonds, except as may be otherwise expressly
authorized in this Indenture or the Agreement.
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THE SERIES 1994 BONDS SHALL NOT BE A DEBT OF THE STATE, OR ANY POLITICAL
SUBDIVISION THEREOF, NOR CONSTITUTE A PLEDGE OF THE CREDIT, REVENUES OR TAXING
POWER OF THE STATE OR ANY LOCAL GOVERNMENT, AND NEITHER THE STATE NOR ANY
POLITICAL SUBDIVISION THEREOF SHALL BE LIABLE THEREON; NOR IN ANY EVENT SHALL
SUCH SERIES 1994 BONDS OR OBLIGATIONS BE PAYABLE OUT OF ANY FUNDS OR PROPERTIES
OTHER THAN THE TRUST ESTATE, AND THEN ONLY TO THE EXTENT HEREIN PROVIDED. ISSUER
HAS NO TAXING POWER. NEITHER THE MEMBERS OF ISSUER NOR ANY PERSONS EXECUTING THE
SERIES 1994 BONDS SHALL BE LIABLE PERSONALLY ON THE SERIES 1994 BONDS BY REASON
OF SUCH EXECUTION.
THE SERIES 1994 BONDS SHALL NOT CONSTITUTE A DEBT, LIABILITY, OR GENERAL
OBLIGATION OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF OR A PLEDGE OF THE
FAITH AND CREDIT OF THE STATE OR ANY POLITICAL SUBDIVISION THEREOF. NEITHER THE
FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR ANY POLITICAL SUBDIVISION
THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF OR THE INTEREST ON THE
SERIES 1994 BONDS.
ARTICLE III
APPLICATION OF BOND PROCEEDS
Section 3.01 Creation of Acquisition Fund.
There is hereby created and established with the Trustee a
trust fund to be designated "Nebraska Investment Finance Authority, Industrial
Development Revenue Bonds (Transcrypt International, Ltd. Project), Series 1994
Acquisition Fund," into which the proceeds of the Series 1994 Bonds (except
accrued interest as provided in Section 4.01(a)) shall be deposited. The Issuer
shall be under no obligation to verify the application of the proceeds of the
Series 1994 Bonds.
Section 3.02 Costs of Issuance Account.
There is hereby established with the Trustee in the
Acquisition Fund a separate account designated the Costs of Issuance Account. An
amount equal to 2% of the amount deposited in the Acquisition Fund shall be
deposited in the Costs of Issuance Account and disbursed by Trustee to pay Costs
of Issuance pursuant to requisitions signed by Company. Amounts remaining in the
Costs
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of Issuance Account 30 days after the date the Account is funded shall be
transferred to the general Acquisition Fund and used to pay Project Costs, and
the Costs of Issuance Account shall be closed.
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Section 3.03 Disbursements From Acquisition Fund.
Trustee shall make advances from the Acquisition Fund to pay
Project Costs or to reimburse the Company for Project Costs incurred by it, only
in accordance with and pursuant to the following:
(a) Each request for funds shall be on a requisition signed by Company
in the form attached hereto as Exhibit E, and shall be accompanied by a
Certification for Payment of such amounts signed by the Architect.
(b) Any funds remaining in the Acquisition Fund unexpended on the
Completion Date shall be transferred to the Bond Fund and be applied to the
redemption of Series 1994 Bonds (or portions thereof) on the earliest
practicable date as provided in Section 2.10 hereof.
No advance or payment out of the Acquisition Fund shall be
made by the Trustee to anyone if, in the opinion of the Trustee:
(a) Any of the representations and warranties made in writing by or on
behalf of the Company in the Loan Agreement, or in any financial statement
furnished the Trustee shall prove to have been untrue when made in any material
respect;
(b) Any event shall have occurred which constitutes, or would with the
passage of time or the giving of notice constitute, an event of default under
any of the Bond Documents;
(c) Any adverse change shall have occurred in the financial or other
affairs of the Company which, in the opinion of the Trustee, affects in a
material way the ability of the Company to perform its obligations under the
Bond Documents.
No advance or payment out of the Acquisition Fund shall be
made by Trustee for the purchase of land or any interest in land unless and
until Trustee receives a title opinion or title policy commitment in a form
satisfactory to Trustee as described in Section 2.04(b) hereof prior to or
simultaneously with such payment.
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Section 3.04 Company to Pay in Event Acquisition Fund
Insufficient.
In the event the Trustee determines that the Acquisition Fund
is or may be less than the estimated cost to complete the Project or
insufficient to pay for the completion of the acquisition, construction,
equipping and installation of the Project according to the plans and
specifications therefor, the Trustee shall cause the Company to pay pursuant to
the Loan Agreement such amounts as are necessary for completion of the
acquisition, construction, equipping and installation of the Project according
to such plans and specifications. Trustee shall also cause Company to pay
pursuant to the Loan Agreement all Costs of Issuance not paid from the Costs of
Issuance Account.
Section 3.05 Responsibility for Completion of Project.
Pursuant to the Loan Agreement, the Company has accepted the
sole responsibility for acquisition and construction of the Project, and neither
the Issuer nor the Trustee shall have any responsibility for the completion of
the Project.
ARTICLE IV
DISPOSITION OF PLEDGED REVENUES
Section 4.01 Bond Fund.
There is hereby created and established with the Trustee
(which shall be maintained by the Trustee so long as any 1994 Series Bonds are
outstanding), an account to be designated "Nebraska Investment Finance
Authority, Industrial Development Revenue Bonds (Transcrypt International, Ltd.
Project), Series 1994 Bond Fund" into which the Trustee shall make the following
deposits:
(a) Accrued interest, if any, received upon sale of the Series 1994
Bonds;
(b) As soon as received from Company, all payments on the Note;
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(c) All other monies received by the Trustee from the Company when
accompanied by directions that such monies are to be paid into the Bond Fund or
used for purposes for which monies in the Bond Fund may be used;
(d) In the event of the default of the Company, all net revenues and
net proceeds derived by the Trustee from the leasing, sale or other disposition
of the Project; and
(e) All other monies required to be deposited in the Bond Fund pursuant
to any provision of this Indenture, the Loan Agreement or the Resolution.
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Section 4.02 Pledge of Bond Fund.
The monies and investments in the Bond Fund are hereby
irrevocably pledged to and shall be used by the Trustee, from time to time, to
the extent required, solely for the payment of the principal of, premium, if
any, and interest on the Series 1994 Bonds.
Section 4.03 Funds Held in Trust.
All monies deposited with the Trustee in the Acquisition Fund
or the Bond Fund under the provisions of this Indenture or the Loan Agreement
shall be held in trust and applied only in accordance with the provisions of
this Indenture and the Loan Agreement and shall not be subject to a lien or
attachment by any creditor of the Issuer, the Trustee or the Company.
Section 4.04 Application of Funds.
Anything in this Indenture to the contrary notwithstanding, if
at any time the monies and investments in the Bond Fund shall not be sufficient
to pay in full the principal, premium, if any, and interest on the Series 1994
Bonds as the same shall become due and payable (either by their terms or by
acceleration of maturities under the provisions of this Indenture), such funds,
together with any monies then available or thereafter becoming available for
such purpose, whether through the exercise of the remedies provided for herein
or otherwise, shall be applied as follows:
(a) Unless the principal of all of the Series 1994 Bonds shall have
become or shall have been declared due and payable, all such monies shall be
applied:
FIRST: To the fees and expenses of the Trustee, any paying
agent with respect to the Bonds, and the Issuer;
SECOND: To the payment of all installments of interest then
due and payable on the Series 1994 Bonds in the
order in which such installments of interest became
due and payable and, if the amount available shall
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not be sufficient to pay in full any particular
installment, then to the payment, ratably,
according to the amounts due on such installment,
to the persons entitled thereto, without any
discrimination or preference except as to any
difference in the respective rates of interest
specified in the Bonds;
THIRD: To the payment of all principal then due and
payable on the Series 1994 Bonds which shall have
become due and payable (other than Series 1994
Bonds called for redemption for the payment of
which monies are held pursuant to the provisions of
this Indenture) and, if the amount available shall
not be sufficient to pay in full the principal of
the Series 1994 Bonds due and payable, then ratably
to the payment of such principal due on such date,
to the persons entitled thereto, without
discrimination or preference; and
FINALLY: To the payment of principal and interest on the
Series 1994 Bonds, to the purchase and retirement of
the Series 1994 Bonds and to the redemption of the
Series 1994 Bonds, all in accordance with the
provisions of this Indenture.
(b) If the principal of all of the Series 1994 Bonds shall have become
or shall have been declared due and payable, all such monies shall be applied,
after payment of any fees or expenses of the Trustee, any paying agent and the
Issuer, to the payment of the principal, premium, if any, and interest then due
and unpaid on the Series 1994 Bonds without preference or priority of principal
over interest or of interest over principal, or of any installment of interest
over any other installment of interest, according to the amounts due,
respectively, for principal, premium, if any, and interest, without any
discrimination or preference except as to any difference, if any, in the
respective rates of interest specified in the Series 1994 Bonds.
(c) If the principal of all of the Series 1994 Bonds shall have become
or shall have been declared due and payable and if such declaration shall
thereafter have been rescinded and annulled under
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the provisions of this Indenture, then, in the event that the principal of all
of the Series 1994 Bonds shall later become or be declared due and payable, the
monies remaining in and thereafter accruing to the Bond Fund shall be applied in
accordance with the provisions of paragraph b. of this Section .
(d) Whenever any monies are to be applied by the Trustee pursuant to
the provisions of this Section , such monies shall be applied by the Trustee, at
such times and from time to time, as the Trustee in its sole discretion shall
determine, having due regard to the amount of such monies available for such
application and the likelihood of additional monies becoming available for such
application in the future; the setting aside of such monies, in trust, for the
proper purpose shall constitute proper application by the Trustee; and the
Trustee shall incur no liability whatsoever to any Bondholder or to any other
person for any delay in applying any such monies, so long as the Trustee acts
with reasonable diligence, having due regard in the circumstances, and
ultimately applies the same in accordance with such provisions of this Indenture
as may be applicable at the time of application by the Trustee. Whenever the
Trustee shall exercise such discretion in applying such monies, it shall fix the
date (which shall be a scheduled payment date, unless the Trustee shall deem
another date more suitable) upon which such application is to be made and upon
such date interest on the amounts of principal to be paid on such date shall
cease to accrue. The Trustee shall give such notice as it may deem appropriate
for the fixing of any such date, and shall not be required to make payment to
any Bondholder until such Series 1994 Bonds shall be surrendered to the Trustee
for appropriate endorsement, or for cancellation if fully paid.
Section 4.05 Investment of Funds.
Monies on deposit to the credit of the Acquisition Fund and
the Bond Fund shall be invested by the Trustee at the direction of the Company
or, in the absence thereof at Trustee's discretion, in (i) direct obligations of
or obligations fully guaranteed by the United States of America or an agency or
instrumentality of the United States of America, (ii) certificates of deposit or
time deposits of the Original Purchasers or banks or trust companies having
combined capital and surplus of at least $10,000,000, or (iii) any short-term
U.S. government fund or other investment
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authorized by law for investment of sinking funds. The Trustee may, unless the
Company objects thereto, make any and all investments permitted under this
Section through its own bond department or any of its affiliates. Obligations so
purchased shall be deemed at all times to be a part of the Acquisition Fund or
the Bond Fund, respectively, but may from time to time be sold or otherwise
converted into cash, whereupon the proceeds derived from such sale or conversion
shall be credited to the Acquisition Fund or the Bond Fund. The Trustee shall
redeem or sell, at the best price obtainable, any obligations so purchased,
whenever it shall be necessary to do so in order to provide monies to meet any
payment required to be made from the Acquisition Fund or the Bond Fund,
respectively. Neither the Trustee nor the Issuer shall be liable for any loss
resulting from any such investment, nor from failure to preserve rights against
endorsers or other prior parties to instruments evidencing any such investment.
The Issuer shall have no obligation to invest or direct the investment of the
monies on deposit in the funds and accounts under this Trust Indenture.
Investment of funds pursuant to this Section shall be limited as to amount,
period of time and yield of investment in such manner that no Series 1994 Bonds
shall be deemed an "arbitrage bond" under Section 148 of the Code.
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Section 4.06 Rebate Fund.
There is hereby established with the Trustee a separate trust
fund to be known and designated as the "Nebraska Investment Finance Authority,
Industrial Development Revenue Bonds (Transcrypt International, Ltd. Project)
Series 1994 Rebate Fund" (herein called the "Rebate Fund"). Any amounts
deposited and held in the Rebate Fund shall be held to provide for all payments
due to the United States under Section 148 of the Code and the Holders of the
Bonds shall have no interest or claim upon such monies other than to require
their application to such payments. Investment earnings on any monies in the
Rebate Fund shall be retained therein. Periodically at times sufficient to
provide for any required payments to the United States under Section 148 of the
Code and applicable regulations thereunder, at Company's expense, there shall be
furnished to Trustee, at the request and expense of Company, an Accountant's
report showing the excess, if any, of the amount earned on all "nonpurpose
investments" related to the Series 1994 Bonds over the amount which would have
been earned if such "nonpurpose investments" were invested at a rate equal to
the "yield" on the Series 1994 Bonds. Such report shall be made in accordance
with the requirements of Section 148 of the Code and any applicable regulations
thereunder and shall set forth the amount required to be transferred to the
Rebate Fund. Based upon such report and within fifteen (15) days from the
furnishing thereof, the Trustee shall transfer from investment earnings on hand
or monies paid by Company into the Rebate Fund an amount equal to such excess.
From the Rebate Fund the Trustee shall make payments to the United States in
accordance with the requirements of Section 148 of the Code and any applicable
regulations thereunder. In making transfers and payments to the United States,
Trustee shall be entitled to rely conclusively upon any Accountant's report and
letter of instruction furnished to the Trustee by recognized Bond Counsel and
may in its discretion consult with recognized Bond Counsel selected in the
Trustee's discretion (all costs of which shall be paid by the Company). Monies
may be withdrawn from the Rebate Fund and transferred to the Issuer for the
benefit of the Company only upon the basis of an Accountant's report accompanied
by an opinion of recognized Bond Counsel satisfactory to the Trustee showing the
amount and legal authority (whether statute, regulation or ruling of the
Internal Revenue Service) for such withdrawal. All earnings on amounts
transferred to the Rebate Fund
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shall be transferred to the United States as to
the extent required under Section 148 of the Code and applicable regulations
thereunder.
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ARTICLE V
PARTICULAR COVENANTS OF THE ISSUER AND THE TRUSTEE
Issuer covenants and agrees, so long as the Bonds shall be
outstanding and subject to the limitations on its obligations herein set forth,
that:
Section 5.01 Payment of Principal, Premium, if any, and Interest;
Limited Obligation.
Issuer covenants that it will cause to be paid the principal
of, premium, if any, and interest on every Series 1994 Bond issued under this
Indenture at the place, on the dates and in the manner provided herein and in
said Series 1994 Bonds according to the true intent and meaning thereof, but
solely from the amounts pledged therefor pursuant to the Trust Indenture which
are from time to time held by Trustee in the Bond Fund and Acquisition Fund. The
principal of, premium, if any, and interest on the Series 1994 Bonds are payable
solely from certain amounts to be paid by the Company under the Loan Agreement
and otherwise as provided herein and in the Loan Agreement, which amounts are
hereby specifically pledged to the payment thereof in the manner and to the
extent herein specified, and nothing in the Series 1994 Bonds or in this
Indenture shall be construed as pledging any other funds or assets of Issuer.
NEITHER THE STATE NOR ISSUER NOR ANY POLITICAL SUBDIVISION OF THE STATE SHALL IN
ANY EVENT BE LIABLE FOR THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF ANY, AND
INTEREST ON ANY OF THE SERIES 1994 BONDS OR FOR THE PERFORMANCE OF ANY PLEDGE,
OBLIGATION OR AGREEMENT UNDERTAKEN BY ISSUER.
The Series 1994 Bonds shall not be general obligations of
Issuer but limited obligations payable solely from certain amounts payable under
the Loan Agreement (except to the extent paid out of moneys attributable to the
proceeds derived from the sale of the Series 1994 Bonds or to income from the
temporary investment thereof and, under certain circumstances, to proceeds from
insurance and condemnation awards) and shall be a valid claim of the respective
Bondholders thereof only against the Bond Fund and other moneys held by Trustee
and the amounts payable by the Company under the Agreement which have, under the
provisions of this Trust Indenture, been pledged, assigned and otherwise secured
for the
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equal and ratable payment of the Series 1994 Bonds and shall be used for no
other purpose than to pay the principal of, premium, if any, and interest on the
Series 1994 Bonds, except as may be otherwise expressly authorized in this
Indenture. NEITHER ISSUER, THE STATE NOR ANY OTHER POLITICAL SUBDIVISION OF THE
STATE SHALL BE OBLIGATED TO PAY THE PRINCIPAL OF OR PREMIUM, IF ANY, ON SUCH
SERIES 1994 BONDS OR THE INTEREST THEREON OR OTHER COSTS INCIDENT THERETO.
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF ISSUER, THE STATE NOR ANY
POLITICAL SUBDIVISION OF THE STATE IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF
OR PREMIUM, IF ANY, OR INTEREST ON THE SERIES 1994 BONDS OR OTHER COSTS INCIDENT
THERETO. THE ISSUER HAS NO TAXING POWER.
No recourse under or upon any obligation, covenant or
agreement contained in this Indenture, or in any Series 1994 Bond hereby
secured, or under any judgment obtained against Issuer or by the enforcement of
any assessment or by any legal or equitable proceeding by virtue of any
constitution or statute or otherwise or under any circumstances, under or
independent of this Indenture, shall be had against any member, director,
officer, agent or employee as such, past, present or future, of Issuer, either
directly or through Issuer or otherwise, for the payment for or to Issuer or any
receiver thereof, or for or to any Bondholder of any bond issued hereunder or
otherwise, of any sum that may be due and unpaid upon any such Series 1994 Bond.
Any and all personal liability of every nature, whether at common law or in
equity, or by statute or by constitution or otherwise, of any such member,
director, officer, agent or employee as such, to respond by reason of any act or
omission on his part or otherwise for the payment for or to Issuer or any
receiver thereof, or for or to any Bondholder of any Series 1994 Bond issued
thereunder or otherwise, of any sum that may remain due and unpaid upon any
Series 1994 Bonds thereby secured or any of them, is hereby expressly waived and
released as a condition of and consideration for the execution of the Indenture
and the issuance of the Series 1994 Bonds.
Section 5.02 Performance of Covenants of Issuer.
Issuer covenants that it will faithfully perform at all times
any and all covenants, undertakings, stipulations and provisions with respect to
Issuer contained in this Indenture and the Loan Agreement, in any and every
Series 1994 Bond executed,
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authenticated and delivered hereunder and in all of its proceedings pertaining
hereto. Issuer covenants that it is duly authorized under the Constitution and
laws of the State, including particularly and without limitation the Act, to
issue the Series 1994 Bonds authorized hereby and to execute this Indenture, to
assign its rights under the Loan Agreement and to pledge the amounts to be paid
under the Agreement and other amounts hereby pledged in the manner and to the
extent herein set forth, that all action on its part for the issuance of the
Series 1994 Bonds and the execution and delivery of this Indenture will have
been duly and effectively taken prior to delivery of the Series 1994 Bonds, and
that the Series 1994 Bonds in the hands of the Bondholders thereof are and will
be valid and enforceable limited obligations of Issuer according to the terms
thereof and hereof.
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Section 5.03 Instruments of Further Assurance.
Issuer will do, execute, acknowledge and deliver or cause to
be done, executed, acknowledged and delivered, such indentures supplemental
hereto and such further acts, instruments and transfers as Trustee may
reasonably require for the better assuring, transferring, conveying, pledging,
assigning and confirming unto Trustee all and singular the amounts pledged
hereby to the payment of the principal of, premium, if any, and interest on the
Series 1994 Bonds. Issuer, except as herein and in the Loan Agreement provided,
will not sell, convey, mortgage, encumber or otherwise dispose of any part of
the Project, the amounts, revenues and receipts payable under the Loan Agreement
or its rights under the Loan Agreement.
Section 5.04 Recording and Filing.
Trustee covenants that it will cause all financing statements
related to this Indenture and all supplements thereto and the Agreement and all
supplements thereto, as well as such other security agreements, financing
statements and all supplements thereto and other instruments as may be required
from time to time to be kept, to be recorded and filed in such manner and in
such places as may from time to time be required by law in order to preserve and
protect fully the security of the Bondholders of the Series 1994 Bonds and the
rights of Trustee hereunder, and to take or cause to be taken any and all other
action necessary to perfect the security interest created by this Indenture.
Section 5.05 Rights Under Loan Agreement.
The Loan Agreement sets forth the covenants and obligations of
Issuer and Company, including provisions that subsequent to the issuance of
Series 1994 Bonds and prior to their payment in full or provisions for payment
thereof in accordance with the provisions hereof the Loan Agreement may not be
effectively amended, changed, modified, altered or terminated without the
written consent of Trustee, and reference is hereby made to the Loan Agreement
for a detailed statement of said covenants and obligations of Borrower
thereunder. The Trustee's rights under the Loan Agreement are separable,
absolute and unconditional.
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Section 5.06 Arbitrage and Tax Covenants.
Issuer shall not use any proceeds of the Series 1994 Bonds or
any other funds of Issuer, directly or indirectly, to acquire any securities or
obligations, and shall not use any amounts received by Issuer pursuant to the
Loan Agreement in any manner, and shall not take any other action or actions
which would cause any Series 1994 Bond to be an "arbitrage bond" within the
meaning of Section 148 of the Code, or the applicable Treasury Regulations
promulgated thereunder or which would otherwise cause interest on the Series
1994 Bonds to become subject to federal income tax.
At the request of the Trustee or the Company, and upon being
fully indemnified for any costs, the Issuer shall at all times do and perform
all acts agreed to by Issuer and things permitted by law and necessary or
desirable and agreed to by Issuer in order to assure that interest paid by
Issuer on the Series 1994 Bonds shall, for the purposes of federal income tax,
be exempt from all income taxation under any valid provision of law.
Trustee covenants and agrees not to use or invest any funds in
the Bond Fund or Acquisition Fund in a manner to cause the Bonds to be treated
as arbitrage bonds under the Code.
Section 5.07 No Disposition of Trust Estate.
Except as permitted by this Indenture, Issuer shall not sell,
lease, pledge, assign or otherwise encumber or dispose of its interest in the
Trust Estate.
Section 5.08 Access to Books.
All books and documents in the possession of Trustee relating
to the Project, the revenues from the Agreement and the Trust Estate shall at
all reasonable times be open to inspection by such accountants or other agencies
as Issuer may from time to time designate. All books and documents, if any, in
the possession of the Issuer relating to the Project and the revenues from the
Agreement and the Trust Estate shall at all reasonable times be open to
inspection by Trustee.
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ARTICLE VI
TAXES AND INSURANCE
Section 6.01 Taxes, Other Governmental Charges, Liens and
Utility Charges.
Pursuant to the Loan Agreement, the Company has agreed to pay
and discharge, before any penalty attaches thereto, all taxes, assessments,
utility charges and other governmental charges imposed upon or against the Trust
Estate or upon or against the Bonds and the indebtedness secured hereby, and
will not suffer to exist any mechanics', construction, statutory or other lien
on the Trust Estate or any part thereof unless consented to by the Trustee in
writing.
Nothing in this Section 6.01 shall require the payment or
discharge of any obligation imposed upon the Company by this Section so long as
the Company, upon first notifying the Trustee of its intent to do so, shall in
good faith and at the expense of the Company contest the same or the validity
thereof by appropriate legal proceeding which permit the items contested to
remain undischarged and unsatisfied during the period of such contest and any
appeal therefrom, unless the Trustee shall notify the Issuer and the Company
that, in its opinion, by non-payment of any such items, the lien of this Trust
Indenture as to any part of the Trust Estate will be materially endangered or
the Trust Estate, or any part thereof, will be subject to loss or forfeiture, in
which event such taxes, assessments or charges shall be paid promptly by the
Company.
Section 6.02 Insurance.
(a) So long as any Bonds are outstanding, the Company agrees to procure
and maintain continuously in effect with respect to the Project policies of
insurance against such risks and in such amounts as are customary for a prudent
owner of property comparable to that comprising the Project. Prior to the
completion date, Company shall provide for or procure and maintain builders risk
insurance against such risks and in such amounts as are customary for a prudent
owner or contractor of property comparable to the Project, and shall furnish to
Trustee a certificate naming Trustee
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as a loss payee. Thereafter, and without limiting the generality of the
foregoing provision, the Company specifically agrees to maintain the following
insurance coverages:
(i) Direct damage insurance covering loss from fire, "all
risks," vandalism and malicious mischief in an amount not less than the then
unpaid principal balance of the Series 1994 Bonds, which policies shall be
subject to no coinsurance clause and may include a deductibility provision not
exceeding $10,000;
(ii) General liability insurance against liability for
injuries to or death of any person or damage to or loss of property arising out
of or in any way relating to the condition of the Project or any part thereof in
an amount not less than $1,000,000 single limit coverage, provided that the
requirements of this subparagraph (ii) with respect to the amount of insurance
may be satisfied by an excess coverage policy;
(iii) Workmen's compensation coverage to the extent
required by then applicable law; and
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(iv) Insurance against such other casualties and contingencies
as Trustee may from time to time require, if such insurance against such other
casualties and contingencies is available, all in such manner and for such
amounts as may be reasonably satisfactory to the Trustee.
(b) All insurance provided for in subsection (a) shall be
effective under a valid and enforceable non-assessable policy or
policies.
(c) All policies of insurance required by Section 6.02(a)(i) shall be
written in the names of the Company and Trustee as their respective interests
may appear and shall provide that the proceeds of such insurance shall be
payable to the Trustee pursuant to a standard clause to be attached to each such
policy.
(d) The Company agrees to deposit with the Trustee annually
certificates of the respective insurers evidencing that the insurance required
by this Section 6.02 is in force and effect. Each policy of insurance herein
required shall contain a provision, by endorsement or otherwise, that the
insurer shall not cancel, refuse to renew or materially modify it without giving
written notice to the Trustee at least 30 days before the cancellation,
nonrenewal or modification becomes effective. Before the expiration of any
policy of insurance herein required, the Company shall furnish the Trustee with
evidence satisfactory to the Trustee that the policy has been renewed or
replaced by another policy conforming to the provisions of this Section 6.02 or
that there is no necessity therefor under the terms hereof. In lieu of separate
policies, the Company may maintain blanket policies having the coverage required
herein, provided original counterparts of such insurance, or such other evidence
as may be required by the Trustee in its discretion, as deposited with the
Trustee.
Section 6.03 Advances.
If the Company shall fail to comply with any of the terms,
covenants and conditions herein with respect to the procuring of insurance, the
payment of taxes, assessments and other charges, the keeping of the Property in
repair, or any other term, covenant or condition herein contained, the Trustee
may make advances to perform the same and, where necessary, enter the
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Project for the purpose of performing any such term, covenant or condition. All
sums so advanced shall be secured hereby in priority to the indebtedness
evidenced by the Bonds and shall bear interest at the highest rate allowed by
law until paid, but no such advance shall be deemed to relieve any default
hereunder.
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ARTICLE VII
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 7.01 Application of Insurance Proceeds.
All proceeds of insurance maintained pursuant to subsection
(a)(i) of Section 6.02 hereof shall be paid and applied in the manner set forth
in the Loan Agreement.
Section 7.02 Application of Condemnation Award.
Should any of the Trust Estate be taken by exercise of the
power of eminent domain, any award or consideration for the property so taken
shall be paid over to the Trustee and shall be applied first to the payment of
all costs and expenses incurred in obtaining such award or consideration and
then, if no "Event of Default" has occurred and is continuing under the Loan
Agreement, or this Trust Indenture, at the option of the Company, to the
restoration, repair, modification or improvement of the Project, without
affecting the lien of this Trust Indenture. If such an Event of Default has
occurred and is continuing under the Loan Agreement or this Trust Indenture, or
if the Company so elects, or if by virtue of the nature or extent of the taking
the Project cannot reasonably be restored or repaired, the net proceeds shall be
applied by the Trustee to the payment or prepayment of the Series 1994 Bonds,
any balance remaining after payment in full of the Series 1994 Bonds and all
other amounts secured by the Trust Indenture and payment of any expenses of the
Trustee or the Issuer shall be paid to the Company. The Trustee is authorized at
its option to compromise and settle all awards or consideration for the property
so taken. No interest shall be payable on any award while held by any Trustee.
Proceeds of condemnation awards with respect to the Project shall be paid and
applied in the manner set forth in the Loan Agreement.
ARTICLE VIII
DEFAULT PROVISIONS AND REMEDIES OF TRUSTEE
Section 8.01 Events of Default.
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If any of the following events occur, it is hereby defined as
and declared to be and to constitute an Event of Default:
(a) If payment of any installment of principal or interest on any
Series 1994 Bonds shall not be made when the same shall become due and payable
(whether at maturity, upon acceleration or otherwise); or
(b) If the Company defaults in the due and punctual performance of any
of the covenants, conditions, agreements and provisions contained in the Loan
Agreement or in this Trust Indenture and such default continues for a period of
60 days after written notice, specifying such default and requiring the same to
be remedied, shall have been given to the Company by the Issuer or the Trustee;
or
(c) If any "Event of Default," as that term is defined in the
Loan Agreement, shall have occurred and be continuing; or
(d) If any representation or warranty made in writing by or on behalf
of the Issuer or the Company in this Trust Indenture, in the Loan Agreement, or
in any financial statement, certificate or report furnished in order to induce
the Bondholder to purchase the Series 1994 Bonds shall prove to have been false
or incorrect in any material respect, or materially misleading, as of the time
such representation or warranty was made; or
(e) If a petition commencing a case under Title 11 of the United States
Code, as now constituted or as hereafter amended, shall be filed by or against
the Company and, unless such petition shall have been dismissed, nullified,
stayed or otherwise rendered ineffective (but then only so long as such stay
shall continue in force or such ineffectiveness shall continue), all the
obligations of the Company under the Loan Agreement shall not have been and
shall not continue to be duly assumed within the time provided and otherwise in
accordance with the provisions of 11 U.S.C. Section 365 by a trustee or trustees
appointed (whether or not subject to ratification) in such proceedings in such
manner that such obligations shall have the same status as expenses of
administration and obligations incurred by such trustee or trustees; or
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(f) If any other proceeding shall be commenced by or against the
Company for any relief which includes or might result in any modification of the
obligations of the Company hereunder under any bankruptcy or insolvency laws or
laws relating to the relief of debtors, readjustments of indebtedness,
reorganizations, arrangements, compositions or extensions (other than a law
which does not permit any readjustments of the obligations of the Company
hereunder), and, unless such proceedings shall have been dismissed, nullified,
stayed or otherwise rendered ineffective (but then only so long as such stay
shall continue in force or such ineffectiveness shall continue), all the
obligations of the Company under the Loan Agreement shall not have been and
shall not continue to be duly assumed in writing within 60 days after such
proceedings shall have been commenced, pursuant to a court order or decree, by a
trustee or trustees or receiver or receivers appointed (whether or not subject
to ratification) for the Company or for the property of the Company in
connection with any such proceedings in such manner that such obligations shall
have the same status as expenses of administration and obligations incurred by
such trustee or trustees or receiver or receivers; or
(g) If the Company shall at any time become insolvent within the
meaning of 11 U.S.C. Section 101(26), as now constituted or hereafter amended,
or shall cease generally to pay its debts as such debts become due.
Section 8.02 Remedies.
(a) Upon the occurrence of an Event of Default, the Trustee may, and
upon direction of the owners of a majority of the principal amount of Series
1994 Bonds then Outstanding shall, declare the entire unpaid principal of and
accrued interest on the Bonds, and including all sums advanced hereunder to be
forthwith due and payable, and thereupon the Bonds, including principal and all
interest thereof, shall be and become immediately due and payable without
presentment, demand or further notice of any kind.
(b) Upon the occurrence and continuation of an Event of Default, or in
case the principal of the Bonds shall have become due and payable, whether by
lapse of time or by acceleration, then and in every such case the Trustee may
proceed to protect and enforce its rights by a suit or suits in equity or at
law, either
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for the specific performance of any covenant or agreement contained herein, in
the Loan Agreement, in the Deed of Trust, or in the Bonds, or in aid of the
execution of any power herein or therein granted, or for the foreclosure of the
Deed of Trust or exercise of the power of sale with respect thereto, or pursuit
of its remedies as a secured creditor under the Nebraska Uniform Commercial
Code, or for the enforcement of any other appropriate legal or equitable remedy.
(c) Anything to the contrary herein notwithstanding, it is specifically
understood and agreed that all funds advanced and furnished by the Trustee and
utilized in the performance of the obligations of the Issuer or the Company
herein shall be deemed obligatory advances by the Trustee regardless of the
identity of the persons or entities to whom such funds are furnished or
advanced. Any and all sums advanced by the Trustee in the exercise of its
judgment that such advances are needed to protect or complete the rehabilitation
or any part thereof or to protect its security shall be deemed obligatory
advances under this Trust Indenture and considered a part of the Issuer's
indebtedness to the Bondholders, and, notwithstanding that the aggregate of all
advances made by the Trustee shall exceed the principal amount of the Bonds, the
entire amount of such advances shall be secured by this Trust Indenture.
(d) If the Company shall fail to pay or cause to be paid any real
estate tax or assessment or if the Issuer shall fail to perform or observe any
other term, covenant, condition or obligation required to be performed or
observed by the Issuer under this Trust Indenture or if the Company shall fail
to perform or observe any term, covenant, condition or obligation required to be
performed or observed by the Company under the Loan Agreement, without limiting
the generality of any other provision of this Trust Indenture and without
waiving or releasing the Issuer or the Company from any of their respective
obligations, the Trustee shall have the right, but shall be under no obligation,
to pay any such tax, assessment or other payment, and may perform any other act
or take such action as may be appropriate to cause such other term, covenant,
condition or obligation to be promptly performed or observed on behalf of the
Issuer or the Company, and the Company shall permit the Trustee to enter upon
the Project with or without
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notice and to do anything thereon or thereto which the Trustee shall deem
necessary or prudent for such purpose.
(e) If the Trustee shall make any payment or perform any act or take
action in accordance with the preceding paragraph the Trustee, within 60 days
thereafter, will give to the Company written notice of the making of any such
payment, the performance of any such act or the taking of any such action. All
moneys expended by the Trustee in connection therewith (including, but not
limited to, legal expenses including reasonable attorneys' fees and
disbursements), together with interest thereon at the highest rate allowed by
law from the date of each such expenditure, shall be secured by this Trust
Indenture, and the Trustee shall have, in addition to any other right or remedy
of the Trustee, the same rights and remedies in the event of nonpayment of any
such sums by the Company as in the case of a default in the payment of the
Bonds.
(f) Anything herein to the contrary notwithstanding, the Trustee shall
have and be entitled to exercise any and all rights, remedies and powers,
whether or not herein expressly authorized or provided, allowed by the law of
the State of Nebraska, and all such rights, remedies and powers shall be
cumulative and in addition to the rights, remedies and powers hereinabove
granted and conferred, and in the event any of the rights, remedies or powers
hereinabove granted and conferred shall not be permitted or granted or shall not
be in conformity with the law of the State of Nebraska, then the Trustee shall
have and be entitled to exercise such rights, remedies and powers allowed,
granted or permitted under the law of the State of Nebraska, the same as if
specifically recited and provided herein.
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(g) No remedy conferred upon or reserved to the Trustee or in this
Trust Indenture or any other agreement is intended to be exclusive of any other
remedy or remedies, and each and every power or remedy herein specifically given
shall be in addition to every other power or remedy, existing or implied, given
now or hereafter existing at law or in equity, and each and every power and
remedy herein specifically given or otherwise so existing may be exercised from
time to time and as often and in such order as may be deemed expedient by the
Trustee, and the exercise or the beginning of the exercise of one power or
remedy shall not be deemed a waiver of the right to exercise at the same time or
thereafter of any other power or remedy. No delay or omission of the Trustee in
the exercise of any right or power accruing hereunder shall impair any such
right or power or be construed to be a waiver of any default or acquiescence
therein. In case the Trustee shall have proceeded to enforce any right under
this Trust Indenture by foreclosure, entry or otherwise, and such proceedings
shall have been discontinued or abandoned because of waiver or for any other
reason, or shall have been determined adversely, or set aside or declared
invalid, then, and in each and every such case, the Issuer and the Trustee shall
severally and respectively be restored to their former position and rights
hereunder in respect of the Trust Estate, and all rights, remedies and powers of
the Issuer and the Trustee shall continue as though no such proceedings had been
taken.
Section 8.03 Appointment of Receiver.
After the happening of any Event of Default and during its
continuation, or upon the commencement of any proceedings to enforce any right
of the Trustee, the Trustee shall be entitled, as a matter of right, if Trustee
shall so elect in its absolute discretion, without the giving of notice to any
other party and without regard to the solvency of any person or the adequacy or
inadequacy of any security for the indebtedness, forthwith either before or
after declaring the unpaid principal of the Bonds to be due and payable, to the
appointment of a receiver or receivers, to the extent permitted by law, and the
Trustee may be appointed as such receiver. Such receiver shall have full power
to collect the rents, revenues, issues, income and profits from the Project and
all other powers necessary or incidental for the protection, possession,
control, management and operation of the Project. Such receiver shall also have
full power and authority to maintain,
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restore and keep insured the Project and to pay all rents, taxes, assessments
and other charges arising in connection therewith.
Section 8.04 Proceeds of Sale or Other Enforcement Remedies.
Upon any receipt of funds pursuant to Trustee's enforcement of
its remedies hereunder, such proceeds shall be paid in the following order:
(a) To Trustee all amounts advanced hereunder or under the Loan
Agreement and remaining unpaid.
(b) All Trustee's fees, court costs, attorneys' fees, receivers' fees
and receivership expenses, appraiser's fees, expenditures for documentary and
expert evidence, stenographer's charges, publication costs and costs (which may
be estimated as to items to be expended after entry of the decree) of procuring
all abstracts of title, title searches and examinations, title guarantee
policies, Torrens certificates and similar data with respect to title which the
Trustee may deem necessary, all of which fees and expenses shall be reasonable,
together with all fees and expenses of the Issuer.
(c) To the Bondholders as specified in Section 4.04 hereof.
The proceeds of any sale or other enforcement of remedies
hereunder shall be distributed and applied to the items described in (a), (b)
and (c), in the order of their listing, and any surplus of the proceeds of such
sale after payment of the items described in (a), (b) and (c) shall be paid to
Company.
Section 8.05 Waiver of Event of Default; Forbearance.
The Trustee may waive any Event of Default hereunder and its
consequences and rescind any declaration of acceleration of principal. No
forbearance by the Trustee in the exercise of any right or remedy hereunder
shall affect the ability of the Trustee to thereafter exercise any such right or
remedy.
Section 8.06 Limitation on Exercise of Remedies by Bondholders.
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No owner of any Bond shall have any right to institute any
suit, action or proceeding in equity or at law for the enforcement of this
Indenture or for the execution of any trust hereunder or for the appointment of
a receiver or any other remedy hereunder, unless (i) an Event of Default has
occurred of which the Trustee has knowledge, (ii) the owners of a majority in
aggregate principal amount of Bonds then Outstanding shall have made written
request to the Trustee, shall have offered it reasonable opportunity either to
proceed to exercise the powers hereinbefore granted or to institute such action,
suit or proceeding in its own name, and (iii) the Trustee shall thereafter fail
or refuse to exercise the powers herein granted or to institute such action,
suit or proceeding in its own name; and such knowledge and request are hereby
declared in every case, at the option of the Trustee, to be conditions precedent
to the execution of the powers and trusts of this Indenture, and to any action
or cause of action for the enforcement of this Indenture, or for the appointment
of a receiver or for any other remedy hereunder, it being understood and
intended that no one or more Bondholders shall have any right in any manner
whatsoever to affect, disturb or prejudice this Indenture by its, his or their
action or to enforce any right hereunder except in the manner herein provided,
and that all proceedings at law or in equity shall be instituted, had an
maintained in the manner herein provided and for the equal benefit of the
Holders of all Bonds then Outstanding. Nothing in this Indenture contained
shall, however, affect or impair the right of any Bondholder to payment of the
principal of and interest on any Bond at and after the maturity thereof or the
obligation of the Issuer to pay the principal of, premium, if any, and interest
on each of the Bonds issued hereunder to the respective Bondholder thereof at
the time, place, from the source and in the manner herein and in the Bonds
expressed.
Section 8.07 Right of Bondholders to Direct Proceedings.
Anything in this Indenture to the contrary notwithstanding,
the Holders of a majority in aggregate principal amount of Bonds then
Outstanding shall have the right, at any time, by an instrument or instruments
in writing executed and delivered to the Trustee, to direct the time, method and
place of conducting all proceedings to be taken in connection with the
enforcement of the terms and conditions of this Indenture, or for the
appointment of a receiver or any other proceedings hereunder; provided that
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such direction shall not be otherwise than in accordance with the provisions of
law and of this Indenture.
ARTICLE IX
THE TRUSTEE
Section 9.01 Acceptance of Trust and Prudent Performance Thereof.
The Trustee, prior to the occurrence of an Event of Default
and after the curing of all such Events of Default as may have occurred,
undertakes to perform such duties and only such duties as are specifically set
forth in this Trust Indenture. The Trustee shall during the existence of any
Event of Default which has not been cured exercise such of the rights and powers
vested in it by this Trust Indenture, and use the same degree of care and skill
in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs. No provision of this Trust
Indenture shall be construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act or its own willful misconduct
except that:
(a) Prior to an Event of Default hereunder, and after the
curing of all Events of Default which may have occurred:
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(i) The duties and obligations of the Trustee shall be determined
solely by the express provisions of this Trust Indenture, and the Trustee shall
not be liable except for the performance of such duties and obligations as are
specifically set forth in this Trust Indenture, and no implied covenants or
obligations shall be read into this Trust Indenture against the Trustee; and
(ii) In the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the trust of the statements and the
correctness of the opinions expressed therein, upon any certificate or opinion
furnished to the Trustee conforming to the requirements of this Indenture;
(b) At all times, regardless of whether or not any Event of Default
shall exist:
(i) The Trustee shall not be liable for any error of judgment made
in good faith by the Trustee unless it shall be proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(ii) The Trustee shall not be liable with respect to any action
taken or omitted to be taken by it in good faith in accordance with the
direction of the holders of not less than a majority in aggregate principal
amount of all the Series 1994 Bonds at the time outstanding relating to the
time, method and place of conducting any proceeding for any remedy available to
the Trustee, or exercising any trust or power conferred upon the Trustee under
this Trust Indenture unless it shall be proved that the Trustee was negligent in
ascertaining the pertinent facts.
Section 9.02 Trustee May Rely Upon Certain Documents and
Opinions.
(a) The Trustee may rely and shall be protected in acting upon any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, bond, or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party or parties.
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(b) Any request, direction, election, order, certification or demand of
the Issuer or the Company shall be sufficiently evidenced by an instrument
signed by an Authorized Issuer Representative or the Company, as the case may be
(unless otherwise in this Indenture specifically prescribed), and any resolution
of the Issuer may be evidenced to the Trustee by a certified resolution.
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(c) The Trustee may consult with counsel (who may be counsel for the
Issuer), and the opinion of such counsel shall be full and complete
authorization and protection in respect of any action taken or suffered by it
hereunder in good faith and in accordance with the opinion of such counsel.
(d) Whenever in the administration of the trust of this Trust Indenture
the Trustee shall deem it necessary or desirable that a matter be proved or
established prior to taking or suffering any action hereunder, such matter
(unless other evidence in respect thereof be herein specifically prescribed)
may, in the absence of negligence or bad faith on the part of the Trustee, be
deemed to be conclusively proved and established by a certificate of the Issuer
and such certificate of the Issuer shall, in the absence of negligence or bad
faith on the part of the Trustee, be full warrant to the Trustee for any action
taken or suffered by it under the provisions of this Indenture upon the faith
thereof.
Section 9.03 Trustee Not Responsible for Indenture Statements,
Validity.
The Trustee shall not be responsible, except as set forth in
Section 5.04 hereof, for any recital or statement herein, or in the Series 1994
Bonds (except in respect of the certificate of the Trustee endorsed on such
Series 1994 Bonds), for the recording or re-recording, filing or refiling of
this Trust Indenture, or for the validity of the execution by the Issuer of this
Trust Indenture, the Loan Agreement, the Resolution or of any supplemental
instrument or for the sufficiency of the security of the Series 1994 Bonds
issued hereunder or intended to be secured hereby, or for the value or title of
any of the Trust Estate, or otherwise as to the maintenance of the security
hereof; and the Trustee shall not be bound to ascertain or inquire as to the
performance or observance of any covenant, condition or agreement on the part of
the Issuer except as herein set forth, but the Trustee may require of the Issuer
full information as to the performance of the covenants, conditions and
agreements aforesaid. The Trustee shall not be accountable for the use of any
Series 1994 Bonds authenticated or delivered hereunder or of any of the proceeds
of the Series 1994 Bonds, other than to disburse the proceeds pursuant to this
Trust Indenture.
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Section 9.04 Limits on Duties and Liabilities of Trustee..
The permissive rights of the Trustee to do things enumerated
in this Trust Indenture shall not be construed as a duty of the Trustee and the
Trustee shall be answerable only for its own negligence or default. The Trustee
shall not be required to give any bond or surety in respect of the execution of
the said trust and powers or otherwise in respect of the Project. The Trustee
shall not be liable for any debts contracted or for damages to persons or to
personal property injured or damaged, or for salaries or nonfulfillment of
contracts during any period in which it may be in the possession of or managing
the real and tangible personal property of the Trust Estate as in this Trust
Indenture provided, if such debts, damages, salaries or contracts have been
incurred, suffered, earned or made in connection with the possession or
management of such property.
Section 9.05 Obligation of Trustee.
The Trustee shall be under no obligation to institute any
suit, or to take any proceeding under this Trust Indenture, or to enter any
appearance or in any way defend any suit in which it may be a defendant, or to
take any steps in the execution of the trust hereby created or in the
enforcement of any rights and powers hereunder, until it shall have reasonable
grounds for believing that repayment of all costs, expenses, outlays, counsel
fees and other reasonable disbursements in connection therewith and adequate
indemnity against all risk and liability is reasonably assured to it pursuant to
the provisions of this Trust Indenture, by the Company or by the Bondholders;
the Trustee may, nevertheless, begin suit, or appear in and defend suit, or do
anything else in its judgment proper to be done by it as such Trustee, without
assurance of reimbursement or indemnity, and in such case the Company shall
reimburse the Trustee for all costs, expenses, outlays, counsel fees and other
reasonable disbursements properly incurred in connection therewith. If the
Company shall fail to make such reimbursement, the Trustee may reimburse itself
from any monies in its possession under the provisions of this Trust Indenture
and shall be entitled to a preference therefor over any of the Series 1994 Bonds
outstanding hereunder.
Section 9.06 Notice to Holders.
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The Trustee shall give to the Bondholders written notice of
all Events of Default known to the Trustee within 60 days after the occurrence
of an Event of Default unless such Event of Default shall have been cured before
the giving of such notice; provided that, except in the case of default in the
payment of any installment of principal or interest on any of the Series 1994
Bonds, the Trustee shall be protected in withholding such notice if and so long
as it in good faith determines that the withholding of such notice is in the
interest of the Bondholders; and further provided that no such notice shall be
given unless and until any such defaults become an Event of Default.
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Section 9.07 Right of Trustee to Perform Certain Acts on Failure
of Company.
In case Company shall fail to pay or to cause to be paid any
tax, assessments or governmental or other charge upon any part of the Trust
Estate, to the extent, if any, that Company may be liable for same, the Trustee
may pay such tax, assessment or other governmental charge without prejudice,
however, to any rights of Trustee arising in consequence of such failure; and
any amount at any time so paid under this paragraph, with interest thereon from
the date of payment at the highest rate allowed by law shall be repaid by
Company upon demand, and shall become so much additional indebtedness secured by
this Trust Indenture, and the same shall be given a preference in payment over
the Series 1994 Bonds, and shall be paid out of the Project revenues or other
proceeds of the Trust Estate if not otherwise paid by Company, but the Trustee
shall be under no obligation to make any such payment.
Section 9.08 Compensation of Trustee.
The Trustee shall have a first lien, with right of payment
prior to payment on account of interest or principal of any Series 1994 Bonds
issued hereunder, for reasonable compensation, expenses, advances and counsel
fees incurred in and about the execution of the trusts hereby created and in the
exercise and performance of the powers and duties of the Trustee hereunder made
or incurred by the Trustee in and about the execution of the trust hereby
created and to reimburse the Trustee therefor if such expenses are paid by it.
The Company shall pay to the Trustee reasonable compensation for its services in
the premises pursuant to Section 4.04 of the Loan Agreement. The compensation of
the Trustee shall not be limited to or by any provision of law in regard to the
compensation of trustees of an express trust. In no event shall the Issuer have
any obligation with respect to the payment of any fees or expenses of the
Trustee.
Section 9.09 Trustee May Hold Series 1994 Bonds.
The Trustee may acquire and hold, or become the pledgee of,
any of the Series 1994 Bonds, and otherwise deal with the Issuer or the Company
in the same manner and to the same extent and with like effect as though it were
not Trustee hereunder.
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Section 9.10 Resignation or Removal of Trustee.
The Trustee may resign and be discharged from the trust
created by this Trust Indenture by giving to the Issuer, the Company and the
Bondholders 30 days' notice in writing of such resignation, specifying a date
when such resignation shall take effect, provided that no such resignation shall
take effect until a successor shall be appointed. Such resignation shall take
effect on the day specified in such notice, provided a successor shall have been
appointed unless previously a successor trustee shall have been appointed by the
Bondholders as hereinafter provided, in which event such resignation shall take
effect immediately on the appointment. Trustee may be removed at any time for
failure to perform its obligations set forth in this Indenture by an instrument
or instruments in writing, appointing a successor to the Trustee so removed,
filed with the Trustee and executed by the Bondholders of a majority in
principal amount of the Series 1994 Bonds hereby secured and then outstanding,
or by the Issuer, if requested by the Company.
Section 9.11 Appointment of Successor Trustee.
In case at any time the Trustee shall resign or shall be
removed or otherwise shall become incapable of acting, or shall be adjudged
bankrupt or insolvent, or if a receiver of the Trustee or of its property shall
be appointed, or if a public supervisory office shall take charge or control of
the Trustee or of its property or affairs, a vacancy shall forthwith and ipso
facto be created in the office of such Trustee hereunder, and a successor shall
be appointed by the holders of a majority in principal amount of the Series 1994
Bonds hereby secured and then outstanding by an instrument or instruments in
writing filed with the Trustee and executed by such Bondholders, notification
thereof being given to the Issuer and Company. If no appointment of a successor
Trustee shall be made pursuant to the foregoing provisions of this paragraph
within 30 days after vacancy shall have occurred in the office of Trustee, the
holder of any Bond hereby secured or the retiring Trustee may apply to any court
of competent jurisdiction to appoint a successor trustee. Such court may
thereupon, after such notice, if any, as such court may deem proper and
prescribe, appoint a successor trustee.
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Section 9.12 Transfer of Rights and Property to Successor
Trustee.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to its predecessor and also to the Issuer an instrument
in writing accepting such appointment hereunder, and thereupon such successor,
without any further act, deed or conveyance, shall become fully vested with all
the estates, properties, rights, powers, trusts, duties and obligations of its
predecessor; but such predecessor shall, nevertheless, upon the written request
of any Bondholder or the Issuer, deliver an instrument conveying all the Trust
Estate to its successor. Should any assignment, conveyance or instrument in
writing from the Issuer be required by any successor Trustee for more fully and
certainly vesting in such successor Trustee the estate, rights, powers and
duties hereby vested or intended to be vested in the predecessor Trustee, any
and all such assignment, conveyances and instruments in writing shall, on
request, be executed, acknowledged and delivered by the Issuer.
Section 9.13 Annual Reports.
It shall be the duty of the Trustee, on or before the last day
of September in each year or such other times as shall be reasonably requested
by the Issuer, to file with Company and the Issuer an annual statement setting
forth in respect to the preceding calendar year:
(a) The amount withdrawn or transferred by it and the amount deposited
with it on account of each fund and account held by it under the provisions of
this Trust Indenture or the Loan Agreement;
(b) The amount on deposit with it at the end of such preceding calendar
year to the credit of each such fund or account;
(c) A brief description of all obligations held by it as an investment
of monies in each such fund or account;
(d) The amount applied to the purchase or prepayment of the Series 1994
Bonds under the provisions of this Indenture; and
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(e) Any other information which the Company or the Issuer may
reasonably request.
All records and files pertaining to the Trust Estate in the
custody of the Trustee shall be open at all reasonable time to the inspection of
the Issuer, the Company, the Bondholders and their respective agents and their
representatives.
ARTICLE X
THE BONDHOLDERS
Section 10.01 Execution of Instruments by Bondholders.
Any request, direction, consent or other instrument in writing
required by this Trust Indenture to be signed or executed by the Bondholders may
be in any number of concurrent instruments of similar tenor and may be signed or
executed by the Bondholder in person or by an agent duly appointed by an
instrument in writing. Proof of the execution of such instrument and of the
ownership of the Bonds shall be sufficient for any purpose of this Trust
Indenture, and shall be conclusive in favor of the Trustee with regard to any,
action taken by it under such instrument, if made in the following manner:
(a) The fact and date of the execution by any person of any such
instrument may be proved by the certificate of any officer in any jurisdiction
who, by the laws thereof, has power to take acknowledgments of deeds to be
recorded within such jurisdiction,
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to the effect that the person signing such instrument acknowledged to him the
execution thereof, or by an affidavit of a witness to such execution; and
(b) The ownership of the Series 1994 Bonds shall be proved by the
registration books kept under the provisions of this Trust Indenture. Nothing
contained in this paragraph shall be construed as limiting the Trustee to the
proof above specified, it being intended that the Trustee may accept any other
evidence of the matter herein stated which to it may seem sufficient. Any
request or consent of any holders of the Series 1994 Bonds shall bind every
future holder of the same Series 1994 Bonds in respect of anything done by the
Trustee in pursuance of such request or consent.
Section 10.02 Waiver of Notice.
Any notice or other communication required by this Trust
Indenture to be given by delivery, publication or otherwise to the Bondholders
or any one or more of them may be waived, at any time before such notice of
communication is so required to be given, by a writing mailed or delivered to
the Trustee by the holders of all of the Series 1994 Bonds entitled to such
notice or communication.
Section 10.03 Determination of Bondholder Concurrence.
In determining whether the holders of the requisite aggregate
principal amount of the Series 1994 Bonds have concurred in any demand, request,
direction, consent or waiver under this Trust Indenture, Series 1994 Bonds which
are known by the Trustee to be owned by the Issuer or the Company shall be
disregarded and deemed not to be outstanding for the purpose of any such
determination. The Series 1994 Bonds so owned which have been pledged in good
faith may be regarded as outstanding for the purposes of this Section if the
pledgee shall establish to the satisfaction of the Trustee the pledgee's right
to vote such Series 1994 Bonds and that the pledgee is not a person directly or
indirectly controlling or controlled by or under common control with the Issuer
or the Company. In case of a dispute as to such right, any decision by the
Trustee taken upon the advice of counsel shall be full protection to the
Trustee.
Section 10.04 Bondholders' Meeting.
A meeting of the Bondholders may be called at any time and
from time to time by the Trustee or by the holders of a majority of the
principal amount of the Series 1994 Bonds at the time outstanding for any of the
following purposes:
(a) To give any notice to the Issuer or to the Trustee, or to give any
direction to the Trustee, or to make any request of the Trustee, or to consent
to the waiving of any event of default
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hereunder and its consequences, or to take any other action authorized to be
taken by Bondholders pursuant to any of the provisions hereof;
(b) To remove the Trustee or appoint a successor trustee pursuant to
the provisions hereof;
(c) To consent to the execution of an indenture or indentures
supplemental hereto;
(d) To consent to any amendment of the Loan Agreement or to any
instrument supplemental to the Loan Agreement; or
(e) To take any other action authorized to be taken by or on behalf of
the holders of any percentage of the outstanding Series 1994 Bonds under any
other provision of this Indenture or under applicable law.
ARTICLE XI
PAYMENT AND DEFEASANCE
Section 11.01 Payment and Discharge of Indenture.
(a) If there shall be deposited with the Trustee money or funds in the
necessary amount to pay or redeem all the Series 1994 Bonds then outstanding, as
provided in paragraph 12.04; or
(b) If there shall be delivered to the Trustee (i) proof satisfactory
to the Trustee that notice of redemption of all of the outstanding Series 1994
Bonds not surrendered or to be surrendered to it for cancellation has been given
or waived, or that arrangements satisfactory to the Trustee have been made
insuring that such notice will be given or waived, or (ii) a written instrument
executed by the Issuer, at the direction of the Company and expressed to be
irrevocable authorizing the Trustee to give such notice for and on behalf of the
Issuer, or (iii) a waiver of such notice of redemption signed by the holders of
all such outstanding Series 1994 Bonds and, in any such case, deposit with the
Trustee before the date on which the Series 1994 Bonds are to be prepaid, the
entire amount of the redemption price, including accrued interest and premium,
if any; or
(c) If there shall be surrendered to the Trustee for cancellation each
of the Series 1994 Bonds;
then and in such case, all the Trust Estate shall revert to the Issuer, and the
entire estate, right, title and interest of the Trustee, and of the Bondholders
in respect thereof, shall thereupon cease, determine and become void; and the
Trustee in such case, upon the cancellation of all Series 1994 Bonds for the
payment of
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which cash shall have been deposited in accordance with the provisions of this
Trust Indenture, shall, upon receipt of a written request of the Issuer, a
certificate from an Accountant that such amounts are adequate and of an opinion
of counsel as to compliance with conditions precedent, and at Company's cost and
expense, execute to the Issuer, or its order, proper instruments acknowledging
satisfaction of this Trust Indenture and surrender to the Issuer or its order
all cash and deposited securities (other than cash for the payment of the Series
1994 Bonds and interest and premium thereof), if any, which shall then be held
hereunder as a part of the Trust Estate.
Section 11.02 Series 1994 Bonds Deemed Not Outstanding After
Deposit.
When funds shall have been deposited at any time with the
Trustee in the necessary amount to pay or redeem all the Series 1994 Bonds then
outstanding, then upon such deposit all such Series 1994 Bonds shall cease to be
entitled to any benefit or security of this Trust Indenture except the right to
receive the funds so deposited, and the Series 1994 Bonds shall be deemed not to
be outstanding hereunder; and it shall be the duty of the Trustee to hold the
cash and securities so deposited for the benefit of the holders of such Series
1994 Bonds and from and after such date, redemption date or maturity, interest
on such Series 1994 Bonds thereof called for redemption shall cease to accrue.
Section 11.03 Defeasance of Series 1994 Bonds.
Any Bond shall be deemed to be paid within the meaning of this
Section 11.04 and for all purposes of this Trust Indenture after (a) payment of
the principal of, premium, if any, and interest thereon to the due date thereof
(whether such due date is by reason of maturity or upon redemption or
acceleration as provided herein), either (i) shall have been made or caused to
be made out of moneys available for such purpose in accordance with the terms
hereof, or (ii) shall have been provided by irrevocably depositing with Trustee,
in trust and irrevocably set aside exclusively for such payment (1) moneys
sufficient to make such payment and/or (2) direct obligations of or obligations
fully guaranteed by the United States of America maturing as to principal and
interest in such amount and at such time as will insure the availability of
sufficient moneys to make such payment ("Governmental Obligations"); and (b) all
necessary and proper fees, compensation and expenses of Trustee and Issuer
pertaining to the Series 1994 Bonds with respect to which such deposit is made
shall have been paid or the payment thereof provided for to the satisfaction of
Trustee. At such time as a Series 1994 Bond shall
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be deemed to be paid hereunder, as aforesaid, such Series 1994 Bonds shall no
longer be secured by or entitled to the benefits of this Indenture, except for
the purposes of any such payment from such moneys or Governmental Obligations.
Notwithstanding the foregoing, no deposit under clause (a)(ii)
of the immediately preceding paragraph shall be deemed a payment of such Bonds
as aforesaid until (a) proper notice of redemption of such Series 1994 Bonds
shall have been previously given in accordance with Section 2.13 of this Trust
Indenture, or in the event said Series 1994 Bonds are not to be redeemed within
the next succeeding sixty (60) days, until the Company shall have given Trustee,
on behalf of Issuer, in form satisfactory to Trustee, irrevocable instructions
to notify, as soon as practicable, the owners of the Series 1994 Bonds, in
accordance with Section 2.13 hereof, that the deposit required by (a)(ii) above
has been made with Trustee and that said Series 1994 Bonds are deemed to have
been paid in accordance with this Article and stating the maturity or redemption
date upon which moneys are to be available for the payment of the principal of
and the applicable redemption premium, if any, on said Series 1994 Bonds, plus
interest thereon to the due date thereof; or (b) the maturity of such Series
1994 Bonds.
All monies so deposited with Trustee as provided in this
Section may at the direction of the Company also be invested and reinvested in
Governmental Obligations, maturing in the amounts and times as hereinbefore set
forth, and all income from all Governmental Obligations in the hands of Trustee
pursuant to this Section which is not required for the payment of the Series
1994 Bonds and interest and premium, if any, thereon with respect to which such
moneys shall have been so deposited shall be deposited in the Bond Fund as and
when realized and collected for use and application as are other moneys
deposited in the Bond Fund.
Issuer and Trustee hereby covenant that no deposit will be
made or accepted hereunder and no use made of any such deposit which would cause
the Series 1994 Bonds to be treated as arbitrage bonds within the meaning of
Section 148 of the Code.
Notwithstanding any provision of any other Section of this
Trust Indenture which may be contrary to the provisions of this Section , all
moneys or Governmental Obligations set aside and held in trust pursuant to the
provisions of this Section for the payment of Series 1994 Bonds (including
interest and premium thereon, if any) shall be applied to and used solely for
the payment of the particular Series 1994 Bonds (including interest and premium
thereon, if any) with respect to which such moneys and Governmental Obligations
have been so set aside in trust.
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Anything in Article XII and this Section to the contrary
notwithstanding, if money or Governmental Obligations have been deposited or set
aside with Trustee pursuant to this Section for the payment of Series 1994 Bonds
and such Bonds shall not have in fact been actually paid in full, no amendment
to the provisions of this Section shall be made without the consent of the
holder of each Series 1994 Bonds affected thereby.
ARTICLE XII
SUPPLEMENTAL INDENTURES
Section 12.01 Purposes for Which Supplemental Indentures May be
Executed.
The Issuer, upon resolution, and the Trustee from time to time
and at any time, subject to the conditions and restrictions in this Trust
Indenture contained, may enter into such indentures supplemental hereto as may
or shall by them be deemed necessary or desirable without the consent of any
Bondholder for any one or more of the following purposes, among others:
(a) To correct the description of any revenues and income
hereby,pledged or intended so to be, or to assign, convey, pledge or transfer
and set over unto the Trustee, subject to such liens or other encumbrances as
shall be therein specifically described, additional revenues or collateral of
the Company for the equal and proportional benefit and security of the
Bondholders at any time issued and outstanding under this Trust Indenture,
subject, however, to the provisions hereinabove set forth with respect to the
extension of the time for payment of the Series 1994 Bonds and interest thereon;
(b) To add to the covenants and agreements of the Issuer contained in
this Trust Indenture other covenants and agreements thereafter to be observed;
(c) To evidence the succession of any other department, agency, body or
corporation to the Issuer and the assumption by such successor of the covenants,
agreements and obligations of the Issuer in the Bonds hereby secured and in this
Trust Indenture and in any and every supplemental indenture contained;
(d) To cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any supplemental
indenture, or to make such other provisions in regard to matters or questions
arising under this
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Trust Indenture or any supplemental indenture as the Issuer may deem necessary
or desirable and which shall not be inconsistent with the provisions of this
Indenture or any supplemental indenture and which shall not impair the security
of the same;
(e) To modify this Trust Indenture as authorized by the Bondholders
pursuant to this Trust Indenture; and
(f) To modify, eliminate and/or add to the provisions of this Trust
Indenture to such extent as shall be necessary to effect the qualification of
this Trust Indenture under the Trust Indenture Act of 1939, as then amended, or
under any similar federal or state law hereafter enacted, and to add to this
Trust Indenture such other provisions as may be expressly permitted by the Trust
Indenture Act of 1939, excluding, however, the provisions referred to in Section
316(a) (2) of the Trust Indenture Act of 1939.
Section 12.02 Execution of Supplemental Indenture.
The Trustee is authorized to join with the Issuer in the
execution of any such supplemental indenture, to make further agreements and
stipulations which may be therein contained, and accept the conveyance, transfer
and assignment of any property thereunder, but the Trustee shall not be
obligated to enter into any such supplemental indenture which affects its
rights, duties or immunities under this Trust Indenture.
Section 12.03 Discretion of Trustee.
In each and every case provided for in this Section (other
than a supplemental indenture approved by the holders of a majority in aggregate
principal amount of the Series 1994 Bonds as hereinafter provided), the Trustee
shall be entitled to exercise its unrestricted discretion in determining whether
or not any proposed supplemental indenture or any term or provision therein
contained is necessary or desirable, having in view the needs of the Issuer and
the respective rights and interest of the Bondholders; and the Trustee shall be
under no responsibility or liability to the Issuer, to the Company or to any
Bondholder, or to anyone whatever, for any act or thing which it may do or
decline to do in good faith subject to the provisions of this paragraph, in the
exercise of such discretion.
Section 12.04 Modification of Indenture With Consent of
Bondholders.
Subject to the terms and provisions contained in this Section,
and not otherwise, the holders of not less than a majority in aggregate
principal amount of the Series 1994 Bonds then outstanding shall have the right,
from time to time, anything contained in this Trust Indenture to the contrary
notwithstanding
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other than as provided in Article XII hereof, to consent to and approve the
execution by the Issuer and the Trustee of such indenture or indentures
supplemental hereto as shall be deemed necessary or desirable by the Issuer or
the Trustee for the purpose of modifying, altering, amending, adding to or
rescinding in any particular any of the terms or provisions contained in this
Trust Indenture or in any supplemental indenture; provided, however, that
nothing herein contained shall permit or be construed as permitting without the
unanimous consent of the Bondholders (i) an extension of the maturity of any
Series 1994 Bonds issued hereunder or installment thereof, (ii) a reduction in
the principal amount of any Series 1994 Bonds or any prepayment premium or the
rate of interest thereon, (iii) the creation of a lien upon or a pledge of
security ranking prior to or on a parity with the lien or pledge created by this
Indenture, (iv) a preference or priority of any Series 1994 Bond or Series 1994
Bonds over any other Series 1994 Bond or Series 1994 Bonds, (v) a reduction in
the aggregate principal amount of the Series 1994 Bonds required to consent to
such supplemental indenture, or (vi) a reduction in the aggregate principal
amount of the Series 1994 Bonds required to waive an Event of Default.
Whenever the Issuer shall deliver to the Trustee an instrument
or instruments purporting to be executed by the holders of not less than a
majority in aggregate principal amount of the Series 1994 Bonds then
outstanding, which instrument or instruments shall refer to the proposed
supplemental indenture and shall specifically consent to and approve the
execution thereof, thereupon the Trustee may execute such supplemental indenture
without liability or responsibility to any Bondholder, whether or not such
Bondholder shall have consented thereto.
If the holders of not less than a majority in aggregate
principal amount of the Series 1994 Bonds outstanding at the time of the
execution of such supplemental indenture shall have consented to and approved
the execution of such supplemental indenture as herein provided, no subsequent
Bondholder shall have any right to object to the execution of such supplemental
indenture, or to object to any of the terms and provisions contained therein or
the operation thereof, or in any manner to question the propriety of the
execution thereof, or to enjoin or restrain the Trustee or the Issuer from
executing the same or from taking any action pursuant to the provisions thereof.
Section 12.05 Supplemental Indentures to be Part of Trust
Indenture.
Any supplemental indenture executed in accordance with any of
the provisions of this Section shall thereafter form a part of this Trust
Indenture; and all terms and conditions contained in any such supplemental
indenture as to any provisions authorized to
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to be contained therein shall be and be deemed to be part of the terms and
conditions of this Trust Indenture for any and all purposes, and the respective
rights, duties and obligations under this Trust Indenture of the Issuer, the
Trustee and all holders of the Series 1994 Bonds then outstanding shall
thereafter be determined, exercised and enforced hereunder, subject in all
respects to such modifications and amendments. If deemed necessary or desirable
by the Trustee, reference to any such supplemental indenture or any of such
terms or conditions thereof may be set forth in reasonable and customary manner
in the text of the Series 1994 Bonds or in a legend stamped on the Series 1994
Bonds.
Section 12.06 Rights of Company Unaffected.
Anything herein to the contrary notwithstanding, a
supplemental indenture under this Section which adversely affects the rights of
the Company under the Loan Agreement or this Indenture, and so long as the Loan
Agreement is in effect, shall not become effective unless and until the Company
shall have consented to the execution and delivery of such supplemental
indenture. The Trustee shall cause notice of the proposed execution and delivery
of any such supplemental indenture to the execution and delivery of which the
Company has not already consented, together with a copy of the proposed
supplemental indenture, to be mailed to the Company at least 30 days prior to
the proposed date of execution and delivery of any such supplemental indenture.
ARTICLE XIII
MISCELLANEOUS
Section 13.01 Issuer's Obligations Limited.
No recourse under or upon any obligations, covenant or
agreement contained in this Trust Indenture or in the Series 1994 Bonds hereby
secured, or under any judgment obtained against the Issuer, or by the
enforcement of any assessment or by any legal or equitable proceeding by virtue
of any constitution or statute or otherwise or under any circumstances, under or
independent of this Trust Indenture, shall be had against the Issuer. Anything
in this Trust Indenture to the contrary notwithstanding, it is expressly
understood by the parties hereto that (a) the Issuer may rely exclusively on the
truth and accuracy of any certificate, opinion, notice or other instrument
furnished to the Issuer by the Trustee or any Bondholder as to the existence of
any fact or state of affairs; (b) the Issuer shall not be under any obligation
hereunder to perform any record keeping or to provide any legal services, it
being understood that such services shall be performed either by the Trustee or
by the Bondholders; and (c) none of the provisions of this Indenture shall
require the Issuer to expend or risk its
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own funds or to otherwise incur financial liability in the performance of any of
its duties or in the exercise of any of its rights or powers hereunder, unless
it shall first have been adequately indemnified to its satisfaction against the
cost, expenses and liability which may be incurred thereby. The Company has
agreed, pursuant to Section 4.04 of the Loan Agreement to pay any such costs or
expenses or indemnify the Issuer for any liability which may be incurred by the
Issuer.
Section 13.02 Covenants of Issuer to Bind Successors and Assigns.
All the covenants, stipulations, promises and agreements in
this Trust Indenture contained by or in behalf of the Issuer shall bind and
inure to the benefit of its successors and assigns, whether so expressed or not.
Section 13.03 Immunity of Officers.
No recourse for the payment of any part of the principal of,
premium, if any, or interest on the Series 1994 Bonds or for the satisfaction of
any liability arising from, founded upon or existing by reason of the issuance,
purchase or ownership of the Series 1994 Bonds shall be had against any officer,
director, member, agent or employer the Issuer or the State of Nebraska, as
such, all such liability being hereby expressly released and waived as a
condition of and as a part of the consideration for the execution of this Trust
Indenture and the issuance of the Series 1994 Bonds.
Section 13.04 No Benefits to Outside Parties.
Nothing in this Trust Indenture, express or implied, is
intended or shall be construed to confer upon or to give to any person or
corporation, other than the parties hereto and the Bondholders, any right,
remedy or claim under or by reason of this Trust Indenture or covenant,
condition or stipulation thereof; and the covenants, stipulations and agreements
in this Trust Indenture contained shall be for the sole and exclusive benefit of
the parties hereto, their successors and assigns, and the Bondholders.
Section 13.05 Severability of Indenture Provisions.
In case any one or more of the provisions contained in this
Trust Indenture or in the Series 1994 Bonds shall for any reason be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect any other provision of this Trust Indenture,
but this Trust Indenture shall be construed as of such invalid, illegal or
unenforceable provision had never been contained herein.
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Section 13.06 Execution of Indenture in Counterparts.
This Trust Indenture may be simultaneously executed in several
counterparts, each of which, when so executed, shall be deemed to be an
original, and such counterparts shall together constitute one and the same
instrument.
Section 13.07 Headings Not Controlling.
The headings of the several Sections and paragraphs hereof are
inserted for the convenience of reference only and shall not control or affect
the meaning or construction of any of the provisions hereof.
Section 13.08 Notice to Parties.
Any notice, demand, certificate, request, instrument or other
communication authorized or required by this Indenture shall be deemed to have
been sufficiently given or filed for all purposes of this Trust Indenture if and
when mailed by certified or registered mail, return receipt requested, postage
prepaid and addressed as follows:
IF TO THE ISSUER: Nebraska Investment Finance
Authority
1033 "O" Street, Suite 218
Lincoln, NE 68508
IF TO THE TRUSTEE: Norwest Bank Nebraska, N.A.
1919 Douglas St., P. O. Box 3408
Omaha, NE 68103
IF TO THE COMPANY: Transcrypt International, Ltd.
1620 North 20th Street
Lincoln, NE 68503
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IN WITNESS WHEREOF, the Nebraska Investment Finance Authority,
has caused this Trust Indenture to be signed in its name by its Executive
Director, and Norwest Bank Nebraska, N.A., Omaha, Nebraska, solely as trustee,
to evidence its acceptance of the trust hereby created, has signed this Trust
Indenture, each at the place and as of the date set forth on the cover page
hereof.
Nebraska Investment Finance
Authority
By:_____________________________
Its Executive Director
NORWEST BANK NEBRASKA, N.A.,
OMAHA, NEBRASKA
By:_____________________________
Authorized Officer
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EXHIBIT B
Form of Bond
Registered Registered
No. 1 $_______________
UNITED STATES OF AMERICA
STATE OF NEBRASKA
NEBRASKA INVESTMENT FINANCE AUTHORITY
INDUSTRIAL DEVELOPMENT REVENUE BOND
(TRANSCRYPT INTERNATIONAL, LTD. PROJECT)
Series 1994
<TABLE>
<CAPTION>
Maturity Date Interest Rate Bond Date
<S> <C> <C> <C>
January 15, 2004 6.25% January 15, 1994
</TABLE>
REGISTERED HOLDER:
PRINCIPAL AMOUNT:
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE ISSUER OR THE STATE OF
NEBRASKA OR ANY POLITICAL SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE
PRINCIPAL OF, PREMIUM, IF ANY, PURCHASE PRICE OF OR INTEREST ON THIS BOND. THE
ISSUER HAS NO TAXING POWER. THE BONDS ARE LIMITED OBLIGATIONS OF THE ISSUER
PAYABLE SOLELY FROM AMOUNTS PLEDGED THEREFOR PURSUANT TO THE INDENTURE. NEITHER
THE STATE, NOR ANY POLITICAL SUBDIVISION THEREOF, NOR ISSUER SHALL BE OBLIGATED
TO PAY THE PRINCIPAL OF THE BONDS OR THE INTEREST THEREON OR OTHER COSTS
INCIDENT THERETO EXCEPT FORM THE REVENUES AND MONEYS PLEDGED THEREFOR, AND
NEITHER THE FAITH AND CREDIT NOR THE TAXING POWER OF THE STATE OR ANY POLITICAL
SUBDIVISION THEREOF IS PLEDGED TO THE PAYMENT OF THE PRINCIPAL OF, PREMIUM, IF
ANY, OR INTEREST ON THE BONDS OR OTHER COSTS INCIDENTAL THERETO.
The Nebraska Investment Finance Authority (the "Issuer"),
organized and existing under and by virtue of the laws of the State of Nebraska,
for value received hereby promises to pay, solely from the source and as
hereinafter provided, to the Registered Holder identified above, or registered
assigns, on the Maturity Date identified above (or earlier as hereinafter
referred to), the Principal Amount identified above, upon presentation and
surrender hereof at the office of the Trustee, Paying Agent and Bond Registrar,
Norwest Bank Nebraska, N.A., Omaha, Nebraska (the
B-1
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"Trustee"), and in like manner to pay solely from said source interest (computed
on the basis of a 360-day year of twelve 30-day months) on said principal sum at
the Interest Rate identified above from the Bond Date identified above or from
the most recent date to which interest has been paid, payable quarterly on April
15, 1994 and on each July 15, October 15, January 15 and April 15 thereafter
until payment in full of such principal amount. Except with respect to interest
not punctually paid, the interest on this Bond will be paid by check or draft
mailed to the Registered Holder in whose name this Bond is registered at the
close of business on the fifteenth calendar day (whether or not a business day),
next preceding the applicable interest payment date at his address as it appears
on such bond registration books. The principal of this Bond and the interest
hereon are payable in any coin or currency of the United States of America which
on the respective dates of payment is legal tender for the payment of public and
private debts.
This Bond is one of a series designated Nebraska Investment
Finance Authority Industrial Development Revenue Bonds (Transcrypt
International, Ltd. Project), Series 1994, aggregating Eight Hundred Fifty
Thousand Dollars ($850,000) (the "Series 1994 Bonds") in principal amount which
have been issued pursuant to Sections 58-201 et. seq. of the Reissue Revised
Statutes of Nebraska, as amended and supplemented (the "Act") and under and
pursuant to a Resolution adopted by the Issuer (the "Resolution") and a Trust
Indenture between the Issuer and Trustee dated January 15, 1994 ("Indenture").
This Bond does not represent a debt or pledge of the faith or credit of the
Issuer or grant to the Registered Holder of this Bond any right to have the
Issuer levy any taxes or appropriate any funds for the payment of the principal
hereof or the interest hereon nor is this Bond a general obligation of the
Issuer or the individual officials, officers, members, directors, employees or
agents thereof. The Issuer has no taxing power. This Bond is payable solely and
only out of the rentals, revenues and other income, charges and monies to be
produced and received with respect to the Project (as defined in the Indenture),
specifically including, but not limited to, payment of principal and interest to
the Issuer by the Company pursuant to the Promissory Note of the Company
executed pursuant to the Loan Agreement (as defined in the Indenture), and from
other sources as provided in the Loan Agreement. Principal and Interest payments
sufficient for the prompt payment when due of the principal and interest on this
Bond are to be paid to the Trustee for payment to the registered owner by the
Company for the account of the Issuer.
B-2
<PAGE> 80
All such payments have been duly pledged for that purpose and, in addition, the
rights of the Issuer excluding certain rights to payment of fees, expenses and
indemnifications under the Loan Agreement have been assigned to secure the
payment of such principal and interest.
No recourse shall be had for the payment of the principal of
or interest on this Bond, or for any claim based hereon or upon any obligation,
covenant or agreement contained in the Resolution, or the Indenture against any
past, present or future officer, director, employee, member or agent of the
Issuer, or any incorporator, officer, director, member, agent, employee or
trustee of any successor corporation, as such, either directly or through the
Issuer or any successor corporation, under any rule of law or equity, statute or
constitution or by the enforcement of any assessment or penalty or otherwise,
and all such liability of any such officer, director, agent, employee or member
as such is hereby expressly waived and released as a condition of and in
consideration of the issuance of this Bond.
It is hereby certified and recited that the Issuer has found,
as set out in its Resolution: that the Project is an eligible "project" as
defined in the Act; that the issuance of this Bond and the loan to finance the
acquisition of the Project will promote the public purposes of the Act by, among
other things, the promotion of employment and prosperity of residents of the
City of Lincoln and the State of Nebraska; that all acts, conditions and things
required to be done precedent to and in the issuance of this Bond have been
properly done, have happened and have been performed in regular and due time,
form and manner as required by law; and, that this Bond does not constitute a
debt of the Issuer within the meaning of any constitutional or statutory
limitations.
This Bond is transferable, as provided in the Trust Indenture,
only upon the books of the Issuer kept for that purpose at the office of the
Trustee by the Registered Holder hereof in person, or by his duly authorized
attorney, upon surrender of this Bond together with a written instrument of
transfer satisfactory to the Trustee duly executed by the Registered Holder or
his duly authorized attorney, and together with an Investment Letter in form and
substance acceptable to the Issuer executed by the person or persons to whom the
Bonds shall be transferred, and thereupon a new registered Bond or Bonds in the
same aggregate principal amounts shall be issued to the transferee in exchange
therefor as provided in the Trust Indenture, and upon payment of the charges
therein prescribed. The Issuer, the Trustee and any Paying Agent may deem and
treat the person in whose name this Bond is registered as the absolute owner
hereof for the purpose of receiving payment of, or on account of, the principal
hereof and premium, if any, and interest due hereon and for all other purposes.
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The Bonds are issuable in the form of registered Bonds without
coupons. Subject to such conditions and upon the payment of such charges
provided in the Trust Indenture, the owner of any registered Bond or Bonds may
surrender the same (together with a written instrument of transfer satisfactory
to the Trustee duly executed by the registered owner or his duly authorized
attorney), in exchange for an equal aggregate principal amount of registered
Bonds of any other authorized denominations.
The Bonds shall bear interest at a Tax Equivalent Rate of
Eight and One/Fourth percent (8.25%) per annum upon a Determination of
Taxability from and after the Taxable Date, as defined and provided in the Trust
Indenture.
At the option of the Company, the Bonds shall be subject to
redemption in whole or in part at any time (and in the event that less than all
of the Bonds of a maturity are called for redemption, the particular Bonds of
such maturity to be redeemed shall be selected by lot by the Trustee), upon
notice mailed to the owner of each Bond not less than 30 days prior to the date
fixed for redemption, as provided in the Indenture, at the following redemption
prices plus accrued interest thereon to the date of such redemption.
<TABLE>
<CAPTION>
Redemption Price
Redemption Date (expressed as
percentage of par)
<S> <C>
January 15, 1994 through January 14, 1997 103%
January 15, 1997 through January 14, 2000 102%
January 15, 2000 and therafter 101%
</TABLE>
The Bonds are also subject to mandatory redemption pursuant to
the Indenture in the event of damage or destruction of the Project by casualty,
in the event of a condemnation of the Project, and to the extent monies in the
Acquisition Fund are not expended prior to the Completion Date (as defined in
the Indenture).
The Bonds of the issue of which this Bond is one are payable
upon redemption at the above-mentioned office of the Paying Agent. Notice of
redemption setting forth the place of payment shall be mailed as provided in the
Trust Indenture. If notice of redemption shall have been mailed and published as
aforesaid, the Bonds or portions thereof specified in said notice shall become
due and payable on the redemption date therein fixed, and if, on the redemption
date, moneys for the redemption of all the Bonds and portions thereof to be
redeemed, together with interest to the redemption date, shall be available for
such payment on said date,
B-4
<PAGE> 82
then from and after the redemption date interest on such bonds or portions
thereof so called for redemption shall cease to accrue and be payable.
It is hereby certified and recited that all conditions, acts
and things required by law and the Resolution to exist, to have happened and to
have been performed precedent to and in the issuance of this Bond, exist, have
happened and have been performed and that the issue of this Bond, together with
all other indebtedness of the Issuer, is within every debt and other limit
prescribed by the laws of the State of Nebraska.
This Bond shall not be entitled to any benefit under the
Resolution or Indenture referred to herein or be valid or become obligatory for
any purpose until this Bond shall have been authenticated by the execution by
the Trustee of the Certificate of Authentication hereon.
IN WITNESS WHEREOF, The Nebraska Investment Finance Authority,
has caused this Bond to be signed in its name and on its behalf by the manual or
facsimile signature of its Chairperson, its corporate seal or a facsimile
thereof to be hereunto affixed, imprinted, engraved or otherwise reproduced, and
attested by the manual or facsimile signature of its Executive Director, as of
the Bond Date identified above.
The Nebraska Investment Finance
Authority
By: ________________________________
ATTEST: Its Chairperson
__________________________________
Executive Director
( S E A L )
CERTIFICATE OF AUTHENTICATION
This Bond is delivered pursuant to the within-mentioned
Indenture.
Norwest Bank Nebraska, N.A.,
Date:_____________________ Omaha, Nebraska, Trustee
By: ________________________________
Authorized Signature
B-5
<PAGE> 83
ASSIGNMENT
- --------------------------------------------------------------------------------
Social Security or Other Identifying Number of Assignee
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
- --------------------------------------------------------------------------------
(Name and Address of Assignee)
the within Bond, and does hereby irrevocably constitute and appoint
______________________________________ to transfer said Bond on the books kept
for registration thereof with full power of substitution in the premises.
Dated:_________________________
Signature Guaranteed:______________________________________________
Signature:_________________________________________________________
NOTICE: The signature to this assignment must correspond with the name as it
appears upon the face of the within Bond in every particular, without alteration
or enlargement or any change whatever.
B-6
<PAGE> 84
EXHIBIT C
Description of Site
Lot 1, Highlands Coalition 2nd Addition, Lincoln,
Lancaster County, Nebraska
Description of Project
Manufacturing facility to be constructed in accordance with the
standard form of Agreement between Owner and Contractor dated October
21, 1993, between Company and Hank Buis Construction Co., Inc., as
amended.
C-1
<PAGE> 85
EXHIBIT D
Additional Permitted Encumbrances
None
D-1
<PAGE> 86
EXHIBIT E
Form of Requisition
NORWEST BANK NEBRASKA, N.A.
1919 Douglas Street, Box 3408
Omaha, NE 68103
Attention: Corporate Trust Officer
Re: Direction to Make Disbursements from Acquisition Fund for the
Nebraska Investment Finance Authority, Industrial Development
Revenue Bonds (Transcrypt International, Ltd. Project)
Pursuant to Section 3.03 of the Trust Indenture (the "Indenture"),
dated as of January 15, 1994, between the Nebraska Investment Finance Authority
(the "Issuer"), and Norwest Bank Nebraska, N.A., (the "Trustee"), you are hereby
directed to disburse from the Acquisition Fund referred to in the Indenture
(the "Fund") the amount indicated below.
As required by Section 3.03 of the Indenture, the undersigned hereby
certifies:
1. This is requisition number _____ from the Acquisition Fund.
2. The name and address of the person, firm or corporation to
whom the disbursement is due is as follows:
__________________________________________________________
__________________________________________________________
__________________________________________________________
Attached is an Architects's Certification for Payment, vouchers or other
documentation showing all expenditures to be paid or reimbursed from the
disbursement. Such disbursement is a Project Cost as defined in the Indenture.
3. The amount to be disbursed is $____________________.
4. Transcrypt International, Ltd. ("Company") is currently in
full compliance with all terms and conditions of the Loan
Agreement between the Company and the Issuer dated January 15,
1994.
E-1
<PAGE> 87
DATED this ______ day of ________________________, 19___.
Transcrypt International, Ltd.
By:________________________________
Authorized Officer
APPROVED BY:
Norwest Bank Nebraska, N.A.
By:________________________________
Authorized Officer
E-2
<PAGE> 88
EXHIBIT F
Investment Letter
F-1
<PAGE> 1
EXHIBIT 10.16
-------------------------------------------------------------------
NEBRASKA INVESTMENT FINANCE AUTHORITY
(Issuer)
and
Transcrypt International, Ltd.
(Company)
-------------------------------------------------------------------
LOAN AGREEMENT
Dated as of January 15, 1994
-------------------------------------------------------------------
$850,000
Nebraska Investment Finance Authority
Industrial Development Revenue Bonds
(Transcrypt International, Ltd., Project)
Series 1994
-------------------------------------------------------------------
THIS INSTRUMENT ALSO CONSTITUTES A SECURITY AGREEMENT
UNDER THE NEBRASKA UNIFORM COMMERCIAL CODE
<PAGE> 2
LOAN AGREEMENT
Table of Contents
The Table of Contents for this Loan Agreement is for convenience of
reference only and is not intended to define, limit or describe the scope or
intent of any provision of this Loan Agreement.
Page
ARTICLE I DEFINITIONS AND INTERPRETATION
Section 1.01 Terms Defined in this Loan Agreement 2
Section 1.02 Construction and Interpretation 6
ARTICLE II REPRESENTATIONS
Section 2.01 Representations by the Issuer 7
Section 2.02 Representations by the Company 8
ARTICLE III CONSTRUCTION OF THE PROJECT; ISSUANCE OF THE
BONDS AND APPLICATION OF BOND PROCEEDS
Section 3.01 Agreement to Issue Bonds and
Application of Bond Proceeds 10
Section 3.02 Agreement to Construct the Project 10
Section 3.03 Project Costs 11
Section 3.04 Company Required to Pay Project Costs
in Event Bond Proceeds Insufficient 11
Section 3.05 Additional Security for Company's
Obligations 11
Section 3.06 Consent to Assignment of Agreement
and Grant of Security 11
ARTICLE IV TERMS OF LOAN AND NOTE; PAYMENT, PREPAYMENT
Section 4.01 Terms of Loan and Note 12
Section 4.02 Payments on the Note 12
Section 4.03 Place of Payments 12
Section 4.04 Additional Payments 12
Section 4.05 Company's Obligations Unconditional 13
Section 4.06 Interest on Unpaid Payments 14
Section 4.07 Prepayment of Note; Redemption of
Series 1994 Bonds 14
<PAGE> 3
Section 4.08 Company's Remedies 15
ARTICLE V USE, MAINTENANCE, CHARGES AND INSURANCE
Section 5.01 Use of Project 15
Section 5.02 Inspection of Project 16
Section 5.03 Maintenance of Property by Company 16
Section 5.04 Alterations 16
Section 5.05 Liens 16
Section 5.06 Taxes, Other Governmental Charges
and Utility Charges 17
Section 5.07 Insurance Required 17
Section 5.08 No Suits if Loss Covered by Insurance 19
ARTICLE VI DAMAGE, DESTRUCTION AND CONDEMNATION
Section 6.01 Damage and Destruction 19
Section 6.02 Application of Insurance Proceeds 19
Section 6.03 Application of Condemnation Award 20
Section 6.04 Release of Proceeds 21
Section 6.05 Net Proceeds Insufficient 21
ARTICLE VII SPECIAL COVENANTS
Section 7.01 Granting Easements 21
Section 7.02 Prepayment of the Bonds 22
Section 7.03 To Observe Laws, Ordinances and
Regulations 22
Section 7.04 Further Assurances 22
Section 7.05 Observance of Covenants and Terms of
the Trust Indenture and Deed of Trust 23
Section 7.06 Financial Covenants 23
Section 7.07 Company to Maintain its Properties 24
Section 7.08 Release and Indemnification 24
Section 7.09 Tax Covenants 25
Section 7.10 Waiver of Covenants 29
ARTICLE VIII ASSIGNMENT, SUBLEASING AND SELLING
Section 8.01 Assignments and Subleasing by
the Company 29
Section 8.02 Partial Release of Collateral 29
ARTICLE IX EVENTS OF DEFAULT AND REMEDIES
<PAGE> 4
Section 9.01 Events of Default 30
Section 9.02 Remedies on Default 32
Section 9.03 Liability of Company Unconditional 32
Section 9.04 Access to the Project Upon Default 32
Section 9.05 No Default Unless Bond Outstanding 33
Section 9.06 Remedies Cumulative, Delay Not to
Constitute Waiver 33
Section 9.07 Agreement to Pay Attorneys' Fees and
Expenses 33
Section 9.08 Recognition of Security Interest in
Pledge of Revenues and Income 34
Section 9.09 Exercise of the Issuer's Remedies 34
ARTICLE X COMPANY'S OPTIONS AND OBLIGATIONS
TO PURCHASE 34
ARTICLE XI AMENDMENTS 36
ARTICLE XII CONSTRUCTION AND ENFORCEMENT
Section 12.01 Performance of Company's Obligations 37
Section 12.02 Governing Law 37
Section 12.03 No Pecuniary Liability of the Issuer 37
Section 12.04 Assignment of Note; Company
Unconditionally Obligated 37
Section 12.05 No Rights to Set-Off 38
Section 12.06 Delegation of Duties 38
Section 12.07 Reference to Series 1994 Bonds
Ineffective After Series 1994
Bond Paid 38
Section 12.08 Severability 38
Section 12.09 Benefit of Bondholders 39
Section 12.10 Further Limitations 39
ARTICLE XIII MISCELLANEOUS
Section 13.01 Access 40
Section 13.02 Binding Effect 40
Section 13.03 Counterparts 40
Section 13.04 Notices 40
<PAGE> 5
LOAN AGREEMENT
This LOAN AGREEMENT is dated January 15, 1994, by and
between the Nebraska Investment Finance Authority ("Issuer"), as
lender, and TRANSCRYPT INTERNATIONAL, LTD. ("Company"), a Nebraska
limited partnership, as Borrower.
W I T N E S S E T H:
WHEREAS, Issuer is a body politic and corporate, not a state agency
but an independent instrumentality exercising essential public functions,
organized and existing under the laws of the State of Nebraska, with lawful
power and authority to enter into this Loan Agreement;
WHEREAS, Issuer, in furtherance of the purposes and pursuant to the
provisions of Sections 58-201 et. seq., Reissue Revised Statutes of Nebraska,
1943, as amended (collectively the "Act"), has authorized the issuance of its
$850,000 Industrial Development Revenue Bonds (Transcrypt International, Ltd.,
Project) Series 1994, dated January 15, 1994;
WHEREAS, Issuer has proposed and does hereby propose that it shall:
(a) Issue Eight Hundred Fifty Thousand Dollars ($850,000) in aggregate
principal amount of its Industrial Development Revenue Bonds (Transcrypt
International, Ltd., Project), Series 1994, dated January 15, 1994 ("Series 1994
Bonds"), under and pursuant to the Act for the purpose of making a loan to
Company to acquire, construct and equip manufacturing facilities to be used by
Company;
(b) Make a loan to the Company evidenced by the Note and upon the terms
and conditions hereinafter set forth; and
WHEREAS, the Company desires to accept the proposals of the Issuer
and to enter into this Loan Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements herein set forth, the Issuer and
1
<PAGE> 6
the Company do hereby covenant, agree and bind themselves as follows:
2
<PAGE> 7
ARTICLE I
DEFINITIONS AND INTERPRETATION
Section 1.01 Terms Defined in this Loan Agreement.
Unless the context otherwise requires, the following terms shall
have the following meanings for all purposes of this Loan Agreement, such
definitions to be equally applicable to both the singular and plural forms and
masculine, feminine and neuter gender of any of the terms defined:
"Act" means Sections 58-201 et. seq., Reissue Revised Statutes of
Nebraska, 1943, and acts amendatory thereof and supplemental thereto.
"Acquisition Fund" means the fund created pursuant to Section 3.01
of the Trust Indenture.
"Architect" means Design Associates of Lincoln, Inc., or any other
licensed architect, acceptable to the Trustee, and assuming the obligations of
Architect under the agreement between Owner and Architect with respect to the
Project.
"Authorized Company Representative" means the person at the time
designated to act on behalf of the Company by written certificate furnished to
the Issuer and the Trustee, containing the specimen signature of such person and
signed on behalf of the Company by an authorized officer of the Company. Such
certificate may designate an alternate or alternates.
"Authorized Issuer Representative" means the Chairperson, Vice
Chairperson or Executive Director or such other person at the time designated to
act on behalf of the Issuer by written certificate furnished to the Company and
the Trustee, containing the specimen signature of such person and signed on
behalf of the Issuer by its Chairperson, Vice Chairperson or Executive Director.
Such certificate may designate an alternate or alternates.
"Bond Documents" means the Trust Indenture, the Deed of Trust, this
Loan Agreement and all documents referred to in any of the foregoing.
3
<PAGE> 8
"Bond Fund" means the fund created in Section 4.01 of the Trust
Indenture.
"Bondholder" means the holders of Series 1994 Bonds from time to
time outstanding.
4
<PAGE> 9
"Bonds" or "Series 1994 Bonds" mean the Nebraska Investment Finance
Authority, Industrial Development Revenue Bonds (Transcrypt International, Ltd.
Project), Series 1994, dated January 15, 1994, in the original principal amount
of $850,000, authorized by the Resolution and the Trust Indenture and described
therein.
"Closing" means the date of delivery of the Bonds pursuant to the
Indenture.
"Code" means the Internal Revenue Code of 1986, as amended, and the
applicable regulations issued thereunder.
"Collateral" means the property pledged to Trustee as security for
the Bondholders pursuant to Article X of this Loan Agreement.
"Company" means Transcrypt International, Ltd., a Nebraska
corporation, its successors and assigns, including any surviving, resulting or
transferee corporation or entity, permitted by Section 7.06 of this Loan
Agreement.
"Completion Date" means the earlier of the date of completion of
acquisition, construction and equipping of the Project or January 15, 1997.
"Costs of Issuance" means costs of issuance as defined in Section
147(g)(1) of the Code, including but not limited to underwriting fees and
expenses, bond and other printing expenses, legal fees and expenses, initial
Trustee's fees, fees of the Issuer and other expenses incurred in connection
with the issuance and sale of the Bonds.
"Costs of Issuance Account" means the subaccount created in the
Acquisition Fund pursuant to Section 3.02 of the Indenture.
"Deed of Trust" means the Deed of Trust and Construction Security
Agreement between Issuer and Trustee dated January 15, 1994.
"Determination of Taxability" means (i) the entry of a final decree
or judgment of any federal court or the taking of a
5
<PAGE> 10
final action by the Internal Revenue Service, which decree, judgment or action
determines that interest paid or payable on any Series 1994 Bond is or was
includable in the gross income of a holder of the Series 1994 Bonds for federal
income tax purposes under the Code (other than a holder who is a "substantial
user" or a "related person" within the meaning of Section 147 of the Code); or
(ii) the adoption of legislation by the United States Congress, the effect of
which is, in the opinion of Bond Counsel, to cause interest paid or payable on
the Series 1994 bonds to be includable in the gross income of holders of the
Series 1994 Bonds for federal income tax purposes under the Code (other than a
holder who is a "substantial user" or "related person" within the meaning of
Section 147 of the Code); or (iii) the filing with the Trustee, with notice to
the Issuer and to the Company, of an opinion by Bond Counsel to the effect that
interest on the Series 1994 Bonds has become includable in the gross income of
holders of the Series 1994 Bonds for purposes of federal income taxation (other
than a holder who is a "substantial user" or "related person" within the meaning
of Section 147 of the Code). No decree or action described in clause (i) shall
be considered "final," however, unless the Company has been given written notice
and, if it so desires and is legally allowed, has been afforded the opportunity
to contest the same either directly or in the name of any holder of Series 1994
Bonds, and until conclusion of any appellate review, if sought.
"Event of Taxability" means (i) the failure of Company to observe
any covenant, agreement or representation herein, which failure results in a
Determination of Taxability; or (ii) the enactment of federal legislation having
the effect of retroactively rendering interest on the Series 1994 Bonds taxable
to the holder thereof.
"Governing Body" means the members of the Issuer.
"Independent Counsel" means any attorney duly admitted to practice
law before the highest court of any state and not an officer or a full time
employee of the Issuer or the Company.
"Issuer" means the Nebraska Investment Finance Authority, a body
politic and corporate, not a state agency but an independent instrumentality,
organized and existing under the laws of the State of Nebraska, and any
successor thereto.
6
<PAGE> 11
"Loan Agreement" or "Agreement" means this Loan Agreement, dated
January 15, 1994, between the Issuer and the Company which provides for the
lending of proceeds of the Bonds by the Issuer to the Company.
"Note" means the Promissory Note from Company to Issuer in the
amount of $850,000 executed and delivered pursuant to this Loan Agreement.
"Original Purchasers" means the original purchasers of the Bonds,
initially Security National Bank.
7
<PAGE> 12
"Outstanding" means all Bonds issued, authenticated and delivered
pursuant to the Indenture except Bonds cancelled by Trustee or delivered to
Trustee for cancellation and Bonds the payment or redemption of which has been
made or provided for by depositing money or Governmental Obligations as provided
in the Indenture.
"Paying Agent" means Trustee and any successor paying
agent pursuant to the Indenture.
"Permitted Encumbrances" means, as of any particular time, (i) the
Trust Indenture; (ii) liens for ad valorem taxes and special assessments not
then delinquent; (iii) the Deed of Trust; (iv) this Loan Agreement; (v) utility,
access and other easements and rights-of-way, mineral rights, reservations,
restrictions and exceptions that are of record on January 15, 1994; (vi) such
minor defects, irregularities, encumbrances, easements, rights-of-way and clouds
on title as normally exist with respect to properties similar in character to
the Site and as do not in the aggregate, in the opinion of Independent Counsel,
materially impair the property affected thereby for the purposes for which it
was acquired or is held by the Company; and (viii) those additional
encumbrances, if any, identified in Exhibit D attached hereto and incorporated
herein by this reference.
"Project" means the Site and the facility to be constructed thereon,
as generally described on Exhibit A, which constitute a facility suitable for
use for manufacturing or industrial enterprises and a "project" under the Act.
"Project Costs" means only costs or expense incurred by Company
which are used to provide property of a character subject to the allowance for
depreciation under Sections 167 or 168 of the Code or amounts paid or incurred
which are, for federal income tax purposes, chargeable to Company's capital
account or would be chargeable either with a proper election by the Company or
but for a proper election by the Company to deduct such amounts, which
constitute a manufacturing facility within the meaning of Section 144(a)(12)(C)
of the Code. Project Costs shall not include Costs of Issuance, except to the
extent Costs of Issuance not exceeding two percent of the amount of the Bonds
may be paid from the Costs
8
<PAGE> 13
of Issuance Account in the Bond Fund pursuant to Section 3.02 of the Indenture.
"Resolution" means the Resolution of the Issuer adopted on January
18, 1994, authorizing the issuance and sale of the Bonds, as the same may be
amended, modified or supplemented by any amendments or modifications thereof.
9
<PAGE> 14
"Site" means all that certain real property situated in Lincoln,
Nebraska, more particularly described on Exhibit A attached hereto and
incorporated herein by this reference, including all improvements thereon,
together with all of the shrubs, trees, plants, crops, easements, rights,
privileges, franchises, appurtenances, oil, gas, mineral, water and water rights
(whether riparian, appropriative or otherwise, and whether or not appurtenant),
used in connection therewith, thereunto belonging or in any way appertaining and
all of the estate, right, title, interest, claim or demand whatsoever of Company
therein or thereto, either in law or in equity, in possession or expectancy, now
or hereafter acquired.
"Tax Equivalent Rate" means interest on a Bond calculated at a rate
of eight and one/fourth percent (8.25%) per annum.
"Taxable Date" means, in the event of a Determination of Taxability,
the first date as of which interest on the Series 1994 Bonds is included in
gross income of a holder of a Series 1994 Bond.
"Trust Estate" means any and all property or interest therein,
whether real or personal or tangible or intangible, mortgaged or pledged to the
Trustee, or in which the Trustee is granted a security interest, to secure the
payment of principal, premium, if any, and interest on the Bonds and all other
obligations of the Issuer under the Bonds, the Resolution and the Trust
Indenture, and the obligations of the Company pursuant to the Loan Agreement and
the Deed of Trust, including, but not limited to, the property described in
paragraphs I, II, III and IV of the granting clauses of the Trust Indenture.
"Trust Indenture" or "Indenture" means the Trust Indenture.
"Trustee" means Norwest Bank Nebraska, N.A., Omaha, Nebraska, its
successor or successors in trust under the Trust Indenture.
Section 1.02 Construction and Interpretation.
10
<PAGE> 15
The provisions of this Loan Agreement shall be construed and
interpreted in accordance with the following provisions:
(a) Any terms defined in the Trust Indenture but not defined herein shall
have the same meaning herein unless the context hereof clearly requires
otherwise.
(b) This Loan Agreement shall be interpreted in accordance with and
governed by the laws of the State of Nebraska.
(c) Wherever in this Loan Agreement it is provided that any person may do
or perform any act or thing the word "may" shall be deemed permissive and not
mandatory and it shall be construed that such person shall have the right, but
shall not be obligated, to do and perform any such act or thing.
(d) The phrase "at any time" shall be construed as meaning "at any time or
from time to time."
(e) The word "including" shall be construed as meaning "including, but not
limited to."
(f) The words "will" and "shall" shall each be construed as mandatory.
(g) The words "herein," "hereof," "hereunder," "hereinafter" and words of
similar import shall refer to this Loan Agreement as a whole rather than to any
particular paragraph, section or subsection, unless the context specifically
refers thereto.
(h) Forms of words in the singular, plural, masculine, feminine or neuter
shall be construed to include the other forms as the context may require.
(i) The captions to the sections of this Loan Agreement are for
convenience only and shall not be deemed part of the text of the respective
sections and shall not vary by implication or otherwise any of the provisions
hereof.
ARTICLE II
REPRESENTATIONS
11
<PAGE> 16
Section 2.01 Representations by the Issuer.
The Issuer makes the following representations:
(a) By resolution duly adopted on August 24, 1993, the Issuer adopted an
intent resolution with respect to providing for the issuance of the Series 1994
Bonds.
(b) The issuance and sale of the Series 1994 Bonds, the execution and
delivery of the Trust Indenture, the execution and delivery of this Loan
Agreement and the performance of all covenants and agreements of the Issuer
contained in this Loan Agreement and in the Trust Indenture and of all other
acts and things required under the Constitution and laws of the State of
Nebraska to make this Loan Agreement and the Trust Indenture valid
12
<PAGE> 17
and binding limited obligations of the Issuer in accordance with their terms,
are authorized and have been duly authorized by the Resolution of the Governing
Body duly adopted at a meeting of the Governing Body duly called and held on
January 18, 1994, by a majority vote of its members.
(c) To finance the loan to Company, the Issuer proposes to issue, pursuant
to the Act, $850,000 in original principal amount of Series 1994 Bonds
simultaneously with the execution and delivery of this Loan Agreement and the
Trust Indenture. The date, denomination, interest rate or rates, maturity
schedule, prepayment provisions and other pertinent provisions with respect to
the Series 1994 Bonds are set forth in the Trust Indenture and by this reference
are incorporated herein.
(d) Except as set forth in the Closing Certificate of the Issuer, there is
no litigation pending or to the best of its knowledge threatened against the
Issuer relating to the loan to Company or to the authorization, issuance, sale
or delivery of the Series 1994 Bonds or to this Loan Agreement or questioning
the organization, powers or authority of the Issuer.
Section 2.02 Representations by the Company.
The Company makes the following representations:
(a) The Company is a limited partnership organized and existing in good
standing under the laws of the State of Nebraska and duly authorized to transact
business in the State of Nebraska, having the power to enter into this Loan
Agreement and the Deed of Trust and perform all obligations contained herein and
the Deed of Trust and by proper partnership action has been duly authorized to
execute and deliver this Loan Agreement and in the Deed of Trust.
(b) The execution and delivery of this Loan Agreement and the Deed of
Trust and the consummation of the transactions herein contemplated and in the
Deed of Trust will not conflict with or constitute a breach of or default under
the partnership agreement or certificate of partnership of the Company or any
bond, debenture, note or other evidence of indebtedness or any contract, loan
agreement or lease to which the Company is a party or by which it is bound, or
result in the creation or imposition of any lien,
13
<PAGE> 18
charge or encumbrance of any nature upon any of the property or assets of the
Company contrary to the terms of any instrument or agreement.
(c) At all times during the term of this Loan Agreement and the Deed of
Trust, the Company will, at its own expense, operate the Project (with such
changes, improvements or additions as the Company may deem desirable; provided
the Project continues to qualify as a "Project" under the Act) for the useful
life of the Project and shall maintain and repair the Project in conformity with
the Company's normal maintenance and repair programs; provided that the Company
shall have no obligation to operate, maintain or repair any element or item of
the Project the operation, maintenance or repair of which becomes uneconomic to
the Company because of damage or destruction or obsolescence (including economic
obsolescence), or change in government standards and regulations, or, the
termination by the Company of the operation of the facilities to which the
element or item of the Project is an adjunct.
(d) There is no litigation pending or to the best of its knowledge
threatened against the Company affecting its ability to carry out the
acquisition, construction, improvement or financing of the Project or the
carrying into effect of this Loan Agreement or the Deed of Trust or, except as
disclosed in writing to the Issuer and the Trustee, as to any other matter
materially affecting the ability of the Company to perform its obligations
hereunder.
(e) Any financial statements of the Company or its officers delivered to
the Original Purchaser or the Trustee prior to the date hereof are true and
correct in all respects and fairly present the financial condition of the
Company and each of its officers as of the dates thereof; no materially adverse
change has occurred in the financial condition reflected therein since the
respective dates thereof; and no additional borrowings have been made by the
Company since the date thereof except in the ordinary course of business, other
than the borrowing contemplated hereby or borrowings disclosed to or approved by
the Trustee.
(f) So long as the Series 1994 Bonds remain outstanding, the Company will
operate the Project as an authorized "project" within the meaning of the Act.
14
<PAGE> 19
(g) All of the proceeds of the Series 1994 Bonds will be used only as
provided in Article III of this Loan Agreement.
(h) In addition to the Series 1994 Bonds, no other obligations have been
or are expected to be issued under Section 103 of the Code for sale at
substantially the same time as the Series 1994 Bonds are sold pursuant to a
common plan of marketing and at substantially the same rate of interest as the
Series 1994Bonds and which are payable in whole or in part by Company or
otherwise have with the Series 1994 Bonds any common or pooled security for the
payment of debt service thereon.
(i) As of the date hereof, the use of the Project as designed and proposed
to be operated, complies, in all material respects, with all presently
applicable laws, regulations, rules of the State of Nebraska and the respective
agencies thereof and the political subdivision in which the Project is located.
(j) The Company has not made, done, executed or suffered, and warrants
that it will not make, do, execute or suffer, any act or thing whereby its title
to the lands, easements and other rights described in Exhibit A as and for the
Site shall or may be impaired, charged or encumbered in any manner whatsoever
except by Permitted Encumbrances or in the Indenture.
ARTICLE III
CONSTRUCTION OF THE PROJECT;
ISSUANCE OF THE BONDS AND APPLICATION OF BOND PROCEEDS
Section 3.01 Agreement to Issue Bonds and Application of Bond Proceeds.
Issuer and the Company have contracted for the sale of the Series
1994 Bonds to the Original Purchaser. Upon execution of this Loan Agreement,
Issuer shall issue and direct the Trustee to deliver the Series 1994 Bonds to
the Original Purchaser and the proceeds thereof shall be deposited as provided
in the Trust Indenture to be disbursed as provided in the Trust Indenture.
Company shall direct the investment by the Trustee of moneys in the Bond Fund
and Acquisition Fund in permitted investments as specified in Section 4.05 of
the Trust Indenture.
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Section 3.02 Agreement to Construct the Project.
Company agrees that it will construct the Project as herein provided
and as described on Exhibit A hereto and will construct, acquire and install
other facilities and real and personal property, if any, deemed necessary for
the operation of the Project. Company agrees that only such changes will be made
in the Project which will not change the nature of the Project to the extent
that (a) it would not constitute a "project" as authorized by the Act or (b) it
would not constitute a facility which can be financed with the proceeds of the
Bonds pursuant to Section 144 of the Code.
Company agrees that the acquisition and construction of the Project
shall proceed with all reasonable dispatch and to use its best efforts to cause
such acquisition and construction to be completed by January 1, 1997, or as soon
thereafter as may be practicable, delays incident to strikes, riots, acts of
nature or the public enemy beyond the reasonable control of the Company only
excepted, but if for any reason such acquisition or construction is not
completed by such date, there shall be no diminution in or postponement of the
payments of principal and interest on the Note and as required hereby to be paid
by the Company. Pursuant to the Trust Indenture, all moneys in the Acquisition
Fund as of January 1, 1997, shall be transferred to the Bond Fund on such date
notwithstanding the incompletion of the Project.
Section 3.03 Project Costs.
For the purposes of this Loan Agreement, Project Costs shall include
only the costs of the Company which are incurred after August 24, 1993, in
connection with the acquisition and construction of the Project, which are used
to provide property of a character subject to the allowance for depreciation
within the meaning of Section 167 or 168 of the Internal Revenue Code of 1986 as
amended and in effect at the time of Closing, or amounts paid or incurred which
are, for federal income tax purposes, chargeable to the Project's capital
account or would be chargeable either with a proper election by the Company or
but for a proper election by the Company to deduct such amounts.
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Company shall submit requisition forms, together with the
certification for payment of such amounts signed by the Architect, to Trustee
for distribution of funds to pay Project Costs from the Acquisition Fund in
accordance with Section 3.03 of the Trust Indenture. Such requisition forms
shall specify the amount to be paid, the vendor or other entity to whom payment
is to be made (which may include reimbursement of Project Costs paid by
Company), and shall include a certification by Company that such disbursement is
a qualified Project Cost.
Section 3.04 Company Required to Pay All Project Costs in Event
Bond Proceeds Insufficient.
In the event, after the Series 1994 Bonds have been issued, the
proceeds thereof are not sufficient to pay the Project Costs in full, the
Company agrees, to complete the Project and to provide such amounts as are
necessary and sufficient for payment of the balance of the Project Costs. The
Issuer does not make any warranty, either express or implied, that the proceeds
of the Series 1994 Bonds will be sufficient to pay all the costs which will be
incurred in that connection.
Section 3.05 Additional Security for Company's Obligations.
As additional security for Company's obligations under this Loan
Agreement, Company shall execute and deliver simultaneously herewith the Deed of
Trust from Company to Trustee granting Trustee a first lien in the Project,
subject only to Permitted Encumbrances.
Section 3.06 Consent to Assignment of Agreement and Grant of
Security.
Company hereby consents to and approves Issuer's assignment of this
Loan Agreement to Trustee as security for the holders of the Series 1994 Bonds.
ARTICLE IV
PAYMENTS, PREPAYMENT
Section 4.01 Terms of Loan and Note.
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Company agrees to execute and deliver the Note to evidence its
obligation to repay the loan provided for in this Loan Agreement. The Note shall
be dated January 15, 1994, in the principal amount of $850,000, and shall be in
the form attached to this Loan Agreement as Exhibit B. Principal and interest on
the Note shall be paid by Company on the date and in the amount specified in the
Note.
Section 4.02 Payments on the Note.
The Company agrees to pay and shall pay principal and interest as
set forth in the Note.
Section 4.03 Place of Payment.
The Note is assigned by the Issuer to the Trustee for the benefit of
the Bondholders, and the Issuer hereby irrevocably directs all payments on the
Note to be paid by Company to Trustee at its principal place of business, for
the benefit of the Bondholders, at such address as it may from time to time
direct, for the account of the Issuer.
Section 4.04 Additional Payments.
In addition to payments on the Note and payments to be made pursuant
to Article V of this Loan Agreement, Company agrees to make the following
payments:
(a) Company will also pay from the Costs of Issuance Account in the
Acquisition Fund and, to the extent funds in such Account are not sufficient,
from its own funds, all costs, fees and expenses related to the issuance of the
Bonds, including but not limited to bond counsel fees, Issuer's fees, Issuer's
counsel fees, printing and copying charges and related fees and expenses.
(b) Company will also pay the initial, annual and special fees and
expenses of Trustee and any Paying Agents under the Trust Indenture, such fees
and expenses to be paid directly to Trustee, or any Paying Agents for the
Trustee's or any such Paying Agent's own account as and when such fees and
expenses become due and payable, and expenses in connection with any redemption
of the Bonds and any expenses incurred by the Trustee or the Issuer in
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connection with the registration, printing, reprinting or transfer of Bonds,
including the preparation of any Investment Letter.
(c) Company will also pay all fees, costs related to the payment of the
rebate or the calculation of the rebate and any required rebate amounts and will
cause to be performed, any rebate calculation required by Section 148(f) of the
Code. In the event Company fails to make any of the payments required in this
Section 4.04, the item so in default shall continue as an obligation of the
Company until the amount in default shall have been fully paid, and the Company
agrees to pay the same with interest thereon at the highest rate allowed by law.
(d) In the event the Project is transferred by Company during the term of
this Loan Agreement, Company will pay to Issuer an Assumption Fee equal to the
greater of one/eighth of one percent of the principal amount of Bonds then
Outstanding or $1,000.
(e) To the extent, in the performance of any of its duties to the Trust
Indenture or in the exercise of any of its rights or powers under the Trust
Indenture the Issuer shall incur any costs, fees or expenses (including
attorney's fees in connection with the review of any performance by Issuer of
any such duties or the exercise by the Issuer of any of such rights or powers),
Company will promptly pay all of such costs, fees and expenses upon the request
of the Issuer.
Section 4.05 Company's Obligations Unconditional.
The obligations of Company to make the payments required in Sections
4.02 and 4.04 hereof and to perform and observe the other agreements on its part
contained herein shall be absolute and unconditional; and, until such time as
the principal of, premium, if any, and interest on the Series 1994 Bonds shall
have been fully paid or provision for the payment thereof shall have been made
in accordance with the Series 1994 Bonds and the Trust Indenture, the Company
(i) will not suspend or discontinue any payments provided for in Sections 4.02
and 4.04 hereof, (ii) will perform and observe all of its other agreements
contained in this Loan Agreement and the Deed of Trust, and (iii) will not be
relieved of its obligations hereunder for any cause, including, without limiting
the generality of each of the foregoing, failure to complete the
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Project, any acts or circumstances that may constitute failure of consideration,
destruction of or damage to the Project, frustration of purpose, any change in
the tax or other laws or administrative rulings of or administrative actions by
the United States of America or the State of Nebraska or any political
subdivision of either, or any failure of the Issuer to perform and observe any
agreement, whether express or implied, or any duty, liability or obligation
arising out of or connected with this Loan Agreement or the Series 1994 Bonds.
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Section 4.06 Interest on Unpaid Amounts.
In the event the Company shall fail to make any payment under the
Note or Section 4.04 the item or installment so in default shall continue as an
obligation of the Company until the amount in default shall have been fully paid
with interest thereon as provided in the Note and Section 4.04.
Section 4.07 Prepayment of Note; Redemption of Series 1994 Bonds.
Company shall have the right or obligation to make prepayments on
the Note and direct the redemption of the Series 1994 Bonds as follows:
(a) Company may, at any time and from time to time make prepayments on the
Note, in whole or in part, at a prepayment price equal to the redemption price
for any Series 1994 Bonds directed by the Company to be called for redemption
prior to maturity plus accrued interest on the principal amount redeemed to the
date fixed for redemption, all in accordance with the terms of the Trust
Indenture.
(b) Company shall prepay the Note in full at a prepayment price equal to
the total outstanding principal amount of the Series 1994 Bonds, together with
accrued interest thereon to the date fixed for redemption, all in accordance
with the Trust Indenture, in the event that:
(i) there is damage to or destruction of the Project and Company
elects not to repair or reconstruct the Project as provided in Section 6.02
hereof; or
(ii) the condemnation of the Project to the extent it cannot
reasonably be restored or repaired as provided in Section 6.03 hereof; or
(iii) from funds remaining in the Acquisition Fund as of the
Completion Date.
(c) At any time Company may prepay the Note in full by depositing with the
Trustee monies or Government Obligations (as
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defined in the Indenture) sufficient so that after such deposit all of the
Series 1994 Bonds will no longer be Outstanding under the terms of the
Indenture.
In the event that Company elects to prepay or is required to prepay
the Note under one or the other of the prepayment terms provided for in this
Section 4.07, Issuer agrees to take such action as directed by the Company
required to bring about the redemption of any of the Series 1994 Bonds under the
terms of the Trust Indenture which are to be redeemed in connection with such
prepayment of the Note. Prior to making any optional payment on the Note,
Company shall give the Trustee at least forty-five (45) days notice in advance
of the redemption date, provided that the Trustee may waive any such notice in
its discretion.
Section 4.08 Company's Remedies.
Nothing contained in this Article shall be construed to release
Issuer from the performance of any of its agreements herein, and if Issuer
should fail to perform any such agreements, Company may institute such action
against the Issuer as the Company may deem necessary to compel the performance
so long as such action for specific performance shall not violate Company's
agreements in Section 4.05 or diminish or delay the amounts required to be paid
by Company pursuant to Sections 4.02 or 4.04 of this Loan Agreement. Company
acknowledges however and agrees that any obligation, pecuniary or otherwise, of
the Issuer created by or arising out of this Loan Agreement shall be payable
solely out of the monies derived from the Note, the sale of the Series 1994
Bonds, or other disposition of the Project upon a default by the Company or
otherwise.
ARTICLE V
USE, MAINTENANCE, CHARGES AND INSURANCE
Section 5.01 Use of Project.
Company agrees that it will use and operate the Project, and permit
it to be used and operated, only as a facility eligible to be and defined as a
"project" under the Act. Company will not use or permit any person to use the
Project for any use or purpose
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in violation of the laws of the United States of America, the State of Nebraska
or any ordinance of the City of Lincoln, Nebraska, and agrees to comply with all
the orders, rules, regulations and requirements of the officers or board of any
municipality, county, state or other governmental authority having jurisdiction
over the Project. Company shall have the right to contest by appropriate legal
proceedings, without cost or expense to the Issuer, the validity of any law,
ordinance, order, rule, regulation or requirement of the nature herein referred
to, and if by its terms compliance therewith legally may be held in abeyance
without subjecting the Project to any lien, charge, liability, damage or loss,
the Company may postpone compliance until the final determination of any such
proceedings.
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Section 5.02 Inspection of Project.
The Issuer and the Trustee shall have the right at all reasonable
times during the Term of the Loan Agreement to enter the Project for the purpose
of examining or inspecting the Project. Nothing in this Section shall imply any
duty upon the part of the Issuer or Trustee to examine the Project or to do or
pay for any work which under any provision of this Loan Agreement the Company is
required to perform, and the performance thereof by the Issuer or the Trustee
shall not constitute a waiver of the Company's default in failing to perform the
same.
Section 5.03 Maintenance of Project by Company.
Company agrees that during the term of the Loan Agreement it will
(i) keep the Project, including all appurtenances thereto and the equipment and
machinery therein, in good repair, working order and operating condition at its
own cost, (ii) abstain from and not permit the commission of waste in or about
the Project, and (iii) comply with all laws and regulations of any governmental
authority with reference to the Project and the manner of using or operating the
same and with all restrictive covenants, if any, affecting the title to the
Project or any part thereof.
Section 5.04 Alterations.
Company may remodel the Project or making such alterations,
additions, modifications and improvements to the Project from time to time as
it, in its discretion, may deem to be desirable for its uses and purposes;
provided that no change or alteration in the Project shall be made which, when
completed, would diminish the value of the Project and provided further that the
Project shall continue to qualify as a "project" under the Act. All alterations,
additions, improvements and modifications to the Project made by Company shall
be erected or made in a first class workmanlike manner, and the costs and
expenses thereof shall be promptly paid by Company.
Section 5.05 Liens.
Company agrees not to permit any mechanics', construction or other
liens to be established or to remain against the Project
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for labor or materials furnished in connection with any construction,
remodeling, additions, modifications, improvements, repairs, renewals or
replacements; provided, that if Company shall first notify Trustee of its
intention so to do, Company may in good faith contest any mechanics',
construction or other liens filed or established against the Project, and in
such event may permit the items so contested to remain undischarged and
unsatisfied during the period of such contest and any appeal therefrom unless
the Trustee shall notify Company that, in the opinion of Independent Counsel, by
nonpayment of any such items the lien of the Deed of Trust will be materially
endangered or the Project or any part thereof will be subject to loss or
forfeiture, in which event Company shall promptly pay or cause to be satisfied
and discharged all such unpaid items.
Section 5.06 Taxes, Other Governmental Charges and Utility
Charges.
Company agrees to pay, as the same respectively become due, all
taxes, payments in lieu of taxes, special assessments and governmental charges
of any kind whatsoever that may at any time be lawfully assessed or levied
against or with respect to the Project or any furnishings, equipment or other
property installed or brought by Company therein or thereon, and all claims for
rents, royalties, labor, materials, supplies, utilities and other charges
incurred in the operation, maintenance, use, occupancy and upkeep of the
Project.
Company may, at its expense contest in good faith any such taxes,
payments in lieu of taxes, assessments and other charges and, in the event of
any such contest, may permit the taxes, payments in lieu of taxes, assessments
or other charges so contested to remain unpaid during the period of such contest
and any appeal therefrom unless the Trustee shall notify the Company that, in
the opinion of the Trustee, by nonpayment of any such items, the revenues
pledged under the Deed of Trust or the interest of the Trustee in the Project
will be materially endangered or the Project or any part thereof will be subject
to loss or forfeiture, in which event such taxes, payments in lieu of taxes,
assessments or charges shall be paid promptly.
Section 5.07 Insurance Required.
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(a) Prior to the Completion Date, Company shall provide for or procure and
maintain builders risk insurance against such risks and in such amounts as are
customary for a prudent owner or contractor of property comparable to the
Project, and shall furnish to Trustee a certificate naming Trustee as a loss
payee. Thereafter throughout the term of the Loan Agreement, Company agrees to
procure and maintain continuously in effect with respect to the Project policies
of insurance against such risks and in such amounts as are customary for a
prudent owner of property comparable to that comprising the Project. Without
limiting the generality of the foregoing provision, Company specifically agrees
to maintain the following insurance coverages:
(i) Direct damage insurance covering loss from fire, "all risks,"
vandalism and malicious mischief in an amount not less than the then unpaid
principal balance of the Series 1994 Bonds which policies shall be subject to no
coinsurance clause and may include a deductibility provision not exceeding
$10,000;
(ii) General liability insurance against liability for injuries to
or death of any person or damage to or loss of property arising out of or in any
way relating to the condition of the Project or any part thereof in an amount
not less than $1,000,000 single limit coverage, provided that the requirements
of this subparagraph (ii) with respect to the amount of insurance may be
satisfied by an excess coverage policy;
(iii) Workmens' compensation coverage to the extent required by then
applicable law; and
(iv) Insurance against such other casualties and contingencies as
Trustee may from time to time require, if such insurance against such other
casualties and contingencies is available, all in such manner and for such
amounts as may be reasonably satisfactory to the Trustee.
(b) All insurance provided for in subsection (a) shall be effective under
a valid and enforceable non-assessable policy or policies.
(c) All policies of insurance required by Section 5.07(a)(i) shall be
written in the names of the Company and Trustee as their
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respective interests may appear and shall provide that the proceeds of such
insurance shall be payable to the Trustee pursuant to a standard clause to be
attached to each such policy.
(d) Company agrees to deposit with Trustee annually certificates of the
respective insurers evidencing that the insurance required by this Section 5.07
is in force and effect. Each policy of insurance herein required shall contain a
provision, by endorsement or otherwise, that the insurer shall not cancel,
refuse to renew or materially modify it without giving written notice to Trustee
at least 30 days before the cancellation, nonrenewal or modification becomes
effective. Before the expiration of any policy of insurance herein required,
Company shall furnish Trustee with evidence satisfactory to Trustee that the
policy has been renewed or replaced by another policy conforming to the
provisions of this Section 5.07 or that there is no necessity therefor under the
terms hereof. In lieu of separate policies, Company may maintain blanket
policies having the coverage required herein, provided original counterparts of
such insurance, or such other evidence as may be required by Trustee in its
discretion, as deposited with Trustee.
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Section 5.08 No Suits if Loss Covered By Insurance.
Each policy of insurance required by Section 5.07 shall contain a
provision that no act or omission of the Trustee or the Company shall affect or
limit the obligation of the insurance company to pay the amount of any loss
sustained and shall contain the standard form of waiver of subrogation. To the
extent permissible under applicable insurance policies, Trustee and Company and
all parties claiming under them hereby mutually release and discharge each other
from all claims and liabilities arising from or caused by any hazard covered by
insurance on the Project or covered by insurance in connection with property on
or activities conducted on the Project, regardless of the cause of the loss or
damage. No claim shall be made and no suit or action at law or in equity shall
be brought by the Trustee, or by anyone claiming by, through or under the
Trustee, against the Company for any damage to the Project, however caused, to
the extent the same is covered by insurance as in this Article required,
provided nothing in this Section 5.08 shall diminish Company's obligations to
repair or rebuild the Project as provided in Article VI.
ARTICLE VI
DAMAGE, DESTRUCTION AND CONDEMNATION
Section 6.01 Damage and Destruction.
If prior to full payment of the Series 1994 Bonds (i) the Project or
any portion thereof is damaged or destroyed (in whole or in part) by fire or
other casualty or (ii) title to, or the temporary use of, the Project or any
part thereof shall be taken under the exercise of the power of eminent domain by
any governmental body or by any person, firm or corporation acting under
governmental authority, Company shall nevertheless be obligated to continue to
pay the amounts specified in Section 4.02 or 4.04 of this Loan Agreement.
Section 6.02 Application of Insurance Proceeds.
If prior to full payment of the Series 1994 Bonds (or provision for
payment thereof having been made in accordance with the provisions of the Trust
Indenture) the Project is damaged by
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fire or other casualty, Company (a) will promptly repair, rebuild or restore the
property damaged or destroyed to substantially the same condition as it existed
prior thereto with such changes, alterations and modification (including
substitutions and additions) as may be desired by Company and as will not change
the character of the Project so that it would not constitute a "project" within
the meaning of the Act, and (b) will apply for such purpose so much of any
insurance proceeds resulting from claims for such losses, and any additional
monies of the Company, as may be necessary to effect such repair, rebuilding or
restoration. All insurance proceeds resulting from claims for such losses not in
excess of $25,000 will be paid directly to Company for such application.
If prior to full payment of the Series 1994 Bonds (or provisions for
payment thereof having been made in accordance with the provisions of the Trust
Indenture) all or substantially all of the Project is destroyed by fire or other
casualty, Company may elect to prepay the Note or may elect to rebuild or repair
the Project. In the event Company elects to rebuild or repair the Project, or in
any event when a loss exceeds $25,000, all insurance proceeds resulting from
such loss will be paid to and held by the Trustee in a "Replacement Account."
Company will proceed promptly to repair, rebuild or restore the property damaged
or destroyed to substantially the same condition as existed prior to the event
causing such damage or destruction with such changes, alterations and
modifications (including the substitution and addition of other property) as may
be desired by Company and as will not change the character of the Project so
that it would not constitute a "project" within the meaning of the Act, and the
Trustee will apply so much of said proceeds as may be necessary to the cost of
such repair, rebuilding or restoration. Company will complete the work and will
pay any amount required for such purpose of advance to the Trustee all sums
required to complete such work.
Section 6.03 Application of Condemnation Award.
Should any of the Project be taken by exercise of the power of
eminent domain, any award or consideration for the property so taken shall be
paid over to the Trustee, except awards not in excess of $25,000, which shall be
paid directly to Company, and shall be applied first to the payment of all costs
or
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consideration and then, if no Event of Default has occurred and is continuing
under the Trust Indenture or this Loan Agreement, to the restoration or repair
of the Project without affecting the lien created pursuant to the Trust
Indenture and the obligations of the Company hereunder. If such an Event of
Default has occurred and is continuing under the Trust Indenture or this Loan
Agreement, or if by virtue of the nature or extent of the taking the Project
cannot reasonably be restored or repaired, the net proceeds of such condemnation
shall be applied by the Trustee to the payment or prepayment of the Series 1994
Bonds and interest accrued thereon, any balance remaining after payment in full
of the Series 1994 Bonds and all other amounts secured by this Loan Agreement
and the Deed of Trust and pursuant to the Trust Indenture shall be paid by the
Trustee to the Company.
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Section 6.04 Release of Proceeds.
In the event insurance proceeds or condemnation awards available to
the Company pursuant to Section 6.02 or 6.03 (except in the case of losses not
exceeding $25,000), such proceeds shall be made available, from time to time,
upon the Trustee being furnished with satisfactory evidence of the estimated
cost of completion of the repair or restoration of the Project and with such
architect's certificates, waivers of lien, contractor's sworn statements and
other evidence of cost and of payments, including, at the option of the Trustee,
insurance against mechanics' and construction liens and/or a performance bond or
bonds in form satisfactory to the Trustee, with premium fully prepaid, under the
terms of which the Trustee shall be either the sole or dual obligee, and which
shall be written with such surety company or companies as may be satisfactory to
Trustee, and with all plans and specifications for which rebuilding or
restoration to be submitted to and approved by Trustee.
Section 6.05 Net Proceeds Insufficient.
In the event the Trustee makes the insurance proceeds or
condemnation awards available to the Company pursuant to Section 6.02 or 6.03
and the net proceeds are insufficient to pay in full the cost of the repair,
restoration, modification or improvement of the Project, Company agrees to
complete the work and to pay any cost in excess of the amount of the net
proceeds.
ARTICLE VII
SPECIAL COVENANTS
Section 7.01 Granting Easements.
If Company is not then in default, Company from time to time may
grant easements, licenses, rights-of-way (including the dedication of public
highways) and other rights or privileges in the nature of easements with respect
to the Project, or may release existing easements, licenses, rights-of-way or
other rights or privileges with or without consideration, and the Trustee shall
execute and deliver any instrument necessary or appropriate to grant or release
any easement, license, right-of-way or other right
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or privilege upon receipt of (i) a copy of the instrument of grant or release
and (ii) a written application signed by the Company requesting such instrument
and certifying that in its opinion such grant or release is not detrimental to
the proper use or operation of the Project.
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Section 7.02 Prepayment of the Series 1994 Bonds.
The Issuer, at the request at any time of the Company and if the
same may then be prepaid, shall forthwith take all steps that may be necessary
under the applicable prepayment provisions of the Series 1994 Bonds to effect
the prepayment of all or part of the then outstanding Series 1994 Bonds, as may
be specified by Company, on the earliest prepayment date on which such
prepayment may be made under such applicable provisions and as specified by the
Company, provided the Company shall have made available to the Trustee funds
adequate in amount therefor and shall pay any expenses or costs (including legal
fees) of the Issuer related thereto. It is understood that all expenses of such
prepayment shall be paid by the Company, and not by the Issuer from any of its
funds. The Issuer shall, upon being indemnified by the Company, cooperate with
the Company in effecting any purchase of the Series 1994 Bonds or application of
funds pursuant to the provisions of the Trust Indenture pertaining to the
prepayment of the Series 1994 Bonds. Except as herein otherwise provided, the
Series 1994 Bonds shall be called for prepayment by the Issuer only upon the
direction of the Company.
Section 7.03 To Observe Laws, Ordinances and Regulations.
Company agrees to observe all applicable laws, regulations,
ordinances and orders of the United States of America, the State of Nebraska and
agencies and political subdivisions thereof and each department or agency
thereof applicable to the Company, its business and property. Company shall have
the right to contest by appropriate procedures the adoption, validity or
applicability of any laws, regulations, ordinances and orders referred to in
this Section and to delay compliance therewith, without violating the provisions
of this Section , if (i) the Trustee shall consent to such delay in writing,
(ii) a court of competent jurisdiction shall so order or determine or (iii) in
the opinion of Independent Counsel furnished to the Trustee, the procedures
taken by the Company to contest the validity or applicability of any such law,
regulation, ordinance or order are appropriate and have the effect of staying
the finality and enforceability thereof against the Company.
Section 7.04 Further Assurances.
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Company agrees to execute or cause to be executed any and all
further instruments that may reasonably be requested by the Issuer and Trustee
to vest in Trustee the right to receive and apply the revenues and income
pledged to the payment or protection and security of the Series 1994 Bonds, and
to execute, deliver, file or record any financing statement pursuant to the
Nebraska Uniform Commercial Code if such filing, registration or recording shall
be necessary or convenient to effect, protect or confirm the pledge of such
revenues and income. Company agrees to pay all recording, filing and
registration taxes and fees, together with all expenses incidental to the
preparation, execution, acknowledgement, filing and registration taxes and fees,
together with all expenses incidental to the preparation, execution,
acknowledgement, filing, registering and recording of any paper pursuant to the
Nebraska Uniform Commercial Code and of any instrument of further assurance, and
all stamp taxes, mortgage registry taxes and other taxes, duties, impositions,
assessments and charges lawfully imposed upon the Series 1994 Bonds or upon this
Loan Agreement.
Section 7.05 Observance of Covenants and Terms of the Trust
Indenture and Deed of Trust.
Company will not do or require the Issuer to do, in any manner,
anything otherwise than in accordance with the provisions of the Resolution or
Trust Indenture, and will not suffer or permit any default to occur under the
Trust Indenture or Deed of Trust, but will faithfully observe and perform, and
will do all things necessary so that the Issuer may observe and perform, all the
conditions, covenants and requirements of the Trust Indenture. Issuer agrees
that it will observe and perform all obligations imposed upon it by the Trust
Indenture and the Series 1994 Bonds, provided, that the Issuer has no obligation
to use its own funds or funds of the State of Nebraska, or any agency or
political subdivision thereof, to perform or cause performance of any such
obligations.
Section 7.06 Financial Covenants.
So long as any of the Series 1994 Bonds are outstanding, Company
agrees:
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(a) Company will preserve its corporate existence and its qualification to
do business in the State of Nebraska.
(b) Company will not (i) dispose of all or substantially all of its
assets, or (ii) consolidate or merge into another corporation, unless the
acquirer of assets or the corporation with which it shall consolidate or into
which it shall merge shall (A) be a corporation organized and existing under the
laws of one of the states of the United States of America, (B) be qualified to
do business in the State of Nebraska and in all other states in which the nature
of its business so requires, (C) have a tangible net worth immediately
subsequent to such acquisition, consolidation or merger at least equal to that
of Company prior to such acquiring, consolidating with or merging into, (D)
assume in writing all of the obligations of Company under the Loan Agreement and
(E) pay to the Issuer, at the time of such disposal, consolidation or merger,
the Assumption Fee in the amount described in Section 4.04(d).
(c) Company will furnish compilation financial statements from independent
certified public accountants to Trustee within 180 days of its fiscal year end.
Such statements will include, on a consolidated basis, a balance sheet, related
statements of income, retained earnings and statements of cash flow and relevant
footnotes.
(d) Not more than 60% of Company's stock will be sold or otherwise
transferred from existing stockholders to persons who are not presently
stockholders in any twelve (12) month period.
Section 7.07 Company to Maintain Its Properties.
The Company covenants and agrees that it will maintain, preserve and
keep its properties, including the Project in good repair and working order, and
from time to time will make all necessary repairs, replacements, renewals,
additions and deletions so that at all times the efficiency thereof shall be
maintained and will maintain licenses and permits necessary for the conduct of
its businesses.
Section 7.08 Release and Indemnification.
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(a) Company agrees to protect, indemnify and save Issuer and its
officials, officers, members, agents and employees, harmless from and against
all liability, losses, damages, costs, expenses (including attorney's fees),
taxes, causes of action, suits, claims, demands and judgments of any nature or
from, by or on behalf of any person, firm, corporation or other legal entity
arising in any manner from the transaction of which this Loan Agreement is a
part or arising in any manner in connection with the Project or the financing of
the Project, the Series 1994 Bonds, including, without limiting the generality
of the foregoing, those arising from (i) any work done on the Project or the
operation of the Project while this Loan Agreement is in effect, (ii) any breach
or default on the part of the Company in the performance of its obligations
under this Loan Agreement, (iii) the Project or any part thereof, (iv) any
violation of contract, agreement or restriction by the Company relating to the
Project, or (v) any violation of law, ordinance or regulation affecting the
Project or any part thereof or the ownership or occupancy of use thereof. Upon
notice from Issuer, Company shall defend Issuer in any action or proceeding
brought in connection with any of the above.
(b) It is the intention of the parties that Issuer and its Governing Body,
officials, officers, members, agents and employees shall not incur pecuniary
liability by reason of the terms of this Loan Agreement or by reason of the
undertakings required of the Issuer or its Governing Body, officials, officers,
members, agents and employees hereunder in connection with the issuance of the
Series 1994 Bonds, the adoption of the Resolution, the execution of the Trust
Indenture, the performance of any act required of Issuer or its Governing Body,
officials, officers, members, agents or employees by this Loan Agreement or the
Trust Indenture, or the performance of any act requested of the Issuer or its
Governing Body, officials, officers, members, agents or employees by the Company
or in any way arising from the transaction of which this Loan Agreement or the
Trust Indenture is a part or arising in any manner in connection with the
Project, the Series 1994 Bonds, or the financing of the Project; nevertheless,
if the Issuer or its Governing Body, officials, officers, members, agents or
employees should incur any such pecuniary liability, then in such event, the
Company shall indemnify and hold the Issuer and its Governing Body, officials,
officers, members, agents and employees harmless against all claims by or on
behalf of any person, firm, corporation or
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<PAGE> 41
other legal entity, arising out of the same, and all cost and expenses,
including reasonable attorneys' fees, incurred in connection with any such claim
or in connection with any action or proceeding brought thereon and upon notice
from the Issuer, the Company shall defend the Issuer and its Governing Body,
officials, officers, members, agents and employees in any such action or
proceeding.
Section 7.09 Tax Covenants.
(a) It is the intention of the parties hereto that the interest on the
Bonds shall be and remain exempt from inclusion in gross income for purposes of
computing federal income taxation pursuant to Section 103 of the Code and to
that end the Company does hereby represent and agree with the Issuer and with
Trustee as follows:
(i) Other than as listed on Exhibit C attached hereto, the Company
represents that there have never been issued any industrial development bonds
with respect to "facilities" described in Section 144(a)(4)(B) of the Code which
are located in the City of Lincoln, Nebraska, which bonds would be taken into
account in determining the aggregate face amount of the Bonds as provided in
Section 144(a)(2) of the Code.
(b) Company will not exceed the limitations set forth in Section 144(a)(2)
of the Code.
(c) Company covenants, warrants and agrees that:
(i) Company intends to and will utilize or cause the Project to be
utilized, to the expiration or earlier termination of this Loan Agreement, as
provided herein, as a "Project" within the meaning of the Act and to accomplish
the foregoing, Company agrees not to enter into any subleases of the Project
except with subtenants who will utilize the Project for purposes permitted by
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<PAGE> 42
the Act and who will not otherwise cause the loss of tax exemption under Section
103 of the Code for the interest on the Bonds, whether by virtue of excess
capital expenditures or otherwise.
(ii) No portion of the proceeds of the Series 1994 Bonds will be
used to provide working capital for Company or any related person.
(iii) The Project consists, and will at all times consist, of a
manufacturing facility within the meaning of Section 144(a)(12)(c) of the Code.
(iv) Ninety-five percent (95%) of the par value of the Series 1994
Bonds constituting substantially all (within the meaning of Section 144 of the
Code) of the said par value of the Bond(s) will be used for the acquisition,
construction and equipping of the Project.
(v) Company is required to file its federal income tax returns with
the Internal Revenue Service Center, Ogden, Utah.
(vi) Not more than twenty-five percent (25%) of the proceeds of the
Series 1994 Bonds shall be used for the acquisition of land, none of which will
be agricultural land.
(vii) None of the proceeds of the Series 1994 Bonds shall be used
for the acquisition of property (or an interest therein) unless the first use of
such property is pursuant to such acquisition except as permitted by Section
147(d)(2) of the Code and the Company agrees to comply with the provisions of
Section 147(d)(2) and any and all rules and regulations issued or proposed in
connection therewith.
(viii) The aggregate authorized par value of bonds described in
Section 144(a)(2) of the Code (including the Series 1994 Bonds) which can be
allocated to any "test period beneficiary" as such term is defined in Section
144(a)(10) of the Code (including, but not limited to the Company) will not
exceed $40,000,000.
(ix) None of the proceeds of the Series 1994 Bonds will be used to
provide any airplane, skybox or other private luxury
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box, any facility primarily used for gambling, any store the principal business
of which is sale of alcoholic beverages for consumption off premises, any
private or commercial golf course, country club, massage parlor, tennis club,
health club facility, skating facility (including roller skating; skateboard and
ice skating), racquet sports facility (including any handball or racquetball
court), hot tub facility, suntan facility or racetrack,
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<PAGE> 44
or any facility the primary purpose of which is one of the following: retail
food and beverage services, automobile sale or service, or the provision of
recreation or entertainment.
(x) No portion of the payments of principal and interest to be made
under the Series 1994 Bonds is "federally guaranteed," directly or indirectly,
within the meaning of Section 149(b) of the Code.
(xi) Company will pay from its own funds and not out of Bond
Proceeds all "costs of issuance" in excess of two percent of the face amount of
the Series 1994 Bonds and will maintain sufficient records to evidence the
payment of said "issuance costs" from its own funds and not proceeds of the
Series 1994 Bonds.
(xii) Company will undertake construction of the Project and expend
all of the net proceeds of the Bond prior to the Completion Date.
(d) Issuer and Company further agree to fully comply, so long as any Bonds
are outstanding, with all effective rules, rulings and regulations promulgated
by the Department of Treasury or the Internal Revenue Service with respect to
bonds issued under Section 144 of the Code so as to maintain the exemption from
gross income as provided in Section 103 of the Code.
(e) The provisions of this Section 7.09 establish minimum tax compliance
requirements. To the extent other provisions of this Loan Agreement establish
more restrictive requirements, such provisions shall control provided compliance
with such provisions does not violate this Section .
(f) The parties hereto recognize that the Series 1994 Bonds are being sold
on the basis that the interest payable on the Series 1994 Bonds is excludable
from the gross income of the holder(s) thereof under Section 103 of the Code,
except with respect to the Series 1994 Bonds when in the hands of an owner or
holder who is a "substantial user" of the Project or a "related person" as
defined in the Code. Company does hereby covenant and agree for the benefit of
the Bondholders that the proceeds of the Series 1994 Bonds shall not be used or
applied in such manner as to constitute
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any of the Series 1994 Bonds an "arbitrage bond" as that term is defined in
Section 148 of the Code.
(g) Company shall cause to be filed an Information Return for Private
Activity Bond Issues in accordance with Section 149(e) of the Code. To assure
Issuer of the correctness and completeness of such Information Return, the
Company warrants and represents to the Issuer that the following is a true
description of the facilities to be acquired pursuant to this Loan Agreement by
the lendable proceeds of the Series 1994 Bonds:
<TABLE>
<S> <C>
1. Cost of Land (or portion thereof
financed by issue) . . . . . . . . . . $ 0
2. Cost of Buildings and Structures (or
portion thereof financed by issue) . . $850,000
3. Cost of equipment with an ACRS life
of more than 5 years (or portion
thereof financed by issue) . . . . . . $ 0
4. Cost of equipment with an ACRS life
of 5 years or less (or portion
thereof financed by issue) . . . . . . $ 0
</TABLE>
(h) The weighted economic life of the facilities to be acquired pursuant
to this Loan Agreement by the lendable proceeds of the Series 1994 Bonds is 30
years. The average maturity of the Series 1994 Bonds does not exceed 120% of the
average reasonably expected economic life of the Project within the meaning of
Section 147(b) of the Code.
(i) Company covenants with all purchasers and holders of the Series 1994
Bonds which at any time remain outstanding, that moneys on deposit in any fund
or account in connection with the Series 1994 Bonds, whether or not such moneys
were derived from the proceeds of the sale of the Series 1994 Bonds or from any
other sources, will not be used in a manner which will cause the Series 1994
Bonds to be "Arbitrage Bonds" within the meaning of Section 148 of the Code, and
any lawful regulations promulgated or heretofore proposed thereunder, as the
same exist on this date, or may from time to time hereafter be amended,
supplemented, or
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<PAGE> 46
revised. Issuer hereby appoints Company to take all actions necessary on its
behalf to comply with the requirements of Section 148 and maintain the
tax-exempt status of the Series 1994 Bonds. Company covenants that it shall take
all actions necessary to comply with said Section 148 and any Treasury
regulations. Trustee shall observe all instructions of the Company given with
respect to investment of moneys in the Acquisition Fund and the Bond Fund held
by the Trustee for purposes of achieving compliance with said Section 148 and
applicable Treasury Regulations.
(j) Company, on behalf of the Issuer, shall pay to the United States, all
sums required to be rebated pursuant to Section 148 of the Code and Treasury
Regulations issued pursuant thereto, such sums to be an amount equal to the sum
of (1) the excess of (A) the aggregate amount earned on all Nonpurpose
Investments (other than investments attributable to an excess described in this
section), over (B) the amount which would have been earned if all Nonpurpose
Investments were invested at a rate equal to the Yield on the Series 1994 Bonds,
plus (2) any income attributable to the excess described in clause (1), at the
times and in the amounts required by Section 148(b) of the Code, all within the
meaning of Section 148(f) of the Code. Trustee shall maintain records of the
interest rate borne by the Series 1994 Bonds and the investments of all Funds
and earnings thereon in adequate detail to enable the Company to calculate the
amount of any rebate required to be made to the United States. Company shall pay
the rebate to the United States at times and in installments which satisfy
Section 148(f) of the Code and the Treasury Regulations. The rebate shall be
calculated as provided in Sections 1.148-1T through 1.148-8T of the Treasury
Regulations.
Section 7.10 Waiver of Covenants.
The covenants and agreements made by the Company under Sections 7.06
and 7.07 (except Section 7.06(b)(ii)(E), which can be waived only by Issuer) may
be waived, either temporarily or permanently, by the Bondholders. Any such
waiver shall be evidenced by instrument(s) in writing signed by the holders of
all Series 1994 Bonds then outstanding.
ARTICLE VIII
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ASSIGNMENT, SUBLEASING AND SELLING
Section 8.01 Assignment and Pledging of the Loan Agreement by the
Issuer.
The Issuer may assign its interest in this Loan Agreement, and
pledge any monies receivable from the Project, including all amounts receivable
hereunder, to the Trustee pursuant to the Trust Indenture as security for
payment of the principal of, premium, if any, and interest on the Series 1994
Bonds.
Section 8.02 Partial Release of Land or Equipment.
Trustee may, upon request from Company, at any time and from time to
time, release specific land or equipment constituting a portion of the Project
from this Agreement and from any security interest or other assignment or pledge
created in connection herewith. No such property shall be released unless
Company provides Trustee with security in collateral of similar value and such
release does not materially impair the operation of the Project as a "project"
within the meaning of the Act or the security held by Trustee for Company's
obligations.
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<PAGE> 48
ARTICLE IX
EVENTS OF DEFAULT AND REMEDIES
Section 9.01 Events of Default.
The following shall be "Events of Default" under this Loan Agreement
and the term "Event of Default" shall mean, whenever used in this Loan
Agreement, any one or more of the following events:
(a) If Company fails to pay any installment of principal or interest on
the Note on the date the same shall become due and payable; or
(b) If Company fails to pay any additional amounts required to be paid
pursuant to Section 4.04 hereof within ten (10) days after notice of nonpayment
from Issuer or Trustee; or
(c) If Company defaults in the due and punctual performance of any of the
covenants, conditions, agreements and provisions contained in this Loan
Agreement or in the Trust Indenture and such default continues for a period of
60 days after written notice, specifying such default and requiring the same to
be remedied, shall have been given to the Company by the Issuer or the Trustee
or unless all reasonable and necessary steps to remedy such default are taken
within said 60-day period and the default is remedied within 6 months after such
notice; or
(d) If any representation or warranty made by the Company in this Loan
Agreement or in the Trust Indenture is or was, at the time it is made, false or
misleading in any material respect; or
(e) If any Event of Default, as that term is defined in the
Trust Indenture shall have occurred and be continuing; or
(f) Without limiting the generality of paragraph (b) of this Section , if
the Company fails to maintain its existence or sells, transfers or assigns its
interest in the Project in violation of this Loan Agreement; or
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<PAGE> 49
(g) If a petition commencing a case under Title 11 of the United States
Code, as now constituted or as hereafter amended, shall be filed by or against
the Company and, unless such petition shall have been dismissed, nullified,
stayed or otherwise rendered ineffective (but then only so long as such stay
shall continue in force or such ineffectiveness shall continue), all the
obligations of the Company under this Loan Agreement shall not have been and
shall not continue to be duly assumed within the time provided and otherwise in
accordance with the provisions of 11 U.S.C. Section 365 by a trustee or trustees
appointed (whether or not subject to ratification) in such proceedings in such
manner that such obligations shall have the same status as expenses of
administration and obligations incurred by such trustee or trustees; or
(h) If any other proceeding shall be commenced by or against the Company
for any relief which includes or might result in any modification of the
obligations of the Company hereunder under any bankruptcy or insolvency laws or
laws relating to the relief of debtors, readjustments of indebtedness,
reorganizations, arrangements, compositions or extensions (other than a law
which does not permit any readjustments of the obligations of the Company
hereunder), and, unless such proceedings shall have been dismissed, nullified,
stayed or otherwise rendered ineffective (but then only so long as such stay
shall continue in force or such ineffectiveness shall continue), all the
obligations of the Company under this Loan Agreement shall not have been and
shall not continue to be duly assumed in writing within 60 days after such
proceedings shall have been commenced, pursuant to a court order or decree, by a
trustee or trustees or receiver or receivers appointed (whether or not subject
to ratification) for the Company or for the property of the Company in
connection with any such proceedings in such manner that such obligations shall
have the same status as expenses of administration and obligations incurred by
such trustee or trustees or receiver or receivers; or
(i) If the Company shall at any time become insolvent within the meaning
of 11 U.S.C. Section 101(26), as now constituted or hereinafter amended, or
shall cease generally to pay their debts as such debts become due.
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<PAGE> 50
The provisions of paragraph (c) of this Section are subject to the
following limitations: If by reason of force majeure the Company is unable in
whole or in part to carry out any of the agreements on its part to be performed,
the Company shall not be deemed in default during the continuance of such
disability. The term "force majeure" as used herein includes the following: acts
of nature; strikes, lockouts or other employee disturbances; acts of public
enemies; orders of any kind of the government of the United States of America or
of the State of Nebraska or any of their departments, agencies, political
subdivisions or officials, or any civil or military authority; insurrections;
riots; epidemics; landslides; lightning; earthquakes; fires; hurricanes or
storms; floods; washouts; droughts; arrests; restraint of government and people;
civil disturbances; explosion; breakage or accident to machinery, transmission
pipes or canals; partial or entire failure of utilities; or any other cause or
event not reasonably within the control of the Company.
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<PAGE> 51
Section 9.02 Remedies on Default.
Whenever any Event of Default shall have happened and be continuing,
any one or more of the following steps may be taken by the Trustee:
(a) The Trustee may declare all installments of Principal and accrued
Interest on the Note (in an amount equal to the unpaid principal, premium, if
any, and interest on the Series 1994 Bonds) to be immediately due and payable,
whereupon the same shall become immediately due and payable, together with
interest thereon;
(b) The Trustee may seek and shall be entitled to receive injunctive or
other appropriate relief to restrain and prevent the Company from taking, or (to
the extent that it can exercise control over the same) permitting to be taken,
any action which would result in a default in the keeping of any of the
covenants set forth in this Loan Agreement;
(c) Trustee may pursue any remedies available under Article X of this Loan
Agreement relating to Nebraska Uniform Commercial Code remedies, and remedies
under the Note, Deed of Trust, or any other document granting to Issuer rights
in connection herewith;
(d) The Trustee may take whatever action at law or in equity may appear
necessary or desirable to enforce performance and observance of any obligation,
agreement or covenant of the Company under this Loan Agreement.
Section 9.03 Liability of Company Unconditional.
The liability of the Company and the liability of any successor,
assign or personal representative of any of the foregoing, hereunder and under
the Trust Indenture is and shall continue to be absolute, unconditional and
irrevocable, and shall not be limited to the Company's interest in the Project,
and neither the Issuer, the Trustee nor any other firm, person or entity shall
be required to look exclusively to the Project or the security provided by the
Deed of Trust for payment and satisfaction of the obligations of the Company
under the Trust Indenture.
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<PAGE> 52
Any amounts collected pursuant to action taken under this Section
9.03 shall be paid to the Trustee.
Section 9.04 No Election to Terminate Loan Agreement.
Neither the seeking of such injunctive or other relief nor the
taking of possession of the Project shall relieve the Company of its obligation
to pay all amounts payable under Sections 4.02 and 4.04, or of any of their
other obligations under this Loan Agreement, all of which shall survive such
action or repossession, and the Company shall continue to pay such amounts so
long as any amounts are outstanding under the Note or Bonds and whether or not
the Project shall have been sold or relet, less the net receipts, if any, of any
sale or reletting of the Project after deduction of all the Trustee's and the
Issuer's expenses in or in connection with such action or reletting, including,
without limitation, all repossession charges, brokerage commissions, legal
expenses, reasonable attorneys' fees, expenses of employees, alteration costs
and expenses of preparation for reletting.
Section 9.05 Access to the Project Upon Default.
Whenever an Event of Default shall be continuing, the Trustee shall
have and is hereby granted by the Company the right to enter the Project in the
exercise of any of the remedies hereinabove provided.
Section 9.06 Remedies Cumulative, Delay Not to Constitute Waiver.
No remedy conferred upon or reserved to the Issuer, the Trustee or a
receiver by this Loan Agreement is intended to be exclusive of any other
available remedy or remedies, but each and every such remedy shall be cumulative
and shall be in addition to every other remedy given under this Loan Agreement
or now or hereafter existing at law or in equity or by statute. The Issuer,
Trustee and the Company shall each be entitled to seek specific performance and
injunctive or other equitable relief for any breach or threatened breach of any
of the provisions of this Loan Agreement, notwithstanding availability of an
adequate remedy at law, and each party hereby waives the right to raise such
defense in any proceeding in equity. No delay or omission to exercise any right
or power accruing upon any default shall impair any such
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<PAGE> 53
right or power, and any such right or power may be exercised from time to time
and as often as may be deemed expedient. In order to entitle the Issuer or
Trustee to exercise any remedy reserved to it in this Article, it shall not be
necessary to give any notice, other than such notice as may be herein expressly
required. In the event any agreement contained in this Loan Agreement should be
breached by either party and thereafter waived by the other party, such waiver
shall be limited to a particular breach so waived and shall not be deemed to
waive any other breach hereunder. No acceptance of any payments with knowledge
of any default shall be deemed a waiver of such default.
Section 9.07 Agreement to Pay Attorneys' Fees and Expenses.
In the event the Company should default under any of the provisions
of this Loan Agreement and the Issuer or Trustee should employ attorneys or
incur other expenses for the collection of rent or the enforcement of
performance or observance of any obligation or agreement on the part of the
Company contained in this Loan Agreement, the Company agrees that it will on
demand therefor reimburse the Issuer or Trustee for the reasonable fees of such
attorneys and such other expenses so incurred, to the extent permitted by law.
Section 9.08 Recognition of Security Interest in Pledge of
Revenues and Income.
The Company agrees that the Issuer and Trustee, as the case may be,
shall have each of the rights of a secured party provided by the Uniform
Commercial Code as in effect in the State of Nebraska with respect to the pledge
of collateral under this Loan Agreement.
Section 9.09 Exercise of the Issuer's Remedies.
Whenever any Event of Default shall have occurred and be continuing,
Trustee shall exercise any or all of the rights of the Issuer under this Article
IX.
ARTICLE X
SECURITY INTEREST UNDER THE UNIFORM COMMERCIAL CODE
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<PAGE> 54
As provided in this Article X, this Loan Agreement constitutes a
"security agreement" under the Uniform Commercial Code of the State of Nebraska
(the "UCC") with respect to the following terms and conditions:
(a) Company hereby pledges and grants to Trustee, as security for the Note
and the Series 1994 Bonds, a first priority security interest in all fixtures
located at or used in connection with the Project, now owned or hereafter
acquired, including all proceeds and products thereof, and all substitutions,
replacements and accessories with respect to any such property (for purposes of
this section and Article IX the "Collateral").
(b) All of the terms, provisions, conditions and agreements contained in
this Loan Agreement pertain and apply to the Collateral as fully and to the same
extent as to any other property comprising the Project; and the following
provisions of this Section shall not limit the applicability of any other
provisions of this Loan Agreement, but shall be in addition thereto;
(i) Company (being the "debtor" as that term is used in the UCC) is
and will be the true and lawful owner of the Collateral, subject to no liens,
charges or encumbrances other than the lien hereof and Permitted Encumbrances.
(ii) The Collateral is to be used by Company solely for business
purposes and is being installed in the Project.
(iii) The Collateral will be kept at the Project and will not be
removed, sold, assigned or transferred therefrom by the Company or any other
person without the prior written consent of the Trustee (being the "secured
party" as that term is used in the UCC), which consent shall not be unreasonably
withheld; and the Collateral may be affixed to such real estate but will not be
affixed to any other real estate. Trustee may from time to time release
collateral as provided in this Loan Agreement.
(iv) Proceeds of the Collateral are also covered by the lien of this
Loan Agreement; however, such provision shall not be construed to mean that the
Trustee consents to any sale of the Collateral.
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<PAGE> 55
(v) No financing statement covering any of the Collateral or any
proceeds thereof is on file in any public office except pursuant hereto; and
Company will at its own cost and expense, upon demand, furnish to Trustee such
further information and will execute and deliver to the Trustee such financing
statement and other documents in form satisfactory to Trustee and will do all
such acts and things as the Trustee may at any time or from time to time
reasonably request or as may be necessary or appropriate to establish and
maintain a perfected security interest in the Collateral as security for the
indebtedness hereby secured, subject to no adverse liens or encumbrances, other
than Permitted Encumbrances; and Company will pay the cost of filing the same or
filing or recording such financing statements or other documents in all public
offices where filing or recording is deemed by Trustee to be necessary or
desirable.
(vi) Upon an Event of Default hereunder and at any time thereafter
(such default not having previously been cured), Trustee at its option may
declare the indebtedness hereby secured immediately due and payable and
thereupon Trustee shall have the remedies of a secured party under the UCC,
including, without limitation, the right to take immediate and exclusive
possession of the Collateral, or any part thereof, and for that purpose may, so
far as Company can give authority therefore, with or without judicial process,
enter (if this can be done without breach of the peace) upon any place where the
Collateral or any part thereof may be situated and remove the same therefrom
(provided that, if the Collateral is affixed to real estate, such removal shall
be subject to the conditions stated in the UCC); and the Trustee shall be
entitled to hold, maintain, preserve and prepare the Collateral for sale, until
disposed of, or may propose to retain the Collateral subject to the Company's
right of redemption in satisfaction of the Company's obligations, as provided in
the UCC. The Trustee without removal may render the Collateral unusable and
dispose of the Collateral at the Project. Trustee may require the Company to
assemble the Collateral and make it available to Trustee for its possession at a
place to be designated by Trustee which is reasonably convenient to both
parties. Trustee will give Company at least five days' notice prior to the time
and place of any private sale or any other intended disposition thereof. The
requirements of reasonable notice shall be met if such notice is mailed, by
certified or registered mail, postage prepaid, to the
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<PAGE> 56
address of the Company herein set forth at least five days before the time of
the sale or disposition. The Trustee or any Bondholder may buy at any public
sale, and, if the Collateral is of a type customarily sold in a recognized
market or is of a type which is the subject of widely distributed standard price
quotations, the Issuer, Trustee or any Bondholder may buy at private sale. Any
such sale may be held as part of and in conjunction with any foreclosure sale of
the real estate comprised within the Project, the Collateral and real estate to
be sold as one lot if the Trustee so elects. The net proceeds realized upon any
such disposition, after deduction for the expenses of retaking, holding,
preparing for sale, selling or the like and the reasonable attorneys' fees and
legal expenses incurred by Trustee shall be applied in satisfaction of the
indebtedness hereby secured in accordance with this Loan Agreement. Trustee will
account to the Company for any surplus realized on such disposition.
(vii) The remedies of Issuer and Trustee hereunder are cumulative
and the exercise of any one or more of the remedies provided for herein under
the UCC shall not be construed as a waiver of any of the other remedies of
Issuer and Trustee, including having the Collateral deemed part of the realty
upon any foreclosure thereof so long as part of the indebtedness hereby secured
remains unsatisfied.
ARTICLE XI
AMENDMENTS
The Company accepts notice that this Loan Agreement is to be pledged
and that the Note has been assigned to the Trustee as security for the Series
1994 Bonds. The Company consents and agrees for the benefit of the Bondholders
that, until payment in full of the Series 1994 Bonds or until funds sufficient
for such payment have been duly provided, this Loan Agreement may not be
effectively amended, changed or modified (except for the purpose of curing any
ambiguity or formal defect or omission, or making any other change herein which,
in the written opinion of counsel to the Trustee is not to the prejudice of the
Series 1994 Bondholders), without the concurring written consent of the
Bondholders and the Trustee has and may exercise, by right of subrogation to the
Issuer, all rights
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<PAGE> 57
and remedies of the Issuer provided for in this Loan Agreement, either in its
own name or in the name of the Issuer.
53
<PAGE> 58
ARTICLE XII
CONSTRUCTION AND ENFORCEMENT
Section 12.01 Performance of Company's Obligations.
If the Company shall fail to keep or perform any of its obligations
as provided in this Loan Agreement, including, but not limited to, (i)
maintenance of insurance, (ii) payment of impositions, (iii) compliance with
legal or insurance requirements, or (iv) keeping the Project lien free, then the
Trustee, on behalf of the Issuer, may (but shall not be obligated to do so)
after the period of written notice to the Company as provided in Article IX
shall have expired, and without waiving or releasing the Company from any of its
obligations, as an additional but not exclusive remedy, make any such payment or
perform any such obligations, and all sums so paid by the Trustee and all
necessary incidental costs and expenses incurred by the Trustee in performing
such obligation, together with interest thereon, shall be paid to the Trustee on
demand, and, if not so paid by Company, Trustee shall have the same rights and
remedies as in the case of default by the Company in the payment on the Note.
Section 12.02 Governing Law.
This Loan Agreement shall be construed and enforced in accordance
with the laws of the State of Nebraska. Whenever in this Loan Agreement it is
provided that either party shall or will make any payment or perform or refrain
from performing any act or obligation, each such provision shall, even though
not so expressed, be construed as an express covenant to make such payment or to
perform or not to perform, as the case may be, such act or obligation.
Section 12.03 No Pecuniary Liability of the Issuer.
This Loan Agreement is entered into under and pursuant to the
provisions of the Act, and no provision hereof shall be construed so as to give
rise to a pecuniary liability of the Issuer or a charge against its general
credit or taxing powers. All obligations of the Issuer arising herefrom are
limited to the proper application of the proceeds of the sale of the Series 1994
54
<PAGE> 59
Bonds and the payments on the Note and the other funds received by it in
connection herewith.
Section 12.04 Assignment of Note; Company Unconditionally Obligated.
All rights of the Issuer hereunder (except the right to receive
payments, if any, under Section 4.04, Section 7.06, Section 7.08 and Article IX,
and the right to expenses and attorneys' fees under Article IX hereof) are to be
assigned, pledged, mortgaged and transferred to the Trustee as security for the
Series 1994 Bonds, but subject to the Company's rights hereunder. The rights of
the Trustee or any party or parties on behalf of whom the Trustee is acting
(including specifically, but without limitation, the right to receive the
principal and interest payments on the Note and other sums to be paid hereunder)
shall not be subject to any abatement, defense, set off, counterclaim or
recoupment whatsoever, whether arising by reason of any costs, event or
circumstance referred to in Section 4.05 hereof, any failure or defect in title,
or out of any breach of any obligation of the Issuer hereunder or by reason of
any other indebtedness or liability at any time owing by the Issuer to the
Company, it being the intent hereof that the Company shall be absolutely and
unconditionally obligated to pay all payments on the Note and other sums
provided hereunder to the Trustee.
Section 12.05 No Rights to Set-Off.
Company agrees that so long as any Series 1994 Bonds are outstanding
the Company shall have no right to set-off or reduce or abate its payments on
the Note or other payments hereunder as a result of a default by the Issuer.
Section 12.06 Delegation of Duties.
The parties agree that under the terms of this Loan Agreement, the
Issuer has delegated certain of its duties hereunder to the Company and to the
Trustee. The fact of such delegation shall be deemed sufficient compliance by
the Issuer to satisfy the duties so delegated and the Issuer shall not be liable
in any way by reason of acts done or omitted by the Company, the Trustee or any
of their employees or agents. The Issuer shall have the right
55
<PAGE> 60
at all times to act in reliance upon the authorization, representation or
certification of the Company or the Trustee.
Section 12.07 Reference to Series 1994 Bonds Ineffective After
Series 1994 Bonds Paid.
Upon payment in full of the Series 1994 Bonds (or provision for
payment thereof having been made in accordance with the provisions of the Trust
Indenture), all references in this Loan Agreement to the Series 1994 Bonds, the
Trustee and the Bondholders shall be ineffective and the Trustee Bondholders
shall thereafter have no rights hereunder, saving and excepting those that shall
have theretofore vested.
Section 12.08 Severability.
In case any section or provision of this Loan Agreement, or in case
any covenant, stipulation, obligation, agreement, act or action or part thereof,
made, assumed, entered into or taken under this Loan Agreement, or any
application thereof, is for any reason held to be illegal or invalid, or is at
any time inoperable by reason of any law or actions thereunder, such illegality,
invalidity or inoperability shall not affect the remainder thereof or any other
section or provision of this Loan Agreement or any other covenant stipulation,
obligation, agreement, act or action, or part thereof, made, assumed, entered
into or taken under this Loan Agreement which shall at the time be construed and
enforced as if such illegal, invalid or inoperable portion were not contained
therein, nor shall such illegality, invalidity or inoperability or any
application thereof affect any legal, valid or operable application thereof from
time to time, and each such section, provision, covenant, stipulation,
obligation, agreement, act or action, or part thereof, shall be deemed to be
effective, operative, made, entered into or taken in the manner and to the full
extent from time to time permitted by law.
Section 12.09 Benefit of Bondholders.
This Loan Agreement is executed in part to induce the purchase by
the Bondholders of the Series 1994 Bonds to be issued by the Issuer to finance
the cost of the Project, and accordingly all covenants and agreements on the
part of the Company and the
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<PAGE> 61
Issuer and the pledge of revenues and income granted and obtained as set forth
in this Loan Agreement are hereby declared to be for the benefit of the
registered owner from time to time of the Series 1994 Bonds issued by the Issuer
to finance the cost of the Project and persons claiming through such registered
owners.
Section 12.10 Further Limitations.
Anything in this Loan Agreement to the contrary notwithstanding, it
is expressly understood and agreed by the parties hereto that:
(a) The Issuer may rely conclusively on the truth and accuracy of any
certificate, opinion, notice or other instrument furnished to the Issuer by the
Trustee, Bondholders or the Company as to the existence of a fact or state of
affairs required hereunder to be noticed by the Issuer.
(b) The Issuer shall not be under any obligation to perform any record
keeping or to provide any legal service, it being understood that services shall
be performed or provided for by the Trustee, Bondholders or the Company.
(c) None of the provisions of this Loan Agreement shall require the Issuer
to expend or risk its own funds or otherwise endure financial liability in the
performance of any of its duties or in the exercise of any of its rights
hereunder, unless it shall first have been adequately indemnified to its
satisfaction against the costs, expenses and liabilities which may be incurred
thereby.
ARTICLE XIII
MISCELLANEOUS
Section 13.01 Access.
Whenever in this Loan Agreement the Issuer or the Trustee is given
the right of inspection of or entry into or upon the Project or any part
thereof, it is understood and agreed that such inspection or entry shall be
performed at reasonable times and in a reasonable manner so as not to unduly
interfere with the business operations of the Company carried on therein.
57
<PAGE> 62
Section 13.02 Binding Effect.
This Loan Agreement shall inure to the benefit of and shall be
binding upon the Issuer, the Company and their respective successors and
assigns, subject, however, to the limitations contained in Sections 7.06, 8.01,
8.02 and 12.07 hereof.
Section 13.03 Counterparts.
This Loan Agreement may be executed in several counterparts, each of
which shall be regarded as an original and all of which shall constitute but one
and the same Loan Agreement.
Section 13.04 Notices.
Any notice, demand, certificate, request, instrument or other
communication authorized or required by this Loan Agreement shall be deemed to
have been sufficiently given or filed for all purposes of this Loan Agreement if
and when mailed by registered mail, return receipt requested, postage prepaid,
addressed as follows:
IF TO THE ISSUER: Nebraska Investment Finance Authority
1033 "O" Street, Suite 218
Lincoln, NE 68508
IF TO THE BORROWER: Transcrypt International, Ltd.
1620 North 20th Street
Lincoln, NE 68503
IF TO THE TRUSTEE: Norwest Bank Nebraska, N.A.
1919 Douglas Street, Box 3408
Omaha, NE 68103
Any person may, by notice given hereunder, specify any further or
different addresses to which subsequent notices, certificates, request or other
communications shall be sent.
Section 13.05 Acceptance and Acknowledgment of the Trust Indenture.
The Company hereby agrees to the terms and conditions of the Trust
Indenture, including without limitation, such provisions
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<PAGE> 63
therein as provide for duties and responsibilities, including payment of certain
fees and expenses, of the Company and the Company specifically accepts such
duties and responsibilities.
IN WITNESS WHEREOF, the Nebraska Investment Finance Authority, being
hereunto duly authorized by a valid and subsisting Resolution duly adopted, has
caused this Loan Agreement to be executed and delivered in its name and on its
behalf under its seal by its officer thereunder duly authorized, and Company has
caused this Loan Agreement to be executed and delivered in its name and on its
behalf by its officers thereunder duly authorized, all as of the date set forth
on the cover page hereof.
The Nebraska Investment
Finance Authority
By:_____________________________
Executive Director
Transcrypt International, Ltd.,
a Nebraska limited partnership
By: Transcrypt International,
Inc., General Partner
By:_____________________________
Its Chairman
The Trustee hereby accepts assignment of this Loan Agreement
pursuant to the Trust Indenture and agrees to the terms and conditions hereof.
NORWEST BANK, NEBRASKA,
NATIONAL ASSOCIATION, Trustee
By: ________________________________
Its: ___________________________
59
<PAGE> 64
EXHIBIT A
Legal Description
Lot 1, Highlands Coalition 2nd Addition, Lincoln,
Lancaster County, Nebraska
Description of Project
Manufacturing facility to be constructed in accordance with the standard
form of Agreement between Owner and Contractor dated October 21, 1993,
between Company and Hank Buis Construction Co., Inc., as amended.
A-1
<PAGE> 65
EXHIBIT B
Note
$850,000 January 15, 1994
FOR VALUE RECEIVED, the undersigned Transcrypt International, Ltd.,
Lincoln, Nebraska, a Nebraska limited partnership ("Company"), hereby promises
to pay to The Nebraska Investment Finance Authority ("Issuer"), or its assigns,
at the principal banking office of Norwest Bank Nebraska, N.A., Omaha, Nebraska,
the principal sum of Eight Hundred Fifty Thousand Dollars ($850,000).
Principal and interest payments on this Promissory Note shall be in
the amount necessary to pay principal and interest, as the same fall due, on
Issuer's Industrial Development Revenue Bonds (Transcrypt International, Ltd.
Project), Series 1994 (the "Series 1994 Bonds"), issued pursuant to a Trust
Indenture dated as of January 15, 1994 (the "Indenture"), by and between Issuer
and Norwest Bank Nebraska, N.A., Omaha, Nebraska, as Trustee (the "Trustee").
Interest on this Note shall be payable on April 15, 1994, and
quarterly thereafter on July 15, October 15, January 15 and April 15 of each
year. Principal on this Note shall be payable on January 15, 2004 and shall bear
interest from the date of this Note at the rate of 6.25% per annum, computed on
the basis of a 360 day year consisting of 12 thirty day months.
As provided in Section 2.11 of the Indenture, in the Event of a
Determination of Taxability, the outstanding principal amount due on the Note
shall bear interest at a rate of eight and one/fourth percent (8.25%) per annum
from and after the Taxable Date, all as defined in the Indenture.
This Note is issued pursuant to and is secured by a Loan Agreement
of even date herewith between Company and Issuer (the "Loan Agreement") wherein,
among other things, the Issuer has agreed to loan to the Company and the Company
has agreed to borrow from the Issuer the proceeds derived by Issuer from the
sale of the Series 1994 Bonds. The Bonds are issued pursuant to the Indenture.
B-1
<PAGE> 66
This Note is also secured by a Deed of Trust and Construction Security Agreement
from Company to Trustee dated as of the date of the Note.
Upon the occurrence of any Event of Default as described in the Loan
Agreement, all unpaid principal and interest of this Note may be declared to be
forthwith due and payable if and in the manner and with the effect provided in
the Loan Agreement. Failure to exercise this right shall not constitute a waiver
of the right to exercise the same in the event of any subsequent occurrence of
such an event of default. If this Note shall be placed in the hands of an
attorney or attorneys for collection, Company agrees to pay in addition to the
amount due hereon, the reasonable costs and expenses of collection, including
reasonable attorney's fees.
Company may prepay the Note in whole or in part at any time, or from
time to time at a prepayment price equal to the redemption price for any Series
1994 Bonds. Prepayments shall be applied first to interest, with the remainder
to principal. Company shall prepay the Note in full following damage or
destruction of the Project if Company elects not to repair or reconstruct the
Project as provided in the Indenture or in the event of a taking in condemnation
of the Project to the extent it cannot be reasonably replaced or restored as
provided in the Loan Agreement and in the Indenture.
The liability of Company and of any guarantor of the Note or any
successor, assign or personal representative of any of the foregoing to any
person or entity under this Note is joint and several, absolute and irrevocable,
and shall not be limited to Company's interest in the Project and the Loan
Agreement, and any person or entity shall not be required to look exclusively
thereto or to the Deed of Trust for payment of all obligations arising out of
this Note or any other agreement securing the obligations of the Company or the
Series 1994 Bonds.
All parties to this Note, whether principal, surety, guarantor or
endorser, hereby waive presentment for payment, demand, protest, notice of
protest and notice of dishonor.
Signed as of the 15th day of January, 1994.
B-2
<PAGE> 67
Transcrypt International, Ltd.,
a Nebraska limited partnership
By: Transcrypt International,
Inc., General Partner
By:_____________________________
Its Chairman
B-3
<PAGE> 68
FOR VALUE RECEIVED, the Nebraska Investment Finance Authority,
hereby assigns all of its right, title and interest in and to the above
Promissory Note, dated January 15, 1994, to Norwest Bank Nebraska, N.A., Omaha,
Nebraska, as Trustee, or to its successor or successors as Trustee, under that
certain Indenture of Trust, dated January 15, 1994, by and between the
undersigned and said Trustee. This assignment is made without recourse.
DATED as of January 15, 1994
Nebraska Investment Finance
Authority
By:_____________________________
Its Executive Director
B-4
<PAGE> 69
EXHIBIT C
Outstanding Industrial Development Bonds
None
C-1
<PAGE> 70
EXHIBIT D
Permitted Encumbrances
None
D-1
<PAGE> 1
EXHIBIT 10.17
AMENDED AND RESTATED LOAN AGREEMENT
This Agreement is made and entered into as of this 18th day of May, 1994,
by and between TRANSCRYPT INTERNATIONAL, LTD), a Nebraska limited partnership,
which has its principal place of business in Lincoln, Nebraska ("Borrower"),
and NORWEST BANK NEBRASKA, NATIONAL ASSOCIATION, a national banking
association, organized and existing under the laws of the United States of
America and which has its principal place of business in Omaha, Nebraska
("Bank").
WITNESSETH:
WHEREAS, Borrower and Bank have previously entered into a Loan
Agreement dated February 5, 1993 (the "Prior Loan Agreement") which describes
the terms and conditions of certain loans made by Bank to Borrower;
WHEREAS, subsequent to execution of the Prior Loan Agreement, Bank has
renewed a matured conditional revolving line of credit from Bank in a principal
amount not to exceed $1,100,000.00 to be used by Borrower to finance inventory
and accounts receivable in connection with Borrower's normal operations at its
plant in Lincoln, Nebraska;
WHEREAS, Borrower also desires to obtain a new term loan from Bank in
the principal amount of $700,000.00;
WHEREAS, Bank is willing to provide to Borrower the $700,000.00 term
loan, subject to certain conditions, including that Borrower execute and
deliver this Amended and Restated Loan Agreement; and
WHEREAS, the parties have mutually agreed to certain amendments to the
prior Loan Agreement and now desire to enter into this Agreement to amend,
restate and supersede the Prior Loan Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements,
terms and conditions hereinafter set forth, and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties agree as follows:
ARTICLE 1
GENERAL PRINCIPLES AND DEFINITIONS
1.1 For purposes of this Agreement, except as otherwise expressly
provided, or unless the context otherwise requires:
(a) The terms defined in this Article shall have the meanings
defined in this Article and include the plural as well as the
singular; and
<PAGE> 2
(b) All accounting terms not otherwise defined herein
have the meaning assigned to them in accordance with
generally accepted accounting principles.
1.2 Definitions. The following defined terms shall be used in
this Agreement:
(a) "Advance" means an advance by Bank to Borrower pursuant to the
provisions of the Operating Loan as more fully described in
Section 2.1 of this Agreement and any short-term letters of
credit as more fully described in Section 2.6 of this
Agreement.
(b) "Agreement" means this Amended and Restated Loan Agreement.
(c) "Base Rate" means the floating interest rate announced from
time to time by the Bank as its National Money Market Rate
upon which borrowing rates for interest charged to customers
is based.
(d) "Bond Documents" shall mean all documents relating to the
issuance of $850,000 Nebraska Investment Finance Authority
Industrial Development Revenue bonds, Series 1994 (Transcrypt
International, Ltd.) dated January 15, 1994, including but
limited to the Trust Indenture, Loan Agreement, Promissory
Note, and Deed of Trust and Construction Security Agreement.
(e) "Borrower" means Transcrypt International, Ltd., a Nebraska
limited partnership.
(f) "Business Day" means any day (other than Saturday, Sunday, or
a legal holiday) on which the Bank's main office is open for
business.
(g) "Collateral" means all assets granted to Bank as security for
the payment and performance of the obligations of Borrower to
Bank.
(h) "Collateral Agreements" means the Security Agreements, the
Deed of Trust, the Guarantees, and all other security
agreements, deeds of trust, mortgages, guaranties,
assignments, and other security instruments executed and
delivered at any time by Borrower to secure the payment and
performance of Borrower's obligations to Bank.
(i) "Current Assets", "Current Liabilities", and "Total
Liabilities" shall be as disclosed on the financial
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<PAGE> 3
statements of Borrower in accordance with generally accepted
accounting principles.
(j) "Events of Default" shall mean the events of default set forth
in Article 8 of this Agreement.
(k) "Financing Statements" means all Financing Statements
previously or to be executed and delivered by Borrower to
perfect the security interests granted to Bank by Borrower,
including, without limitation, any financing statements given
pursuant to Section 3.4 of this Agreement.
(l) "First Term Note" means the promissory note heretofore made by
Borrower to Bank in the original principal amount of
$900,000.00 dated February 5, 1993, Note No. 072897.
(m) "Fixed Charge Coverage" means the sum of net income plus
depreciation and amortization plus non-cash charges divided by
the sum of principal payments plus dividends.
(n) "General Partner" means Transcrypt International, Inc., a
Nebraska corporation, which is the general partner of Borrower.
(o) "Guarantors" collectively means the General Partner, John T.
Connor, Janice K. Connor, University of Nebraska Foundation,
Farm Bureau Life Insurance Co., First Commerce Bancshares,
Alan Stewart, Dianne Stewart, Harold S. Myers and The Security
Mutual Life Insurance Co. of Lincoln, Nebraska.
(p) "Intangible Assets" means any covenants not to compete,
patents, copyrights, trademarks, trade names, trade secrets,
proprietary technologies, goodwill, franchises, deferred
charges, licenses, organization expenses, and similar assets,
in accordance with generally accepted accounting principles.
(q) "Limited Partners" collectively means the following
individuals and entities which are the limited partners of
Borrower: John T. Connor and Janice K. Connor, husband and
wife; John Kuijvenhoven and Yvonne Kuijvenhoven, husband and
wife; University of Nebraska Foundation; Q E Dot, Inc.; Farm
Bureau Life Insurance Co.; First Commerce Bancshares; Steven
R. Wright.; United Security Bancorporation; Alan Stewart and
Dianne Stewart, husband and wife;
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<PAGE> 4
Harold S. Myers; Harold S. Myers Trust; and Harold S. Myers
III Trust; and The Security Mutual Life Insurance Company of
Lincoln, Nebraska.
(r) "Loan Documents" means this Agreement, the Operating Note, the
First Term Note, the Second Term Note, the Security Agreement,
the Trust Deed, the Guaranties, and any and all other
documents, agreements, and writings of every kind relating to
or arising out of the foregoing.
(s) "Notes" collectively means the Operating Note, the First Term
Note, and the Second Term Note.
(t) "Operating Note" means the promissory note hereafter made by
Bank to Borrower in the maximum principal amount of
$1,100,000.00 and dated February 5, 1994, and which matures on
April 1, 1995.
(u) "Partners" collectively means the General Partner and the
Limited Partners.
(v) "Qualified Accounts" means an account which:
(1) Is due and payable and has not been past due more
than ninety (90) days.
(2) Arose from a bona fide, outright sale of goods by
Borrower or from the performance of services by
Borrower and Borrower has possession of and will
deliver to Bank, if requested, shipping and delivery
receipts evidencing shipment of the goods and, if
representing services, the services halve been fully
performed for the respective account debtor.
(3) Is not subject to any assignment, claim, lien, or
security interest of any character, nature, or
description whatsoever except the security interest
of Bank, and Borrower will not make any other
Assignment thereof or create any further security
interest or lien thereon or therein nor permit
Borrower's right therein to be reached by attachment
levy, garnishment, or other judicial process.
(4) Is not subject to any claim for credit, set-off,
counterclaim, allowance, or adjustment by the account
debtor or any other type of counterclaim or set-off,
and the
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<PAGE> 5
account debtor has not returned any of the goods from
the date of which the account arose, nor has any
partial payment been made thereon.
(5) Arose in the ordinary and due course of Borrower's
business and no notice of bankruptcy, whether
voluntary or involuntary, insolvency or material
adverse change in the financial condition of the
account debtor has been received or knowledge had
thereof.
(6) Bank has not notified Borrower that the account or
account debtor is unsatisfactory to Bank in its
reasonable judgment.
(7) Is not evidenced by a judgment, an instrument,
chattel paper, or encumbrance.
(8) Is not an account due from any one or more of the
Partners or any person or entity related to or
affiliated with any Partners.
(w) "Qualified Inventory" shall mean inventory which
meets the following requirements:
(1) It is in saleable or usable condition.
(2) In the case goods held for sale or lease, it
is new and unused unless Bank otherwise
agrees.
(3) It is raw materials or finished goods.
(4) It is owned by Borrower totally and is not
subject to any lien or security interest in
favor of any other party except for the
security interest to the Bank.
Any inventory which is at any time Qualified Inventory, but shall
subsequently fail to meet any of the foregoing requirements, shall
thereupon cease to be termed as Qualified Inventory.
(x) "Second Term Note" means the promissory note in the principal
amount of $700,000.00 described in Article 2 of this
Agreement.
(y) "Security Agreement" means the Security Agreement dated
February 5, 1993, granting Bank a security interest to and in
favor of Bank in all now owned and hereafter acquired
inventory, accounts,
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<PAGE> 6
equipment, fixtures, and general intangibles, together with
all products and proceeds.
(z) "Tangible Net Worth" means the total of all assets of Borrower
after deducting: (i) allocation (reserves) for depreciation,
amortization, and bad debts; (ii) Total Liabilities; (iii)
total Intangible Assets; and (iv) total loans to officers.
(aa) "Trust Deed" shall mean the Trust Deed to be granted by
Borrower in favor of Bank to secure the Notes against the real
property described in Exhibit "A" attached to this Agreement.
ARTICLE 2
AMOUNTS AND TERMS OF LOANS
2.1 Operating Loan. Bank agrees, on the terms and subject to the
conditions set forth in this Agreement and the Loan Documents, and subject to
Bank's continued satisfaction with the financial affairs of Borrower, to make
one or more Advances to Borrower from time to time, not to exceed in the
aggregate amount outstanding at any time the principal sum of $1,100,000.00.
This operating loan shall be a revolving facility, and it is contemplated that
Borrower will request advances, make prepayments, and request additional
advances hereunder.
2.2 Operating Note. The Advances by Bank are evidenced by a
promissory note of Borrower dated February 5, 1994 (the "Operating Note"). The
Operating Note shall be due on April 1, 1995, or upon an Event of Default,
whichever occurs first. Notwithstanding the provisions of the following
paragraph, all Advances by Bank shall be made at the reasonable discretion of
Bank.
2.3 Restrictions on Advances. All Advances are subject to a
borrowing base defined as the lesser of:
(1) $1,100,000.00, or
(2) Eighty-five percent (85%) of Qualified accounts
arising from or associated with operations at
Borrower's plant in Lincoln, Nebraska plus fifty
percent (50%) of Qualified Inventory located at
Borrower's plant in Lincoln, Nebraska, provided,
however, that the total contribution of Qualified
Inventory to the borrowing base shall not exceed
$350,000.00 in the aggregate.
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<PAGE> 7
Each request for an Advance shall be deemed to be a representation by
Borrower that the statements set forth in Section 4.2 hereof are correct. The
names of the persons authorized to request Advances on behalf of Borrower shall
be provided to Bank from time to time in writing and certified by the Secretary
or Assistant Secretary of General Partner in such form as may be required by
Bank.
2.4 Interest Rate on Operating Note. Interest shall be payable on
the Operating Note at a variable rate equal to the Base Rate. Interest rate
adjustments for the Operating Note shall be effective simultaneously with any
change int he Base Rate. Interest shall be computed on the basis of actual
number of days elapsed in 360-day year. Upon and after demand, maturity, or
any Event of Default, the interest rate on the Operating Note shall be at a
rate equal to the Base Rate plus two percent (2%).
2.5 Payment of Principal and Interest on Operating Note. Interest
as accrued shall be payable on the total of Advances made under the Operating
Note on the fifteenth day of each calendar month during the term of the
Operating Note, commencing on March 15, 1994. The entire unpaid principal
balance of the Operating Note shall be paid upon any Event of Default, and if
no Event of Default occurs, shall be paid at maturity on April 1, 1995.
2.6 Short-Term Letters of Credit. Bank may, in its sole
discretion, issue short-term letters of credit to facilitate sales to
Borrower's customers. Any such letters of credit shall constitute an Advance
under the Operating Note.
2.7 First Term Loan. Bank has previously loaned the principal sum
of $900,000.00 evidenced by the First Term Note, pursuant to the terms and
conditions of the Prior Loan Agreement. Borrower affirms the First Term Note
and agrees to pay all principal and interest when due under the First Term
Note.
2.8 Second Term Note. Bank agrees, on the terms and subject to
the conditions set forth in this Agreement and the Loan Documents, to make a
term loan advance to Borrower in the principal sum of $700,000.00 (the
"Second Term Note").
2.9 Interest Rate on Second Term Note. Interest shall be payable
on the Second Term Note at the rate of eight percent (8%.) per annum, fixed for
the first twenty-four (24) months of the term of the Second Term Note, based on
the actual number of days elapsed in a 360-day year, and for the remaining
thirty-six (36) months of the term of the Second Term Note, shall be at a
variable rate equal to the Base Rate plus one percent (I%), based on the actual
number of days elapsed in a 360-day year, with interest rate adjustments
effective simultaneously with any change in the Base Rate.
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<PAGE> 8
2.10 Payment of Principal and Interest on Term Note. Principal and
interest on the Second Term Note shall be payable monthly for a period of sixty
(60) months, as more particularly set forth in the Second Term Note, with the
entire unpaid balance of principal and interest payable at maturity or upon an
Event of Default, whichever occurs first.
2.11 Place and Time of Payments. All payments of principal and
interest on the Notes shall be paid to Bank at its place of business set forth
in Article 9 of this Agreement. All such payments shall be made in immediately
available funds and must be received by Bank prior to 11:00 a.m. to be credited
on the same Business Day. Any payments received after 11:00 a.m. will be
credited the next Business Day.
2.12 Interest Rate Upon Default. Upon the occurrence of an Event
of Default or maturity, the interest rate on the First Term Note and the Second
Term Note shall be the Base Rate plus two percent (2%).
2.13 Application of Payments. Any prepayments under the Notes and
after an Event of Default, all payments by Borrower to Bank under the Notes may
be applied by Bank against interest and/or principal on any one or more of the
Notes in whatever manner and order Bank may determine in its absolute
discretion, regardless of any instructions from Borrower or Guarantors to the
contrary.
2.14 Payment on Non-Business Days. Whenever any payment to be made
hereunder or under the Notes shall be stated to be due on a date other than a
Business Day, such payment may be made on the next succeeding Business Day and
such extension of time shall in such case be included in the computation of the
interest due on the Note.
2.15 Prepayment. The Notes may be prepaid by Borrower without
Borrower incurring any payment penalty. All prepayments shall first be applied
to accrued but unpaid interest with the remainder applied to reduce principal.
2.16 Security for Notes. All payments and other obligations to
Bank under the Notes and the other Loan Documents shall be secured, as provided
in Article 3 of this Agreement.
2.17 Guaranties of Obligations. All payments and other obligations
of Borrower to Bank shall be guaranteed as provided in Article 7 of this
Agreement.
2.18 Payment Application. All payments and other obligations to
Bank under the Notes and the other Loan Documents may be applied against any
of the Notes in the Bank's sole discretion, including but not limited to
Borrower's debt obligations to Bank which are not guaranteed.
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<PAGE> 9
2.19 Conditions Precedent. The obligations of Bank under this
Article 2 are subject to the conditions precedent of execution and delivery of
the Loan Documents in form and substance satisfactory to Bank, and also subject
to the satisfaction of any and all conditions precedent contained in this
Agreement and in any of the other Loan Documents.
ARTICLE 3
SECURITY
In order to secure the Notes and the performance by Borrower of all
the terms and conditions of this Agreement, Borrower has or will execute the
Loan Documents.
3.1 Security Agreements. Borrower hereby affirms and agrees that
the Security Agreement shall continue in full force and effect and that all
Collateral pledged to Bank by Borrower under the Security Agreement secures
each of the Notes made by Borrower notwithstanding the fact that certain
Collateral was acquired and security interests granted therein by Borrower to
Bank in connection with specified loans by Bank to Borrower. Borrower further
agrees to execute amendments to the Security Agreement or to execute new
security agreements to cover the new assets to be acquired with the proceeds
from the sale of the Nebraska Investment Finance Authority, Industrial Revenue
Bonds (Transcrypt International Ltd. Project), Series 1994, dated January 15,
1994, to be used to acquire, construct, and equip a manufacturing facility
located in Lincoln, Nebraska for Borrower included as part of the Collateral
but which are not specifically identified on any existing Security Agreement.
Upon request by Bank, Borrower further agrees to execute new agreements and
instruments in substantially the same form as the Security Agreement
specifically identifying any or all of the Collateral. In the event Bank
requests Borrower to execute any such new agreements and instruments, neither
the request by Bank nor the execution and delivery of such new agreements and
instruments by Borrow shall be construed in any way to limit or avoid the
validity, enforceability, and scope of the Security Agreement.
3.2 Deed of Trust. Borrower hereby agrees to grant a Trust Deed
to and in favor of Bank in and to the real property described in Exhibit "A"
attached to this Agreement and incorporated herein by this reference, together
with all buildings and improvements situated in said real property. Borrower
shall execute and deliver to and in favor of Bank a Trust Deed and related
documentation in such form as may be required by Bank.
3.3 Guaranties by Guarantors. General Partner shall guarantee the
payment and performance of all obligations of Borrower under the Notes, this
Agreement, the other Loan Documents, and all other present and future
obligations of Borrower to Bank
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(whether direct or indirect, primary or secondary, absolute or contingent).
The Guaranty of the General Partner shall be unconditional and unlimited. The
obligation of General Partner under said Guaranty shall not be in limitation of
any obligations and liabilities of General Partner imposed by law by reason of
being the general partner of Borrower. Guarantors shall each guarantee the
payment and performance of all obligations of Borrower under the First Term
Note. The Guaranties of the Guarantors shall be unconditional but shall be
limited to the principal sum of $450,000.00 in the aggregate, with each
individual Limited Partner's Guaranty being limited to the following principal
sums: John T. Connor--$64,668.00; Janice K. Connor--$58,382.00; University of
Nebraska Foundation--$83,529.00; Farm Bureau Life Insurance Co .--
- -$100,028.00; First Commerce Bancshares, Inc.--$53,890.00; Alan and Dianne
Stewart--$5,685.00, jointly and severally; Harold S. Myers--$56,863.00, and
The Security Mutual Life Insurance Co. of Lincoln, Nebraska--$26,955.00.
3.4 Financing Statements. Borrower acknowledges and agrees that
one or more Financing Statements were executed, delivered and filed to perfect
the security interests granted under the Security Agreement at or about the
time the Security Agreement was entered into, and that such Financing
Statements remain in full force and effect and shall continue to perfect the
security interest granted under the Security Agreement and any new security
agreement. Borrower agrees to execute any additional Financing Statements as
may be required by Bank from time to time. Borrower further agrees to furnish
Continuation Statements or Amendments to the Financing Statements as may be
required by Bank from time to time.
ARTICLE 4
CONDITIONS OF LENDING
4.1 Conditions Precedent to Advances. The obligation of Bank to
make Advances under this Agreement shall be subject to the condition precedent
that Bank shall have received on or before the day of any said Advance all of
the following, each dated (unless otherwise indicated) such day, in form and
substance satisfactory to Bank:
(a) Certified copies of documentation from Borrower
evidencing approval of this Agreement and all other
matters contemplated hereby;
(b) All Loan Documents have been properly executed by
Borrower and Grantors have properly executed the
Guaranties;
(c) Lien searches, security interest release/
terminations, title insurance commitments or
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<PAGE> 11
abstracts of title showing, to the satisfaction of
Bank, that Bank has a first lien in all Collateral
pledged to secure the Notes except for the real
property described on Exhibit "A" on which the Bank
shall have a second lien;
(d) A certificate executed by the Secretary of General
Partner certifying the names of the individuals
authorized to sign this Agreement on behalf of
General Partner and on behalf of Borrower and any
other documentation required to be executed by said
party hereunder. Bank may conclusively rely on such
certificate until it receives a further certificate
cancelling or amending the prior certificate and
submitting the signature of officers named in such
further certificate.
4.2 Further Conditions Precedent to Advances. The obligation of
Bank to make Advances shall be subject to the further conditions precedent that
on the date of such Advances:
(a) The representations and warranties contained in
Article 5 are correct on and as of the date of such
Advance as though made on and as of such date, except
to the extent that such representations and warranties
relates solely to an earlier date; and
(b) No event has occurred or is continuing or would result
from said Advance, which constitute an Event of
Default (as defined below) or would constitute an
Event of Default but for the requirement that notice
be given or time elapsed or both.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Borrower hereby makes the following representations and warranties to
Bank:
5.1 Legal Existence of Borrower. Borrower is legally organized
and formed, validly existing, and in good standing under the laws of the State
of Nebraska and is duly licensed and qualified to transact business in all
jurisdictions where the character of the property owned or leased or the nature
of the business transacted by Borrower makes such licensing or qualification
necessary or advisable. Borrower has all requisite power and authority to
conduct its business, to own its properties, and to execute and to perform all
of the obligations under the Loan Documents.
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<PAGE> 12
5.2 Legal Existence of Guarantors. Each of the Guarantors which
is not an individual is legally organized and formed, validly existing, and in
good standing under the laws of the state in which it was organized and formed,
and is duly licensed and qualified to transact business in all jurisdictions
where the character of the property owned or leased or the nature of the
business transacted makes such licensing or qualification necessary or
advisable. Each of the Guarantors which is not an individual has all requisite
power and authority to conduct its businesses, to own its properties, and to
execute and perform all its obligations under this Agreement and the other Loan
Documents, including its Guaranty.
5.3 Legal Capacity of Guarantors. Each of the Guarantors who is
an individual is of the legal age of majority and has all requisite legal
capacity to execute and perform all his or her obligations under this Agreement
and the Loan Documents, including his or her Guaranty.
5.4 Ownership of Borrower. There are no general partners of
Borrower other than the General Partner, and there are no limited partners of
Borrower other than the Limited Partners. The percentage ownership interests
of the Limited Partners are as set forth in Exhibit "B" attached to this
Agreement and incorporated herein by this reference.
5.5 Partnership Agreement of Borrower. The partnership agreement
among the General Partner and the Limited Partners is the Transcrypt
Acquisition, Ltd. Agreement of Limited Partnership dated as of December 3,
1991, a copy of which has been provided by Borrower to Bank. Borrower has also
provided to Bank a copy of a Certificate of Limited Partnership of Transcrypt
Acquisition, Ltd. dated as of October 1, 1991, and filed with the Nebraska
Secretary of State on November 19, 1991, and a copy of a Certificate of
Amendment to Certificate of Limited Partnership dated as of December 5, 1991,
and filed with the Nebraska Secretary of State on December 5, 1991, changing
the name of the limited partnership from Transcrypt Acquisition, Ltd. to
Transcrypt International, Ltd. There are no other partnership agreements or
certificates except as described in this paragraph 5.5.
5.6 Legal Agreements. This Agreement and the other Loan
Documents, when executed and delivered by Borrower and Partners, constitute
legal, valid, and binding obligations of Borrower and Partners and are
enforceable against each of them in accordance with their respective terms.
Each individual signing this Agreement and the other Loan Documents has full
authority to sign same and to bind Borrower and Partners to the terms thereof.
5.7 No Conflict as to Law or Agreements. Neither the execution,
delivery, and performance of this Agreement and the other Loan Documents, nor
the consummation of the transactions
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<PAGE> 13
contemplated hereby and thereby, will result in any violation of the
organizational documents of Borrower or Partners or result in the breach of any
of the terms, conditions, or provisions of, or constitute a default under, or
result in the creation or imposition of any lien or encumbrance upon any
property or assets of Borrower or Partners pursuant to any other contract or
agreement to which Borrower or Partners are a partner or by which Borrower or
Partners may be bound.
5.8 Hazardous Waste. Borrower represents, warrants, and covenants
to Bank:
(a) To Borrower's best knowledge, its operations
currently comply and in the future will comply with
all applicable federal, state, and local
environmental, health, and safety statutes and
regulations ("Requirements of Law");
(b) To Borrower's best knowledge, Borrower has obtained
and in the future will obtain all environmental
health and safety permits necessary for its
operation, all such permits are in good standing, and
the operations of Borrower comply with the terms and
conditions of such permits;
(c) Except as otherwise disclosed to Bank in writing, to
the best of its knowledge, no part of any real
property in which Borrower now or hereafter acquires
beneficial interest in including the ground water
located thereon, is presently contaminated by any
hazardous substances or hazardous waste. For
purposes of this instrument, the terms "hazardous
substances" and "hazardous waste" shall mean and
include any hazardous, toxic, or dangerous waste,
substance, or material within the meaning of the
Federal Comprehensive Environmental Response,
Compensation and Liability Act, or any other federal,
state or local statute, law, ordinance, code, rule,
regulation, order, or decree regulating, relating to,
or imposing liability or standards of conduct
concerning any hazardous, toxic, or dangerous waste,
substance or materials, as now or at anytime
hereafter may be in effect;
(d) Until the Notes are paid in full, all hazardous
substances or hazardous waste (as defined above)
which may be used by any Person for any purpose upon
Borrower's property shall be used or stored thereon
only in a safe, approved manner, in accordance with
all industrial standards and all laws, regulations,
and requirements for such storage
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<PAGE> 14
promulgated by any governmental authority, and no
property of Borrower will be used for the principal
purpose of storing any such substances or waste and
no such storage or use will otherwise be allowed on
its properties which will cause, or which will
increase the waste on, in, or under said properties.
(e) Borrower shall promptly notify Bank as soon as it
knows or suspects that hazardous substances or
hazardous waste have been released on its property.
In such event, Bank may require that all violations
of law with respect thereto be corrected and that all
necessary governmental permits be obtained, all at
Borrower's sole expense;
(f) Borrower agrees to indemnify, defend, and hold Bank
and its directors, officers, employees, agents and
any successor or successors to Bank's interest in
property of any Borrower harmless from and against
any and all losses, claims, damages, penalties,
liabilities, response costs and expenses (including
all out-of-pocket litigation costs and the reasonable
fees and expenses of counsel) (i) arising out of the
inaccuracy, breach, or incompleteness of any
representation, warranty, or covenant made by
Borrower in this Section 5.8 or in any document, in
writing, delivered concurrently herewith, or (ii)
arising out of any claim or lawsuit brought or
threatened, settlement reached, or governmental
order, relating to the presence, disposal, release,
or threatened release of any hazardous substance or
hazardous waste upon the property of Borrower or
(iii) arising out of any violation of any applicable
statute or regulation for the protection of the
environment which occurs upon the property of
Borrower, provided that, to the extent Bank is
strictly liable under any statute or regulation,
Borrower's obligations hereunder shall likewise be
without regard to fault on the part of Borrower with
respect to the violation of law which results in
liability to Bank. The indemnification obligation
described in this subsection (f) shall continue and
survive the satisfaction of the Notes and any
termination or expiration of this Agreement.
5.9 Financial Condition. Borrower has heretofore furnished Bank
copies of most recent Financial Statements, including in each case the related
balance sheets and statements of income and loss. Such Financial Statements
fairly present the financial condition of Borrower on the date thereof and the
results of its
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<PAGE> 15
operations for the periods then ended in accordance with generally accepted
accounting principles consistently applied.
5.10 Adverse Change. To Borrower's best knowledge, there has been
no material adverse change in its business, properties, or conditions
(financial or otherwise) since the date of the latest Financial Statements
referred to in Section 5.9 hereof.
5.11 Litigation. There are no actions, lawsuits, or proceedings
pending, or to the knowledge of Borrower, threatened against or affecting
Borrower or the properties of Borrower before any court or governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign, which if determined adversely to Borrower, would have a material
adverse effect on the financial condition, properties, or operation of
Borrower.
5.12 Taxes. Borrower and General Partner have filed all federal,
state, and local tax returns which are required to be filed, and Borrower and
General Partner have paid or caused to be paid such sums to the respective
taxing authorities as are shown on said returns, or on any assessment received
by any of them, to the extent such taxes have become due. Borrower and General
Partner have no knowledge of any potential adverse tax rulings or assessments
against either of them or any of their properties.
5.13 Title and Liens. Borrower has good title to each of the
properties and assets reflected in its latest balance sheet free and clear of
all mortgages, security interests, liens and encumbrances, except as permitted
or contemplated by the Loan Documents, except a deed of trust against the real
estate described in Exhibit "A" attached to this Agreement in favor of Norwest
Bank Nebraska, N.A., for the benefit of Norwest Bank Nebraska, N.A., as
Trustee, in connection with $850,000 NIFA Industrial Development Bonds, Series
1994, dated January 15, 1994.
5.14 Representations and Warranties in Other Loan Documents..
Borrower hereby incorporates by reference all terms, conditions, and provisions
of the other Loan Documents, including but not limited to all representations,
warranties, and covenants contained therein, all of which shall remain
effective at all times, regardless of whether an Event of Default has occurred.
5.15 Equipment of Borrower. Borrower is the owner and has
possession of the equipment listed in the Fair Market Valuation Report prepared
by Deloitte & Touche Valuation Group dated December 3, 1991, with additions and
deletions as set forth in the letter from John T. Connor to Wally Landon of
Bank dated January 12, 1993, and also is in possession of the equipment
currently leased from Norwest Equipment Finance.
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<PAGE> 16
5.16 Representations as a Whole. This Agreement and all other
instruments, documents, certificates, and statements furnished to Bank by
Borrower, taken as a whole, do not contain any untrue statements of a material
fact or omit to state any material fact respecting the business of Borrower.
ARTICLE 6
AFFIRMATIVE COVENANTS
Borrower hereby makes the following affirmative covenants to Bank:
6.1 Preservation of Partnership Existence. Borrower will preserve
and maintain its legal existence and all of its rights, privileges, and
franchises. Borrower will also obtain and maintain such licensing and
qualification requirements in all jurisdictions where the character of the
property owned or leased or the nature of its business makes such licensing or
qualification necessary. Borrower will also retain all requisite power and
authority to conduct its business, to own its properties, and to perform all of
its obligations under this Agreement and the other Loan Documents.
6.2 Inspection Rights. Borrower will keep accurate books of
record and accounts for its business in which true and complete entries will be
made in accordance with generally accepted accounting principals consistently
applied and, upon request of Bank, will give any representative of Bank access
during normal business hours to, and permit such representative to examine,
copy, and make extracts from, any and all books, records, and documents in the
possession of Borrower, to inspect any of the properties of Borrower, and to
discuss its business affairs, finances, and accounts with any of the management
personnel, at such times and as often as may be determined by Bank.
6.3 Maintenance of Properties and Insurance. Borrower will
maintain its properties in good repair and working order. Borrower will obtain
and maintain insurance in such amounts and against such risks as is usually
carried by companies engaged in similar businesses and owning similar
properties, including hazard insurance on all property of Borrower, in such
form and in such amounts agreeable to Bank, who shall be named as loss payee
thereunder to the extent of its interest. Certificates of Insurance shall be
provided by Borrower to Bank evidencing the existence of insurance and the loss
payee status of Bank.
6.4 Compliance With Laws. Borrower will comply with the
requirements of all applicable laws, rules, regulations, and orders of any and
all governmental and regulatory authorities.
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6.5 Financial Information. Borrower shall provide and/or cause to
be provided the following information to Bank within the time periods stated:
(a) Within ninety (90) days of the fiscal year-end of
Borrower, annual audited financial statements and
reports of Borrower relating to the operation of the
business of Borrower, which annual reports shall
include the balance sheets of Borrower for the
operation to the end of such fiscal year, and the
related statements of income, retained earnings, and
cash flows of Borrower for the fiscal year then
ended, all in reasonable detail and prepared by the
certified public accountants for Borrower in
accordance with generally accepted accounting
principles applied on a consistent basis;
(b) Within thirty (30) days of the end of each calendar
month, internally prepared monthly financial
statements and reports and monthly accounts
receivable agings of Borrower, in such form and
detail as may be required by Bank, certified by the
chief financial officer of Borrower;
(c) Upon request from Bank, monthly reports of accounts
payable of Borrower, in such form as may be required
by Bank, all certified by the chief financial officer
of Borrower;
(d) Within thirty (30) days of the end of each calendar
quarter, and at such other times as Bank may
reasonably request, quarterly covenant compliance
certificates from Borrower in such form as may be
required by Bank;
(e) Monthly borrowing base certification from Borrower
supported by detailed agings and semi-annual
collateral audits; and
(f) Annual unaudited financial statements from each
Guarantor within ninety (90) days of their respective
fiscal year ends, except Alan and Dianne Stewart.
6.6 Notification of Material Adverse Change. Borrower will notify
Bank of any material adverse change in the financial condition of Borrower and
of any material adverse change in the business operations of Borrower.
6.7 Financial Ratios. Borrower shall at all times maintain the
following financial ratios:
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(a) A minimum ratio of Current Assets to Current
Liabilities of 2.0 to 1.0;
(b) A minimum quick ratio (current assets less inventory
divided by current liabilities) of 1.3 to 1. 0; and
(c) A maximum debt to stockholder equity of 1.25 to 1.0
from and after the date of this Agreement to July 31,
1994, and a maximum debt to stockholder equity of 1.0
to 1.0 from and after August 1, 1994.
6.8 Minimum Tangible Net Worth. Borrower shall maintain minimum
Tangible Net Worth of $950,000.00 from December 31, 1993, to December 31, 1994;
$1,950,000.00 from December 31, 1994, to December 31, 1995; and $2,950,000.00
from and after December 31, 1995.
6.9 Capital Expenditures. Annual Capital expenditures of Borrower
and leases of personal property by Borrower as lessee shall not exceed
$1,300,000.00 for fiscal year of Borrower ending December 31, 1994, and
$500,000.00 for each fiscal year thereafter.
6.10 Minimum Fixed Charge Coverage. Borrower shall maintain a
minimum Fixed Charge Coverage of 1.0 times from and after the date of this
Agreement which shall be measured quarterly.
ARTICLE 7
NEGATIVE COVENANTS OF BORROWER
Borrower hereby makes the following negative covenants to Bank:
7.1 Liens and Encumbrances. Borrower will not, except as
permitted or contemplated by this Agreement and the Loan Documents, create,
incur, assume or suffer to exit any mortgage, deed of trust, pledge, lien,
security interest, or other charge or encumbrance of any nature on any of the
assets pledged as security to Bank, or assign or otherwise convey any rights to
receive income (or give its consent to the subordination of any right) or claim
of Borrower and right or claim of any other person. Excluded, however, from
the operation of the foregoing are liens for taxes or other assessments or
other governmental charges to the extent not required to be paid by this
Agreement, liens arising in the ordinary course of business for sums not due or
sums being contested in good faith by appropriate proceedings, and current
taxes which are not delinquent or taxes which are being contested in good faith
by appropriate proceedings.
7.2 Indebtedness. Borrower will not incur, create, or assume any
indebtedness or liability on account of deposits or advances or
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<PAGE> 19
any indebtedness for borrowed money, or any other indebtedness or liability
evidenced by notes, bonds, debentures, or similar obligations, except
indebtedness evidenced by the Notes, except indebtedness arising out of the
Loan Documents, except trade accounts payable which are incurred in the
ordinary course of Borrower's business, except upon prior written approval of
Bank, which such approval will be unreasonably withheld.
7.3 Guarantees and Contingent Liabilities. Borrower will not
assume, guarantee, endorse, or otherwise become directly or contingently liable
in connection with any obligations of any other person or entity, except the
endorsement of negotiable instruments by Borrower for deposit or collection or
similar transactions in the ordinary course of business, and except upon prior
written approval of Bank.
7.4 Leases. Borrower will not enter into or otherwise become
obligated under any leases with respect to real property as lessor or Lessee,
or with respect to personal property as lessor, without prior written approval
of Bank.
7.5 Investments. Except for Borrower's investment interest in
Transcrypt Europe not to exceed $200,000, Borrower will not purchase or hold
beneficially any stock or other securities or evidences of indebtedness of, make
or permit to exist any Loans or advances to, or make any investment or acquire
any interest whatsoever in, any person or entity without the prior written
approval of Bank.
7.6 Distribution to Partners. Borrower shall notify Bank of any
partnership or other distributions to any of the Partners.
7.7 Sale of Assets. Borrower will not sell, lease, assign,
transfer, or otherwise dispose of any of its assets without the prior written
consent of Bank, except sales and leases in the ordinary course of business of
Borrower, or Borrower's surplus, obsolete, or worn-out properties.
7.8 Consolidation and Merger. Borrower will not consolidate with
or merge into any entity, or permit any entity to merge into or acquire (in a
transaction analogous in purpose or effect to a consolidation or merger) all or
substantially all of the assets of Borrower without the prior written consent
of Bank.
7.9 Loans and Advances to Partners and Others. Borrower will not
make any loans or advances to or for the benefit of its General Partner, any of
its Limited Partners, or any officer, director, or shareholder of its General
Partner or any of its Limited Partners, except upon the prior written approval
of the Bank.
7.10 Ownership and Management. John T. Connor shall remain active
in the business operations of Borrower. Borrower shall
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<PAGE> 20
notify Bank of any changes in the senior or executive management of Borrower.
7.11 Restriction on Nature of Business. Borrower will not engage
in any line of business materially different from that currently engage in by
Borrower without the prior written approval of Bank.
ARTICLE 8
DEFAULT, RIGHTS AND REMEDIES
8.1 Events of Default. Each of the following shall constitute an
Event of Default under this Agreement:
(a) Default in the payment of any principal or interest
on the Operating Note when due or upon demand upon
ten (10) days' written notice to Borrower;
(b) Default in the payment of any principal or interest
on the First Term Note when due upon ten (10) days'
written notice to Borrower;
(c) Default in the payment of any principal or interest
on the Second Term Note when due upon ten (10) days'
written notice to Borrower;
(d) Any default in the payment or performance of any
obligation under any of the Loan Documents which is
not cured within thirty (30) days after written
notice by Bank specifying the default(s) asserted by
Bank;
(e) Any default under the terms of the Bond Documents;
(f) In the event any representation, warranty, or
covenant made by Borrower and/or Guarantors in this
Agreement or in any of the other Loan Documents shall
prove to have been incorrect in any material respect
which is not cured within thirty (30) days after
written notice by Bank specifying the default(s)
asserted by Bank;
(g) In the event of any breach of any of the
representations, affirmative covenants, or negative
covenants made by Borrower and/or Guarantors under
this Agreement or under any of the other Loan
Documents which is not cured by Borrower within
thirty (30) days after written notice by Bank
specifying the default(s) asserted by Bank;
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<PAGE> 21
(h) In the event Borrower or any Guarantor shall be
adjudicated a bankruptcy or insolvent, or admit in
writing their inability to pay debts as they mature,
or make an assignment for the benefit of creditors;
or in the event Borrower or any Guarantor shall apply
for or consent to the appointment of any receiver,
trustee, or similar officer for all or any
substantial part of their property; or in the event
such receiver, trustee, or similar officer shall be
appointed without the application or consent of such
Borrower or Guarantor and such appointment shall
continue undischarged for a period of sixty (60)
days; or in the event Borrower or Guarantor shall
institute (by petition, application, answer, consent,
or otherwise) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt,
dissolution, liquidation, or similar proceeding
relating to any of them under the United States
Bankruptcy Code or the laws of any jurisdiction or in
the event any such proceeding shall be instituted
against Borrower or any Guarantor and shall remain
undismissed for a period of sixty (60) days (or in
the event any judgment, writ, warrant of attachment
or execution, or similar process shall be entered,
issued, or levied against a substantial part of the
property of Borrower or any Guarantor, and such
judgment, writ, or similar process shall not be
satisfied, released, stayed, vacated, or fully bonded
within thirty (30) days after its issue or levy;
(i) In the event any of the Guarantors should revoke or
attempt to revoke its, his, or her Guaranty in
writing, or fail to perform any obligation under such
Guaranty, or commence any action challenging the
validity or enforceability of such Guaranty;
(j) In the event of any voluntary or involuntary
corporate dissolution of any Guarantor which is a
corporation;
(k) In the event of any final and unappealed suspension
or revocation of any license or other authority
necessary for Borrower to transact business in
substantially the same manner as such business is
currently being transacted;
(l) In the event of any default under the Trust Deed in
favor of Bank relating to the real property described
in Exhibit "A" attached to this Agreement;
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<PAGE> 22
(m) In the event any extraordinary situation or event
shall occur which, in the reasonable determination of
Bank has or will have a significant financial impact
on Borrower and which gives Bank reasonable ground to
believe that Borrower will not be able to perform in
the normal course its obligations under the Loan
Documents and such situation or event is not cured or
corrected within ten (10) days after notice by Bank
specifying the situation or event asserted by Bank;
(n) In the event any Guarantor assigns, pledges, or
grants a security interest to any third party in
their partnership interest in Borrower or in the
event any third party executes or levies against any
Guarantor's Partnership interest in Borrower;
(o) In the event any third party executes or levies
against the real property described in Exhibit "A"
attached to this Agreement or in the event any real
estate taxes or assessments relating to said real
property are not paid before same becomes delinquent;
and
(p) In the event the sale of Borrower's existing business
facility in Lincoln, Nebraska, is not closed by
July 31, 1994.
8.2 Rights and Remedies Upon Event of Default. Upon the
occurrence of any Event of Default, or at any time thereafter, Bank shall have
and may exercise any or all of the following rights and remedies, which such
rights and remedies shall be cumulative:
(a) Bank may, without notice to Borrower, declare any
obligation to make Advances under the Operating Note
to be immediately terminated, whereupon such
obligations shall immediately terminate;
(b) Bank may, without notice to Borrower, declare the
entire unpaid principal balance of the Notes then
outstanding, and all interest accrued and unpaid
thereon, and all other amounts payable under this
Agreement and the other Loan Documents to be
immediately due and payable, whereupon all such debts
and obligations shall become immediately due and
payable without presentment, demand, protest, or
further notice of any kind, all of which are hereby
expressly waived by Borrower and Guarantors;
(c) Bank may, without notice to Borrower, and without
further action, charge or set off as to any account
of Borrower now or hereafter maintained at Bank any
-22-
<PAGE> 23
and all debts and obligations owing by Borrower to
Bank. Borrower hereby specifically authorizes said
charges or set-offs;
(d) Bank may exercise and enforce any of its rights and
remedies under the Loan Documents;
(e) Bank may exercise any and all of its rights and
remedies against. one or more of the Guarantors under
the Guaranties without first proceeding against
Borrower or any of its properties, and without being
required to proceed against all of the Guarantors;
and
(f) Bank may exercise any and all other rights and
remedies allowed by law.
ARTICLE 9
MISCELLANEOUS
9.1 No Waiver; Cumulative Remedies. No failure or delay on the
part of Bank exercising any right, power, or remedy under this Agreement or the
Loan Documents shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right, power, or remedy preclude any other or
further exercise thereof or the exercise of any other right, power, or remedy.
All rights and remedies of Bank are cumulative and not exclusive of any
remedies provided by law.
9.2 Amendments, Et Cetera. No amendment, modification,
termination, or waiver of any provision of this Agreement or the other Loan
Documents, nor consent to any departure by Borrower therefrom, shall in any
event be effective unless the same shall be in writing and signed by Bank and
then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given. This Agreement and the other
Loan Documents may not be amended, or any provision thereof modified or waived,
by reason of any course of dealing or by any statements or representations by
any officer or employee of Bank. No notice to or demand on Borrower or any
Guarantor in any case shall entitle Borrower or any Guarantor to any other or
further notice or demand in similar or other circumstances.
9.3 Addresses for Notices, Et Cetera. Except as otherwise
expressly provided herein, all notices, requests, demands, and other
communications provided for under this Agreement and under the other Loan
Documents shall be in writing and mailed or delivered to the applicable party
at the addresses indicated below:
If to Borrower or any Guarantor, at the addresses set forth in
Exhibit "B" attached to this Agreement.
-23-
<PAGE> 24
If to Bank:
Norwest Bank Nebraska, N.A.
1919 Douglas Street
P. 0. Box 3408
Omaha, NE 68103
Attention: J. Wally Landon, Vice President
or, as to each party, at such other address as shall be designated by such
party in a written notice to each other party complying as to delivery with the
terms of this section. All such notices, requests, demands, other
communications to Borrower or Guarantors shall, when mailed, be effective when
deposited in the mails, addressed as aforesaid and, as to Bank, when received.
9.4 Costs and Expenses. Borrower agrees to pay on demand all
filing and recording fees, search fees, title insurance premiums, and other
closing costs and expenses of Bank in connection with the negotiation and
closing of the Loan Documents and agrees to pay the reasonable fees of counsel
for Bank incurred in connection with same. Borrower further agrees to pay all
costs and expenses, including attorney fees, incurred by Bank in connection
with the enforcement of this Agreement or the other Loan Documents.
9.5 Effectiveness of Agreement. The obligations of Bank and
Borrower under this Agreement shall be effective upon execution of this
Agreement by Bark and Borrower.
9.6 Binding Effect and Assignment. This Agreement shall be
binding upon and inure to the benefit of Borrower and Bank, and their
respective successors and assigns, including any subsequent holder or holders
of the Notes, except that Borrower may not assign or transfer their rights or
obligations under any of the Loan Documents without the prior written consent
of Bank.
9.7 Entire Agreement. This Agreement and the other Loan Documents
constitute the entire agreement between Borrower, Guarantors and Bank with
respect to the matters contained herein and therein.
9.8 Governing Law. This Agreement and the other loan Documents
shall be deemed to be contracts under the laws of the State of Nebraska and for
all purposes shall be construed in accordance with the laws of the State of
Nebraska.
9.9 Headings. Article and section headings used in this Agreement
are for convenience only and shall not affect the construction of this
Agreement.
9.10 Severability. The invalidity of any one or more phrases,
covenants, clauses, paragraphs, or sentences of this Agreement
-24-
<PAGE> 25
shall be construed as if such invalid phrases, covenants, clauses, paragraphs,
or sentences had not been inserted in this Agreement.
9.11 Conflict of Documents. To the extent the provisions of this
Agreement conflict with any of the provisions of any of the other Loan
Documents, the terms and provisions of this Agreement shall control, except to
the extent that the terms and provisions of any of the other loan documents
provide broader rights to the Bank.
Dated as of the day and year first above written.
NORWEST BANK NEBRASKA, TRANSCRYPT INTERNATIONAL, INC.,
NATIONAL ASSOCIATION
By: J. WALLY LANDON By: JOHN T. CONNEL
------------------------------ ------------------------------
Its: Vice President Its: Chairman
------------------------------ ------------------------------
-25-
<PAGE> 26
EXHIBIT A
Lot 1, Highlands Coalition 2nd Addition, Lincoln, Lancaster County, Nebraska
<PAGE> 27
EXHIBIT B
TRANSCRYPT INTERNATIONAL, LTD.
UNIT OWNERSHIP
The following table sets forth the Ownership of the outstanding Units
of the Company upon the closing of the January 1, 1994 transaction.
<TABLE>
<CAPTION>
General Partner / Address Capital Contribution Units Owned Partnership Interest
- ------------------------- -------------------- ----------- --------------------
<S> <C> <C> <C>
Transcrypt International, Inc. $50,000 50,000 1.00%
c/o John T. Connor
1620 North 20th Street
Lincoln, Nebraska 68503
</TABLE>
<TABLE>
<CAPTION>
Limited Partner / Address Capital Contribution Units Owned Partnership Interest
- ------------------------- -------------------- ----------- --------------------
<S> <C> <C> <C>
CONNOR GROUP
John T. Connor $544,461 544,425 10.94226%
Transcrypt International, Inc.
2504 Ridge Road
Lincoln, Nebraska 68512
Janice K. Connor 528,488 519,741 10.44614%
Transcrypt International, Inc.
2504 Ridge Road
Lincoln, Nebraska 68512
John T. Connor III Trust 33,026 33,050 .66427%
2504 Ridge Road
Lincoln, Nebraska 68512
Meredith Ann Connor Trust 33,026 33,050 .66427%
2504 Ridge Road
Lincoln, Nebraska 68512
-------- --------- ----------
Connor Group Unit Sub-Total 1,130,266 22.71694%
FARM BUREAU GROUP
Farm Bureau Life Insurance 956,110 918,794 18.46661%
5400 University Avenue
Des Moines, Iowa 50265
KUIJVENHOVEN GROUP
John Kuijvenhoven 247,416 247,417 4.97728%
1440 Buckingham Drive
Lincoln, Nebraska 68506
Yvonne Kuijvenhoven 247,416 247,416 4.97728%
1440 Buckingham Drive
Lincoln, Nebraska 68506
Q E Dot, Inc. 198,000 198,000 3.9795%
1440 Buckingham Drive
Lincoln, Nebraska 68506
</TABLE>
<PAGE> 28
UNIT OWNERSHIP Page Two
KUIJVENHOVEN GROUP (continued)
Amy Marie Kuijvenhoven 33,056 33,056 .66438%
1400 Buckingham Drive
Lincoln, Nebraska 68506
Natalie Kuijvenhoven 33,056 33,056 .66438%
1440 Buckingham Drive
Lincoln, Nebraska 68506
Stephanie Lauerman 33,056 33,056 .66438%
1440 Buckingham Drive
Lincoln, Nebraska 68503 _________________________________________________
Kuijvenhoven Group Unit Sub-Total 792,000 15.9272%
UNIVERSITY GROUP
University of Nebraska Foundation 767,250 767,250 15.42077%
1111 Lincoln Mall, Suite 200
Post Office Box 82555
Lincoln, Nebraska 68501-2555
MYERS GROUP
Harold S. Myers 287,309 284,156 5.71118%
635 South 14th Street, Suite 320
Lincoln, Nebraska 68508
Steven R. Wright 51,379 58,491 1.17560%
635 South 14th Street, Suite 320
Lincoln, Nebraska 68508
David C. Myers 76,046 75,216 1.51175%
300 North Commercial
Weeping Water, Nebraska 68462
Harold S. Myers III Trust 52,799 52,223 1.04962%
635 South 14th Street, Suite 320
Lincoln, Nebraska 68508
Harold S. Myers Trust 52,799 52,223 1.04962%
635 South 14th Street, Suite 320
Lincoln, Nebraska 68508 _________________________________________________
Myers Group Unit Sub-Total 522,309 10.49777%
FIRST COMMERCE GROUP
First Commerce Bancshares, Inc. 495,000 495,000 9.94888%
NBC Center, 3rd Floor
13th & O Streets
Lincoln, Nebraska 68508
<PAGE> 29
UNIT OWNERSHIP Page Three
<TABLE>
<S> <C> <C> <C>
SECURITY GROUP
Security Mutual Life Insurance 300,000 247,592 4.97629%
c/o Mr. Thomas Henning
President and COO
200 Centennial Mall North
Lincoln, Nebraska 68501-2248
STEWART GROUP
Alan and Dianne Stewart 52,799 52,223 1.04962%
1620 North 20th Street
Lincoln, Nebraska 68503
-----------------------------------------------------
TOTALS $5,080,250 4,975,434 100.00000%
=============================================================================================
</TABLE>
<PAGE> 30
Commercial Note
[LOGO - NORWEST BANKS]
Name Date
Transcrypt International, Ltd. June 1, 1995
Choose one of the following
[ ] On demand, or
[ X ] On May 1, 1996; or
[ ] _______________ After date:
<TABLE>
<S> <C>
for value received, the undersigned (if more than one, Norwest Bank Nebraska, National Association
jointly and severally) promise(s) to pay to the order of 1919 Douglas Street
(the "Bank") at Omaha, Nebraska 68102
</TABLE>
or at any other place designated at any time by the holder hereof, in lawful
money of the United States of America, the principal sum of ----------- One
Million One Hundred Thousand and No/100ths ------------------- Dollars
($1,100,000.00), or so much thereof as is disbursed and remains outstanding
hereunder on the due date hereof, as shown by the Bank's liability record or on
the reverse side hereof, as the case may be, together with interest (calculated
on the basis of actual days elapsed in a 360 day year) on the unpaid balance
hereof from the date hereof until this Note is fully paid, at the following
rate:
[ ] an annual rate of _____ % (herein the "Note Rate").
[ X ] an annual rate equal to 0.0% above the Base Rate from time to
time in effect, each change in the interest rate hereon to
become effective on the day the corresponding change in the
Base Rate becomes effective (the resulting rate is herein
referred to as the "Note Rate").
[ ] an annual rate which, for any particular month, shall be ____ %
above the Base Rate in effect on the ____ day of the
immediately preceding month (the resulting rate is herein
referred to as the "Note Rate").
[ ] an annual rate________________________________________________
______________________________________________________________
(herein the "Note Rate").
The unpaid balance and interest due on this Note at maturity (whether this Note
matures by demand, acceleration, or the lapse of time) shall bear interest
until paid at the rate of ____ % in excess of the Note Rate.
As used herein, "Base Rate" means the rate of interest established by:
[ ] ______________________ from time to time as its "base" or "prime" rate;
[ XX ] the "Bank" as its National Money Market Rate
If this [ ] is checked, and this Note has a variable rate of interest, the
Note Rate shall never be less than _____%
[ ] Interest shall be payable at maturity.
[ X ] Interest shall be payable Monthly commencing June 15, 1995 and
also on demand.
If interest hereon is not paid when due, or if any other indebtedness
of the undersigned to the Bank is not paid when due, or if a garnishment
summons or a writ of attachment is issued against or served upon the Bank for
the attachment of any property of the undersigned in the Bank's possession or
any indebtedness owing to the undersigned, or if the holder hereof shall at any
time in good faith believe that the prospect of due and punctual payment of
this Note is impaired, then, in any such event, the holder hereof may, at its
option, declare this Note to be immediately due and payable and thereupon this
Note shall be immediately due and payable, together with all unpaid interest
accrued hereon, without notice or demand; provided, however, that if this Note
is payable on demand, nothing herein contained shall preclude or limit the
holder hereof from demanding payment of this Note at any time and for any
reason, without notice. If this Note is not paid when due (whether at maturity
or upon acceleration or demand), the Bank shall also have the right to set off
the indebtedness evidenced by this Note against any indebtedness of Bank to the
undersigned. This Note shall also become automatically due and payable
(including unpaid interest accrued thereon) without notice or demand should the
undersigned die (an individual) or should a petition be filed by or against the
undersigned under the United States Bankruptcy Code.
Unless prohibited by law, the undersigned agree(s) to pay all costs of
collection, including reasonable attorneys' fees and legal expenses, incurred
by the holder hereof in the event this Note is not duly paid. The holder
hereof may at any time renew this Note or extend its maturity date for any
period and release any security for, or any party to, this Note, all without
notice to or consent of and without releasing any accommodation maker, endorser
or guarantor from liability on this Note. Presentment or other demand for
payment, notice of dishonor and protest are hereby waived by the undersigned
and each endorser and guarantor. The undersigned agree(s) that each provision
whose box is checked is part of this Note. This Note shall be governed by the
substantive laws of the State named as part of the Bank's address above.
[ X ] This note is secured. [ X ] This Note evidences
[ ] This note is unsecured. indebtedness under a
revolving credit facility.
Purpose of loan
General Business Purposes TRANSCRYPT INTERNATIONAL, LTD.: Debtor
By: Transcrypt International, Inc.,
General Partner
Address Signature
4800 NW 1st Street X JOHN T. CONNOR
John T. Connor, Chairman
City State and Zip Signature
Lincoln, NE 68521
<PAGE> 31
AMENDMENT TO OPERATING NOTE
Effective Date: April 9, 1996 Note Number: 78452
The "Operating Note" dated June 1, 1995 in the face amount of One
Million One Hundred Thousand and no/100 Dollars ($1,100,000.00) by and between
TRANSCRYPT INTERNATIONAL, LTD., ("Borrower"), and NORWEST BANK NEBRASKA,
NATIONAL ASSOCIATION ("Bank"), is hereby modified as follows as agreed by the
Borrower:
1. By an increase in the principal amount from One Million One
Hundred Thousand and no/100 Dollars ($1,100,000.00) to Two
Million Dollars ($2,000,000.00).
Except as modified above, the "Operating Note" is in all respects
ratified and confirmed by the Borrower. The Borrower also agrees that the
"Operating Note has no principal outstanding as of April 9, 1996.
TRANSCRYPT INTERNATIONAL, LTD.
By: Transcrypt International, Inc.
Its: General Partner
By: John T. Connor
------------------------------------
John T. connor
Its: Chairman and CEO
-----------------------------------
NORWEST BANK NEBRASKA, NATIONAL
ASSOCIATION
By: Bill Weber
-----------------------------------
Bill Weber
Its: Vice President
-----------------------------------
<PAGE> 1
EXHIBIT 10.18
FIRST AMENDMENT TO
AMENDED AND RESTATED LOAN AGREEMENT
This First Amendment to Amended and Restated Loan Agreement
("Amendment") is made and entered into as of this 1st day of June, 1995, by and
between TRANSCRYPT INTERNATIONAL, LTD., a Nebraska Limited Partnership, which
has its principal place of business in Lincoln, Nebraska ("Borrower") and
NORWEST BANK NEBRASKA, NATIONAL ASSOCIATION, a National banking association,
organized and existing under the laws of the United States of America, and
which has its principal place of business in Omaha, Nebraska ("Bank').
RECITALS:
A. Borrower and Bank entered into an Amended and Restated Loan Agreement
dated as of May 18, 1994 (the "Loan Agreement").
B. Subject to the terms and conditions of the Loan Agreement, Bank agreed
to make one or more advances to Borrower not to exceed the aggregate
principal sum of $1,100,000.00 (the "Operating Loan"), which was
evidenced by a Commercial Note dated May 18, 1994, in the principal
sum of $1,100,000.00, having a maturity date of April 1, 1995 (the
"Previous Operating Note").
C. Bank and Borrower have agreed to extend the Operating Loan for a term
from June 1, 1995, through May 1, 1996. Borrower has executed and
delivered to Bank a new Commercial Note in the principal sum of
$1,100,000.00, a copy of which is attached to this Amendment as
Exhibit "A" and incorporated by this reference (the New Operating
Note").
D. Bank and Borrower have agreed to certain other amendments and
modifications to the Loan Agreement.
E Bank and Borrower desire to amend the Loan Agreement to reflect the
New Operating Note and their agreement to certain other amendments and
modifications to the Loan Agreement.
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
terms, and conditions set forth in this Amendment, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Bank and Borrower agree to the following:
1. Paragraph 1.2(I) of the Loan Agreement is hereby amended in
its entirety to read as follows:
"Current Assets," "Current Liabilities," and "Total Liabilities" shall
be as disclosed on the financial statements of Borrower in accordance
with the generally accepted accounting principles, except that
"Current Assets" shall not include the balance in
<PAGE> 2
the SBU Development Fund as stated on the balance sheet on the last
business day of each calendar month.
2. Paragraph 1.2(m) of the Loan Agreement is hereby amended in
its entirety to read as follows:
"Fixed Charge Coverage" means the sum of net income, before the
separate business unit (SBU), plus depreciation and amortization plus
non-cash charges divided by the sum of principal payments plus
dividends, based on a rolling twelve-month period, measured quarterly.
3. Paragraph 1.2(z) of the Loan Agreement is hereby amended in
its entirety to read as follows:
"Tangible Net Worth" means the total of all assets of Borrower after
deducting: (i) the balance in the SBU Development Fund or stated on
the balance sheet on the last business day of each calendar month;
(ii) allocation (reserves) for depreciation, amortization, and bad
debts; (iii) Total Liabilities; (iv) total Intangible Assets; and (v)
total loans to officers.
4. Paragraph 2.2 of the Loan Agreement is hereby amended in its
entirety to read as follows:
Operating Note. The Advances by Bank are evidenced by a promissory
note of Borrower dated June 1, 1995 (the "Operating Note"). The
Operating Note shall be due on May 1, 1996, or upon an Event of
Default, whichever occurs first. Notwithstanding the provisions of
the following paragraphs, all Advances by Bank shall be made at the
reasonable discretion of Bank.
5. Paragraph 2.5 of the Loan Agreement is hereby amended in its
entirety to read as follows:
Payment of Principal and Interest on Operating Note. Interest as
accrued shall be payable on the total of Advances made under the
Operating Note on the fifteenth day of each calendar month during the
term of the Operating Note, commencing on June 15, 1995. The entire
unpaid principal and interest balance under the Operating Note shall
be paid upon any Event of Default, and if no Event of Default occurs,
shall be paid at maturity on May 1, 1996.
6. Paragraph 6.7 of the Loan Agreement is hereby amended in its
entirety to read as follows: Financial Ratios. Borrower shall at all times
maintain the following financial ratios:
(a) A minimum ratio of Current Assets to Current Liabilities of
2.0 to 1.0;
-2-
<PAGE> 3
(b) A minimum quick ratio (current assets less inventory divided
by current liabilities) of 1.3 to 1.0; and
(c) A maximum debt to stockholder equity of 1.25 to 1.0 until
Borrower's facility at 1620 North 20th Street is sold and 1.0
to 1.0 thereafter.
7. Paragraph 6.8 of the Loan Agreement is hereby amended in its
entirety to read as follows:
Minimum Tangible Net Worth. Borrower shall maintain minimum Tangible
Net Worth of $850,000.00 from December 31, 1993, to December 31, 1994;
$1,850,000.00 from December 31, 1994, to December 31, 1995; and
$2,850,000.00 from and after December 31, 1995.
8. Paragraph 6.9 of the Loan Agreement is hereby amended in its
entirety to read as follows:
Capital Expenditures. Annual capital expenditures of Borrower and
leases of personal property by Borrower as lessee shall not exceed
$2,000,000.00 for fiscal year of Borrower ending December 31, 1994,
and $1,300,000.00 for fiscal year of Borrower ending December 31,
1995, and thereafter.
9. The definitions and other defined terms set forth in the Loan
Agreement shall apply to the terms of this Amendment and are incorporated by
reference, except as may be modified by this Amendment.
10. Except as modified and amended by this Amendment, all other
terms and conditions of the Loan Agreement and the Loan Documents shall remain
in full force and effect and are hereby ratified and confirmed.
Dated as of the date set forth at the beginning of this Amendment.
NORWEST BANK NEBRASKA, TRANSCRYPT INTERNATIONAL, LTD.
NATIONAL ASSOCIATION
By:_____________________________ By: Transcrypt International, Inc.
Its:_____________________________ Its: General Partner
By:________________________________
Its:_______________________________
-3-
<PAGE> 1
EXHIBIT 10.19
SECOND AMENDMENT TO
AMENDED AND RESTATED LOAN AGREEMENT
This Second Amendment to Amended and Restated Loan Agreement ("Second
Amendment") is made and entered into this 10th day of April, 1996, by and
between TRANSCRYPT INTERNATIONAL, LTD., a Nebraska Limited Partnership, which
has its principal place of business in Lincoln, Nebraska ("Borrower") and
NORWEST BANK NEBRASKA, NATIONAL ASSOCIATION, a national banking association,
organized and existing under the laws of the United States of America, and
which has its principal place of business in Lincoln, Nebraska ("Bank").
RECITALS:
A. Borrower and the Bank have previously entered into a Loan Agreement
dated February 5, 1993 (the "Prior Loan Agreement"), an Amended and
Restated Loan Agreement dated May 18, 1994 (the "Restated Loan
Agreement") and a First Amendment to Amended and Restated Loan
Agreement dated June 1, 1995 ("First Amendment") which mutually
describe the terms and conditions of certain loans made by Bank to
Borrower and hereafter is referred to collectively as the "Agreement";
B. Subject to the terms and conditions of the Agreement, Bank agreed to
make one or more advances to Borrower not to exceed the aggregate
principal sum of One Million One Hundred Thousand Dollars
($1,100,000.00), (the "Operating Loan"), which was evidenced by a
Commercial Note dated June 1, 1995, in the principal sum of One
Million One Hundred Thousand Dollars ($1,100,000.00), having a
maturity date of May 1, 1996 (the "Operating Note").
C. Borrower and Bank have agreed to amend the Operating Loan and increase
the principal sum from One Million One Hundred Thousand Dollars
($1,100,000.00) to the principal sum of Two Million Dollars
($2,000,000.00). Borrower has executed and delivered to Bank an
Amendment to Operating Note in the principal sum of Two Million
Dollars ($2,000,000.00), a copy of which is attached to this Second
Amendment as Exhibit "A" and incorporated by this reference
("Amendment to Operating Note").
D. Borrower and the Bank desire to further amend the terms of the
Agreement to, among other things, modify the terms of the Affirmative
Covenants (as defined in the Agreement).
NOW, THEREFORE, in consideration of the foregoing and mutual covenants
and agreements, terms and conditions hereinafter set forth, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Borrower and Bank agree as follows:
<PAGE> 2
1. Amendment of Section 1.2 (t) "Operating Note". Section 1.2
(t) "Operating Note" shall be deleted in its entirety and the following shall
be inserted in its stead:
(t) "Operating Note" means the promissory note hereafter made by
Bank to Borrower in the maximum principal amount of Two
Million Dollars ($2,000,000.00) and dated June 1, 1995, which
matures May 1, 1996.
2. Amendment of Section 2.1 "Operating Loan". Section 2.1 "Operating
Loan" shall be deleted in its entirety and the following shall be inserted in
its stead:
2.1 Operating Loan. Bank agrees, on the terms and subject to the
conditions set forth in this Agreement and the Loan Documents, and subject to
Bank's continued satisfaction with the financial affairs of Borrower, to make
one or more Advances to Borrower from time to time, not to exceed in the
aggregate amount outstanding at any time the principal sum of Two Million
Dollars ($2,000,000.00). This Operating Loan shall be a revolving facility, and
it is contemplated that Borrower will request advances, make prepayments, and
request additional advances hereunder.
3. Amendment of Section 2.2 "Operating Note". Section 2.2 "Operating
Note" shall be deleted in its entirety and the following shall be inserted in
its stead:
2.2 Operating Note. The Advances by Bank are evidenced by a
promissory note of Borrower dated June 1, 1995 (the "Operating Note"). The
Operating Note shall be due on May 1, 1996, or upon an Event of Default,
whichever occurs first. Notwithstanding the provisions of the following
paragraph, all Advances by Bank shall be made at the reasonable discretion of
Bank.
4. Amendment of Section 2.3 "Restrictions on Advances". Section 2.3
"Restrictions on Advances" shall be deleted in its entirety and the following
shall be inserted in its stead:
2.3 Restrictions on Advances. All Advances are subject to a
borrowing base defined as the lesser of:
(1) Two Million Dollars ($2,000,000.00), or
(2) Eighty-five percent (85%) of Qualified Accounts
arising from or associated with operations at
Borrower's plant in Lincoln, Nebraska plus fifty
percent (50%) of Qualified Inventory located at
Borrower's plant in Lincoln, Nebraska.
Each request for an Advance shall be deemed to be a representation by
Borrower that the statements set forth in Section 4.2 hereof are correct. The
names of the persons authorized to request Advances on behalf of Borrower shall
be provided to Bank from time to time in writing and certified by the Secretary
or Assistant Secretary of General Partner in such form as may be required by
Bank.
<PAGE> 3
5. Amendment of Section 6.7 "Financial Ratios". Section 6.7 "Financial
Ratios" shall be deleted in its entirety and the following shall be inserted in
its stead:
(a) A minimum ratio of Current Assets to Current Liabilities of
1.50 to 1.00;
(b) A minimum quick ratio (current assets less inventory divided
by current liabilities) of 1.00 to 1.00; and
(c) A maximum debt to stockholder equity of 1.50 to 1.00.
6. Amendment of Section 6.8 "Minimum Tangible Net Worth". Section 6.8
"Minimum Tangible Net Worth" shall be deleted in its entirety and the following
shall be inserted in its stead:
6.8 Minimum Tangible Net Worth. Borrower shall maintain minimum
Tangible Net Worth of Two Million Five Hundred Thousand Dollars
($2,500,000.00).
7. Amendment of Section 6.9 "Capital Expenditures". Section 6.9 "Capital
Expenditures" shall be deleted in its entirety and the following shall be
inserted in its stead:
6.9 Capital Expenditures. Annual capital expenditures of Borrower
and leases of personal property by Borrower as lessee shall not exceed Two
Million Seven Hundred Fifty Thousand Dollars ($2,750,000.00) for the fiscal
year ended December 31, 1995.
8. Amendment of Section 6.10 "Minimum Fixed Charge Coverage". Section
6.10 "Minimum Fixed Charge Coverage" shall be deleted in its entirety.
9. The definitions and other defined terms set forth in the Agreement
shall apply to the terms of this Second Amendment and are incorporated by
reference, except as may be modified by this Second Amendment.
10. Except as modified and amended by the Second Amendment, all other
terms and conditions of the Agreement and the Loan Documents shall remain in
full force and effect and are hereby ratified and confirmed.
<PAGE> 4
Dated as of the date set forth at the beginning of this Second Amendment.
TRANSCRYPT INTERNATIONAL, LTD.
By: Transcrypt International, Inc.
Its: General Partner
By: John T. Connor
------------------------------------
John T. Connor
Its: Chairman and CEO
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NORWEST BANK NEBRASKA, NATIONAL
ASSOCIATION
By: Bill Weber
-----------------------------------
Bill Weber
Its: Vice President
-----------------------------------
<PAGE> 1
EXHIBIT 10.20
PROMISSORY NOTE
WEST GATE BANK MAKERS Transcrypt International, LTD., BY
1204 West "O" Street Transcrypt International, Inc., Its
Lincoln, Nebraska 68528 General Partner
Principal Amount $500,000.00
First Payment Due Date June 11, 1995 Loan No. 3698
Final Payment Due Date May 11, 2000 Date May 11, 1995
FOR VALUE RECEIVED, the undersigned, jointly and severally, promise to
pay to the order of West Gate Bank, its successors and assigns, of Lincoln,
Nebraska, at its offices in said city, the principal sum of Five Hundred
Thousand & no/100's Dollars ($**500,000.00**); said principal and charges are
payable in Fifty Nine (59) installments of $10,505.63 EST each and One
installment of $10,505.08 EST each, with the first payment due on the 11th day
of June, 1995, and continuing on the same day monthly thereafter to and
including the above-described due date, at which time the entire unpaid
principal and interest then remaining due shall be payable. Every payment shall
be applied first to interest computed in full to the date payment is actually
received and the remainder to principal. Payment may be made in advance in any
amount. The amount due per payment may be adjusted periodically if the agreed
rate of interest is variable (see below).
The rate of interest on this obligation is as follows:
[ ] The agreed rate of interest on unpaid principal balance until paid
is ________________per annum.
[XX] the agreed rate of interest is at a variable rate which, at the
beginning of this note is 9-1/2 percent (Nine & 1/2%) per annum, and shall be
adjusted Daily from the date this note is executed to reflect a rate of 1/2%
Above The National Prime Lending Rate.
The payment of this note is secured by a Security Agreement dated May
11, 1995, given to West Gate Bank as trustee, on the following described: S/A's.
Inventory & Equipment & Miscellaneous Items Listed
Upon the failure to pay any installment promptly as herein agreed, this
note shall, at the option of the holder and without notice or demand, become
immediately due and payable. The holder may also declare this note immediately
due and payable without demand or notice on the death of any of the debtors, or
the insolvency or bankruptcy of any of the debtors, or if a writ or order of
attachment or garnishment, or tax lien may be issued or made against any of the
property of the debtor. In the event that this note becomes immediately due and
payable as herein provided, the balance due, less unearned finance charges,
shall draw interest at rate set forth above until paid. Failure to exercise the
right of acceleration or any other right, shall not constitute a waiver of the
right to exercise such option in the event of any subsequent default.
The makers, endorsers and sureties of this note hereby waive demand,
presentment for payment, and notice of non-payment, and consent that the holder
hereof shall have the right to deal in any lawful way at any time with any party
hereto, including sureties and endorsers, including the granting of one or more
extensions of time of payment, and the release of any security in any manner,
without effecting the personal liability of any party hereto; and all makers,
endorsers, and sureties hereby stipulate and agree that this note is executed
with reference to, and upon the credit of their separate estates.
I also give you as security the right of set off against any deposit
balances I might have in any account which is in your possession.
The undersigned makers hereof and all persons obligated on this loan as
hereinbefore set forth, hereby acknowledge receipt of a statement in writing in
connection with this loan, as required by law.
Transcrypt International, LTD, By
Transcrypt International, Inc., Its
General Partner 4800 NW 1st Street
- ----------------------------------- -----------------------------------------
Address
/s/ JOHN T. CONNOR Lincoln, Ne. 68521-9918
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John T. Connor, Chairman & CEO Address
- ----------------------------------- -----------------------------------------
Address
-----------------------------------------
Purpose: Purchase of Equipment
<PAGE> 1
EXHIBIT 10.21
NONCOMPETE AGREEMENT
TRANSCRYPT ACQUISITION, LTD., a Nebraska limited partnership, (the
"Company") and JOHN KUIJVENHOVEN ("Kuijvenhoven") agree as follows:
1. In consideration of the fees specified in Paragraph 2 and the
purchase of assets from Kuijvenhoven, Kuijvenhoven hereby agrees to the
following terms and conditions:
Kuijvenhoven expressly covenants and agrees that at no time during a
period beginning on the date of the execution of this Noncompete Agreement and
extending through the fifth anniversary hereof will he for himself or on behalf
of any other person, partnership, firm, association or corporation in any
territory in which Company is actively engaged in business (1) open or operate
a business which is in competition with the Company, (2) act as an employee,
agent, advisor or consultant of any then existing competitor of the Company,
(3) solicit or accept business from any of the Company's competitors, unless
authorized by the Company, in advance and in writing, (4) take any action to or
do anything reasonably intended to divert business from the Company or
influence or attempt to influence any existing customers of the Company to
cease doing business with Company or to alter its then existing business
relationship with the Company or (5) take any action or do anything reasonably
intended to influence any existing suppliers of the Company to cease doing
business with the Company or to alter its then existing business relationship
with the Company. Kuijvenhoven further covenants and agrees that he will not
for himself or on behalf of any other person, partnership, firm, association
or corporation in any territory served by the Company, directly or indirectly
solicit or accept business from any of the Company's existing customers for the
purchase or sale of products or services of a like kind to those sold or
provided by the Company.
2. For and in exchange for Kuijenhoven's agreement not to compete as
set forth herein, the Company shall pay Kuijvenhoven an amount of $1,020,000,
20% of such fee ($204,000) shall be due and paid on the first anniversary of the
execution of this Agreement. The remainder ($816,000) shall be paid in 48 equal
consecutive monthly installments commencing on the first day of the month next
following the first anniversary of the execution of this Agreement and
<PAGE> 2
continuing thereafter on the first day of each and every succeeding month
thereafter until paid in full. The payment of such fees shall be secured as
provided in the Security and Pledge Agreement between the parties of even date
herewith.
3. By signing this agreement, Kuijvenhoven expressly acknowledges
that the territorial limitations, duration and scope of this agreement are fair
and reasonable.
4. Kuijvenhoven further agrees that the Company shall be entitled
to maintain proceedings in any court of competent jurisdiction, either at law
or in equity, for any breach of this agreement by Kuijvenhoven to enforce the
specific performance of this agreement and/or to obtain damages for any breach
thereof, and without regard to any or all remedies sought by the Company, the
Company shall be entitled to recover reasonable attorneys' fees incurred in
enforcing this agreement.
5. In the event of the death of Kuijvenhoven all amounts payable
shall be payable to Kuijvenhoven's personal representative.
6. The covenants contained shall be subject to the following
exceptions:
a. They shall not apply to any action taken or omitted by
Kuijvenhoven on behalf of the Company which are within the scope of his
Consulting Agreement, any action taken or omitted by Kuijvenhoven in his
capacity as an officer, director or shareholder of Transcrypt
Acquisition Corporation or as a limited partner of the Company or as an
officer, director or shareholder of any of its or their affiliates, or
with respect to any action taken or omitted to enforce his rights under
this Agreement under the Purchase Agreement or under the Security and
Pledge Agreement.
b. They shall not apply to any activities which are
normally and customarily incident to the ownership of stock or
securities of a publicly held company or of an interest in any blind
trust, investment pool or fund or any estate or trust of which
Kuijvenhoven is not the grantor or in any similar vehicle under which
Kuijvenhoven does not have investment control.
<PAGE> 3
c. they shall not apply to any act or omission of Kuijvenhoven
or any inadvertant or unintended act of Kuijvenhoven which does not
materially effect Company's Business or which Kuijvenhoven shall, in
any event, cease immediately upon written notice from the Company.
d. they shall not apply to any act or omission or to the
conduct of any business or commercial enterprise to which Company
consents in advance and in writing provided the Company shall promptly
respond to all such requests and shall not unreasonably withhold its
consent.
7. This agreement supersedes any prior agreement between the
Kuivjenhoven and the Company pertaining to the subject hereof. In the event
that any portion of this agreement is declared invalid or illegal by final
judgment of any court of competent jurisdiction, the remainder of this
agreement shall remain in full force and effect, notwithstanding the invalidity
or illegality of the other portion.
8. This agreement shall be governed by the laws of the State of
Nebraska.
9. This agreement may be executed in duplicate counterparts, each of
which shall be deemed to be an original, and all of which shall constitute one
in the same agreement.
10. Anything herein to the contrary notwithstanding the entire remaining
balance due hereunder, reduced to present value using an interest rate of 10%,
shall become immediately due and payable to Kiujvenhoven in the event the
Company shall become insolvent, effect an assignment of any of its assets to or
for the benefit of creditors, upon the commencement of any proceedings under
any bankruptcy or insolvency act by or against Company or in the further event
the Company shall sell, transfer or assign all or substantially all of the
Company's assets, or shall effect whether merger, consolidation, sale by public
or private offering or otherwise, a change in control which has the effect of
transferring 30% or more of the voting common stock and/or partnership interest
of Company or of Transcrypt Acquisition Corporation, or its or their successors
to persons, firms, or entities who were not holders of such securities
immediately prior to the date on which such merger, consolidation, sale or
other action was effective.
11. Notwithstanding the fact that a court of competent jurisdiction may
declare all or any part of this Agreement to be void, voidable, or otherwise
unenforceable, such fact shall not relieve or otherwise execute payment of the
amounts
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<PAGE> 4
otherwise payable hereunder to Kuijvenhoven provided Kuijvenhoven continues to
perform his obligations hereunder and in such event Company shall continue to
make all payments to Kuijvenhoven as provided for herein as the sums become due
and payable despite such judgment or order.
IN WITNESS WHEREOF, the parties have caused this agreement to be
executed as of the 3rd day of December, 1991.
TRANSCRYPT ACQUISITION, LTD.
By Transcrypt Acquisition Corporation,
its general partner
By /s/ John T. Connor
------------------------------------------
Printed Name John T. Connor
--------------------------------
Its Chairman
-----------------------------------------
/s/ John Kuijvenhoven
---------------------------------------------
John Kuijvenhoven
<PAGE> 1
EXHIBIT 10.22
SECURITY AND PLEDGE AGREEMENT
THIS SECURITY AGREEMENT is made and entered into this 3rd day of
December, 1991, and between Transcrypt Acquisition Corporation, a Nebraska
corporation for itself ("TAC") and as General Partner of Transcrypt
Acquisition, Ltd., a Nebraska Limited Partnership ("TAC, Ltd.") ("Debtor"), and
Transcrypt International, Inc., a Nebraska corporation ("Corporation"), John
Kuijvenhoven and Yvonne Kuijvenhoven, individuals ("Principals"). The
Corporation and Principals are referred to collectively as "Secured Party."
WITNESSETH:
WHEREAS, Debtor is the owner of that real property in Lincoln,
Lancaster County, Nebraska, more particularly described on Exhibit "A",
attached hereto and incorporated herein by this reference ("Property"); and
WHEREAS, Debtor and Principals entered into a Real Estate Exchange
Agreement dated December 3rd, 1991 and Debtor and Principals have executed and
delivered Noncompete Agreements of even date herewith (all such agreements
incorporated by reference herein and referred to herein as "Agreements"); and
WHEREAS, Debtor has executed and delivered to Secured Party the
Promissory Note ("Note") of even date herewith for the principal sum of Seven
Hundred Thousand Dollars ($700,000.00), secured by a Deed of Trust, Assignment
of Rents and Security Agreement of even date herewith ("Deed of Trust") which
Debtor has executed and delivered to Secured Party covering all right, title,
and interest of Debtor in and to the Property and the improvements now or
hereafter erected thereon, together with all easements, rights and appurtenants
thereto, the terms and conditions of the Note and Deed of Trust are
incorporated herein by this reference; and
WHEREAS, Secured Party has required, as additional security for
repayment of the Note and the full and timely performance of all of Debtor's
obligations under the Agreements, a lien upon all primary collateral ("Primary
Collateral") as hereinafter defined, now owned or hereafter acquired by Debtor,
subject to no prior lien or encumbrance and a second lien upon all other
collateral ("Other Collateral") as hereinafter defined, now owned or hereafter
acquired by Debtor (Primary and Other Collateral referred to collectively as
"Collateral"), and Debtor desires to grant to Secured Party such liens upon the
Primary and Other Collateral as additional security for the Note and Debtor's
obligations under the Agreement; and
WHEREAS, Debtor purchased the Property and the Collateral from Secured
Party so the security interest created hereunder is a purchase money security
interest.
NOW, THEREFORE, in consideration of the Agreements and the Note and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, Debtor, for itself, its successors and assigns, has
bargained and sold, and by these presents does grant, bargain, sell and convey
unto Secured Party a security interest in the Primary and Other Collateral and
the proceeds thereof described in Exhibit "B", attached hereto and incorporated
herein by this reference.
This Security Agreement is made for the purpose of securing:
1. The payment of the indebtedness evidenced by the Note;
<PAGE> 2
2. The payment of all other sums and interests thereon
becoming due and payable to Secured Party under the provisions hereof
or under the provisions of the Note, Deed of Trust and the Agreements;
3. The performance and discharge of each and every
obligation, covenant and agreement of the Debtor herein, in said Note,
Deed of Trust, Agreements, and in any other security agreement executed
by the Debtor evidencing or securing the Note, or any agreement
incorporated by reference in any of them;
4. The repayment of all sums or amounts that are advanced
or extended by Secured Party, its successors and assigns, for the
maintenance or preservation of the Collateral, or any part thereof;
5. The payment of all amounts due under all extensions or
renewals, and successive extensions or renewals, of the Note or the
indebtedness represented thereby or under the Agreements, or of any
other or further indebtedness at any time owing by Debtor to Secured
Party, however the same may be advanced, and in whatever form it may
be, whether represented by notes, drafts, open accounts or otherwise,
and all interest thereon, for payment of which this Agreement shall
stand as continuing security until full and complete payment shall have
been made.
Debtor declares and warrants to Secured Party that TAC is a duly
organized and validly existing corporation under the laws of the State of
Nebraska, TAC, Ltd. is a duly organized and validly existing partnership under
the laws of the State of Nebraska, and that the execution, delivery and
performance hereof are within Debtor's corporate, partnership or individual
powers, have been duly authorized, are not on contravention of law or the terms
of Debtor's articles, bylaws, or other indenture papers or of any indenture,
agreement or undertaking to which Debtor is a party, or by which it is bound.
Further Debtor declares and warrants that it is the absolute owner and in
possession of all the Collateral, and that said Primary Collateral is free and
clear of all prior liens, encumbrances, security interests, and adverse claims,
and Debtor shall and will warrant and defend the title to said Primary
Collateral against the claims of all persons whomsoever. Without the written
consent of Secured Party, Debtor will not permit any other lien, encumbrance,
security interest or adverse claim to attach to the Collateral, except as may be
attached to the Other Collateral on the date hereof. Debtor warrants and
represents that the Collateral will be used primarily for business purposes.
Debtor further warrants that no financing statement covering the Primary
Collateral is on file in any public office, and, at the request of Secured
Party, Debtor will join Secured Party in executing one or more financing
statements pursuant to the Nebraska Uniform Commercial Code, in form
satisfactory to Secured Party, and Debtor will pay the cost of filing in all
public offices wherever filing is deemed necessary be Secured Party. Debtor will
not permit any tangible Collateral to be located in any state (and, if county
filing is required, in any county) in which a financing statement covering such
Collateral is required to be, but has not in fact been, filed in order to
perfect the Security Interest.
Concurrently with the execution hereof, or at such times as Secured
Party shall require, Debtor agrees to deliver to Secured Party or a designated
Escrow Agent any of the Primary Collateral identified by Secured Party which
must be possessed by the Secured Party in order to perfect the security
interest granted hereby. Additionally, Debtor agrees to execute and file with
the appropriate state or federal agencies any and all further instruments,
documents, collateral assignments and agreements reasonably requested by
Secured Party and necessary to perfect Secured Party's interest granted hereby.
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Debtor promises and agrees: To pay the principal sum of the Note and to
pay and perform the obligations under any of the Agreements, together with the
interest thereon, at the time and in the manner therein provided, and to pay
when due all sums secured hereby and to perform each and every covenant,
condition and provision contained in this agreement or in the Note and in the
Agreements each of which or incorporated herein by reference; to properly care
for and keep the Collateral in good condition, order and repair and insure
against loss and damage by fire and such other casualties as may be designated
by Secured Party, by insurers and in amounts approved by Secured Party, and
will assign the policies and certificates thereof to Secured Party, and, in
default thereof, it shall be lawful for Secured Party to effect such insurance
and the premiums paid for effecting the same, and all amounts incurred or
expended by Secured Party in that regard shall be a lien upon the Collateral
and added to the amount of the obligation secured by these presents, and
payable upon demand, with interest at the rate provided for in the Note;
(Debtor hereby assigns to Secured Party all proceeds of any insurance not
exceeding the unpaid balance hereunder and directs any insurer to pay all
proceeds directly to Secured Party and authorizes Secured Party to endorse any
draft of the proceeds); to pay all taxes, liens or assessments of whatever kind
or description that may be levied against the Collateral, or any part thereof,
before the same shall by law become delinquent; to comply with and use said
property in strict conformity with all laws, ordinances, regulations and
statutes applicable thereto.
Unless and until all amounts due and owing Secured Parties under the
Note, Deed of Trust and Agreements, including any other agreements incorporated
by reference in any of them are paid in full and this Security and Pledge
Agreement is terminated and, except as to action which the Principals shall
otherwise consent to, in advance and in writing, Debtor agrees that it will do
all of the following:
1. maintain the corporate existence of TAC and partnership
existence of TAC, Ltd. as separate operating entities and not
dissolve or merge TAC and/or TAC, Ltd. with or into any other entity
such that TAC and/or TAC, Ltd. cease separate legal existence;
2. not sell or assign, transfer, hypothecate, pledge or
otherwise cancel, novate or encumber any tangible or intangible assets,
including but not limited to the Primary Collateral and Other
Collateral, whether real or personal, of TAC or TAC, Ltd. during the
term hereof, except only such assets (a) which are replaced with other
assets of comparable value and used for comparable purposes; (b) which
have ceased to be used for Debtor's business and are sold for
consideration not significantly less than fair market value, if any; (c)
which are sold in the ordinary course of business for consideration not
significantly less than their fair market value; (d) which have become
obsolete or are inoperative or require repairs which, in Debtor's
judgment, will not be cost effective; or (e) which are hypothecated,
pledged or encumbered for purchase money debt incurred in the purchase
of new or additional assets or facilities and during the term hereof to,
in addition, specifically maintain and preserve the rights to technology
and royalties established under the Agreements between John Kuijvenhoven
and Corporation dated October 31, 1984, which Agreements are being
purchased by Debtor in a form in which the same can be validly
reassigned to and exercised in full by Principals, as their interest may
appear in the event of default hereunder;
3. perform all of its material contracts and commitments
substantially in accord with their terms and to pay all material
obligations, for the payment of money, within 60 days after the date
they are due unless such performance or the
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<PAGE> 4
obligation to pay any such amount is disputed in good faith; and to
promptly pay and discharge all taxes and liens before the same become
delinquent unless the obligation to pay any such amount is disputed in
good faith, and to pay or satisfy all judgments promptly when the same
become final and not permit the same to proceed to execution;
4. pay and discharge all taxes, liens or assessments of
whatever kind or description and governmental charges or levies imposed
upon Debtor with respect to the Collateral prior to the date on which
penalties attach thereto, and all lawful claims which, if unpaid, might
become a lien or charge upon any of the Collateral; provided, however,
that Debtor shall not be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by
proper proceedings so long as adequate reserves have been established
therefor;
5. provide copies of all financial statements and reports
which Debtor provides to any bank or financial institution in connection
with any loan agreement governing any financing arrangements for TAC or
TAC, Ltd. existing on or after the date hereof, including monthly
financial statements and sales forecasts.
Except for removal and storage of software and intangibles for backup
at locations disclosed to Secured Party, and retention in escrow as may be
required to perfect Secured Party's security interest therein, Debtor shall not
have the right, power or authority to and will not sell or otherwise dispose of
or remove from the location described above any of the Collateral without the
prior written consent of Secured Party; any such removal, without such consent,
to be construed as a breach hereof, the same as if a default were made in the
payment of any amount secured hereunder, and the entire amount then unpaid
shall immediately become due and payable. Notwithstanding any provision herein
to the contrary, so long as no Event of Default has occurred and there has not
been a revocation by Secured party of Debtor's right to do so, Debtor may sell
any inventory constituting Collateral to buyers in the ordinary course of
business. If Debtor fails to make any payment or perform any act which it is
obligated to perform under the provisions of this Agreement, Secured Party,
without demand or notice to Debtor or any successor in interest of Debtor, may
make such payment or perform such acts and incur any liability or expend
whatever amounts as it may, in its absolute discretion, deem necessary
therefor, and all sums incurred or expended by Secured Party, or its
successors, under the terms of this Agreement, shall immediately become due and
payable by Debtor to Secured Party, or its successor in interest, when so
incurred or expended and shall bear interest at the rate provided for in the
Note and shall be secured hereby.
The parties recognize that portions of the Collateral may become
inadequate, obsolete, worn out, unsuitable or unnecessary in the operation of
the business operated upon the Property. Debtor shall promptly renew, repair or
replace any inadequate, obsolete, worn out or unsuitable property in which this
security interest is given (subject to the preceding paragraph).
Upon the happening of any of the following events or conditions
("Events of Default"):
1. Subject to grace periods set forth in the Note, Deed of
Trust or the Agreements, if inconsistent herewith, default in the
payment or performance of any of the obligations, or of any covenant or
liability contained in or referred to in the Note, Deed of Trust or the
Agreements or any other agreement incorporated by reference in any of
them secured hereunder or any loan agreement or note with a
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<PAGE> 5
bank or financial institution existing on or after the date hereof;
2. Dissolution, termination of existence, insolvency, business
failure, appointment of a receiver of any part of the property of
Debtor, assignment of any of the Debtor's assets for the benefit of
creditors by, the commencement of any proceedings under any bankruptcy
or insolvency law by or against Debtor; or
3. The transfer or assignment of all or substantially all of
Debtor's assets, or in the event that Debtor shall effect, whether by
merger, consolidation, sale by public or private offering or otherwise,
a change in control which has the effect of transferring 30% or more of
the voting common stock and/or partnership interests of Debtor or its or
their successors to persons, firms or entities who were not holders of
such securities immediately prior to the date on which such merger,
consolidation, sale or other action was effective;
4. A representation or warranty made by Debtor in this Agreement is
materially false or shall become false;
5. A breach by Debtor in the observance or performance of any of
the affirmative covenants as set forth herein, other than nonpayment
under the Note or Agreements, which is not remedied within thirty (30)
days following receipt of written notice thereof from Secured Party to
Debtor, provided that Secured Party may allow such time period, or no
period at all, as the Secured Party may reasonably determine to be
appropriate, in the case of repeated defaults or in the event Debtor is
in default in more than one or its obligations hereunder simultaneously
or in the event such breach occurs under facts and circumstances where
the magnitude of the harm threatened is very great and is reasonably
likely to occur if the 30-day cure period is allowed;
6. Events occur or conditions exist which cause the National Bank
of Commerce or other commercial lender as note holder of a promissory
notice of Debtor to declare a default and to initiate action to secure
or otherwise proceed against the collateral pledged thereunder.
6. Any other default under the terms hereunder;
and the Debtor's failure to cure such Events of Default within five business
(5) days after delivery to Debtor of a written notice from the Secured Party,
Secured Party, its successors or assigns, may exercise any one or more of the
following rights, or any combination of any of the following rights:
1. Without notice or demand and without the necessity of having a
receiver appointed and without regard to the adequacy or inadequacy of
any security for the indebtedness or the solvency or insolvency of the
Debtor, or any guarantor, at any time may take possession of the
Collateral and repair, care for, lease, manage, use or operate the
Collateral and perform any act necessary to collect the rents, issues,
income and profits thereof and apply the proceeds in the manner
specified herein upon sale of the Collateral.
2. Declare all sums secured hereby immediately due and payable and
may exercise any or all of the rights and remedies available to a
secured party under the Uniform Commercial Code as provided in the
statutes of the State of Nebraska, and it may, at its option, enter upon
the premises where said Collateral may be and take such measures as to
Secured Party may be deemed necessary or proper for the care
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<PAGE> 6
or protection thereof and remove and/or dispose of said Collateral at
either public or private sale (the Debtor hereby expressly waiving
demand). Secured Party, its successors or assigns, may become the
purchaser and, from the proceeds of said sale, retain all costs and
charges (including attorneys' fees) incurred in the taking or sale of
said Collateral and in the care and protection thereof, and may apply
the balance toward the payment of all sums due Secured Party and secured
hereby and shall dispose of the surplus remaining as provided by law.
Any requirement of reasonable notice of and disposition of the
Collateral shall be satisfied if such notice is mailed by regular mail
to the address of Debtor shown in this Agreement at least five days
prior to the time of such public or private sale;
3. Be entitled as a matter of right, in addition to the
foregoing, to the appointment of a receiver by a court of competent
jurisdiction to assist it in performing and doing any acts hereinabove
set forth. All expenses of such receiver (including reasonable
attorneys' fees) shall likewise become immediately due and payable by
Debtor to Secured Party, or its successors in interest, shall bear
interest at the rate provided by the Note and shall be secured hereby.
The taking of possession of the Collateral and the receipt of any
income provided for herein shall not cure or waive any default, or notice of
default, or invalidate any act done pursuant to such notice.
Failure on the part of Secured Party to demand the entire payment after
the happening of any default shall not be deemed a waiver by Secured Party of
its rights to make immediate demand for the entire amount remaining unpaid, or
to exercise any right or remedy, or combination thereof, as provided in this
Agreement; and any payments made subsequent to a default, or the acceptance of
partial payment, shall not be deemed a waiver of such rights. The lien of this
Agreement shall continue until payment in full of the amounts secured by this
Agreement have been completed.
This Agreement shall be construed to be a lien against (1) any like or
similar property hereinafter acquired by Debtor, either as additions to or in
the place of the Collateral subject to this Agreement, and whether the
additions or substitutions be made with or without the knowledge or consent of
Secured Party, and (2) the proceeds of such after acquired property.
All remedies allowed Secured Party under the laws of the State of
Nebraska and under the terms of this Agreement are, and shall be, concurrent
and cumulative and may be exercised and enforced as hereinabove and as by law
provided, without reference to the time or manner of foreclosure or enforcement
of any other security for said indebtedness or obligations, whether held by
deed of trust, mortgage, pledge, security agreement or otherwise.
In this Agreement, whenever the context so requires, the masculine
gender includes the feminine and/or neuter and the singular number includes the
plural, and the term "Secured Party" shall include any future holder, including
pledgee, of the Note secured hereby.
The provisions hereof shall bind, and the benefits and advantages shall
inure to the respective successors and assigns of the parties hereto.
Secured Party may, at any time or from time to time, without liability
therefor and without notice, upon request of Debtor and without affecting the
personal liability of any person for the payment of the indebtedness secured
hereby, release any part of the
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collateral or join in any extension agreement or subordination agreement in
connection herewith. Secured Party shall have the right to inspect the
collateral at any time.
Neither this Agreement nor any provisions hereof may be amended,
modified, waived, discharged or terminated orally, nor may any of the
Collateral be released or the pledge of the security interest created hereby
extended, except by an instrument in writing duly signed by or on behalf of the
Debtor and Secured Party.
If any term or provision of this Agreement or the application thereof
to any person or circumstances shall to any extent be invalid or unenforceable,
the remainder of this Agreement for the application of such term or provision
to persons or circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby, and each term and provision of
this Agreement shall be valid and enforced to the fullest extent permitted by
law.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Nebraska.
IN WITNESS WHEREOF, Secured Party and Debtor have caused these presents
to be executed the day and year first above written.
DEBTOR: SECURED PARTY:
TRANSCRYPT ACQUISITION CORPORATION TRANSCRYPT INTERNATIONAL, INC.
By: /s/ John T. Conner By: /s/ John Kuijvenhoven
------------------------------ -----------------------------
Title: Chairman Title: President
--------------------------- --------------------------
TRANSCRYPT ACQUISITION CORPORATION, /s/ John Kuijvenhoven
as General Partner of ---------------------------------
TRANSCRYPT ACQUISITION, LTD.
By: /s/ John T. Conner /s/ Yvonne Kuijvenhoven
------------------------------ ---------------------------------
Yvonne Kuijvenhoven
Title: Chairman
---------------------------
-7-
<PAGE> 8
EXHIBIT "A"
Legal Description
Lots One (1), Two (2), Three (3), and Four (4), Block Three (3), and
Lots Four (4), Five (5), and Six (6), Block Four (4), W.J. Marshall's
Subdivision, Lincoln Lancaster County, Nebraska.
North 20th Street from the North line of Clinton Street to the
Southeast railroad right of way of the OL & B, Lincoln, Lancaster County,
Nebraska.
All that portion of Clinton Street vacated by Ordinance No. 14647
adjacent to Lot One (1), Block Three (3), and Lot Six (6), Block Four (4), W.J.
Marshall's Subdivision, except that portion described as follows:
BEGINNING at the intersection with a south line of vacated Clinton
Street and the east line of 20th Street; thence east along the south line of
vacated Clinton Street, a distance of 28.20 feet to the intersection with a
circular curve; thence northwesterly along the arc of said circular curve
bearing to the left, whose initial tangent deflects 114 degrees 43 minutes 04
seconds left, whose central angle is 37 degrees 59 minutes 17 seconds, whose
radius is 66.0 feet, a distance of 43.76 feet to the intersection with the
north-south extension of the east line of 20th Street; thence south along the
north-south extension of the east line of 20th Street, a distance of 31.98 feet
to the POINT OF BEGINNING.
Parts of Lots 7, 8 and 9, Block 2, W.J. Marshall's Subdivision and the
North One-Half (1/2) vacated Clinton Street, contiguous with south line said
lots, all in the Southwest Quarter (1/4), Section 13, Township 10 North, Range
6 East of the 6th Principal Meridian, Lincoln, Lancaster County, Nebraska,
described as follows:
Beginning at the southwest corner said Lot 7; thence southerly along
west lot line extended southerly a distance of 20.0 feet to the center line
vacated Clinton Street; thence south 89 degrees 00 minutes 00 seconds east
along centerline said street a distance of 110.47 feet to the arc of a curve;
said curve having a radius of 66.0 feet and a central angle of 38 degrees 43
minutes 51 seconds; thence northeasterly along arc said curve a distance of
44.61 feet to a point 0.50 feet south of southeast corner said Lot 9; thence
north 00 decrees 00 minutes 00 seconds east along east line said Lot 9 extended
south and east line said Lot 9, a distance of 135.50 feet to the northeast
corner said Lot 9; thence westerly along north line said Lot 9 a distance of
14.70 feet to the southeasterly right of way line of the Chicago Rock Island
and Pacific Railroad; thence southwesterly along said right of way a distance
of 165.52 feet to a point on the west line said Lot 7; thence southerly along
<PAGE> 9
said west lot line a distance of 37.26 feet to Point of Beginning. Containing
16,141 square feet more or less by computation.
<PAGE> 10
EXHIBIT "B"
Primary Collateral
All Technology Royalties/Rights as described as:
"All technology rights and retained royalty interests owned by
John Kuijvenhoven and transferred to Debtor, including but not
limited to, all know-how, trade secrets, copyrights,
uncopyrighted works, unpatented inventions and all proprietary
information rights and applications in whatever form existent
which derive therefrom, which are connected therewith, which are
now owned or hereinafter acquired or developed by Debtor, and
specifically including all right, title, and interest of John
Kuijvenhoven in and to the Royalty Agreement and the separate
Technology Agreement made and entered into on the 31st day of
October, 1984."
Other Collateral
Grant of Security Interest and Description of Collateral. "Debtor,
whether one or more, for consideration, grants to Secured Party, a security
interest in the following property, whether now owned or hereafter acquired by
Debtor, and any and all additions, accessions, substitutions or replacements
thereto or therefor and in all products and proceeds thereof ("Collateral"):
"Equipment. All equipment, including but not limited to,
tractors, trailers, non-titled vehicles, machinery, computer,
copying and telephone equipment, furniture, supplies, implements
and tools whether or not attached to the property described on
Exhibit "A" attached hereto and incorporated herein, but
excluding other fixtures and leasehold improvements including,
without limitation, all built-in furniture and installations,
shelving, partitions, doorstops, vaults, elevators, dumbwaiters,
window shades and coverings, venetian blinds, light fixtures,
fire hoses and brackets and boxes for the same, fire sprinklers,
alarm systems, drapery rods and brackets, screens, linoleum,
carpets, plumbing, heating units, stoves, ovens, water heaters
and incinerators placed upon or used in any way in connection
with the use, enjoyment and occupancy of or operations conducted
upon or within the real estate and improvements located thereon
described in Exhibit "A".
Inventory. All of Debtor's inventory including all goods,
merchandise, raw materials, goods in process, finished goods and
all other tangible personal property now owned or hereafter
acquired and held for sale or lease or furnished or to be
furnished under contracts of service or used or consumed in
Debtor's business and in contract rights with respect thereto
and proceeds of both (all hereinafter called the "Inventory").
Accounts, Instruments, Documents and Chattel Paper. All
accounts, notes, drafts, chattel paper, instruments, documents,
including documents of title, acceptances and other forms of
obligations and receivables now or hereafter received by or
belonging to Debtor of whatever nature and the proceeds thereof
(including those for goods or merchandise sold or services
rendered by it, all guaranties and securities therefor, all
right, title and interest of Debtor in the
<PAGE> 11
merchandise which gave rise thereto including the right of
stoppage in transit, and all rights of Debtor earned or yet to
be earned under contracts to sell goods or render services).
<PAGE> 1
EXHIBIT 10.23
SECURITY AND PLEDGE AGREEMENT
THIS SECURITY AND PLEDGE AGREEMENT ("Agreement") is made and entered
into this 8th day of August, 1994, between Transcrypt International, Inc., a
Nebraska corporation (f/k/a Transcrypt Acquisition Corporation) for itself
("General Partner") and as General Partner of Transcrypt International, Ltd., a
Nebraska limited partnership (f/k/a Transcrypt Acquisition, Ltd.)
("Partnership") (General Partner and Partnership are referred to collectively
as "Debtor"), and Q E dot, inc., a Nebraska corporation ("Corporation"), John
Kuijvenhoven and Yvone Kuijvenhoven, individuals ("Principals"). The
Corporation and Principals are referred to collectively as "Secured Party."
W I T N E S S E T H:
WHEREAS, Debtor is the owner of the technology more particularly
described on Exhibit "A" attached hereto and incorporated herein by this
reference ("Technology"); and
WHEREAS, Debtor and Principals have executed and delivered Noncompete
Agreements dated December 3, 1991 (the "Noncompete Agreements"); and
WHEREAS, Secured Party has required, as security for the full and
timely performance of all Debtor's obligations under the Noncompete Agreements,
a lien upon the Technology, subject to no prior lien or encumbrance and Debtor
desires to grant to Secured Party such liens upon the Technology as security for
the Debtor's obligations under the Noncompete Agreements; and
NOW, THEREFORE, in consideration of the Noncompete Agreements and for
other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, Debtor, for itself, its successors and assigns, has
bargained and sold, and by these presents does grant, bargain, sell and convey
unto Secured Party a security interest in the Technology and the proceeds
thereof.
This Agreement is made for the purpose of securing:
1. The payment of all other sums payable to Secured Party under
the provisions hereof or under the provisions of the Noncompete
Agreements;
2. The performance and discharge of each and every obligation,
covenant and agreement of the Debtor herein, in the Noncompete
Agreements, and in any other agreement incorporated by reference in any
of them;
<PAGE> 2
3. The repayment of all sums or amounts that are advanced or
extended by Secured Party, its successors and assigns, for the
maintenance or preservation of the Technology, or any part thereof;
4. The payment of all amounts due under all extensions or
renewals, and successive extensions or renewals, of the indebtedness
represented by or under the Noncompete Agreements.
Debtor declares and warrants to Secured Party and General Partner is a
duly organized and validly existing corporation under the laws of the State of
Nebraska, Partnership is a duly organized and validly existing partnership
under the laws of the State of Nebraska, and that the execution, delivery and
performance hereof are within Debtor's corporate, partnership or individual
powers, have been duly authorized, are not in contravention of law or the terms
of Debtor's articles, bylaws, or other indenture papers or of any indenture,
agreement or undertaking to which Debtor is a party, or by which it is bound.
Further Debtor declares and warrants that it is the absolute owner and in
possession of all the Technology, and that said Technology is free and clear of
all prior liens, encumbrances, security interests, and adverse claims, and
Debtor shall and will warrant and defend the title to said Technology against
the claims of all persons whomsoever. Without the written consent of Secured
Party, Debtor will not permit any other lien, encumbrance, security interest or
adverse claim to attach to the Technology. Debtor warrants and represents that
the Technology will be used primarily for business purposes. Debtor further
warrants that no financing statement covering the Technology is on file in any
public office, and, at the request of Secured Party, Debtor will join Secured
Party in executing one or more financing statements pursuant to the Nebraska
Uniform Commercial Code, in form satisfactory to Secured Party, and Debtor will
pay the cost of filing in all public offices wherever filing is deemed
necessary by Secured Party. Debtor will not permit any tangible Technology to
be located in any state (and, if county filing is required, in any county) in
which a financing statement covering such Technology is required to be, but
has not in fact been, filed in order to perfect the Security Interest.
Concurrently with the execution hereof, or at such times as Secured
Party shall require, Debtor agrees to deliver to Secured Party or a designated
Escrow Agent any of the Technology identified by Secured Party which must be
possessed by the Secured Party in order to perfect the security interest
granted hereby. Additionally, Debtor agrees to execute and file with the
appropriate state or federal agencies any and all further instruments,
documents, collateral assignments and agreements reasonably requested by
Secured Party and necessary to perfect Secured Party's interest granted hereby.
Debtor promises and agrees: To pay and perform the obligations under
the Noncompete Agreements at the time and in the manner therein provided, and to
pay when due all sums secured hereby and to perform each and every covenant,
condition and provision contained in this Agreement or in the Noncompete
Agreements each of which are incorporated herein by reference; to properly care
for and keep the Technology in good
2
<PAGE> 3
condition, order and repair and insured against loss and damage by fire and
such other casualties as may be designated by Secured Party, by insurers and in
amounts approved by Secured Party, and will assign the policies and
certificates thereof to Secured Party, and, in default thereof, it shall be
lawful for Secured Party to effect such insurance and the premiums paid for
effective the same, and all amounts incurred or expended by Secured Party in
that regard shall be a lien upon the Technology and added to the amount of the
obligation secured by these presents, and payable upon demand; (Debtor hereby
assigns to Secured Party all proceeds of any insurance not exceeding the unpaid
balance hereunder and directs any insurer to pay all proceed directly to
Secured Party and authorizes Secured Party to endorse any draft of the
proceeds); to pay all taxes, liens or assessments of whatever kind of
description that may be levied against the Technology, or any part thereof,
before the same shall by law become delinquent; to comply with and use said
property in strict conformity with all laws, ordinances, regulations and
statutes applicable thereof.
Unless and until all amounts due and owing Secured Party under the
Noncompete Agreements, including any other agreements incorporated by reference
in any of them are paid in full and this Agreement is terminated and, except as
to action which the Principals shall otherwise consent to, in advance and in
writing, Debtor agrees that it will do all of the following:
1. maintain the corporate existence of General Partner and
partnership existence of Partnership as separate operating entities and
not dissolve or merge General Partner and/or Partnership with or into
any other entity such that General Partner and/or Partnership cease
separate legal existence:
2. not sell or assign, transfer, hypothecate, pledge or
otherwise cancel, novate or encumber any tangible or intangible assets,
including but not limited to the Technology, whether real, personal or
intangible, of General Partner or Partnership during the term hereof,
except only such assets (a) which are replaced with other assets of
comparable value and used for comparable purposes; (b) which have
ceased to be used for Debtor's business and are sold for consideration
not significantly less than fair market value, if any; (c) which are
sold in the ordinary course of business for consideration not
significantly less than their fair market value; (d) which have become
obsolete or are inoperative or require repairs which, in Debtor's
judgment, will not be cost effective; or (e) which are hypothecated,
pledged or encumbered for purchase money debt incurred in the purchase
of new or additional assets or facilities;
3. perform all of its material contracts and commitments
substantially in accord with their terms and to pay all material
obligations, for the payment of money, within 60 days after the date
they are due unless such per performance or the obligation to pay any
such amount is disputed in good faith; and to promptly pay and
discharge all taxes and liens before the same become delinquent unless
the obligation to pay any such amount is disputed in good faith; and to
promptly pay and discharge all taxes and liens before the same become
delinquent unless the obligation to pay any such amount is disputed in
good faith, and to pay or satisfy all judgments promptly when the same
become final and not permit the same to proceeds to execution;
3
<PAGE> 4
4. pay and discharge all taxes, liens or assessments of
whatever kind or description and governmental charges or levies imposed
upon Debtor with respect to the Technology prior to the date on which
penalties attach thereto, and all lawful claims which, if unpaid, might
become a lien or charge upon any of the Technology; provided, however,
that Debtor shall not be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by
proper proceedings so long as adequate reserves have been established
therefor;
5. provide copies of all financial statements and reports
which Debtor provides to any bank or financial institution in connection
with any loan agreement governing any financing arrangements for General
Partner or Partnership existing on or after the date hereof, including
monthly financial statements and sales forecasts.
Except for removal and storage of software and intangibles for backup
at locations disclosed to Secured Party, and retention in escrow as may be
required to perfect Secured Party's security interest therein, Debtor shall not
have the right, power or authority to and otherwise will not sell or dispose of
or remove from the location described above any of the Technology without the
prior written consent of Secured Party; any such removal, without such consent,
to be construed as a breach hereof, the same as if a default were made in the
payment of any amount secured hereunder, and the entire amount then unpaid
shall immediately become due and payable. Notwithstanding any provision herein
to the contrary, so long as no Event of Default has occurred and there has not
been a revocation by Secured Party of Debtor's right to do so, Debtor may sell
any inventory constituting Technology to buyers in the ordinary course of
business. If Debtor fails to make any payment or perform any act which it is
obligated to perform under the provisions of this Agreement, Secured Party,
without demand or notice to Debtor or any successor in interest of Debtor, may
make such payment or perform such acts and incur any liability or expend
whatever amounts as it may, in its absolute discretion, deem necessary
therefor, and all sums incurred or expended by Secured Party, or its successor,
under the terms of this Agreement, shall immediately become due and payable by
Debtor to Secured Party, or its successor in interest, when so incurred or
expended and shall be secured hereby.
The parties recognize that portions of the Technology may become
inadequate, obsolete, worn out, unsuitable or unnecessary in the operation of
the business operated upon the Property. Debtor shall promptly renew, repair or
replace any inadequate, obsolete, worn out or unsuitable property in which this
security interest is given (subject to the preceding paragraph).
Upon the happening of any of the following events or conditions
("Events of Default"):
1. Default in the performance of any of the payment
obligations contained in the Noncompete Agreements;
4
<PAGE> 5
2. Dissolution, termination of existence, insolvency, business
failure, appointment of a receiver of any part of the property of Debtor,
assignment of any of the Debtor's assets for the benefit of creditors by, the
commencement of any proceedings under any bankruptcy or insolvency law by or
against Debtor;
3. The transfer or assignment of all or substantially all of
Debtor's assets, or in the event that Debtor shall effect, whether by merger,
consolidation, sale by public or private offering or otherwise, a change in
control which has the effect of transferring 30% or more of the voting common
stock and/or partnership interests of Debtor or its or their successors to
persons, firms or entities who were not holders of such securities
immediately prior to the date on which such merger, consolidation, sale or
other action was effective;
4. A representation or warranty made by Debtor in this Agreement
is materially false or shall become false;
5. A breach by Debtor in the observance or performance of any of
the affirmative covenants as set forth herein or in the Noncompete
Agreements, other than nonpayment under the Noncompete Agreements, which is
not remedied within 30 days following receipt of written notice thereof from
Secured Party to Debtor, provided that Secured Party may allow such time
period, or no period at all, as the Secured Party may reasonably determine to
be appropriate, in the case of repeated defaults or in the event Debtor is in
default in more than one or its obligations hereunder simultaneously or in
the event such breach occurs under facts and circumstances where the
magnitude of the harm threatened is very great and is reasonably likely to
occur if the 30-day cure period is allowed;
6. Events occur or conditions exist which cause the National Bank
of Commerce or other commercial lender as note holder of a promissory note of
Debtor to declare a default and to initiate action to secure or otherwise
proceed against the collateral pledged thereunder; or
7. Any other default under the terms hereunder;
and the Debtor's failure to cure such Events of Default within five business
(5) days after delivery to Debtor of a written notice from the Secured Party,
Secured Party, its successors or assigns, may exercise any one or more of the
following rights, or any combination of any of the following rights:
1. Without notice or demand and without the necessity of having a
receiver appointed and without regard to the adequacy or inadequacy of any
security for the indebtedness or the solvency or insolvency of the Debtor, or
any guarantor, at any time may take possession of the Technology and repair,
care for, lease, manage, use or operate the Technology and perform any act
necessary to collect the rents,
5
<PAGE> 6
issues, income and profits thereof and apply the proceeds in the manner
specified herein upon sale of the Technology.
2. Declare all sums secured hereby immediately due and
payable and may exercise any or all of the rights and remedies available
to a secured party under the Uniform Commercial Code as provided in the
statutes of the State of Nebraska, and it may, at its option, enter upon
the premises where said Technology may be and take such measures as to
Secured Party may be deemed necessary or proper for the care or
protection thereof and remove and/or dispose of said Technology at
either public or private sale (the Debtor hereby expressly waiving
demand). Secured Party, its successors or assigns, may become the
purchaser and, from the proceeds of said sale, retain all costs and
charges (including attorneys' fees) incurred in the taking or sale of
said Technology and in the care and protection thereof, and may apply
the balance toward the payment of all sums due Secured Party and secured
hereby and shall dispose of the surplus remaining as provided by law.
Any requirement of reasonable notice of and disposition of the
Technology shall be satisfied if such notice is mailed by regular mail
to the address of Debtor shown in this Agreement at least five days
prior to the time of such public or private sale;
3. Be entitled as a matter of right, in addition to the
foregoing, to the appointment of a receiver by a court of competent
jurisdiction to assist it in performing and doing any acts hereinabove
set forth. All expenses of such receiver (including reasonable
attorneys' fees) shall likewise become immediately due and payable by
Debtor to Secured Party, or its successors in interest, and shall be
secured hereby.
The taking of possession of the Technology and the receipt of any
income provided for herein shall not cure or waive any default, or notice of
default, or invalidate any act done pursuant to such notice.
Failure on the part of Secured Party to demand the entire payment after
the happening of any default shall not be deemed a waiver by Secured Party of
its rights to make immediate demand for the entire amount remaining unpaid, or
to exercise any right or remedy, or combination thereof, as provided in this
Agreement; and any payments made subsequent to a default, or the acceptance of
partial payment, shall not be deemed a waiver of such rights. The lien of this
Agreement shall continue until payment in full of the amounts secured by this
Agreement have been completed.
This Agreement shall be construed to be a lien against (1) any like or
similar property hereinafter acquired by Debtor, either as additions to or in
the place of the Technology subject to this Agreement, and whether the
additions or substitutions be made with or without the knowledge or consent of
Secured Party, and (2) the proceeds of such after acquired property.
6
<PAGE> 7
All remedies allowed Secured Party under the laws of the State of
Nebraska and under the terms of this Agreement are, and shall be, concurrent
and cumulative and may be exercised and enforced as hereinabove and as by law
provided, without reference to the time or manner of foreclosure or enforcement
of any other security for said indebtedness or obligations, whether held by
deed of trust, mortgage, pledge, security agreement or otherwise.
In this Agreement, whenever the context so requires, the masculine
gender includes the feminine and/or neuter and the singular number includes the
plural.
The provisions hereof shall bind, and the benefits and advantages shall
inure to the respective successors and assigns of the parties hereto.
Secured Party may, at any time or from time to time, without liability
therefor and without notice, upon request of Debtor and without affecting the
personal liability of any person for the payment of the indebtedness secured
hereby, release any part of the collateral or join in any extension agreement
or subordination agreement in connection herewith. Secured Party shall have the
right to inspect the collateral at any time.
Neither this Agreement nor any provisions hereof may be amended,
modified, waived, discharged or terminated orally, nor may any of the
Technology be released or the pledge of the security interest created hereby
extended, except by an instrument in writing duly signed by or on behalf of the
Debtor and Secured Party.
If any term or provision of this Agreement or the application thereof
to any person or circumstances shall to any extent be invalid or unenforceable,
the remainder of this Agreement for the application of such term or provision
to persons or circumstances other than those as to which it is held invalid or
unenforceable shall not be affected thereby, and each term and provision of
this Agreement shall be valid and enforced to the fullest extent permitted by
law.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Nebraska.
7
<PAGE> 8
IN WITNESS WHEREOF, Secured Party and Debtor have caused these presents
to be executed the day and year first above written.
TRANSCRYPT INTERNATIONAL, INC.
By /s/ John T. Connor
---------------------------------
Printed Name John T. Connor
----------------------
Its Chairman
-------------------------------
TRANSCRYPT INTERNATIONAL, LTD.
Transcrypt International, Inc.,
its general partner
By /s/ John T. Connor
---------------------------------
Printed Name John T. Connor
----------------------
Its Chairman
-------------------------------
Q E DOT, INC.
By /s/ Yvonne Kuijvenhoven
---------------------------------
Printed Name Yvonne Kuijvenhoven
----------------------
Its Secretary-Treasurer
--------------------------------
/s/ Yvonne Kuijvenhoven POA
-----------------------------------
John Kuijvenhoven
/s/ Yvonne Kuijvenhoven
-----------------------------------
Yvonne Kuijvenhoven
8
<PAGE> 9
EXHIBIT A
TECHNOLOGY
Digital Radio APCO 25 Technology
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 (File No.
333- ) of our reports dated February 23, 1996, on our audits of the
consolidated financial statements as of December 31, 1994 and 1995 and for each
of the three years in the period ended December 31, 1995, and the financial
statement schedule of Transcrypt International, Inc. We also consent to the
reference of our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Lincoln, Nebraska
October 17, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C>
<PERIOD-TYPE> 9-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> SEP-30-1996 DEC-31-1995
<EXCHANGE-RATE> 1 1
<CASH> 0 291,712
<SECURITIES> 0 0
<RECEIVABLES> 2,833,714 1,923,441
<ALLOWANCES> 363,169 181,659
<INVENTORY> 1,689,175 1,119,763
<CURRENT-ASSETS> 4,999,935 3,453,030
<PP&E> 3,961,057 3,066,740
<DEPRECIATION> 1,660,016 1,221,474
<TOTAL-ASSETS> 10,891,251 7,522,630
<CURRENT-LIABILITIES> 2,860,538 1,769,271
<BONDS> 1,509,620 1,846,592
0 0
0 0
<COMMON> 51,754 0
<OTHER-SE> 6,469,339 3,906,767
<TOTAL-LIABILITY-AND-EQUITY> 10,891,251 7,522,630
<SALES> 9,275,168 8,128,200
<TOTAL-REVENUES> 9,275,168 8,128,200
<CGS> 2,885,788 2,982,942
<TOTAL-COSTS> 2,885,788 2,982,942
<OTHER-EXPENSES> 10,631,247 6,345,892
<LOSS-PROVISION> 200,492 94,285
<INTEREST-EXPENSE> 109,874 190,403
<INCOME-PRETAX> (4,321,462) (1,337,740)
<INCOME-TAX> (1,758,539) 0
<INCOME-CONTINUING> (2,562,923) (1,337,740)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,562,923) (1,337,740)
<EPS-PRIMARY> (.38) (.12)
<EPS-DILUTED> (.38) (.12)
</TABLE>
